Double entry principles and ledger entries

Topic 3: Double Entry Principles and Ledger Entries — 50 Hard MCQs

1. A business buys goods on credit from Z Traders for $4600.

Which double entry records this transaction?

A Debit purchases $4600, credit trade payables $4600
B Debit trade payables $4600, credit purchases $4600
C Debit inventory $4600, credit bank $4600
D Debit purchases returns $4600, credit trade payables $4600

2. A business sells goods on credit to A Khan for $3200.

Which double entry records this transaction?

A Debit sales $3200, credit trade receivables $3200
B Debit trade receivables $3200, credit sales $3200
C Debit bank $3200, credit sales $3200
D Debit sales returns $3200, credit trade receivables $3200

3. A credit customer returns goods worth $750.

Which double entry is required?

A Debit sales returns $750, credit trade receivables $750
B Debit trade receivables $750, credit sales returns $750
C Debit purchases returns $750, credit trade payables $750
D Debit sales $750, credit bank $750

4. A business returns goods worth $980 to a credit supplier.

Which double entry is required?

A Debit purchases returns $980, credit trade payables $980
B Debit trade payables $980, credit purchases returns $980
C Debit purchases $980, credit trade payables $980
D Debit trade receivables $980, credit sales returns $980

5. A trade receivable pays $1800 by cheque.

Which double entry is required?

A Debit bank $1800, credit trade receivables $1800
B Debit trade receivables $1800, credit bank $1800
C Debit cash $1800, credit sales $1800
D Debit bank $1800, credit trade payables $1800

6. A business pays a credit supplier $2700 by bank transfer.

Which double entry is required?

A Debit purchases $2700, credit bank $2700
B Debit trade payables $2700, credit bank $2700
C Debit bank $2700, credit trade payables $2700
D Debit trade receivables $2700, credit bank $2700

7. A sole trader introduces $15 000 cash into the business.

Which double entry is required?

A Debit capital $15 000, credit bank $15 000
B Debit bank $15 000, credit capital $15 000
C Debit drawings $15 000, credit bank $15 000
D Debit bank $15 000, credit revenue $15 000

8. A sole trader withdraws $600 cash for personal use.

Which double entry is required?

A Debit capital $600, credit bank $600
B Debit drawings $600, credit bank $600
C Debit bank $600, credit drawings $600
D Debit expenses $600, credit bank $600

9. A sole trader takes inventory costing $900 for personal use.

Which double entry is required?

A Debit drawings $900, credit purchases $900
B Debit purchases $900, credit drawings $900
C Debit sales $900, credit drawings $900
D Debit drawings $900, credit sales $900

10. A business pays rent of $2400 by cheque.

Which double entry records this transaction?

A Debit rent expense $2400, credit bank $2400
B Debit bank $2400, credit rent expense $2400
C Debit rent payable $2400, credit bank $2400
D Debit drawings $2400, credit bank $2400

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

11. A business receives commission income of $1750 by bank transfer.

Which double entry is required?

A Debit commission income $1750, credit bank $1750
B Debit bank $1750, credit commission income $1750
C Debit trade receivables $1750, credit commission income $1750
D Debit bank $1750, credit capital $1750

12. A business receives rent income of $3000 in cash.

Which double entry is required?

A Debit rent income $3000, credit cash $3000
B Debit cash $3000, credit rent income $3000
C Debit rent expense $3000, credit cash $3000
D Debit cash $3000, credit trade receivables $3000

13. A business pays wages of $5400 by bank transfer.

Which double entry is required?

A Debit wages $5400, credit bank $5400
B Debit bank $5400, credit wages $5400
C Debit wages payable $5400, credit capital $5400
D Debit drawings $5400, credit bank $5400

14. A bank loan of $40 000 is received.

Which double entry is required?

