Chapter 2: The accounting equation

1 The capital of a sole trader would change as a result of:

A a trade payable being paid by a transfer from the business bank account
B raw materials being paid for from petty cash
C non-current assets being purchased for cash
D the owner taking goods from the inventory of the business LO 1d

2 What is the purpose of a statement of financial position?

A To estimate what a business is really worth
B To show the amount the business could be sold for as a going concern
C To show the amount the business could be sold for in a liquidation
D To show the assets and liabilities of a business at a point in time LO 3a

3 A sole trader received £2,500 from a credit customer for goods which had been sold on credit. The sole
trader has an overdraft with his bank of £5,000.
Which element(s) of the accounting equation will change due to this transaction?
A Assets only
B Liabilities only
C Capital only
D Assets and liabilities only LO 1d; 3a

4 A sole trader purchases goods on credit for £400.

Which element(s) of the accounting equation will change due to this transaction?
A Assets and liabilities only
B Assets and capital only
C Capital and liabilities only
D Assets only LO 1d; 2a

ICAEW 2024 Question bank 3

 5 A sole trader takes out a business loan of £5,000 from a high street bank.
Which element(s) of the accounting equation will change due to this transaction?
A Assets and liabilities only
B Assets and capital only
C Capital and liabilities only
D Assets only LO 1d; 3a

6 A sole trader sold goods for cash for £1,000 which had cost £700.
Which element(s) of the accounting equation will change due to this transaction?
A Assets and liabilities only
B Assets and capital only
C Capital and liabilities only
D Assets only LO 1d; 3a

7 A sole trader has paid for their own personal car to be repaired out of the business bank account.
The amount of the repairs has been added by the bookkeeper to the owner's drawings balance.
Of which generally accepted accounting concept is this an example?
A Prudence
B Business entity
C Substance over form
D Duality LO 1d

8 Which of the following items should be treated as capital expenditure in the accounts of a sole trader?
A £1,000 drawings made by the proprietor to pay for a family holiday
B £1,000 spent on purchasing a new computer in order to deal with business administration
C £1,000 on purchasing equipment for resale
D £1,000 paid to a painter for redecorating their office LO 3a

ICAEW 2024 Question bank 4

 9 The statements of financial position of Gazhal's business at 31 December 20X2 and 20X1 showed the
following.
31 December 31 December
20X2 20X1
£ £
Non-current assets 32,500 45,000
Current assets 17,500 30,000
Current liabilities 12,500 12,500
Gazhal introduced new capital of £5,000 during the year, and drew out £10,000 from the business.
What was the profit or loss of Gazhal's business for the year?
A Profit of £20,000
B Profit of £30,000
C Loss of £20,000
D Loss of £30,000 LO 1d; 3a

ICAEW 2024 Question bank 5

 Chapter 3: Recording financial transactions
1 A business paid out £23,550 in net wages to its employees. In respect of these wages, the following
amounts were shown in the statement of financial position.
£
PAYE payable 4,620
National Insurance payable – employees' 2,830
– employer's 2,640
What were the employees' gross wages before deductions?
A £28,170
B £30,810
C £31,000
D £33,640 LO 1c, 1d

2 Which of the following is a source document that would be entered into the accounting system?
A Debit note
B Delivery note
C Purchase order
D Sales invoice LO 1c

3 Which of the following best explains the imprest system of petty cash control?
A The system ensures that there is always sufficient petty cash available
B The amount of petty cash in total must never fall below the imprest amount
C Each month an equal amount of cash is transferred into petty cash
D At any time petty cash in the box plus petty cash vouchers equals the imprest amount
LO 1c

4 Nozam maintains an imprest amount of £250 in petty cash. At the end of the month, Nozam has
vouchers totalling £112, a receipt for a refund of £9 and a note to say that an employee took £10 to buy
stationery for which a voucher has not been prepared.
How much does Nozam need to withdraw from the business bank account to reinstate the imprest
balance at the end of the month?
A £113
B £93
C £137
D £127 LO 1c

