2

1 Ava is a trader who uses an accounting software package and employs a book-keeper.

Why should Ava also use an accountant?

A to check the totals of the invoices input by the book-keeper

B to extract a trial balance and prepare the financial statements

C to provide advice on improving profits and cash flow

D to record and manage online and manual payments

2 What are assets?

A amounts that the business must repay within 12 months

B items that are owned by or owed to the business

C monies owed by the business to the owner

D outflows of cash in return for goods and services

3 Stephanie returns goods bought on credit from Javed.

How does Javed record this in his books?

account debited account credited

A purchases returns Stephanie
B sales returns Stephanie
C Stephanie purchases returns
D Stephanie sales returns

© Cambridge University Press & Assessment 2024 7707/01/SP/27

 3

4 The following ledger account appeared in the book-keeping records of a trader.

rent account
$ $
Jan 1 balance b/d 600 Dec 31 statement of profit or loss 7250
Dec 31 bank 6300
balance c/d 350 7250
7250 7250

What does the balance on 31 December represent?

A rent expense outstanding

B rent expense prepaid

C rent income outstanding

D rent income prepaid

5 What are features of ledger accounts which use the three-column running balance format?

1 often used in accounting software

2 often used on bank statements

3 show the balance after each transaction

4 show totals after each transaction

A 1, 2, 3 and 4

B 1, 2 and 3 only

C 1, 3 and 4 only

D 2 and 3 only

6 Karim issued an invoice, a credit note and a receipt.

What has happened?

A Karim purchased goods and paid the supplier immediately.

B Karim purchased goods on credit, made returns to the supplier and paid the balance due.

C Karim sold goods and received immediate payment from the customer.

D Karim sold goods on credit, received returns from the customer and received the
balance due.

© Cambridge University Press & Assessment 2024 7707/01/SP/27 [Turn over

 4

7 A trader’s purchases on credit for April amounted to $2000. These purchases were subject to a
trade discount of 10% and also a cash discount of 5% for accounts paid within 30 days.

How much was entered in the purchases journal?

A $1700 B $1800 C $1900 D $2000

8 What is a trial balance?

A a list of balances in the ledger accounts at a certain date

B a list of sales ledger and purchases ledger balances at the month end

C a summary of income and expenses for the year

D a summary of assets, liabilities and capital at the year end

9 Which error will be revealed by the preparation of a trial balance?

A an amount recorded as a debit entry twice

B a capital expenditure item treated as revenue expenditure

C a double entry made using an incorrect amount

D a transaction completely omitted from the books

10 Maya has prepared the following suspense account.

suspense account
$ $
difference on the trial balance 400 purchases 270

sales 190 motor expenses 320

590 590

Which statement is true?

A A purchase invoice for $270 had been omitted from the accounting records.

B The balance on the motor expenses account had been over-stated by $320.
C The balance on the sales account had been under-stated by $190.

D The debit total of the trial balance had been $400 higher than the credit total.

© Cambridge University Press & Assessment 2024 7707/01/SP/27

 5

11 Robin runs a clothing store. He sold a computer with a net book value of $2000 for $1800. The
cash was transferred immediately into Robin’s bank account. Robin has not made any entries in
his accounting records for this sale.

What is the effect of correcting this error on the statement of financial position?

non-current assets current assets

$ $
A decrease 1800 increase 1800
B decrease 1800 increase 2000
C decrease 2000 increase 1800
D decrease 2000 increase 2000

12 Every day Darius checks his bank statement online and updates his cash book. At the end of the
month, Darius’s bank statement balance is less than his cash book balance.

What has caused this difference?

A an uncredited deposit

B an unpresented cheque

C bank charges

D direct debits

13 What are sources of information for the entries in control accounts?

A bank statements

B books of prime entry

C ledger accounts

D sales invoices

14 A trader provided the following information.

$
1 March purchases ledger control account balance 4 000
31 March purchases journal total 53 000
purchases returns journal total 2 000
payments to credit suppliers 47 000
discounts received 1 000

What was the purchases ledger control account balance on 31 March?