A Debit bank loan $40 000, credit bank $40 000
B Debit bank $40 000, credit bank loan $40 000
C Debit capital $40 000, credit bank loan $40 000
D Debit bank $40 000, credit sales $40 000

15. A business repays $5000 of a bank loan by cheque.

Which double entry is required?

A Debit bank loan $5000, credit bank $5000
B Debit bank $5000, credit bank loan $5000
C Debit loan interest $5000, credit bank $5000
D Debit bank loan $5000, credit capital $5000

16. A business pays loan interest of $800 by cheque.

Which double entry is required?

A Debit bank loan $800, credit bank $800
B Debit loan interest expense $800, credit bank $800
C Debit bank $800, credit loan interest income $800
D Debit capital $800, credit bank $800

17. A customer owing $2200 is declared irrecoverable.

Which double entry writes off the debt?

A Debit irrecoverable debts $2200, credit trade receivables $2200
B Debit trade receivables $2200, credit irrecoverable debts $2200
C Debit allowance for irrecoverable debts $2200, credit trade receivables $2200
D Debit sales returns $2200, credit trade receivables $2200

18. A debt of $1400 previously written off is later recovered by cheque.

Which double entry records the recovery?

A Debit bank $1400, credit irrecoverable debts recovered $1400
B Debit irrecoverable debts recovered $1400, credit bank $1400
C Debit trade receivables $1400, credit bank $1400
D Debit bank $1400, credit trade receivables $1400

19. A business creates an allowance for irrecoverable debts of $950 for the first time.

Which double entry is required?

A Debit allowance for irrecoverable debts $950, credit income statement $950
B Debit income statement $950, credit allowance for irrecoverable debts $950
C Debit trade receivables $950, credit allowance for irrecoverable debts $950
D Debit allowance for irrecoverable debts $950, credit trade receivables $950

20. The allowance for irrecoverable debts increases from $1200 to $1700.

Which double entry records the increase?

A Debit income statement $500, credit allowance for irrecoverable debts $500
B Debit allowance for irrecoverable debts $500, credit income statement $500
C Debit trade receivables $500, credit allowance for irrecoverable debts $500
D Debit sales $500, credit allowance for irrecoverable debts $500

21. The allowance for irrecoverable debts decreases from $2100 to $1600.

Which double entry records the decrease?

A Debit income statement $500, credit allowance for irrecoverable debts $500
B Debit allowance for irrecoverable debts $500, credit income statement $500
C Debit trade receivables $500, credit income statement $500
D Debit allowance for irrecoverable debts $500, credit trade receivables $500

22. Depreciation on machinery for the year is $4800.

Which double entry records depreciation?

A Debit machinery $4800, credit depreciation expense $4800
B Debit depreciation expense $4800, credit accumulated depreciation $4800
C Debit accumulated depreciation $4800, credit machinery $4800
D Debit income statement $4800, credit machinery $4800

23. Machinery costing $25 000 with accumulated depreciation of $9000 is sold for $13 500.

Which entry removes the cost of the machinery from the books?

A Debit machinery disposal $25 000, credit machinery $25 000
B Debit machinery $25 000, credit machinery disposal $25 000
C Debit accumulated depreciation $25 000, credit machinery disposal $25 000
D Debit bank $25 000, credit machinery $25 000

24. Machinery costing $25 000 with accumulated depreciation of $9000 is sold for $13 500.

Which entry transfers accumulated depreciation to the disposal account?

A Debit accumulated depreciation $9000, credit machinery disposal $9000
B Debit machinery disposal $9000, credit accumulated depreciation $9000
C Debit machinery $9000, credit accumulated depreciation $9000
D Debit bank $9000, credit machinery disposal $9000

25. Machinery costing $25 000 with accumulated depreciation of $9000 is sold for $13 500.

Which entry records the sale proceeds?

A Debit machinery disposal $13 500, credit bank $13 500
B Debit bank $13 500, credit machinery disposal $13 500
C Debit sales $13 500, credit machinery disposal $13 500
D Debit bank $13 500, credit sales $13 500

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

26. A machine has carrying value $16 000 and is sold for $13 500.

What is the final double entry for the disposal result?