ICAEW 2024 Question bank 6

 5 The following data has been extracted from the payroll records of a business for the month of May
20X7.
£
Net amount paid to employees 114,000
PAYE 38,000
Employer's NIC 15,600
Employees' NIC 13,400
What is the wage expense for May 20X7?:
A £181,000
B £152,000
C £143,000
D £114,000 LO 1c,1d

6 Fred sells goods on credit to Keira for £2,400. £50 of these goods are defective and Keira returns them
to Fred.
What document would Keira issue to Fred?
A Invoice
B A request for a credit note
C Credit note
D A request for an invoice LO 1c

7 The following data has been extracted from the payroll records of Scan Ltd for the month of March.
£
PAYE 18,400
Employer's NIC 12,100
Employees' NIC 10,400
Net amount paid to employees 109,000
What is Scan Ltd's wages expense for the month of March?
A £149,900
B £137,800
C £92,300
D £80,200 LO 1c,1d

ICAEW 2024 Question bank 7

 8 When a purchase invoice is received from a supplier, which of the following documents should the
invoice be agreed to?
A Sales order
B Debit note
C Goods received note
D Credit note LO 1c

9 Morgan downloads a transaction report showing their bank transactions for the day. The report shows a
payment of £860, which the computerised accounting system has not been able to automatically match
to a transaction.
Which of the following transactions is most likely to have resulted in the payment of £860?
A A bank transfer received from a credit customer to settle an invoice
B An amount paid to purchase new office furniture
C An amount withdrawn to restore the petty cash to its imprest amount of £100
D A bank transfer paid to an electricity supplier in respect of the monthly invoice received
LO 1c

10 Cooks Ltd has a petty cash float with an imprest amount of £250. At the end of March, vouchers in the
petty cash box totalled £144 and the amount of cash remaining in the box was £86.
Which of the following explains the difference?
A A petty cash voucher for £20 is missing.
B An employee was given £20 too little when making a petty cash claim.
C An employee reimbursed petty cash with £20 in respect of postage stamps used, but no voucher
was prepared.
D A voucher for £20 was put in the box but no payment was made to the employee.
LO 1c

ICAEW 2024 Question bank 8

ICAEW 2024 Question bank 9
 Statement (2) A debit balance of £500 on Lei's drawings account means Lei has withdrawn £500 in
the period.
A Statement (1) is true and Statement (2) is false
B Statement (1) is false and Statement (2) is true
C Both statements are true
D Both statements are false LO 1c, d

ICAEW 2024 Question bank 10

 5 Reece has opening trade receivables of £42,100 and closing trade receivables of £38,600. Sales for the
period totalled £186,190 (£13,400 of which were cash sales).
What is the total of receipts recorded in trade receivables for the period?
A £169,290
B £176,290
C £182,690
D £189,690 LO 1d

6 Kirsty purchased goods on credit from her supplier for £1,500 inclusive of VAT at the standard rate of
20%.
What is the double entry to record this transaction?
A DR Trade payables £1,500; CR Purchases £1,200; CR VAT £300
B DR Purchases £1,200; DR VAT £300; CR Trade payables £1,500
C DR Trade payables £1,500; CR Purchases £1,250; CR VAT £250
D DR Purchases £1,250; DR VAT £250; CR Trade payables £1,500 LO 1d; 2c

7 Destiny plc offers a 5% early settlement discount to any customers who pay within 10 days of receiving
an invoice. It sold goods totalling £1,240 on credit to a customer which is expected to take advantage
of the early settlement discount. You should ignore the effects of VAT.
What is the correct double entry to record the sale?
A DR Trade receivables £1,240; CR Revenue £1,240
B DR Trade receivables £1,178; CR Revenue £1,178
C DR Revenue £1,240; CR Trade receivables £1,240
D DR Revenue £1,178; CR Trade receivables £1,178 LO 1d; 2c

8 Which of the following would be a credit entry in trade receivables?

A Credit sales
B Cash sales
C Cash received from credit customers
D Early settlement discounts received from suppliers that were not expected to be taken at the date of
purchase LO 1c, d

