AQA A-Level Accounting: Accounting concepts used in the preparation of accounting records (7127) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions cover section 3.5 Accounting concepts used in the preparation of accounting records of the AQA A-level Accounting (7127) specification, Version 1.1 (October 2026), for A-level exams from June 2019 onwards. The course is linear and untiered, and section 3.5 is part of the content assessed by Paper 1. All businesses and figures are invented.

Before you start, revise from the study guide or the revision notes. For definition questions, try the Role of the Accountant practice set; these questions focus on applying the concepts.

Questions

1. State the accounting concept applied in each of the following situations.

(a) The owner’s private car insurance is not recorded in the business’s books. [1] (b) A highly skilled team of staff is not shown as an asset. [1] (c) Land is shown at its purchase price of £150 000, although an estate agent values it at £210 000. [1] (d) Every transaction is recorded with a debit and a credit of equal value. [1]

2. State two concepts that explain why inventory is valued at the lower of cost and net realisable value. [2]

3. Brookmoor Kitchenware holds the following inventory at its year end.

Item	Units	Cost per unit £	Expected selling price per unit £	Further costs per unit before sale £
Pans	80	25	40	0
Knife sets	50	30	36	8 (packaging and delivery)
Mixers (damaged)	12	90	110	30 (repairs)

Calculate the value of closing inventory to be shown in the statement of financial position. [4]

4. Ashdown Crafts sent goods with a selling price of £7 200 to a customer on sale or return. The whole £7 200 was recorded as a credit sale. Before the year end the customer accepted goods with a selling price of £2 400; the rest are still held by the customer and have not been accepted. Ashdown Crafts uses a mark-up of 20% on cost. Draft profit for the year is £29 600.

(a) Calculate the corrected profit for the year. [2] (b) State the change needed to trade receivables and to closing inventory. [2] (c) State the accounting concept that requires this adjustment. [1]

5. Kelso Print bought a new printing machine. The invoice shows:

Item	£
Machine	32 000
Delivery	450
Installation	1 150
One-year maintenance contract	1 200
Ink cartridges	380

(a) Calculate the amount to be debited to the machinery account. [2] (b) Calculate the amount to be charged to the income statement as revenue expenditure. [1] (c) The bookkeeper debited the maintenance contract to the machinery account. Explain the effect on profit for the year, ignoring depreciation, and name the concept breached. [2]

6. A sole trader has always used reducing balance depreciation for vehicles. Profit is low this year, so the owner wants to switch to straight line, which gives a lower charge. Explain whether this is acceptable. [4]

7. A wholesaler has decided to stop trading in three months’ time. Explain how this decision affects the valuation of its non-current assets and inventory in its statement of financial position. [4]

8. A firm of architects with annual revenue of £3 million buys a £35 office kettle. Explain how it should be recorded, and why a much larger purchase might be treated differently. [3]

9. On 20 December a furniture maker receives a £2 000 deposit for a table to be made and delivered in February. The year end is 31 December. Explain how the deposit is treated in this year’s financial statements. [3]

10. Ridgeway Cycles has a draft profit for the year of £41 250. The following matters have not been dealt with correctly.

(i) A workshop compressor costing £3 600 was bought during the year and debited to repairs. Equipment is depreciated at 25% per annum on cost, with a full year’s charge in the year of purchase. (ii) Goods with a selling price of £4 800 were sent on sale or return and recorded as sales. The customer has not yet accepted them. Mark-up is 60% on cost. (iii) Closing inventory includes 30 helmets at their cost of £42 each. They now sell for £35 each, and selling costs are £3 per helmet. (iv) The owner’s private mobile phone bill of £540 was paid from the business bank account and debited to telephone expenses. (v) Wages of £620 for the final week of the year have not been recorded.

Prepare a statement of corrected profit, stating the concept for each adjustment. [12]

11. The owner of a small retail business says: “Prudence makes accounts too pessimistic. I would rather follow accruals and show what really happened.” Evaluate the importance of the prudence concept when preparing financial statements. [8]

Answers

1. (a) Business entity [1] (b) Money measurement [1] (c) Cost [1] (d) Duality [1] Examiner insight: Give one concept per part; listing two usually earns nothing if either is wrong.

2. Prudence: inventory is not shown at more than it will realise, so foreseeable losses are recognised [1]. Cost: inventory is not shown above cost, because profit on unsold goods is not yet realised [1]. (Accept accruals, matching the cost of unsold goods to the next period, as an alternative.) Examiner insight: “State” needs only the names, but a brief reason removes any doubt about which concept you mean.

3. Knife sets: NRV = 36 − 8 = £28, lower than cost £30, so 50 × 28 = £1 400 [1] Mixers: NRV = 110 − 30 = £80, lower than cost £90, so 12 × 80 = £960 [1] Pans: NRV £40 is above cost £25, so 80 × 25 = £2 000; lower of cost and NRV applied to each item separately [1] Total = 2 000 + 1 400 + 960 = £4 360 [1] Examiner insight: Comparing totals (cost £4 580, NRV £5 560) and using £4 580 loses the method marks; one wrong NRV still allows own-figure credit for the total.

