Skills Exercises

AO1 Knowledge and understanding

Cambridge IGCSETM / IGCSE (9−1)

Accounting 0452 / 0985

Cambridge O Level
Accounting 7707
For examination from 2023
© Cambridge University Press & Assessment 2022 v2 (updated October 2023)
Cambridge Assessment International Education is part of Cambridge University Press & Assessment.
Cambridge University Press & Assessment is a department of the University of Cambridge.

Cambridge University Press & Assessment retains the copyright on all its publications. Registered centres
are permitted to copy material from this booklet for their own internal use. However, we cannot give
permission to centres to photocopy any material that is acknowledged to a third party even for internal use
within a centre.
Contents
Introduction.................................................................................................................................... 4
AO1 Knowledge and understanding................................................................................................... 5
Exercise 1: Answering the question................................................................................................ 5
Exercise 2: Key terminology........................................................................................................ 11
Exercise 3: Calculations ............................................................................................................. 21
Exercise 4: Accounting principles and policies ............................................................................... 28
Exercise 5: Facts, terms and principles......................................................................................... 32
Skills Exercises

Introduction
Cambridge IGCSE / O Level Accounting attracts a variety of learners from many different backgrounds. For
some learners Accounting is a new subject and an opportunity to explore an area of study that interests
them, while developing a set of transferable skills. Other learners have previously studied Accounting and
are looking to continue developing their knowledge of the subject. Either way, the study of Accounting allows
learners to experience the diverse and dynamic world within which organisations exist and gain the
knowledge needed to understand how organisations operate within real contexts, analyse alternative
courses of action and develop the ability to make justified recommendations.

Skills and why they are important?

Skills are the key to success. The performance of candidates in Cambridge IGCSE/ O Level Accounting
examinations have shown a range of areas where improvement would be helpful. These areas of
improvement tend to centre around the assessment objectives (AOs) of the course and we have addressed
these AOs in three Skills Exercise booklets.

• Skills Exercises – AO1 Knowledge and understanding

• Skills Exercises – AO2 Analysis

• Skills Exercises – AO3 Evaluation

Skills Exercises make use of examination questions and data and include activities and worksheets to help
skills development and incorporate suggested teaching approaches, such as group work, discussion,
structured support and writing in sequence. They do not attempt to cover all possible aspects of the
examinations, only those problem areas which have presented consistently over time.

How will these skills be developed?

The Skills Exercise booklets aim to help learners develop skills in:

• applying knowledge and understanding of facts, terms, concepts, policies, procedures and
techniques relating to financial and management accounting in a variety of accounting situations and
present outcomes in the most appropriate manner

• developing skills of analysis by selecting, calculating and interpreting financial and management
accounting information to communicate outcomes in the most appropriate manner

• building evaluation skills, including making judgements and drawing conclusions based on financial
and non-f inancial data to make recommendations and decisions.

Skills Exercises provide suggestions so you can have confidence that the materials you prepare and use in
the classroom are building skills and resilience in your learners. This document should be used alongside the
other teaching and learning resources provided on the School Support Hub.

4
 Skills Exercises

AO1 Knowledge and understanding

Learners demonstrate knowledge and understanding of f acts, terms, concepts, policies, procedures
and techniques relating to financial accounting and cost and management accounting.

Learners will apply this knowledge and understanding to a variety of accounting situations and
problems.

The ability to apply knowledge and understanding to these accounting situations and problems is
essential to be able to access AO1 Knowledge and Understanding marks and to produce good quality
analysis and evaluation. Learners need to:

• demonstrate knowledge and understanding of facts, terms, concepts, policies, procedures and
techniques relating to financial accounting and cost and management accounting
• apply this knowledge and understanding to a variety of accounting situations and problems and
present outcomes in the most appropriate form.

The f ollowing table contains some command words that might indicate to learners that they need to
demonstrate and apply knowledge and understanding.

Command word What it means

Calculate work out from given facts, figures or information

Define give precise meaning

Describe state the point of a topic/give characteristics and main features

Prepare present information in a suitable format

State express in clear terms

Exercise 1: Answering the question

When a learner reads an examination question f or knowledge and understanding, they should know
what is required, whether to demonstrate knowledge and understanding by stating the terms and facts
or apply the knowledge and understanding of accounting concepts, policies, procedures and
techniques.

