Chartered Institute of Management Accountants (CGMA) · Fundamentals of Financial Accounting
CIMA BA3 Recording accounting transactions: practice questions with answers
6 free exam-style questions on Recording accounting transactions for CIMA BA3 Fundamentals of Financial Accounting. Try each one, then open the answer to read the explanation. Fincora has 120 original questions on this syllabus area.
Question 1
Which of the following errors would cause the totals of a trial balance to disagree?
- A A credit sale of $1,600 to J Brennan was correctly recorded in the sales day book but posted to the account of J Brennand in the receivables ledger
- B The cost of repairing a delivery van, $730, was debited to the motor vehicles (cost) account
- C A purchase invoice for $910 was lost and never recorded in the accounting records
- D A discount received of $240 was debited to the payables control account and also debited to the discounts received account
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Answer: D. A trial balance only detects errors where debits and credits posted are unequal. Errors of omission, commission, principle, original entry, complete reversal and compensating errors all leave the trial balance in agreement. Posting a discount received as a debit to both payables and discounts received gives debits of $480 and no credit, so the trial balance totals disagree by $480 and a suspense account would be needed. The correct entry is Debit Payables control $240, Credit Discounts received $240.
Question 2
Ingram Ltd uses a disposal account when it sells non-current assets. When a machine is sold, which entry transfers the accumulated depreciation on that machine to the disposal account?
- A Debit Disposal account; Credit Accumulated depreciation
- B Debit Accumulated depreciation; Credit Machinery (cost)
- C Debit Accumulated depreciation; Credit Disposal account
- D Debit Depreciation expense; Credit Disposal account
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Answer: C. Disposal entries:
1. Debit Disposal, Credit Non-current asset (cost) with the asset's original cost.
2. Debit Accumulated depreciation, Credit Disposal with the depreciation to date.
3. Debit Bank (or Receivables), Credit Disposal with the proceeds.
The balance on the disposal account is the profit (credit balance) or loss (debit balance) on disposal, transferred to the statement of profit or loss.
Question 3
Which of the following statements about a trial balance is correct?
- A A trial balance whose totals agree proves that every transaction has been recorded in the correct accounts
- B A trial balance is one of the financial statements that a company publishes in its annual report
- C A trial balance whose totals agree shows that equal debits and credits have been recorded, but the ledger may still contain errors
- D A suspense account opened because a trial balance does not agree is shown in the final statement of financial position
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Answer: C. A trial balance is a list of the balances on all the ledger accounts at a date, with debit balances in one column and credit balances in the other.
If the columns agree, every debit entry has had a matching credit entry of the same amount. It does not prove the records are free of errors. Errors of omission, commission, principle, original entry, complete reversal and compensating errors all leave the trial balance in agreement.
The trial balance is an internal working document used to prepare the financial statements. If it does not agree, a temporary suspense account is opened and cleared as the errors are corrected.
Question 4
Which of the following increases the total payroll expense that an employer recognises in its statement of profit or loss?
- A The employer's social security contributions
- B Income tax deducted from employees' pay
- C Pension contributions deducted from employees' pay
- D A voluntary deduction from employees' pay for a staff savings scheme
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Answer: A. The employer's total payroll expense is:
Gross pay + employer's contributions (for example employer's social security and employer's pension contributions).
Deductions from employees' pay (income tax, employees' social security, employees' pension contributions and voluntary deductions) all come out of gross pay. They change how much goes to the employee as net pay and how much goes to the tax authority or other bodies. They do not change the total cost to the employer.
Question 5
Which of the following accounts would normally have a credit balance in a trial balance?
- A Carriage inwards
- B Discounts allowed
- C Drawings
- D Allowance for receivables
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Answer: D. Debit balances are assets, expenses and drawings. Credit balances are liabilities, capital and income. The allowance for receivables is a credit balance: it is a deduction from the asset of trade receivables in the statement of financial position. Carriage inwards and discounts allowed are expenses, and drawings reduce the owner's capital, so all three are debit balances.
Question 6
Which of the following transactions would increase the total equity of a limited company?
- A A bonus issue of ordinary shares, funded from the share premium account
- B A transfer from retained earnings to a general reserve
- C A rights issue of ordinary shares, fully taken up and paid for in cash
- D Payment of a final dividend that was declared, and recognised as a liability, in the previous year
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Answer: C. Total equity increases only when the company receives new resources from shareholders or makes a profit (or other gains). In a rights issue shareholders pay cash for new shares, so share capital, share premium and total equity all increase. A bonus issue and a transfer between reserves only reclassify amounts already within equity. Paying a dividend that was recognised as a liability when declared reduces cash and the dividend liability. Equity was reduced in the earlier year, when the dividend was declared.
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