A Debit income statement $2500, credit disposal $2500
B Debit disposal $2500, credit income statement $2500
C Debit bank $2500, credit disposal $2500
D Debit accumulated depreciation $2500, credit income statement $2500

27. A machine has carrying value $16 000 and is sold for $18 500.

What is the final double entry for the disposal result?

A Debit income statement $2500, credit disposal $2500
B Debit disposal $2500, credit income statement $2500
C Debit bank $2500, credit income statement $2500
D Debit disposal $18 500, credit income statement $18 500

28. A customer owing $5000 is also a supplier owed $3200 by the business. The balances are offset.

Which double entry records the contra?

A Debit trade payables $3200, credit trade receivables $3200
B Debit trade receivables $3200, credit trade payables $3200
C Debit purchases $3200, credit sales $3200
D Debit sales returns $3200, credit purchases returns $3200

29. A business allows a credit customer a cash discount of $120.

Which double entry records the discount?

A Debit discount allowed $120, credit trade receivables $120
B Debit trade receivables $120, credit discount allowed $120
C Debit discount received $120, credit trade payables $120
D Debit trade payables $120, credit discount received $120

30. A supplier allows the business a cash discount of $85.

Which double entry records the discount?

A Debit discount received $85, credit trade payables $85
B Debit trade payables $85, credit discount received $85
C Debit discount allowed $85, credit trade receivables $85
D Debit purchases $85, credit discount received $85

31. A business sells goods on credit for $10 000. The customer returns goods of $1600 and pays the balance by cheque after deducting 5% cash discount.

What is the amount debited to bank?

A $7980
B $8000
C $8400
D $9500

32. In Question 31, what is the amount debited to discount allowed?

A $420
B $500
C $580
D $1600

33. A business buys goods on credit for $9000. It returns goods of $1200 and pays the balance after deducting 4% cash discount.

What is credited to bank?

A $7488
B $7800
C $8640
D $9000

34. In Question 33, what is credited to discount received?

A $312
B $360
C $480
D $1200

35. A business pays insurance of $3600. At the year end, $900 relates to next year.

Which adjustment is needed for the prepayment?

A Debit prepaid insurance $900, credit insurance expense $900
B Debit insurance expense $900, credit prepaid insurance $900
C Debit insurance expense $3600, credit bank $3600
D Debit accrued insurance $900, credit insurance expense $900

36. A business has unpaid wages of $1250 at the year end.

Which adjustment is needed?

A Debit wages expense $1250, credit accrued wages $1250
B Debit accrued wages $1250, credit wages expense $1250
C Debit wages expense $1250, credit bank $1250
D Debit prepaid wages $1250, credit wages expense $1250

37. A business has earned commission income of $1800 but has not yet received it.

Which double entry is required?

A Debit accrued income $1800, credit commission income $1800
B Debit commission income $1800, credit accrued income $1800
C Debit bank $1800, credit commission income $1800
D Debit trade receivables $1800, credit sales $1800

38. A business received rent income of $5000. At the year end, $1200 relates to the next accounting period.

Which adjustment is required?

A Debit rent income $1200, credit income received in advance $1200
B Debit income received in advance $1200, credit rent income $1200
C Debit bank $1200, credit rent income $1200
D Debit rent expense $1200, credit bank $1200

39. A business owner pays a personal electricity bill of $700 using the business bank account.

Which double entry is required?

A Debit electricity expense $700, credit bank $700
B Debit drawings $700, credit bank $700
C Debit capital $700, credit bank $700
D Debit bank $700, credit drawings $700

40. A business receives a refund of insurance overpaid, $300.

Which double entry is required?