Activity 1: How to answer the question

Provide learners with a series of knowledge and understanding questions from either past examination
or specimen papers. The questions on Worksheet 1: How to answer the question can be used along
with any other knowledge and understanding questions.

5
Skills Exercises

For each question, learners decide what is required. This provides a starting point to answer the
question. Go through the worksheet with learners to check they understand what is required of the task.
For this activity learners may work individually, in pairs or groups.

Use Worksheet 1: How to answer the question answers and ask learners to peer assess each
other’s work. Lead a class discussion to develop learners’ understanding. Ensure any misconceptions
are addressed.

6
 Skills Exercises

Worksheet 1: How to answer the question

For each of the following questions, decide whether it is a demonstration and/or application of
knowledge and understanding.

1. Identif y two advantages to the business of preparing a purchases ledger control account.

What are you identifying?

Is it demonstration or application of knowledge and understanding or both?

2. State two limitations of preparing accounting statements.

What are you identifying?

Is it demonstration or application of knowledge and understanding or both?

3. Calculate the profit/loss on disposal of a non-current asset for the year ended 31 December 2020.

What are you identifying?

Is it demonstration or application of knowledge and understanding or both?

4.Calculate the adjustment to the provision for doubtful debts for the year ended 31 December 2020.

What are you identifying?

Is it demonstration or application of knowledge and understanding or both?

5. Prepare Stazi’s ledger account for the provision for depreciation at 31 May 2020.
What are you identifying?

Is it demonstration or application of knowledge and understanding or both?

7
Skills Exercises

6. State three clauses that may be included in a partnership agreement.

What are you identifying?

Is it demonstration or application of knowledge and understanding or both?

7. Prepare Angela’s cash book for the month ended 31 August 2023 and bring down the balance on 1
September 2023.

What are you identifying?

Is it demonstration or application of knowledge and understanding or both?

8
 Skills Exercises

Worksheet 1: How to answer the question answers

1. Identif y two advantages to the business of preparing a purchases ledger control account.
What are you identifying?
Advantages of preparing a purchases ledger control account.

Is it demonstration or application of knowledge and understanding or both?

Demonstration of knowledge and understanding.

2. State two limitations of preparing accounting statements.

What are you identifying?
Limitations of preparing accounting statements.

Is it demonstration or application of knowledge and understanding or both?

Demonstration of knowledge and understanding.

3. Calculate the profit/loss on disposal of a non-current asset for the year ended 31 December 2020.

What are you identifying?

The profit/loss on disposal of a non-current asset.

Is it demonstration or application of knowledge and understanding or both?

Both, demonstration and application of knowledge and understanding.

4. Calculate the adjustment to the provision for doubtful debts for the year ended 31 December 2020.

What are you identifying?

The adjustment to the provision for doubtful debts.

Is it demonstration or application of knowledge and understanding or both?

Both, demonstration and application of knowledge and understanding.

5. Prepare Stazi’s ledger account for the provision for depreciation at 31 May 2020.
What are you identifying?
The ledger account for the provision for depreciation.

Is it demonstration or application of knowledge and understanding or both?

Both, demonstration and application of knowledge and understanding.

9
Skills Exercises

6. State three clauses that may be included in a partnership agreement.

What are you identifying?
Three items for partnership agreement.

Is it demonstration or application of knowledge and understanding or both?

Demonstration of knowledge and understanding.

7. Prepare Angela’s cash book for the month ended 31 August 2023 and bring down the balance on 1
September 2023.

What are you identifying?

The cash book.

Is it demonstration or application of knowledge and understanding or both?

Both, demonstration and application of knowledge and understanding.

10
 Skills Exercises

Exercise 2: Key terminology

Cambridge IGCSE / O Level Accounting has terminology that learners need to know and understand
so they can interpret what is happening in an organisation, select and analyse data and apply this
knowledge as required in the examination.

