Deck 18: Double-Entry Bookkeeping II

Question 1

Skip buys equipment second hand for £20,000 when it would have cost him £28,000 if he had bought new equipment.
Skip should record the equipment in the financial statements at the amount of £20,000.

Answer 1

True

Question 2

Skip bought a fridge for the amount of £300 for his business use. Skip should include the fridge at a cost of £300 in the financial statements.

Answer 2

True

Question 3

Skip has a year-end of 30 June 2021. He has paid telephone line rental of £60 for the period from 1 July 2021 to 31 August 2021. Skip should record a prepayment of £60 in his financial statements.

Answer 3

True

Question 4

Skip has been informed that one of the trade receivables, Chelsea Freight, has ceased trading and is unlikely to pay any of its business debts. Chelsea Freight owes the business £2,000 and this amount should not be written off as a bad debt in line with the prudence concept.

Question 5

Skip employs a member of staff who has experience of debt collection. Skip should record the member of staff as a liability in the business's financial statements.

Question 6

Included in the telephone rentals account at 31 December 2021, Rick had included business telephone rental of £150 paid in advance for 2022.
The double entry for this should be
Increase an asset a/c= DEBIT EXPENSE A/C £150
Decrease an expense a/c CREDIT PREPAYMENT A/C £150

Question 7

Rick rented an office for the business for £6,000 per annum from 1 January 2021 and pays the rental quarterly in arrears. One quarter's rent was owing at the year end.
The double entry for this should be
decrease liability a/c = DEBIT OFFICE RENTAL A/C £1,500
decrease expense a/c = CREDIT ACCRUALs A/C £1,500

Question 8

Rick bought a kettle for his own personal use costing £80 on 31 December 2021 using his own bank account.
For this transaction, the kettle would not be recorded as it is not a business transaction.

Question 9

Rick bought a car for use in the company costing £5,000 on 31 December 2021. He took out a business loan for this on 31 December 2021.
The double entry for the purchase of van is:
Increase the expense a/c = DEBIT LOAN ACCOUNT A/C £5,000
Increase liability a/c = CREDIT MOTOR VEHICLES A/C £5,000

Question 10

Rick took out a business loan on 30 October 2022. The loan attracts interest at the rate of 10% per annum, payable 6 monthly in arrears. If the business year end is 31 December 2022, then 2 months interest should be recorded as income in the statement of profit or loss.