A Debit bank $300, credit insurance expense $300
B Debit insurance expense $300, credit bank $300
C Debit bank $300, credit insurance income $300
D Debit prepaid insurance $300, credit bank $300

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

41. A business purchases office equipment on credit for $8500.

Which double entry is required?

A Debit office equipment $8500, credit trade payables $8500
B Debit purchases $8500, credit trade payables $8500
C Debit office equipment $8500, credit bank $8500
D Debit expenses $8500, credit trade payables $8500

42. A business pays carriage on purchases of goods, $650.

Which double entry is required?

A Debit carriage inwards $650, credit bank $650
B Debit carriage outwards $650, credit bank $650
C Debit bank $650, credit carriage inwards $650
D Debit purchases $650, credit bank $650

43. A business pays carriage on sales, $420.

Which double entry is required?

A Debit carriage inwards $420, credit bank $420
B Debit carriage outwards $420, credit bank $420
C Debit sales $420, credit bank $420
D Debit bank $420, credit carriage outwards $420

44. A business receives $2000 from a customer for goods to be delivered next month.

Which double entry records the receipt?

A Debit bank $2000, credit sales $2000
B Debit bank $2000, credit income received in advance $2000
C Debit trade receivables $2000, credit sales $2000
D Debit sales $2000, credit bank $2000

45. A business pays $2400 for a 12-month insurance policy starting halfway through the financial year.

What year-end adjustment is required?

A Debit prepaid insurance $1200, credit insurance expense $1200
B Debit insurance expense $1200, credit prepaid insurance $1200
C Debit accrued insurance $1200, credit insurance expense $1200
D Debit insurance expense $2400, credit bank $2400

46. A business receives a cheque from a customer for $3000, but the cheque is later dishonoured.

Which double entry records the dishonoured cheque?

A Debit bank $3000, credit trade receivables $3000
B Debit trade receivables $3000, credit bank $3000
C Debit irrecoverable debts $3000, credit trade receivables $3000
D Debit trade payables $3000, credit bank $3000

47. A business owner introduces a personal motor vehicle worth $18 000 into the business.

Which double entry is required?

A Debit motor vehicles $18 000, credit capital $18 000
B Debit capital $18 000, credit motor vehicles $18 000
C Debit motor expenses $18 000, credit capital $18 000
D Debit purchases $18 000, credit capital $18 000

48. A business pays $900 to repair a delivery van.

Which double entry is required?

A Debit motor vehicles $900, credit bank $900
B Debit repairs expense $900, credit bank $900
C Debit depreciation $900, credit bank $900
D Debit drawings $900, credit bank $900

49. A business pays $4200 to improve a machine, increasing its productive capacity.

Which double entry is required?

A Debit repairs expense $4200, credit bank $4200
B Debit machinery $4200, credit bank $4200
C Debit depreciation expense $4200, credit bank $4200
D Debit purchases $4200, credit bank $4200

50. Which transaction is recorded by debiting an expense account and crediting a liability account?

A wages owing at the year end
B rent paid in advance
C owner introduces cash
D customer pays by cheque

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

1. A — Debit purchases $4600, credit trade payables $4600

• Goods bought for resale = purchases.

• Bought on credit = supplier/trade payables.

• Purchases increase, so debit purchases.

• Liability increases, so credit trade payables.

2. B — Debit trade receivables $3200, credit sales $3200

• Credit sale means customer owes the business.

• Trade receivables increase = debit.

• Sales revenue increases = credit.

3. A — Debit sales returns $750, credit trade receivables $750

• Customer returned goods.

• Sales returns increase = debit.

• Customer owes less = credit trade receivables.

4. B — Debit trade payables $980, credit purchases returns $980

• Goods returned to supplier.

• Amount owed to supplier decreases = debit trade payables.

• Purchases returns increase = credit purchases returns.

5. A — Debit bank $1800, credit trade receivables $1800

• Customer pays by cheque.

• Bank increases = debit.

• Trade receivables decrease = credit.