Activity 1: Using accounting terminology

Give learners two similar statements using dif ferent accounting terminology. Use the phrases in
Worksheet 2: Using accounting terminology or select examples f rom other areas of the syllabus.
Go through the worksheet with learners to check they understand what is required of the task. For this
activity learners may work individually or in pairs.

Use Worksheet 2: Using accounting terminology answers and ask learners to peer assess each
other’s work. Lead a group discussion about how each term changes the nature of the phrase. Ensure
any misconceptions are addressed.

11
Skills Exercises

Worksheet 2: Using accounting terminology

Explain the difference between the following business statements.
1.

Statement 1 Statement 2
The business makes cash sales. The business sells a non-current asset for cash.
What is the difference between Statement 1 and Statement 2?

2.

Statement 1 Statement 2
Soham is a shareholder of a business. Soham is a stakeholder of a business.
What is the difference between Statement 1 and Statement 2?

3.

Statement 1 Statement 2
The business has prepared the trade payables The business has prepared the trade payables
ledger control account. subsidiary ledger account.
What is the difference between Statement 1 and Statement 2?

4.
Statement 1 Statement 2
The business has prepared the income The business has prepared the statement of
statement. f inancial position.
What is the difference between Statement 1 and Statement 2?

12
 Skills Exercises

Worksheet 2: Using accounting terminology answers

1.
Statement 1 Statement 2
The business makes cash sales. The business sells a non-current asset for cash.
What is the difference between Statement 1 and Statement 2?
Statement 1 is an example of revenue receipts whereas statement 2 is an example of a
capital receipt.

2.

Statement 1 Statement 2
Soham is a shareholder of a business. Soham is a stakeholder of a business.
What is the difference between Statement 1 and Statement 2?
A shareholder owns a part of a company whereas a stakeholder is anyone who is interested
in a business. All shareholders are stakeholders but not all stakeholders are shareholders.

3.

Statement 1 Statement 2
The business has prepared the trade payables The business has prepared the trade payables
ledger control account. subsidiary ledger account.
What is the difference between Statement 1 and Statement 2?
The trade payables ledger control account shows the balance of total trade payables
whereas the trade payables subsidiary ledger account shows the balance of the individual
trade payables.

Ledger control account provides the balance for trade payables to prepare the financial
statements whereas the individual balances of subsidiary ledger accounts are to be added
together to get the total figure for trade payables to prepare the financial statements.

4.

Statement 1 Statement 2
The business has prepared the income The business has prepared the statement of
statement. f inancial position.
What is the difference between Statement 1 and Statement 2?
The income statement consists of two sections the trading section and the profit and
loss section.

The statement of financial position shows the assets and liabilities of a business on a
certain date.

13
Skills Exercises

Activity 2: Key terminology meanings

Many terms in accounting can mean the same thing. It is important that learners understand these terms
and what they mean.

Provide learners with a list of key terminology, some of which have the same meaning. The list in
Worksheet 3: Key terminology meanings can be used as a basis for some of these.

Learners f ind the odd one out which has a completely different meaning to the other terms and explain
why. Go through the worksheet with learners to check they understand what is required of the task. For
this activity learners may work individually or in pairs.

Use Worksheet 3: Key terminology meanings answers and ask learners to peer assess each other’s
work. Lead a group discussion about how and why the odd one out has a different meaning. Ensure
any misconceptions are addressed.

14
 Skills Exercises

Worksheet 3: Key terminology meanings

Which of the following terms has a different meaning to the other terms and is the odd one out?
Highlight the word and explain why in the box below.

1.
• Invoice
• Debit note
• Credit note
Why is it the odd one out?

2.
• Consistency
• Comparability
• Materiality
Why is it the odd one out?

3.
• Cash discount
• Settlement discount
• Trade discount
Why is it the odd one out?

4.
• Sales daybook
• Sales journal
• Sales account
Why is it the odd one out?

15
Skills Exercises

Worksheet 3: Key terminology meanings answers

1.
• Profit
• Revenue
• Turnover
Why is it the odd one out?
The other two terms mean the amount gained from selling goods. Profit requires the
subtraction of costs/expenses from this amount.