4. (a) Goods not accepted = 7 200 − 2 400 = £4 800 at selling price; cost = 4 800 ÷ 1.2 = £4 000 [1] Corrected profit = 29 600 − 4 800 + 4 000 = £28 800 [1] (b) Trade receivables reduce by £4 800 [1]; closing inventory increases by £4 000 [1] (c) Realisation: revenue is not earned until the customer accepts the goods [1] Examiner insight: The £2 400 already accepted is a genuine sale; removing all £7 200 loses the accuracy mark in (a), though (b) can still earn own-figure credit.

5. (a) 32 000 + 450 + 1 150 [1] = £33 600 [1] (b) 1 200 + 380 = £1 580 [1] (c) Expenses are understated by £1 200, so profit is overstated by £1 200 [1]; the accruals concept is breached because the cost of a service used this year has not been matched against this year’s revenue [1]. Examiner insight: Delivery and installation are capital because they get the asset ready for use; that reason, not “it is expensive”, earns credit.

6. The change is not acceptable [1]. The consistency concept requires the same depreciation method to be used each year [1], so profits can be compared over time [1]. A method may be changed only if the new method gives a fairer view of how the vehicles are used up, not to raise reported profit [1]. Examiner insight: A bare conclusion scores one mark; the rest need the concept and its purpose explained.

7. The going concern concept no longer applies [1]. Non-current assets should be shown at the amount they are expected to realise on sale, not at cost less depreciation [1], which is likely to be lower in a forced sale [1]. Inventory should be valued at what it is expected to raise in the closure, applying prudence where this is below cost [1]. Examiner insight: Naming going concern earns one mark; the rest need what replaces cost less depreciation.

8. The kettle is charged to the income statement as an expense rather than capitalised and depreciated [1], because £35 is immaterial to a firm of this size: no user’s decision would change [1]. A purchase large enough to affect users’ decisions, such as a £12 000 server, would be capitalised and depreciated over its life [1]. Examiner insight: Link materiality to the firm’s size; “it is cheap” alone earns at most one mark.

9. No revenue is recognised this year, because the table has not been made or delivered [1]; under realisation revenue is earned when the goods pass to the customer [1]. The £2 000 is shown as a current liability (payment received in advance, within other payables) in the statement of financial position [1]. Examiner insight: Without saying where the £2 000 appears in the statement of financial position, the final mark is lost.

10.

                                                    £
Draft profit for the year                        41 250
(i)   Add compressor wrongly charged to repairs    3 600
      Less depreciation 3 600 x 25%                (900)
(ii)  Less unrealised profit 4 800 - 3 000        (1 800)
(iii) Less inventory write-down 30 x (42 - 32)      (300)
(iv)  Add private phone bill (drawings)              540
(v)   Less wages accrued                            (620)
Corrected profit for the year                    41 770

(i) Add back £3 600, deduct depreciation £900 [1]; cost: capital items are recorded as assets at cost (accept accruals) [1] (ii) Cost = 4 800 ÷ 1.6 = £3 000, so deduct £1 800 [1]; realisation: the goods are not sold until accepted [1] (iii) NRV = 35 − 3 = £32, write-down 30 × 10 = £300 [1]; prudence (lower of cost and NRV) [1] (iv) Add back £540 [1]; business entity: the owner’s private expense is drawings [1] (v) Deduct £620 [1]; accruals: the wages relate to this year [1] Statement laid out from draft profit with each adjustment shown as an addition or deduction [1] Corrected profit £41 770 [1] Examiner insight: Each adjustment has a figure mark and a concept mark, and the total is marked on own figures, so one slip costs one mark.

11. For prudence: it stops profit being overstated, so the owner does not take drawings from profit that may never be earned [1]; lenders and suppliers can trust that inventory and trade receivables are not shown above what they will realise [1]; recognising foreseeable losses early, such as a likely irrecoverable debt, warns users sooner [1]. Against excessive prudence: overdone, it understates profit, which misleads as much as overstating [1]; low figures this year make next year look better, undermining comparison [1]; over-cautious provisions can be used to smooth profits, an ethical concern [1]. Link to accruals: the two usually work together (depreciation, inventory); they conflict only when a loss is foreseen, and then prudence normally takes priority [1]. Judgement: prudence matters because users need figures that are not overstated, but it should give a realistic view, not a pessimistic one; it is not an alternative to accruals [1]. Examiner insight: A balanced list with no supported final judgement is usually capped below full marks.

Where marks are usually lost

• Using selling price as NRV without deducting costs to complete or sell.
• Valuing inventory on totals instead of item by item.
• Removing all sale or return goods when some have already been accepted.
• Adding sale or return goods back to inventory at selling price instead of cost.
• Forgetting depreciation when a wrongly expensed asset is capitalised.
• Treating a customer deposit as revenue when received.

Next steps

• Recap with the revision notes
• Re-read the full study guide
• Browse the AQA A-Level Accounting hub
• Tick off topics on the printable checklist
• Try all free 10-minute diagnostics
• Book a free trial class

Official syllabus

AQA, A-level Accounting (7127) Specification, Version 1.1, October 2026, for teaching from September 2017 and A-level exams in 2019 onwards: section 3.5 Accounting concepts used in the preparation of accounting records.