ICAEW 2024 Question bank 11

 9 Millwood purchased goods on credit from Horwich. At the point of recording the invoice from Horwich,
Millwood did not intend to take the early settlement discount offered, however, Millwood later decided
that it would take the discount and so paid within the required timeframe.
What is the correct double entry to record the payment to Horwich in Millwood's accounts?
A DR Cash at bank; CR Purchases; CR Trade payables
B DR Purchases; DR Trade payables; CR Cash at bank
C DR Trade payables; CR Purchases; CR Cash at bank
D DR Cash at bank; DR Purchases; CR Trade payables LO 1d; 2c

10 A business received the following invoice from one of its suppliers:

Invoice: 4015
Date: 15 May 20X9
£
Goods 200 @ £20 4,000
Less Trade discount (1,000)
3,000

What entries will be made in the nominal ledger to record this invoice? (Ignore VAT)
A DR Purchases £4,000; CR Trade payables £4,000
B DR Purchases £3,000; CR Trade payables £3,000
C DR Trade payables £3,000; CR Purchases £3,000
D DR Trade payables £4,000; CR Purchases £4,000 LO 1d; 2c

11 Apricot plc makes sales of £37,800 excluding VAT and purchases of £37,800 including VAT. All sales
and purchases are on credit and are liable to VAT at 20%.
What amount is recorded in Apricot plc's sales account?
A £7,560
B £31,500
C £37,800
D £45,360 LO 1d; 2c

ICAEW 2024 Question bank 12

 12 Apricot plc makes sales of £37,800 excluding VAT and purchases of £37,800 including VAT. All sales
and purchases are on credit and are liable to VAT at 20%.
What amount is recorded in Apricot plc's purchases account?
A £7,560
B £31,500
C £37,800
D £45,360 LO 1d; 2c

13 Apricot plc makes sales of £37,800 excluding VAT and purchases of £37,800 including VAT. All sales
and purchases are on credit and are liable to VAT at 20%.
What amount is recorded in Apricot plc's trade receivables?
A £7,560
B £31,500
C £37,800
D £45,360 LO 1d; 2c

14 Apricot plc makes sales of £37,800 excluding VAT and purchases of £37,800 including VAT. All sales
and purchases are on credit and are liable to VAT at 20%.
What amount is recorded in Apricot plc's trade payables?
A £7,560
B £31,500
C £37,800
D £45,360 LO 1d; 2c

15 Milo is a trader and is registered for VAT. During the quarter to 30 June 20X8, Milo entered into the
following transactions:
£
Purchase of inventory 25,200
Purchase of new car for Milo’s personal use 14,400
Payments to HMRC 9,420
Sales 100,800
All the above purchases and sales are inclusive of VAT at 20%.
At 1 April 20X8, Milo owed HM Revenue & Customs (HMRC) £2,000.
What was Milo's liability at 30 June 20X8 in respect of VAT?
A £2,780
B £4,820
C £5,180
D £7,700 LO 1d

ICAEW 2024 Question bank 13

 16 Axel pays their one assistant a monthly gross salary of £1,500. Axel has calculated for the month of
March that £300 should be deducted as PAYE and that National Insurance (NIC) amounts to £150 for
employees' NIC and £160 for employer's NIC.
What accounting entry should Axel make in the salaries expense account?
A Credit £1,050
B Debit £1,500
C Debit £1,660
D Credit £610 LO 1d; 2c

17 Axel pays their one assistant a monthly gross salary of £1,500. Axel has calculated for the month of
March that £300 should be deducted as PAYE and that National Insurance amounts to £150 for
employees' NIC and £160 for employer's NIC.
What accounting entry should Axel make to the HMRC payable account?
A Credit £1,050
B Debit £1,500
C Debit £1,660
D Credit £610 LO 1d; 2c

18 Which of the following statements is correct?

A A debit entry increases a liability; A debit entry decreases an asset
B A debit entry increases a liability; A credit entry decreases an asset
C A credit entry increases a liability; A debit entry decreases an asset
D A credit entry increases a liability; A credit entry decreases an asset LO 1d; 2c

19 Which of the following statements is correct?

A A debit entry increases an asset; A debit entry decreases capital
B A debit entry increases an asset; A credit entry decreases capital
C A credit entry increases an asset; A debit entry decreases capital
D A credit entry increases an asset; A credit entry decreases capital LO 1d; 2c