2.
• Consistency
• Comparability
• Materiality
Why is it the odd one out?
Comparability is an accounting policy whereby accounts are prepared under international
guidelines. The other two terms are accounting principles which are rules for recording
financial information

3.
• Cash discount
• Settlement discount
• Trade discount
Why is it the odd one out?
The other two terms mean that the discount is allowed for early payment of the amount
due, but trade discount is not dependent on payment made, it is allowed for bulk buying
and for loyalty.

4.
• Sales daybook
• Sales journal
• Sales account
Why is it the odd one out?

The other two terms are books of prime entry to record the credit sales, but the purchases
account records the sales whether cash or credit.

16
 Skills Exercises

Activity 3: Stating different examples

An examination question can have a simple topic at its core but require different examples to be given
to allow a f ull answer.

Learners need to be able to link these different types together so they can choose the most important
or most relevant ones to use in an answer.

Give learners a topic area f rom the syllabus. The topics in Worksheet 4: Stating different examples
can be used as a basis for these terms or any other topic from the syllabus could be used. Go through
the worksheet with learners to check they understand what is required of the task. For this activity
learners may work individually or in pairs.

Learners create a mind-map using different examples that link to the specific topic.

Use Worksheet 4: Stating different examples answers and ask learners to peer assess each other’s
work. Lead a class discussion so that learners can share each group’s ideas. Where a group has added
an example that no-one else has, ask for an explanation as to why/how it links to the topic.

Develop this into a discussion on which example might be most relevant when answering different
examination questions. Ensure any misconceptions are addressed.

17
Skills Exercises

Worksheet 4: Stating different examples

1. State as many as possible different examples of interested parties of accounting inf ormation. The
f irst two have been added for you.

Managers - to take remedial action

Interested parties Bank manager – whether to grant a loan

2. State as many as possible different types of errors which do not affect the trial balance. The f irst two
have been added for you.

Omission

Errors which do
not affect trial Original entry
balance

18
 Skills Exercises

Worksheet 4: Stating different examples answers

1.

Interested parties of financial information

Owners Employees

Managers Customers

Bank manager Trade unions

Trade payables Government departments

Potential buyer Club members

2.

Errors which do not affect the trial balance

Omission Original entry

Commission Reversal

Principle Compensating

19
Skills Exercises

Activity 4: Key terminology definitions

Learners should have access to a set of definitions for as many key terms as possible. Most of the key
terminology is found in the syllabus and can be found in a good textbook or on the internet.

Provide pairs of learners with a different topic from the syllabus. For example, the subject content, Topic
5.2 Partnerships, can be split into the following topics depending on how many learners you have.

Topic Sub-topics

5.2 Partnerships • explain the advantages and disadvantages of

f orming a partnership
• outline the importance of a partnership
agreement
• explain the purpose of an appropriation account
• prepare income statements, appropriation
accounts and statements of financial position
• record interest on partners’ loan, interest on
capital, interest on drawings, partners’ salaries
and the division of profit or loss
• make adjustments to financial statements, e.g.
goods taken by a partner for own use
• explain the uses and differences between
capital and current accounts
• draw up partners’ capital and current accounts
in ledger account form as part of a statement of
f inancial position.

Learners list every key term they can find in their topic from the syllabus.

Learners then f ind a definition for that key term and record it.

When completed, discuss and fill in any gaps so learners have a complete definition list.

Alternatively, it is possible to build a vocabulary list while teaching the syllabus. As each topic of the
syllabus is taught, give learners the correct definitions.

20
 Skills Exercises

Exercise 3: Calculations
The ability to use numbers is an essential skill in Cambridge IGCSE / O Level Accounting. However,
many calculations are based on a formula which must be known and understood.

Activity 1: Formulae

In addition to f ormulae f or specific ratios in the syllabus, give learners a list of the most common
f ormulae which are listed on Worksheet 5: Formulae or add to this to create a complete list f or the
course. Go through the worksheet with learners to check they understand what is required of the task.
For this activity learners may work individually or in pairs.

Use Worksheet 5: Formulae answers and ask learners to peer assess each other’s work. Lead a
discussion about the information that each formula shows and how useful it may be to the business.

