Book-keeping, accounting, users of accounts, objectives of financial statements, business documents

1. Which statement best distinguishes book-keeping from accounting?

A Book-keeping records financial transactions; accounting interprets and communicates the results.
B Book-keeping prepares final accounts; accounting records only cash transactions.
C Book-keeping analyses profitability; accounting only maintains source documents.
D Book-keeping is performed by owners; accounting is performed only by auditors.

2. A trader receives an invoice from a supplier for goods bought on credit. What is the first accounting use of this document?

A To enter the transaction in the purchases journal
B To enter the transaction in the sales journal
C To prepare a credit note
D To reconcile the bank statement

3. Which task would normally be performed by an accountant rather than a book-keeper?

A Entering cash sales in the cash book
B Preparing a purchases returns journal
C Interpreting ratios to advise management
D Recording goods returned to suppliers

4. Which document is issued by a seller when goods previously sold on credit are returned by the customer?

A Debit note
B Credit note
C Invoice
D Statement of account

5. A customer receives a document listing all invoices, credit notes, payments and the balance outstanding for the month. What is this document?

A Invoice
B Receipt
C Statement of account
D Debit note

6. Which user of accounting information is most interested in whether a business can repay a loan and interest on time?

A Employee
B Lender
C Customer
D Competitor

7. Which information is usually not obtained directly from financial statements?

A Profit for the year
B Amount owed to trade payables
C Market value of the business
D Value of closing inventory

8. Which statement about financial statements is correct?

A They prove that every transaction has been recorded correctly.
B They help users make economic decisions.
C They guarantee that the bank balance is correct.
D They show only cash received and cash paid.

9. Which item is normally a source document rather than a book of prime entry?

A Sales journal
B Purchases journal
C Credit note
D General journal

10. A business buys goods on credit and later returns some of them. Which pair of documents is most likely involved?

A Invoice received and debit note sent
B Invoice sent and credit note received
C Receipt received and debit note received
D Statement of account sent and receipt issued

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. Which statement explains why a supplier may be interested in a customer’s financial statements?

A To calculate the customer’s drawings
B To decide whether to offer credit facilities
C To calculate the customer’s depreciation charge
D To decide the customer’s selling price

12. A business owner wants to compare this year’s profit with last year’s profit. Which accounting function is being used?

A Recording
B Classifying
C Communicating and interpreting
D Vouching

13. Which item is evidence that a cash sale has taken place?

A Supplier’s invoice
B Receipt
C Debit note
D Statement of financial position

14. Which document would normally be prepared by the buyer when goods received are damaged and returned to the supplier?

A Credit note
B Debit note
C Invoice
D Remittance advice

15. Which statement about a statement of account is correct?

A It is recorded in the sales journal as a source document.
B It is a summary sent to a credit customer showing the amount due.
C It is issued only when cash is received.
D It proves that goods have been delivered.

16. Which user would be most interested in whether a business can continue to provide regular employment and wages?

A Trade receivable
B Employee
C Bank manager
D Tax authority

17. Which option contains only internal users of accounting information?

A Owner and manager
B Bank and supplier
C Government and customer
D Investor and competitor

18. Which option contains only external users of accounting information?

A Owner and manager
B Book-keeper and accountant
C Supplier and lender
D Department manager and cashier

19. Which activity is not book-keeping?

A Entering an invoice in the purchases journal
B Posting totals from the cash book to the ledger
C Preparing a bank reconciliation statement
D Advising whether gross profit margin has improved

20. Which document is usually sent with a payment to show what the payment relates to?

A Debit note
B Remittance advice
C Credit note
D Sales invoice

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. A trader wants to know whether the business is earning enough profit compared with the capital invested. Which statement is most useful?

A Statement of account
B Income statement and statement of financial position
C Bank paying-in slip only
D Purchases invoice only

22. Which situation would result in a credit note being issued?

A A customer pays by cheque.
B A supplier sends goods on credit.
C A customer returns goods previously sold to them.
D A trader deposits cash into the bank.

23. Which source document supports an entry in the purchases returns journal?

A Credit note received from supplier
B Credit note sent to customer
C Sales invoice sent to customer
D Bank statement received from bank

24. Which source document supports an entry in the sales returns journal?

A Debit note sent by business to supplier
B Credit note sent by business to customer
C Invoice received from supplier
D Receipt received from supplier

25. Which purpose is most closely linked to preparing financial statements for a sole trader?

A To calculate profit or loss for the period
B To prove that fraud has not occurred
C To show all future cash flows
D To replace the need for source documents

26. Which accounting information would be most useful to the government?

A Amount of tax payable
B Amount of cash drawings by the owner
C Names of all credit customers
D Personal spending habits of the owner

27. A credit customer claims that the amount demanded by a supplier is too high. Which document would the customer use first to compare invoices, payments and returns?