ICAEW 2024 Question bank 14

ICAEW 2024 Question bank 15
 D Expense
E Capital
F Delivery outwards LO 2c

ICAEW 2024 Question bank 16

 4 The following tasks form part of an entity's accounting process.
(1) Extract an initial trial balance
(2) Close off nominal ledger accounts
(3) Account for closing inventory, accruals and prepayments
(4) Calculate profit for the year
In which order are these tasks carried out?
A (1), (3), (2), (4)
B (1), (2), (3), (4)
C (2), (1), (3), (4)
D (2), (3), (4), (1) LO 1f; 2c; 3c

5 The total of the profit or loss items in Mohammad's final trial balance are £35,640 for the debit balances
and £27,560 for the credit balances.
What entry does Mohammad need to make in the profit or loss ledger account to transfer his profit or
loss for the period to retained earnings?
A CR £8,080 profit for the period
B CR £8,080 loss for the period
C DR £8,080 profit for the period
D DR £8,080 loss for the period LO 2c

6 Harper has trade receivables of £31,200 at 1 July and, during July, made credit sales of £52,500 and
cash sales of £9,600. Harper received cash from credit customers of £60,100 in the period and made
payments to credit suppliers of £48,800.
What was the balance on trade receivables at the end of July?
A £33,200
B £23,600
C £34,600
D £44,500 LO 1d; 3c

7 Which three of the following accounts would normally have a debit balance in a trial balance?
A Trade payables
B Revenue
C Trade receivables
D Purchases
E Capital
F Inventory LO 2c

ICAEW 2024 Question bank 17

 8 Which of the following would most likely be classified as a non-current liability?
A Bank loan
B Prepayments
C Expenses
D Trade receivables LO 3c

9 Pinot plc is a VAT registered retailer. All transactions attract VAT at the rate of 20%. For the month
ending 31 December 20X7, Pinot plc sold goods on credit for £31,300 exclusive of VAT and goods for
cash of £1,260 inclusive of VAT. Pinot plc also purchased goods for resale on credit for £28,800
inclusive of VAT. It did not have any balance on its VAT account at 1 December 20X7.
What is the balance on Pinot plc's VAT account at 31 December 20X7?
A £1,460 credit
B £291 debit
C £1,670 credit
D £543 debit LO 3c

ICAEW 2024 Question bank 18

 Chapter 6: Errors and corrections to accounting
records and financial statements
1 Ash's business bank statement showed an overdrawn balance of £5,800 on 31 May 20X7. When this was
reconciled to the cash at bank account, the following differences were noted:
£
Bank charges not recorded in cash at bank account 30
Standing order for local property tax not entered in cash at bank account 300
Outstanding lodgements 1,300
Credited in error to Ash's account by the bank 100
What was the original credit balance on Ash's cash at bank account at 31 May 20X7 before the reconciling
items were adjusted for?
A £4,600
B £4,270
C £5,200
D £4,870 LO 2a, b

2 The following trade receivables account contains a number of errors of principle:

TRADE RECEIVABLES

The discounts given to customers were not expected to be taken when the credit sale was made.
What should the balance c/d be once the errors are corrected?
A £62,600
B £66,200
C £58,200
D £51,800 LO 2a, b; 3c

ICAEW 2024 Question bank 19

 3 As at 31 December 20X7, a company's bank statement shows a balance in hand of £2,000. The statement
includes bank charges of £50 which have not yet been recorded in the company's cash at bank account. On 31
December 20X7, the company made an electronic transfer of £1,000 to a supplier and used a self-service
terminal outside the bank's normal operating hours to bank £600 received from a credit customer. Neither of
these items appear in the bank statement.
The cash at bank balance on the company's statement of financial position at
31 December 20X7 should be:
A £1,600
B £3,600
C £2,400
D £400 LO 2a, b; 3c