Ensure any misconceptions are addressed.

21
Skills Exercises

Worksheet 5: Formulae
Identif y the correct formula for each of the following calculations:

Calculations Formula

Total revenue / Sales revenue / Turnover =

Prof it/Loss =

Depreciation (Straight-line method) =

Depreciation (Reducing value method) =

Prof it/loss on disposal of non-current assets =

Accumulated depreciation

Gross margin =

Mark up =

Prof it margin

Return on capital employed =

Net current assets (Working capital) =

Current ratio =

Liquid (Acid test) ratio =

Rate of inventory turnover =

Trade receivables turnover =

Trade payables turnover =

22
 Skills Exercises

Worksheet 5: Formulae answers

Calculations Formula

Total revenue / Sales revenue / Turnover = Units sold X selling per unit

Selling price per unit – Costs per unit OR

Profit/Loss =
Total revenue – total costs/expenses

Depreciation (Straight-line method) = Cost of non-current asset X rate of depreciation

(Cost of non-current asset – Accumulated

Depreciation (Reducing value method) = depreciation on non-current asset) X rate of

depreciation

Sale proceeds of non-current assets – Carrying

Profit/Loss on disposal of non-current assets =
value of non-current assets

Accumulated depreciation= Depreciation to date + current year’s depreciation

Gross Profit x 100

Gross margin =
Revenue

Gross Profit x 100

Mark up =
Cost of Sales

Profit for the year X 100

Prof it margin
Revenue 1

Net profit before interest x 100

Return on capital employed =
Capital Employed

Net current assets (Working capital) = Current assets – Current liabilities

Current Assets
Current ratio =
Current Liabilities

Current Assets – Inventory

Liquid (Acid test) ratio =
Current Liabilities

Cost of Goods Sold

Rate of inventory turnover =
Average Inventory

Trade Receivables X 365

Trade receivables turnover =
Credit Sales 1

Trade Payables X 365

Trade payables turnover =
Credit Purchases 1

23
Skills Exercises

Activity 2: Use of formulae

Learners need to understand and apply the f ormulae for the provided situation to f ind the required
inf ormation to answer the multiple-choice questions.

Provide learners with f ormulae to be completed for different accounting problems. Worksheet 6: Use
of formulae can be used or replaced with other accounting f ormulae. Go through the worksheet with
learners to check they understand what is required of the task. For this activity learners may work
individually or in pairs. Learners complete the formulae sheet by writing the formulae.

Use Worksheet 6: Use of formulae answers and ask learners to peer assess each other’s work The
completed formulae sheet can be circulated as handouts to the class.

Ensure any misconceptions are addressed.

24
 Skills Exercises

Worksheet 6: Use of formulae

Identif y the correct answer by using the correct formula.

1. A trader provided the following information for the year ended 30 September 2021.

Revenue 150 000

Cost of sales 95 000

Expenses 18 000

What was the profit for the year as a percentage of revenue?

A. 24.67% B. 36.67% C. 38.95% D. 57.89

2. A business provided the following information:

Year-end capital 230 000

Long term loan 45 000

Prof it for the year before interest 27 000

Finance costs 1800

What was the return on capital employed?

A. 9.16% B. 9.82% C. 10.96% D. 11.74%

3. Robbi’s working capital consisted of the following:

Current assets $ Current liabilities $

Inventory 10 600 Trade payables 14 600

Trade receivables 13 200 Bank overdraft 5900
Cash 1140
Calculate Robbi’s current (working capital) ratio.

A. 0.70:1 B. 0.82:1 C. 1.22:1 D. 2.11:1

4. Jim provided the following information for the year ended 31 December 2021:

$
Revenue 226 000
Cost of sales 169 500
Inventory 1 January 19 600
Inventory 31 December 18 200

25
Skills Exercises

Calculate Jim’s rate of inventory turnover.

A. 9.32 times B. 9.97 times C. 11.96 times D. 12.42 times

5. Remi provided the following information for the year ended 31 March 2022:

$
Revenue- credit sales 74 000
cash sales 2800
Trade receivables 6900

What is the rate of trade receivables turnover for the year? Calculate to the nearest whole day.