A Delivery note
B Statement of account
C Bank statement
D Goods received note

28. Which statement about an invoice is correct?

A It is issued only for cash transactions.
B It is evidence of goods bought or sold on credit.
C It is used only when goods are returned.
D It is prepared by the bank for the customer.

29. A business sells goods on credit. Which document is sent to the customer?

A Sales invoice
B Purchases invoice
C Credit note received
D Debit note received

30. Which item would not normally appear on a sales invoice?

A Quantity of goods sold
B Unit price
C Total amount due
D Profit earned on the sale

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 supplier sends a credit note to a customer. What is the effect from the customer’s point of view?

A Amount owed to supplier increases
B Amount owed by supplier increases
C Amount owed to supplier decreases
D Cash at bank decreases

32. Which document is least likely to be used as evidence for a credit purchase?

A Supplier’s invoice
B Goods received note
C Receipt for cash paid immediately
D Statement of account from supplier

33. Which task would not normally be done by a book-keeper?

A Recording cash received from customers
B Balancing ledger accounts
C Entering credit purchases in a purchases journal
D Deciding whether the business should expand

34. Which statement shows the limitation of accounting information?

A It can help measure profit.
B It can be used by lenders.
C It may not show non-financial factors such as staff morale.
D It records transactions in money terms.

35. Why is a delivery note not usually enough evidence to record a purchase amount?

A It proves that goods were never received.
B It usually does not show the amount payable.
C It is prepared only by the bank.
D It is used only for goods returned.

36. Which document is most likely to be matched with a supplier’s invoice before payment is made?

A Delivery note or goods received note
B Statement of financial position
C Sales journal
D Trial balance

37. A trader records the purchase of stationery for cash. Which source document is most appropriate?

A Sales invoice
B Receipt
C Credit note
D Debit note

38. Which user would be most interested in the profitability and future growth of a company before buying shares?

A Investor
B Supplier
C Employee
D Tax authority

39. Which user would be most interested in whether a business is charging fair prices and will continue supplying goods?

A Customer
B Lender
C Government
D Owner

40. Which statement is true about accounting information?

A It is useful only to the owner.
B It is used by different groups for different decisions.
C It is prepared only after a business closes down.
D It removes the need for business documents.

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 trader receives a debit note from a customer. What is the most likely reason?

A The customer is informing the trader that goods are being returned.
B The trader is informing the customer that payment was received.
C The bank is informing the trader that a cheque was dishonoured.
D The supplier is informing the trader that interest was charged.

42. Which option correctly links the document with the person who normally prepares it?

A Invoice for goods sold — buyer
B Credit note for goods returned by customer — seller
C Statement of account — bank
D Receipt for cash paid — payer

43. Which statement about book-keeping entries is correct?

A They are always made directly in the final accounts.
B They are based on source documents.
C They are used only for credit transactions.
D They replace the need for ledger accounts.

44. Which is the best reason for keeping source documents?

A To avoid preparing financial statements
B To provide evidence for entries in the accounting records
C To guarantee a business will make profit
D To calculate market share

45. Which objective of accounting is most closely shown when financial information is summarised into an income statement?

A Recording only
B Classifying and summarising
C Manufacturing goods
D Negotiating with suppliers

46. A customer returns goods bought on credit because the goods were overcharged on the invoice. Which document should the seller issue?

A Debit note
B Credit note
C Receipt
D Bank statement

47. Which option shows the correct sequence for a credit sale?

A Sales invoice → sales journal → customer’s account
B Receipt → sales returns journal → customer’s account
C Credit note → purchases journal → supplier’s account
D Debit note → cash book → sales account

48. Which option shows the correct sequence for a credit purchase?

A Supplier’s invoice → purchases journal → supplier’s account
B Sales invoice → sales journal → customer’s account
C Credit note sent → purchases returns journal → supplier’s account
D Receipt issued → cash book → customer’s account

49. Which statement best explains why accounting information should be reliable?

A It must be based on evidence and free from deliberate bias.
B It must always show the highest possible profit.
C It must be prepared only for internal users.
D It must ignore source documents.

50. A business owner says, “My book-keeper has prepared the financial statements, interpreted the ratios, advised on liquidity, and recommended whether I should expand.” Which part of this statement is most likely incorrect?

A The book-keeper prepared accounting records.
B The book-keeper entered transactions from documents.
C The book-keeper interpreted ratios and advised on expansion.
D The book-keeper maintained books of prime entry.

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
   Book-keeping is mainly the recording of transactions in the books of account. Accounting goes further: it summarises, analyses, interprets and communicates the results. B, C and D mix up the roles.

2. A
   An invoice received for goods bought on credit is first entered in the purchases journal. It is not a sales journal entry because the business is buying, not selling.

3. C
   Interpreting ratios and advising management is accounting. Recording transactions and preparing day-to-day books are book-keeping tasks.