6. B — Debit trade payables $2700, credit bank $2700

• Supplier is paid.

• Liability decreases = debit trade payables.

• Bank decreases = credit bank.

7. B — Debit bank $15 000, credit capital $15 000

• Owner introduces cash.

• Bank asset increases = debit.

• Capital increases = credit.

8. B — Debit drawings $600, credit bank $600

• Owner withdraws cash for personal use.

• Drawings increase = debit.

• Bank decreases = credit.

• Drawings are not business expenses.

9. A — Debit drawings $900, credit purchases $900

• Owner takes inventory for personal use.

• Drawings increase = debit.

• Purchases are reduced because goods were not used for resale.

• Entry = debit drawings, credit purchases.

10. A — Debit rent expense $2400, credit bank $2400

• Rent is an expense.

• Expense increases = debit.

• Bank decreases = credit.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

11. B — Debit bank $1750, credit commission income $1750

• Bank increases = debit.

• Income increases = credit.

12. B — Debit cash $3000, credit rent income $3000

• Cash increases = debit.

• Rent income increases = credit.

13. A — Debit wages $5400, credit bank $5400

• Wages are an expense.

• Expense increases = debit.

• Bank decreases = credit.

14. B — Debit bank $40 000, credit bank loan $40 000

• Bank increases because cash is received.

• Loan liability increases, so credit bank loan.

15. A — Debit bank loan $5000, credit bank $5000

• Loan liability decreases = debit.

• Bank decreases = credit.

16. B — Debit loan interest expense $800, credit bank $800

• Loan interest is an expense.

• Bank decreases because payment is made.

17. A — Debit irrecoverable debts $2200, credit trade receivables $2200

• The customer will not pay.

• Irrecoverable debts expense increases = debit.

• Trade receivables decrease = credit.

18. A — Debit bank $1400, credit irrecoverable debts recovered $1400

• Debt was already written off earlier.

• Recovery is treated as income.

• Bank increases = debit.

• Irrecoverable debts recovered = credit.

19. B — Debit income statement $950, credit allowance for irrecoverable debts $950

• Creating an allowance is an expense.

• Expense is charged to income statement.

• Allowance is a contra-asset, so it is credited.

20. A — Debit income statement $500, credit allowance for irrecoverable debts $500

• Allowance increases from $1200 to $1700.

• Increase = $500.

• Increase in allowance is an expense.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

21. B — Debit allowance for irrecoverable debts $500, credit income statement $500

• Allowance decreases from $2100 to $1600.

• Decrease = $500.

• Decrease in allowance reduces expense, so it is credited to income statement.

22. B — Debit depreciation expense $4800, credit accumulated depreciation $4800

• Depreciation expense increases = debit.

• Accumulated depreciation increases = credit.

• Asset cost account is not directly credited under the accumulated depreciation method.

23. A — Debit machinery disposal $25 000, credit machinery $25 000

• To remove asset cost:

• Debit disposal account.

• Credit machinery account.

24. A — Debit accumulated depreciation $9000, credit machinery disposal $9000

• Accumulated depreciation has a credit balance.

• To remove it, debit accumulated depreciation.

• Credit disposal account.

25. B — Debit bank $13 500, credit machinery disposal $13 500

• Sale proceeds increase bank.

• Disposal account is credited with proceeds.

26. A — Debit income statement $2500, credit disposal $2500

• Carrying value = $16 000

• Sale proceeds = $13 500

• Loss = $2500

• A loss on disposal is transferred to the income statement.

• Entry = debit income statement, credit disposal.

27. B — Debit disposal $2500, credit income statement $2500

• Carrying value = $16 000

• Sale proceeds = $18 500

• Profit = $2500

• Profit on disposal is credited to income statement.

• Entry = debit disposal, credit income statement.

28. A — Debit trade payables $3200, credit trade receivables $3200

• Same person is both customer and supplier.