A. 11 days B. 12 days C. 33 days D. 35 days

26
 Skills Exercises

Worksheet 6: Use of formulae answers

1. What was the profit for the year as a percentage of revenue?

A. 24.67%

Formula
Profit (%) = Profit × 100 37 000 X 100 = 24.67%
Revenue 150 000
Capital employed = issued shares + reserves + non-current liabilities

2. What was the return on capital employed?

B. 9.82%

Formula
Return on capital employed (%) = Profit from operations x 100 27 000 X 100 = 9.82%
Capital employed 275 000

3. Calculate Robbi’s current (working capital) ratio.

C. 1.22:1

Formula
Current assets: current liabilities 24 940:20500 = 1.22:1

4. Calculate Jim’s rate of inventory turnover.

B. 9.97 times

Formula
Cost of sales X 365 169 500 X 365 = 9.97 times
Average inventory 18 900

5. What is the rate of trade receivables turnover for the year? Calculate to the nearest whole
day.

D. 35 days

Formula
Trade receivables X 365 6900 X 365
Credit sales 74 000

27
Skills Exercises

Exercise 4: Accounting principles and policies

The syllabus includes the accounting principles and policies that need to be known and understood.
The basic elements of each accounting principle can be summarised so they can be easily recalled by
learners.

Activity 1: Complete the principles

Accounting concepts are an important foundation for gaining knowledge and understanding of the
subject. Learners need to understand how each principle can be used to help with the higher level
skills of analysis and evaluation.

Learners should develop a comprehensive knowledge of all the accounting included in the syllabus.

Provide learners with a partially completed diagram representing one or more of the accounting principle
f rom the syllabus. The principles in Worksheet 7: Complete the principles can be replaced with
dif ferent ones as required. Go through the worksheet with learners to check they understand what is
required of the task. For this activity learners may work individually or in pairs.

Use Worksheet 7: Complete the principles answers and ask learners to peer assess each other’s
work. Lead a group discussion around when the specific principle might be used.

Ensure any misconceptions are addressed.

28
 Skills Exercises

Worksheet 7: Complete the principles

Complete each concept by inserting the missing words.

1. Matching principle…

states that ………………… incurred are ……………………….

to the ………………………. earned during that

particular ……………………….. year.

2. Historic…

states that ….. ………….. and ………………….

should be recorded in the ……………… ………….. at their

……………… …………..

3. Business entity…

states that …….. ……………… is treated as

………………… ……………. f rom …….. ………………

of the business.

29
Skills Exercises

Worksheet 7: Complete the principles answers

1. Matching principle…

states that expenses incurred are matched

to the revenue earned during that

particular accounting year.

2. Historic…

states that all assets and expenses

should be recorded in the ledger accounts at their

actual cost.

3. Business entity…

states that the business is treated as

completely separate f rom the owner

of the business.

30
 Skills Exercises

Activity 2: Accounting techniques/methods presentations

Provide each learner with an accounting technique/method. Depending on the number of learners, you
may need to give each learner more than one technique.

Learners prepare a presentation and notes on their accounting technique. Learners give the
presentation to the whole group and hand out the notes. The most common techniques/methods are
shown below.

• sources and recording of data

• verif ication of accounting records

• accounting procedures

• preparation of financial statements.

31
Skills Exercises

Exercise 5: Facts, terms and principles

Learners need to demonstrate knowledge and understanding of f acts, terms, principles, policies,
procedures and techniques relating to book-keeping and financial accounting.

Learners apply this knowledge and understanding to a variety of accounting situations and problems.
These accounting situations and problems are ones that learners are likely to be familiar with and may
have encountered during their study.

The ability to apply knowledge and understanding to these accounting situations and problems is
essential to be able to access AO1 Knowledge and Understanding marks and to produce good quality
analysis and evaluation.

Activity 1: Knowing facts, terms and concepts

Learners need to understand that for facts, terms and principles, there is only one correct answer.

Give learners dif ferent questions with f our possible answers A, B, C and D. Worksheet 8: Knowing
facts, terms and principles can be used or replaced with other ones.

