TEST BANK FOR ACCOUNTING A SMART

APPROACH 4TH US EDITION BY CAREY

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TEST BANK
CLICK HERE TO ACCESS THE TEST BANK FOR ACCOUNTING A SMART APPROACH 4TH US EDITION
BY CAREY ISBN 9780198844808
Carey, Accounting: A Smart Approach, Fourth Edition

Chapter 2: Introduction to the Statement of Profit or Loss

Test Bank
Type: multiple choice question
Title: Chapter 02 Question 01
1) Kate sells candles at £5 each and each one costs her £2. During June she bought 300
candles and sold 220 candles. Her expenses amounted to £130 for the month. Kate’s profit
for June was:
a. £930.
Feedback: Profit = (220 x £5) - (220 x £2) - £130 = 530
Page reference: 19 and 20
b. £660.
Feedback: Profit = (220 x £5) - (220 x £2) - £130 = 530
Page reference: 19 and 20
c. £770.
Feedback: Profit = (220 x £5) - (220 x £2) - £130 = 530
Page reference: 19 and 20
*d. £530.
Feedback: Profit = (220 x £5) - (220 x £2)- £130 = 530
Page reference: 19 and 20

Type: multiple choice question

Title: Chapter 2 Question 02
2) Which of the following statements regarding trade receivables is NOT true?
a. Trade receivables owe money to the business.
Feedback: Trade receivables do owe money to the business.
Page reference: 21
*b. Trade receivables have supplied goods to the business.
Feedback: Trade receivables supply goods to the business.
Page reference: 21
c. Trade receivables are customers of the business who owe for the goods they have
received.
Feedback: Trade receivables are customers who owe for goods received.
Page reference: 21
d. Trade receivables are treated as current assets.
Feedback: Trade receivables are short-term assets of the business.
Page reference: 21

Type: multiple choice question

Title: Chapter 02 Question 03
3) Shirley has made the following predictions for her business for the first six months of
trading to 30 June:

Sales in Jan, Feb and March = £30,000 per month.

Sales in Apr, May and June = £45,000 per month.
Sales will be on one month’s credit.

The trade receivables figure as of 30 June will be:

a. £NIL
Feedback: Trade receivables at the end of June will be the sales made in June, for which the
cash has not yet been received.
Page reference: 21
b. £30,000.
Feedback: Trade receivables at the end of June will be the sales made in June, for which the
cash has not yet been received.
Page reference: 21
*c. £45,000.

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CLICK HERE TO ACCESS THE TEST BANK FOR ACCOUNTING A SMART APPROACH 4TH US EDITION
BY CAREY ISBN 9780198844808
Carey, Accounting: A Smart Approach, Fourth Edition

Feedback: Trade receivables at the end of June will be the sales made in June, for which the
cash has not yet been received.
Page reference: 21
d. £90,000.
Feedback: Trade receivables at the end of June will be the sales made in June, for which the
cash has not yet been received.
Page reference: 21

Type: multiple choice question

Title: Chapter 02 Question 04
4) Which of the following payments is capital expenditure?
a. Money put into the business by the owner.
Feedback: This is treated as capital introduced into the business but is NOT capital
expenditure.
Page reference: 26
*b. Purchase of a motor van.
Feedback: A motor van is capital expenditure.
Page reference: 26
c. Cost of servicing the motor van.
Feedback: The cost of servicing a van is revenue expenditure.
Page reference: 26
d. Cost of hiring a motor van.
Feedback: The cost of hiring a van is revenue expenditure.
Page reference: 26

Type: multiple choice question

Title: Chapter 02 Question 5
5) Which of the following is not a revenue expense?
*a. Drawings
Feedback: Drawings are money taken out of the business by the owner and are NOT a
revenue expense.
Page reference: 23, 26
b. Rent and rates.
Feedback: Rent and rates are a revenue expense.
Page reference: 26
c. Salaries.
Feedback: Salaries are a revenue expense.
Page reference: 26
d. Advertising.
Feedback: Advertising is a revenue expense.
Page reference: 26

Type: multiple choice question

Title: Chapter 02 Question 06
6) Which of the following is prepared to determine a business's net profit or net loss for the
year?
a. A trial balance.
Feedback: A trial balance shows all the account balances but does not show the net
profit/loss for the year.
Page reference: 24
b. A statement of financial position.
Feedback: A statement of financial position shows the assets and liabilities and capital of the
business.
Page reference: 27
c. A statement of cash flows.
Feedback: A statement of cash flows looks at the cash flows for the period.
Page reference: 27
*d. A statement of profit or loss.
Feedback: A statement of profit or loss shows the net profit or loss for the year.