• Offset lower balance = $3200.

• Payables decrease = debit.

• Receivables decrease = credit.

29. A — Debit discount allowed $120, credit trade receivables $120

• Discount allowed is an expense.

• Customer owes less, so trade receivables decrease.

30. B — Debit trade payables $85, credit discount received $85

• Supplier allows discount.

• Amount owed to supplier decreases = debit trade payables.

• Discount received is income = credit.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

31. A — $7980

• Credit sale = $10 000

• Sales returns = $1600

• Balance due = 10 000 – 1600 = $8400

• Cash discount = 5% × 8400 = $420

• Bank received = 8400 – 420 = $7980

32. A — $420

• Discount allowed = 5% of $8400

• = $420

33. A — $7488

• Credit purchases = $9000

• Purchases returns = $1200

• Balance payable = 9000 – 1200 = $7800

• Cash discount = 4% × 7800 = $312

• Bank paid = 7800 – 312 = $7488

34. A — $312

• Discount received = 4% × $7800

• = $312

35. A — Debit prepaid insurance $900, credit insurance expense $900

• $900 relates to next year.

• It is a prepayment/current asset.

• Expense must be reduced.

• Entry = debit prepaid insurance, credit insurance expense.

36. A — Debit wages expense $1250, credit accrued wages $1250

• Wages are owed.

• Expense increases = debit wages.

• Liability increases = credit accrued wages.

37. A — Debit accrued income $1800, credit commission income $1800

• Income has been earned but not received.

• Accrued income is an asset = debit.

• Commission income increases = credit.

38. A — Debit rent income $1200, credit income received in advance $1200

• $1200 relates to next period.

• Current year income must be reduced = debit rent income.

• Liability created = credit income received in advance.

39. B — Debit drawings $700, credit bank $700

• Personal bill paid using business bank.

• It is not a business electricity expense.

• Drawings increase = debit.

• Bank decreases = credit.

40. A — Debit bank $300, credit insurance expense $300

• Refund received increases bank.

• It reduces the insurance expense already paid.

• So credit insurance expense.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

41. A — Debit office equipment $8500, credit trade payables $8500

• Office equipment is a non-current asset.

• Bought on credit = liability increases.

• Do not debit purchases because it is not inventory for resale.

42. A — Debit carriage inwards $650, credit bank $650

• Carriage on purchases = carriage inwards.

• It is part of cost of purchases/cost of sales.

• Bank decreases = credit.

43. B — Debit carriage outwards $420, credit bank $420

• Carriage on sales = carriage outwards.

• It is a selling/distribution expense.

• Bank decreases = credit.

44. B — Debit bank $2000, credit income received in advance $2000

• Customer paid before goods were delivered.

• Bank increases.

• Business owes goods/services, so liability increases.

45. A — Debit prepaid insurance $1200, credit insurance expense $1200

• Policy covers 12 months.

• Starts halfway through financial year.

• Half relates to next year = $1200.

• Prepayment = current asset.

• Expense reduced by crediting insurance expense.

46. B — Debit trade receivables $3000, credit bank $3000

• Cheque was first received, but later dishonoured.

• Bank must be reversed/decreased.

• Customer still owes the money again.

• Trade receivables increase = debit.

47. A — Debit motor vehicles $18 000, credit capital $18 000

• Owner introduces a non-current asset.

• Motor vehicle asset increases = debit.

• Capital increases = credit.

48. B — Debit repairs expense $900, credit bank $900

• Repair restores the van to working condition.

• It does not improve capacity or extend life significantly.

• It is revenue expenditure, so expense.

49. B — Debit machinery $4200, credit bank $4200

• Improvement increases productive capacity.

• This is capital expenditure.

• Machinery asset increases.

50. A — wages owing at the year end

• Wages owing means expense has been incurred but not paid.

• Entry = debit wages expense, credit accrued wages/liability.

• That is debit expense and credit liability.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.