For each question, learners choose the correct answer. Go through the worksheet with learners to
check they understand what is required of the task. For this activity learners may work individually or in
pairs.

Use Worksheet 8: Knowing facts, terms and principles answers and ask learners to peer assess
each other’s work. Ensure any misconceptions are addressed.

32
 Skills Exercises

Worksheet 8: Knowing facts, terms and principles

For each question, choose one correct option.

1. In f inancial statements, inventories are valued at the lower cost and net realisable value in the
statement of financial position. Which accounting principle is being applied?

A duality
B historic cost
C matching
D prudence

2. In which book of prime entry is the contra between the sales ledger control account and the purchases
ledger control account recorded?

A cash book
B general journal
C purchases journal
D sales journal

3. Which statement about debentures is not correct?

A Debentures have a f ixed rate of interest.

B Debenture interest must be paid regardless of profit.
C Debentures carry voting rights.
D Debentures are a non-current liability.

4. In Arlo’s books an invoice received from Bill was credited to Phil’s account.

Which type of error has been made?

A commission
B compensating
C complete reversal
D principle

5. What is the role of a book-keeper?

A to advise on business plans

B to analyse the profit or loss for the period
C to maintain records of financial transactions
D to prepare financial statements

33
Skills Exercises

Worksheet 8: Knowing facts, terms and principles answers

1. In f inancial statements, inventories are valued at the lower cost and net realisable value in the
statement of financial position. Which accounting principle is being applied?

D prudence

2. In which book of prime entry is the contra between the sales ledger control account and the purchases
ledger control account recorded?

B general journal

3. Which statement about debentures is not correct?

D debentures carry voting rights

4. In Arlo’s books an invoice received from Bill was credited to Phil’s account.

Which type of error has been made?

A commission

5. What is the role of a book-keeper?

C to maintain records of financial transactions

34
 Skills Exercises

Activity 2: Different statements

Learners need to understand how different accounting statements can apply to the context / term /
situation / scenario.

Provide learners with a mixture of different accounting statements which may or may not apply to the
context / term / situation / scenario provided. The dif ferent statements in Worksheet 9: Different
statements can be used or replaced with other accounting statements. Go through the worksheet with
learners to check they understand what is required of the task. For this activity learners may work
individually or in pairs. Learners identify the correct statements applied to the context / term / situation
/ scenario.

Use Worksheet 9: Different statements answers and ask learners to peer assess each other’s work.
Lead a discussion around the different statements and how they apply or do not apply to the provided
context / term / situation / scenario.

Ensure any misconceptions are addressed.

35
Skills Exercises

Worksheet 9: Different statements

Identif y the correct statements that apply to the provided context / term / situation / scenario.

1. The costs relating to the purchase of a new van include the following:

1. Costs to customise the new van

2. Initial cost of the van

3. Insurance

4. Petrol expense

What were the costs recorded in capital expenditure?

A. 1 and 2

B. 1 and 4

C. 2 and 3

D. 2 and 4

2. A book-keeper reconciles the control accounts with the sales and purchases ledgers. Which errors
are identified in this way?

1. A f igure was transposed when copied from a book of prime entry to a personal account

2. An incorrect amount was entered in a book of prime entry

3. A total in a book of prime entry was incorrect

4. A transaction was omitted from a book of prime entry

A. 1, 2 and 3

B. 1, 2 and 4

C. 1 and 3 only

D. 2 and 4 only

3. What are the advantages to a sole trader of forming a partnership?

1. Losses can be shared by all partners

2. More capital may be available to the business

3. Prof its will be greater than those of a sole trader

4. There may be disagreements between partners

36
 Skills Exercises

A. 1 and 2

B. 1 and 3

C. 2 and 3

D. 3 and 4

4. A business wants to increase its working capital. Which of the following actions will increase working
capital?

1. Delaying payment to credit suppliers

2. Obtaining a long term bank loan

3. Selling inventory at cost price

4. Selling unused non-current assets

A. 1 and 2

B. 1 and 3

C. 2 and 4

D. 3 and 4

5. Which statements about a bank reconciliation are correct?

1. It includes cheques not yet presented to the bank

2. It is a statement of the trader’s account as it appears in the books of the bank

3. It is sent by the bank at regular intervals

4. Receipts not yet recorded by the bank are included

A. 1 and 2

B. 2 and 3

C. 1 and 4

D. 2 and 4

37
Skills Exercises

Worksheet 9: Different statements answers

1. The costs relating to the purchase of a new van include the following.
1. Costs to customise the new van

2. Initial cost of the van

3. Insurance

4. Petrol expense

What were the costs recorded in capital expenditure?