A $7000 B $9000 C $11 000 D $13 000

© Cambridge University Press & Assessment 2024 7707/01/SP/27 [Turn over

 6

15 Ryan bought a computer which cost $800 and some ink cartridges which cost $50 for use in the
business. Both of these amounts were debited to the purchases account.

What was the effect of this error on the statement of profit or loss for the year?

cost of sales expenses

$ $
A over-stated 800 under-stated 850
B over-stated 850 under-stated 50
C under-stated 800 over-stated 850
D under-stated 850 over-stated 50

16 Jane does not charge depreciation on her office equipment. She shows the cost of the office
equipment in her statement of financial position each year.

Which statement is correct?

A Jane’s non-current assets are over-stated.

B Jane’s office expenses are under-stated.

C Jane’s profit for each year is under-stated.

D Jane’s revenue expenditure is over-stated.

17 Amit uses the straight-line method to depreciate his buildings at the rate of 2% per annum.

He bought land for $200 000. It cost $120 000 to build a warehouse on it. After five years he sold
the land and warehouse for $299 000.

What was the profit or loss on disposal of the land and warehouse?

A $9000 loss

B $9000 profit

C $11 000 loss

D $11 000 profit

18 Joe has paid insurance for three months of the next financial period.

Why does Joe make an adjustment for this amount in his statement of profit or loss?

A so that his profit is not over-stated by under-stating expenses

B so that only costs relating to the relevant year are included

C to show how much he owes for his expenses

D to show the correct total for current liabilities

© Cambridge University Press & Assessment 2024 7707/01/SP/27

 7

19 Sumit maintains an allowance for irrecoverable debts at 5% of the trade receivables at the end
of each financial year. On 1 January 2026, the trade receivables amounted to $3500 and the
allowance for irrecoverable debts was $175.

The statement of profit or loss for the year ended 31 December 2026 was debited with $15 for
the allowance for irrecoverable debts.

How much did the trade receivables owe on 31 December 2026?

A $3040

B $3200

C $3610

D $3800

20 Anita opens a hairdressing salon. The salon also sells hairdressing products and tools. She buys
35 hair dryers for $18 each. Five of these hair dryers are for use in the salon. Anita sells 20 hair
dryers for $30 each. She expects to sell the other hair dryers for $15 each as they now seem
old fashioned.

How much profit does Anita make on hair dryers, at the year end?

A $60

B $195
C $210

D $240

21 Which statement is correct?

A cost of sales – gross profit – sales returns = revenue

B cost of sales – gross profit + sales returns = revenue

C cost of sales + gross profit – sales returns = revenue

D cost of sales + gross profit + sales returns = revenue

© Cambridge University Press & Assessment 2024 7707/01/SP/27 [Turn over

 8

22 Ahmed has provided the following figures from his statement of financial position.

$
non-current assets 46 200
current assets 32 400
current liabilities 24 600
capital 35 000
non-current liabilities 19 000

What is Ahmed’s capital employed?

A $7800

B $35 000

C $54 000

D $78 600

23 Paul provided the following information for his first year of trading.

A total of $7000 was transferred from the business bank account to Paul’s private bank account.

Rent of $24 000 was paid from the business bank account. Half of this amount was for Paul’s
own private accommodation.

Paul took a vehicle from the business for his own use. It had originally cost $15 000 and its net
book value at the end of the year was $12 500.

What was the total amount of Paul’s drawings for his first year of trading?

A $31 500

B $34 000
C $43 500

D $46 000

24 Holly runs a catering business. She keeps her book-keeping records manually. Holly is
considering asking Joan to become a business partner. Joan would take over the book-keeping
and would use an accounting software package.

What is not an advantage to Holly?

A It would be easier to obtain additional finance for the business.

B Joan would be more committed to the business if she was a partner.

C Joan would need to pay in the same amount of capital as Holly.

D More of Holly’s time would be available for catering work.

© Cambridge University Press & Assessment 2024 7707/01/SP/27

 9

25 Which should be entered in the appropriation account of a partnership?

interest on interest on partners’

partners’ capital partners’ loans drawings
A   
B   
C   
D   

26 Meena and Khalid are in partnership, sharing profits and losses equally. Interest on capital
account balances is to be allowed at 5%.