4 The bookkeeper of Rico plc has prepared the supplier statement reconciliation for the year ended 30 April
20X1. She discovered the following differences which have not yet been corrected:
Supplier Balance per Balance per supplier Explanation
payables ledger at statement at
30 April 20X1 (£) 30 April 20X1 (£)
A payment was made to the supplier on
Turks 2,880 3,140 30 April 20X1 which was not recorded
by the supplier until 3 May 20X1.
The supplier agreed a contra with the
Caicos 1,200 1,100 receivables ledger which has not been
recorded by Rico plc.
Before any adjustments, the balance on trade payables was £12,450.
What is the corrected balance for trade payables in Rico plc's statement of financial position as at 30 April
20X1?
A £12,350
B £12,550
C £12,290
D £12,090 LO 2a; 3c

5 Which two of the following items could appear on the debit side of the trade payables account?
A Cash paid to suppliers
B Irrecoverable debts written off
C Discounts received from suppliers that were not expected to be taken when the purchase was made
D Purchases
E Refunds from suppliers LO 2b

ICAEW 2024 Question bank 20

 6 Which two of the following matters require an adjustment to the figure for cash at bank account appearing in
Justine's draft statement of financial position as at 30 June 20X5, rather than being reconciling items between
the adjusted cash at bank account balance and the bank statement balance as at that date?
A Bank charges had been debited by the bank but had not been recorded in the cash at bank account.
B Electronic payments made by Justine on 30 June 20X5 did not clear the bank until
1 July 20X5.
C Deposits paid into the bank on 30 June 20X5 did not appear on the statement.
D An electronic payment made by Justine on 29 June was returned on 30 June due to incorrect account
details being entered, but Justine had not been aware that the payment had been [Link] 2b; 3c

7 The following three matters were discovered by Daisy when she prepared her month end bank reconciliation.
(1) The electronic banking transaction report includes a receipt of £560 in respect of a receipt from a credit
customer. This was not automatically matched to a transaction by the accounting system. On
investigation, it was discovered that there was a bank error and the correct amount was £650.
(2) Bank charges debited by the bank have not yet been entered in the cash at bank account.
(3) The value of payments not processed by the bank exceeded the value of uncleared lodgements.
Which of these matters will require adjustments to the cash at bank account?
A (1) and (2) only
B (2) and (3) only
C (2) only
D (1) and (3) only LO 2a, b

8 Taylor maintains their petty cash records using an imprest system. The total petty cash float is made up
monthly to £200. During the month of June, the following expenses were paid from petty cash:
£
Stationery 24
Tea and coffee 40
Stamps 80
In error, the purchase of stamps was recorded as £8 and, as a result, £72 was withdrawn from the bank to top
up the petty cash float.
The error made will result in which of the following?
A An overstatement of expenses of £72 and the petty cash balance being £72 more than it should be
B An understatement of expenses of £72 and the petty cash balance being £128 less than it should be
C An understatement of expenses of £72 and the petty cash balance being £72 less than it should be
D An overstatement of expenses of £128 and the petty cash balance being £128 less than it should beLO 1f;
2a, b; 3c

ICAEW 2024 Question bank 21

 9 Goods invoiced at £25 had been returned by Samson Ltd to its supplier for a full refund. The only accounting
entry made for the return was to debit the purchases account and credit the suspense account with £52.
Which of the following journal entries should be made to correctly record the return in the nominal ledgers?
A DR Suspense £52; CR Purchases £52
B DR Suspense £52; CR Trade payables £52
C DR Suspense £52; DR Trade payables £25; CR Purchases £77
D DR Trade payables £27; CR Purchases £27 LO 1f; 2a, b, c

10 Parker's draft accounts show a loss of £22,000 for the year. On investigation, you discover the following:
(1) £2,000 of repairs had been incorrectly recorded as a purchase of machinery on the last day of the year.
(2) Cash of £500, received in respect of a debt written off many years ago, had been credited to receivables.
(3) Closing inventory includes items costing £1,000 which were sold and delivered to the customer on the
year end date. The sale had been recorded correctly.
What is Parker's adjusted loss for the year?
A £25,500
B £24,500
C £23,500
D £19,500 LO 2a; 3c