4. B
   A credit note is issued by the seller when the customer returns goods. It reduces the amount owed by the customer.

5. C
   A statement of account summarises invoices, payments, credit notes and the closing balance due from a credit customer.

6. B
   A lender wants to know if the business can repay the loan and interest. That is mainly a liquidity and solvency concern.

7. C
   Financial statements usually show historical cost values, not the market value of the whole business. Profit, payables and inventory can be shown.

8. B
   Financial statements help users make decisions. They do not guarantee that every transaction is correct or that the bank balance has been reconciled.

9. C
   A credit note is a source document. Sales journal, purchases journal and general journal are books of prime entry.

10. A
    For goods bought on credit, the buyer receives an invoice. If goods are returned, the buyer may send a debit note to the supplier.

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
    A supplier uses financial statements to decide whether the customer is creditworthy. The supplier wants to know whether the customer can pay.

12. C
    Comparing this year’s profit with last year’s profit involves interpreting accounting information, not merely recording it.

13. B
    A receipt is evidence that cash has been received or paid. A supplier’s invoice is for a purchase, not necessarily a cash sale.

14. B
    The buyer prepares a debit note when goods are returned to the supplier. The supplier may later issue a credit note.

15. B
    A statement of account is a summary sent to a credit customer showing what is owed. It is not itself a source document for recording sales.

16. B
    Employees are interested in job security, wages and whether the business can continue operating.

17. A
    Owners and managers are internal users. Banks, suppliers, government and competitors are external users.

18. C
    Suppliers and lenders are external users because they are outside the business but use its accounting information.

19. D
    Advising whether gross profit margin has improved is interpretation. Book-keeping is mainly recording and posting transactions.

20. B
    Remittance advice is sent with payment to show which invoice or account the payment relates to.

21. B
    To judge return on capital, both profit and capital are needed. These are found from the income statement and statement of financial position.

22. C
    A credit note is issued when a customer returns goods previously sold to them, or when the amount owed by the customer needs reducing.

23. A
    Purchases returns are supported by a credit note received from the supplier, because the supplier accepts the return and reduces the amount owed.

24. B
    Sales returns are supported by a credit note sent by the business to the customer, because the business is reducing the customer’s debt.

25. A
    A major purpose of financial statements for a sole trader is to calculate profit or loss for the period.

26. A
    The government is mainly interested in accounting information for tax purposes.

27. B
    A statement of account summarises invoices, payments, returns and balances. It is used to check the amount demanded.

28. B
    An invoice is evidence of goods bought or sold on credit. It shows details such as quantity, price and total amount due.

29. A
    When a business sells goods on credit, it sends a sales invoice to the customer.

30. D
    A sales invoice shows goods, quantity, price and total amount due. It does not show the profit earned on the sale.

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. C
    From the customer’s point of view, a credit note received from a supplier reduces the amount owed to that supplier.

32. C
    A receipt for cash paid immediately relates to a cash purchase, not a credit purchase. Credit purchases are supported by invoices and supplier documents.

33. D
    Deciding whether a business should expand is a management/accounting decision. Book-keepers record financial transactions.

34. C
    Accounting information often ignores non-financial factors such as staff morale, reputation and customer loyalty.

35. B
    A delivery note usually proves goods were delivered, but it often does not show the amount payable. The invoice gives the financial amount.

36. A
    A supplier’s invoice is matched with a delivery note or goods received note to check that the goods charged for were actually received.

37. B
    A receipt is the most appropriate evidence for stationery bought for cash.

38. A
    An investor is interested in profitability, growth and return before buying shares.

39. A
    Customers may want to know whether a business will continue supplying goods and whether prices are reasonable.

40. B
    Different users use accounting information for different decisions: owners for profit, lenders for repayment, suppliers for credit, government for tax.

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
    A debit note received from a customer usually means the customer is returning goods or claiming a reduction in the amount owed.

42. B
    A credit note for goods returned by a customer is prepared by the seller. It reduces the amount owed by the customer.

43. B
    Book-keeping entries should be based on source documents, such as invoices, receipts, credit notes and debit notes.

44. B
    Source documents provide evidence for entries in the accounting records. Without them, records are harder to verify.

45. B
    Preparing an income statement involves classifying and summarising financial information into a useful final account.

46. B
    The seller issues a credit note when goods are returned or when the customer has been overcharged.

47. A
    For a credit sale: the business sends a sales invoice, enters it in the sales journal, then posts it to the customer’s account.

48. A
    For a credit purchase: the business receives a supplier’s invoice, enters it in the purchases journal, then posts it to the supplier’s account.

49. A
    Reliable accounting information should be based on evidence and free from deliberate bias. It should not be manipulated to show the highest profit.

50. C
    Interpreting ratios and advising on expansion is normally an accountant’s or manager’s role, not a book-keeper’s role.

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.