The capital account balances at the start of the year were:

Meena $10 000
Khalid $20 000

The profit for the year was $28 000.

How much was credited to Meena’s current account at the end of the year?

A $13 250 B $13 750 C $14 000 D $14 250

27 Z Limited provided the following information.

$
issued and paid-up share capital 200 000
general reserve 30 000
retained earnings 15 000
10% debentures 20 000

What was the value of Z Limited’s equity?

A $215 000 B $230 000 C $245 000 D $265 000

28 Which is an indirect cost?

A carriage inwards

B factory cleaning

C production materials

D production wages

© Cambridge University Press & Assessment 2024 7707/01/SP/27 [Turn over

 10

29 A sports club provided the following information for a year.

$
receipts 21 600
payments 20 000
depreciation charged for the year 1 250
accumulated fund at the year end 15 800

There were no accruals and prepayments and there had been no capital expenditure or
capital receipts.

What was the accumulated fund at the start of the year?

A $12 950 B $14 200 C $15 450 D $16 150

30 A business provided the following information.

$
1 January capital 25 000
31 December assets 75 000
liabilities 36 500
drawings during the year 7 500

What was the profit for the year ended 31 December?

A $6000 B $13 500 C $17 500 D $21 000

31 A trader provided the following information.

revenue $60 000

gross profit $25 000
other income $5000
profit margin 15%

How much were expenses?

A $9000

B $16 000

C $21 000

D $26 000

© Cambridge University Press & Assessment 2024 7707/01/SP/27

 11

32 Ronald’s rate of inventory turnover was 10 times. The inventory at the start of the year was $800
and the inventory at the end of the year was $1000.

What were his purchases for the year?

A $8800 B $9000 C $9200 D $10 800

33 The accountant of P Limited has supplied the following figures.

$
profit for the year before interest 30 000
interest expense for the year 6 000
debentures 20 000
share capital 80 000
retained earnings 20 000

What is the return on capital employed (ROCE) for P Limited?

A 20%
B 24%

C 25%

D 30%

34 Wilma has been trading for a year. She has made a profit of $26 000 but her bank balance has
only increased by $17 400.

What explains this difference?

A She has charged depreciation for the year.

B She has inventory at the end of the year.

C She has taken out a bank loan.

D She sells on a cash basis only.

35 Mo’s acid test (liquid) ratio has fallen from 1.2 : 1 to 0.8 : 1.

What has caused this fall?

A Mo has reduced his drawings.

B Mo has repaid a long-term bank loan.

C Mo has sold non-current assets.

D Mo has under-stated his inventory.

© Cambridge University Press & Assessment 2024 7707/01/SP/27 [Turn over

 12

36 Mark and Martha each run their own consultancy business. Mark has a profit margin of 12% and
Martha has a profit margin of 18%.

What explains this difference?

A Mark charges a higher rate than Martha for consultancy services.

B Mark has less drawings than Martha.

C Martha has controlled her office expenses better than Mark.

D Martha uses a higher mark-up on cost of sales than Mark.

37 Priti uses accounting software which posts a debit and credit entry for each transaction
she enters.

Which accounting concept is this complying with?

A business entity

B duality

C matching

D materiality

38 Which statement describes the fundamental principle of integrity?

A Accountants must behave in a way which is honest and straightforward.

B Accounting statements should be straightforward and complete.

C Professional judgement should not be affected by conflict of interest.

D Technical knowledge should be sufficient to meet the needs of clients.

39 Which of the following actions will help a trader to store her business data sustainably?

1 making sure that all storage devices are password protected

2 only storing information which the business needs

3 storing all accounting data as hard copies and on the cloud

4 using efficient storage methods to minimise power consumption

A 1 and 3

B 1 and 4

C 2 and 3

D 2 and 4

© Cambridge University Press & Assessment 2024 7707/01/SP/27

 13

40 Which statement is not true?

A Accounting software packages require access to a personal computer, laptop or

mobile phone.

B An accounting package can carry out analysis of accounting data.

C Business documents can be prepared manually or digitally.

D Manual accounting records automatically generate digital financial statements.

© Cambridge University Press & Assessment 2024 7707/01/SP/27