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CLICK HERE TO ACCESS THE TEST BANK FOR ACCOUNTING A SMART APPROACH 4TH US EDITION
BY CAREY ISBN 9780198844808
Carey, Accounting: A Smart Approach, Fourth Edition

Page reference: 27

Type: multiple choice question

Title: Chapter 02 Question 07
7) During the year ended 31 December, the business made sales of £35,000 and purchases
of £20,000. Inventory at the beginning of the year was valued at £6,000 and, at 31 December,
inventory was valued at £3,500. The gross profit for the year was:
a. £17,500.
Feedback: Gross profit = 35,000 - (6000 + 20,000 - 3500) = 12,500
Page reference: 28–9
b. £24,500.
Feedback: Gross profit = 35,000 - (6000 + 20,000 - 3500) = 12,500
Page reference: 28–9
*c. £12,500.
Feedback: Gross profit = 35,000 - (6000 + 20,000 - 3500) = 12,500
Page reference: 28–9
d. £5,500.
Feedback: Gross profit = 35,000 - (6000 + 20,000 - 3500) = 12,500
Page reference: 28–9

Type: multiple choice question

Title: Chapter 02 Question 08
8) Ben started trading on 1 January. His trial balance at 31 December, the end of his first year
of trading is given below.

Debit Credit
£ £
Opening capital 26,000
Turnover 95,000
Purchases 64,000
Rent 6,000
Motor van 18,000
Drawings 10,000
Other expenses 27,000
Bank overdraft 4,000
Total 125,000 125,000

If the closing inventory at 31 December was £5,000 and depreciation is to be ignored, which
one of the following is true?
a. The gross profit will be £31,500 and the net profit will be £25,000.
Feedback: Gross profit is 95 - (64 - 5) = 36, net profit is 36 – (6 +27) = 3
Page reference: 27–9
b. The gross profit will be £36,000 and the net profit will be £9,000.
Feedback: Gross profit is 95 - (64 - 5) = 36, net profit is 36 – (6 + 27) = 3
Page reference: 27–9
c. The gross profit will be £31,000 and the net profit will be £3,000.
Feedback: Gross profit is 95 - (64 - 5) = 36, net profit is 36 – (6 + 27) = 3
Page reference: 27–9
*d. The gross profit will be £36,000 and the net profit will be £3,000.
Feedback: Gross profit is 95 - (64 - 5) = 36, net profit is 36 – (6 + 27) = 3
Page reference: 27–9

Type: multiple choice question

Title: Chapter 02 Question 09
9) If the purchase of shop fitting for £25,000 is included in the cost of sales, then:
a. Gross profit ONLY will be understated by £25,000.
Feedback: Gross profit and net profit are affected. They are understated as costs included in
arriving at these figures are higher than they should be.

© Oxford University Press, 2020.

CLICK HERE TO ACCESS THE TEST BANK FOR ACCOUNTING A SMART APPROACH 4TH US EDITION
BY CAREY ISBN 9780198844808
Carey, Accounting: A Smart Approach, Fourth Edition

Page reference: 28–9 ,31

b. Gross profit ONLY will be overstated by £25,000.
Feedback: Gross profit and net profit are affected. They are understated as costs included in
arriving at these figures are higher than they should be.
Page reference: 28–9 ,31
c. Net profit ONLY will be understated by £25,000.
Feedback: Gross profit and net profit are affected. They are understated as costs included in
arriving at these figures are higher than they should be.
Page reference: 28–9 ,31
*d. Both gross profit and net profit will be understated by £25,000.
Feedback: Gross profit and net profit are affected. They are understated as costs included in
arriving at these figures are higher than they should be.
Page reference: 28–9 ,31

Type: multiple choice question

Title: Chapter 02 Question 10
10) In accounting what is meant by the term ‘purchases’?
a. All items bought.
Feedback: Items bought will include all revenue and capital expenses.
Page reference: 20
b. All good purchased and paid for.
Feedback: All good purchased and paid for will exclude items bought but not yet paid for.
Page reference: 20
*c. All good bought for re-sale.
Feedback: Purchases are all good bought for re-sale.
Page reference: 20
d. All goods held in inventory.
Feedback: This will only include purchases that remain unsold.
Page reference: 20

© Oxford University Press, 2020.