AAT Basic Accounting 1 Assignment 3

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Before attempting this assignment you should have read chapters 1 to 11 of your Osborne Book ”BASIC ACCOUNTING 1” and attempted the relevant chapter activities in your WORKBOOK.
The pass mark for the assignment is 70% - should you fail then please review the areas where you are weak. If you are still having problems then please do not hesitate to contact AATFree
Good Luck!


Questions and Answers
  • 1. 

    A three-column cash book has three columns, one for bank, one for VAT and one for _______________________

    Explanation
    The three-column cash book has three columns: one for bank, one for VAT, and one for discounts. This allows for the recording of different types of discounts, such as settlement discounts or cash discounts, which are commonly offered by suppliers to encourage prompt payment. The discounts column helps to accurately track and account for these deductions in the cash book.

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  • 2. 

    A cash purchase is where a business buys goods from a supplier and pays in full immediately

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    A cash purchase refers to a situation where a business purchases goods from a supplier and makes the full payment immediately. This means that there is no credit involved, and the business pays for the goods upfront. This type of transaction is common in retail or small business settings where immediate payment is required. Therefore, the statement "A cash purchase is where a business buys goods from a supplier and pays in full immediately" is true.

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  • 3. 

    Petty cash receipts are recorded on the credit side.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    Petty cash receipts are not recorded on the credit side. Instead, they are recorded on the debit side. This is because petty cash receipts represent an increase in cash, which is an asset. Debits increase assets, while credits decrease them. Therefore, petty cash receipts are recorded as a debit entry in the accounting records.

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  • 4. 

    Transactions recorded in the Petty Cash Book include:

    • A.

      Postage

    • B.

      Stock or inventory

    • C.

      Window Cleaning

    • D.

      Window repairs

    • E.

      Taxi fares

    Correct Answer(s)
    A. Postage
    C. Window Cleaning
    E. Taxi fares
    Explanation
    The transactions recorded in the Petty Cash Book include expenses such as postage, window cleaning, and taxi fares. These expenses are typically small and frequent, and are paid for using the petty cash fund. By recording these transactions in the Petty Cash Book, the company can keep track of these expenses and ensure that the petty cash fund is properly managed.

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  • 5. 

    A trade receivable is an example of:

    • A.

      Asset

    • B.

      Liability

    • C.

      Income

    Correct Answer
    A. Asset
    Explanation
    A trade receivable refers to the amount owed to a business by its customers for goods or services provided on credit. As the business has the right to receive this payment in the future, it represents an economic resource that is expected to generate future economic benefits. Therefore, a trade receivable is classified as an asset on the balance sheet of the business.

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  • 6. 

    Which of the following items are items of capital expenditure?
    1. Computer repair
    2. Purchase of a property
    3. Short-term hire of machinery

    • A.

      1 and 2

    • B.

      1 and 3

    • C.

      2 only

    • D.

      3 only

    Correct Answer
    C. 2 only
    Explanation
    The correct answer is 2 only. Capital expenditure refers to the purchase of long-term assets that are expected to provide benefits for more than one year. In this case, the purchase of a property qualifies as a capital expenditure because it is a long-term asset. On the other hand, computer repair and short-term hire of machinery are considered operating expenses as they are short-term in nature and do not provide long-term benefits.

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  • 7. 

    Which of the following items are items of capital expenditure?
    1. Cost of re-decorating offices
    2. Purchase of additional machinery
    3. Construction of an extension to the Head Office building

    • A.

      1 and 2

    • B.

      1 and 3

    • C.

      2 and 3

    • D.

      3 only

    Correct Answer
    C. 2 and 3
    Explanation
    Cost of re-decorating is revenue expenditure because it is a form of maintenance and repair work.

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  • 8. 

    The accounting equation is: Assets = Liabilities + Contributed Capital

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    The correct answer is False because the accounting equation is Assets = Liabilities + Equity, not Contributed Capital. Equity includes both contributed capital and retained earnings.

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  • 9. 

    The accounting equation is Assets = Liabilities - Owners Equity.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    The given statement is incorrect. The correct accounting equation is Assets = Liabilities + Owners Equity, not Assets = Liabilities - Owners Equity. The equation represents the relationship between a company's assets, liabilities, and owners' equity, where the total assets of a company are equal to the sum of its liabilities and owners' equity.

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  • 10. 

    Which of the following statements is incorrect:

    • A.

      Assets - Capital = Liabilities

    • B.

      Liabilities + Capital = Assets

    • C.

      Liabilities + Assets = Capital

    • D.

      Assets - Liabilities = Capital

    Correct Answer
    C. Liabilities + Assets = Capital
    Explanation
    The statement "Liabilities + Assets = Capital" is incorrect because in accounting, the equation is Assets = Liabilities + Capital. This equation is known as the accounting equation or the balance sheet equation. It represents the fundamental relationship between a company's assets (what it owns), liabilities (what it owes), and capital (the owner's equity). The equation must always balance, meaning that the total value of assets must equal the total value of liabilities plus capital.

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  • 11. 

    Which of the following is not an asset

    • A.

      Office Furniture

    • B.

      Cash at Bank

    • C.

      Accounts receivable

    • D.

      Loan from V Porter

    Correct Answer
    D. Loan from V Porter
    Explanation
    A loan from V Porter is not considered an asset because it represents a liability or an obligation to repay the borrowed amount to V Porter. Assets are resources or items of value that a company or individual owns, such as office furniture, cash at bank, and accounts receivable. These assets can be used to generate income or provide future benefits to the owner. In contrast, a loan represents a debt that needs to be repaid, making it a liability rather than an asset.

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  • 12. 

    Which of the following should not be called sales:

    • A.

      Office fixtures sold

    • B.

      Goods sold on credit

    • C.

      Goods sold for cash

    • D.

      Sale of item previously included in 'Purchases'.

    Correct Answer
    A. Office fixtures sold
    Explanation
    Office fixtures sold should not be called sales because office fixtures are considered as assets of a company and their sale is categorized as a capital expenditure rather than revenue generated from sales. Sales typically refer to the revenue generated from the sale of goods or services that are part of the core business operations of a company.

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  • Current Version
  • Mar 20, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • May 02, 2013
    Quiz Created by
    Woodfrank

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