Edexcel A Level Accounting: Principles and Double Entry Bookkeeping — Practice Questions

These are original questions written for Marlbridge, in the style and at the standard of the examination. They are not reproduced past-paper questions — examination boards hold copyright in their own papers. Use these alongside the official past papers available free from your board.

Related: Principles and Double Entry Bookkeeping revision notes

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Section A

1. State the rule for debits and credits for assets, liabilities, capital, income and expenses. [3]

2. Explain the purpose of a control account. [2]

Section B

3. Prepare a sales ledger control account from the following, showing the closing balance:

Opening receivables $18 400; credit sales $92 000; receipts from customers $85 300; sales returns $2100; discounts allowed $900; irrecoverable debts written off $600. [5]

4. Correct the following errors by journal entry, stating whether a suspense account is involved:

(a) A payment for motor expenses of $340 was debited to the motor vehicles account. [2] (b) Sales of $700 were credited to the sales account as $70. [3] (c) A cash payment of $250 was completely omitted from the books. [2]

5. Explain how a provision for doubtful debts is created and adjusted, and its effect on profit. [5]

6. Explain the difference between an irrecoverable debt and a doubtful debt, and state the concept that justifies making a provision. [4]

Section C

7. A business’s cash book balance does not match its bank statement balance.

(a) State two reasons a cash book and bank statement can differ. [2]

(b) Explain the correct order for carrying out a bank reconciliation. [3]

(c) State two purposes of preparing a bank reconciliation. [2]

8. Name the six types of error that leave a trial balance balanced. [3]

9. A business has a current ratio of 3.5:1, well above the industry average of 1.8:1. Explain why this is not automatically good news. [3]

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Answers

1. Assets and expenses — increases are debits [1]. Liabilities, capital and income — increases are credits [1]. Every transaction has an equal debit and credit [1].

2. A control account is a summary account containing the totals of all the individual personal accounts in the sales or purchases ledger [1]; its balance should agree with the total of the individual balances, providing a check on their accuracy and helping locate errors [1].

3.

	$		$
Opening balance	18 400	Receipts	85 300
Credit sales	92 000	Sales returns	2 100
		Discounts allowed	900
		Irrecoverable debts	600
		Closing balance	21 500
	110 400		110 400

Debits correctly entered [1]; credits correctly entered [1] [1]; totals agree [1]; closing balance $21 500 [1].

4. (a) Debit Motor expenses $340, credit Motor vehicles $340 [1]; this is an error of principle — the trial balance still agreed, so no suspense account is involved [1]. (b) Credit Sales $630 [1], debit Suspense $630 [1]; the trial balance did not agree, so a suspense account is involved [1]. (c) Debit the relevant expense/asset $250, credit Cash $250 [1]; this is an error of omission, so no suspense account is needed [1].

5. The provision is created by estimating the proportion of receivables unlikely to pay, usually a percentage of the closing receivables after writing off known irrecoverable debts [1]. When first created, the whole amount is charged as an expense, reducing profit [1]. In later years only the increase or decrease is put through the income statement [1]: an increase is an additional expense reducing profit, a decrease is credited, increasing profit [1]. The provision is deducted from trade receivables in the statement of financial position [1].

6. An irrecoverable (bad) debt is one the business is certain will not be paid, so it is written off in full and removed from receivables [1] [1]. A doubtful debt is one that may not be paid, but the outcome is uncertain, so a provision is made while the debt remains in receivables [1]. The justification is the prudence concept — profit and assets should not be overstated when a loss is foreseeable [1]. (The matching concept also applies, since the cost is recognised in the period the sale was made.)

7. (a) Any two: unpresented cheques — written and recorded but not yet cleared [1]; outstanding lodgements — paid in but not yet credited [1]; direct debits, standing orders, bank charges and interest known to the bank first [1]; errors by either party [1].

(b) First update the cash book for items the bank knew about first (direct debits, charges, interest) [1], then reconcile the adjusted cash book balance to the bank statement using the remaining timing differences [1]. Doing this in the wrong order is the standard error [1].

(c) Any two: to verify the cash book [1]; to detect errors and fraud [1]; to identify unrecorded transactions [1].

8. Omission, commission (wrong account of the right type), principle (wrong type of account), original entry, complete reversal, and compensating [3 — 1 mark per pair correctly named].

9. A ratio alone means nothing without comparison and a reason for the difference [1]. A current ratio well above the industry average can signal excess inventory, slow-collecting receivables, or idle cash not being invested productively [2] — a high ratio is not automatically a sign of financial health.

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Where marks are usually lost

• Putting discounts allowed on the debit side of the sales ledger control account.
• Correcting an error of principle through a suspense account.
• Charging the whole provision to the income statement every year instead of only the movement.
• Confusing irrecoverable debts with doubtful debts.