11 The bookkeeper of Sivewright plc has entered an invoice for a new computer bought on credit for £1,010 into
the accounting records as £1,100, debiting computer consumables.
Which two of the following error types have occurred?
A Error of commission
B Transposition error
C Compensating error
D Error of principle
E Error of omission LO 1f

ICAEW 2024 Question bank 22

 12 Adjustments need to be made to Rebel's accounting records for the year ended 31 December 20X6 in respect of
the following matters:
(1) Rebel had taken goods from inventory with a sales value of £300. The correct entry has been made in the
drawings account and the other side of the entry recorded in the suspense account. The business applies a
mark-up of 25%.
(2) At 1 January 20X6, the allowance for receivables was £1,000. Rebel wishes to increase this to £1,220 at
31 December 20X6.
What is the net effect of these adjustments on Rebel's profit for the year?
A Increase of £5
B Increase of £20
C Increase of £80
D Decrease of £220 LO 2a

13 Carl's draft financial statements show a profit of £10,000. The following errors are discovered.
(1) A debt of £2,000 needs to be written off as irrecoverable. The bookkeeper has incorrectly recorded this
write-off as £200.
(2) Carl has drawn cash of £7,000 from the business and failed to record this in the accounting records.
(3) Sales include £5,000 in respect of goods with a gross margin of 20% which do not meet the revenue
recognition criteria and need to be reversed.
What is Carl's revised profit after adjusting for the above errors?
A £200
B £3,200
C £7,000
D £7,200 LO 2a

14 The draft financial statements of Albert plc for the year ended 31 March 20X7 show a profit of £236,662. The
company's policy is to depreciate all non-current assets at 25% on cost. You discover the following errors.
(1) A machine which cost £6,480 on 1 April 20X6 has been treated as repairs, whereas it should have been
capitalised.
(2) Cars bought on 1 April 20X6 for £56,160 have not been depreciated.
What is the company's adjusted profit for the year ended 31 March 20X7?
A £214,522
B £227,482
C £229,102
D £245,842 LO 2a; 3c

ICAEW 2024 Question bank 23

 15 Adjustments need to be made to Ellen's ledger accounts for the year ended 31 August 20X5 in respect of the
following matters:
(1) Ellen incorrectly recorded the purchase of machinery costing £10,000 on 1 December 20X4 as a repairs
and maintenance cost. Machinery is depreciated monthly over five years on the straight-line basis.
(2) Ellen has earned interest on her business’ bank account of £400 which has not yet been recorded in the
business’ records.
What is the net effect of these adjustments on Ellen's profit for the year?
A Increase of £8,900
B Increase of £8,100
C Decrease of £1,900
D Decrease of £1,100 LO 2a

16 Peach plc's draft accounts show a loss of £19,200 for the year. On investigation you discover the following.
(1) The closing inventory balance includes items costing £1,300 which were correctly recorded as sold
shortly before the year end.
(2) Bank charges of £200 have not been recorded.
(3) Petty cash has not been accounted for in the final month of the year. A total of £100 was withdrawn from
the bank on the last day of the year to maintain the imprest amount. All petty cash used in the period was
in respect of administrative expenses incurred.
What is the loss for the year after adjusting for these items?
A £20,800
B £18,200
C £17,600
D £18,300 LO 2a; 3c

17 The following trade payables account of Amir contains a number of errors of principle.
TRADE PAYABLES
£ £
Trade receivables (contra) 3,300 Balance b/d 12,400
Purchases 131,800
Discounts received from
Balance c/d 149,100 suppliers 4,100
152,400 152,400

The discounts received from suppliers were not expected to be taken when the purchase was made but Amir
subsequently decided to pay within the required time limit. Payments to credit suppliers totalling £82,800 have
not been recorded.

ICAEW 2024 Question bank 24

 What is the closing credit balance on trade payables once the errors and omissions have been corrected?
A £66,300
B £62,200
C £65,500
D £58,100 LO 2a, b; 3c

18 The bookkeeper of Rose plc has entered a heat and light expense as a telephone expense.
Which of the following error types has occurred?
A Error of commission
B Transposition error
C Compensating error
D Error of principle

ICAEW 2024 Question bank 25