A. 1 and 2

Costs 3 and 4 are considered revenue expenditure.

2. A book-keeper reconciles the control accounts with the sales and purchases ledgers. Which errors
are identified in this way?

1. A f igure was transposed when copied from a book of prime entry to a personal
account

2. An incorrect amount was entered in a book of prime entry

3. A total in a book of prime entry was incorrect

4. A transaction was omitted from a book of prime entry

C. 1 and 3

Statements 2 and 4 are incorrect as an incorrect amount in prime entry will be

carried forward to all the subsequent posting to ledger accounts and a
transaction omitted would not be posted anywhere.

3. What are the advantages to a sole trader of forming a partnership?

1. Losses can be shared by all partners

2. More capital may be available to the business

3. Prof its will be greater than those of a sole trader

4. There may be disagreements between partners

A. 1 and 2

Statements 3 and 4 are incorrect as profits will be shared among the partners
and when there is more than one person, disagreements happen as the decisions
are taken collectively.

38
 Skills Exercises

4. A business wants to increase its working capital. Which of the following actions will increase
working capital?

1. Delaying payment to credit suppliers

2. Obtaining a long term bank loan

3. Selling inventory at cost price

4. Selling unused non-current assets

C. 2 and 4

Statements 1 and 3 are incorrect as those actions only change elements within
the existing working capital whereas statements 2 and 4 realise an injection of
cash to the working capital.

5. Which statements about a bank reconciliation are correct?

1. It includes cheques not yet presented to the bank

2. It is a statement of the trader’s account as it appears in the books of the bank

3. It is sent by the bank at regular intervals

4. Receipts not yet recorded by the bank are included

C. 1 and 4

Statements 2 is incorrect as there may be timing differences between what is

recorded in the cash book and the account at the bank. Statement 3 is incorrect
as the bank reconciliations are prepared by the business on a regular basis.

39
Skills Exercises

Activity 3: Use of formats

Learners need to understand and apply the f ormats f or the provided situation to f ind the required
inf ormation to answer the multiple-choice questions.

Provide learners with formats to be completed for different ledger accounts and financial statements.

The f ormats for the f inancial statements can be split into different sections such as current assets
section or total equity section, etc. Worksheet 10: Use of formats can be used or replaced with other
accounting formats. Go through the worksheet with learners to check they understand what is required
of the task. For this activity learners may work individually or in pairs. Learners complete the f ormats
provided by writing the description/details.

Use Worksheet 10: Use of formats answers and ask learners to peer assess each other’s work. The
completed f ormats can be discussed, and the f inalised f ormat can be circulated as handouts to the
class.

Ensure any misconceptions are addressed.

40
 Skills Exercises

Worksheet 10: Use of formats

Identif y the correct answer by completing the required formats.

1. A business has a financial year end of 31 December. It purchased a motor vehicle on 1 January
2017 f or $30 000. The estimated useful life of the motor vehicle was four years. The estimated
residual value at the end of four years was $10 000. The business depreciates motor vehicles at 25%
per year using the reducing balance method. No depreciation is charged in the year of disposal.

What was the profit/loss on the sale of the motor vehicle?

A. $1344 prof it B. $6500 prof it C. $1000 loss D. $18 437

2. Zain provided the following information for the year ended 31 December 2021.

$
Amount owing by credit customers 1 Jan 2021 1290
31 Dec 2021 2170
Cheques paid by credit customers 15 320

Discount allowed to credit customers 120

Goods returned by credit customers 1160

How much were the credit sales for the year?

A. $15 160 B. $15 720 C. $17 240 D. $17 480

3. Amrit is a trader. For the year ended 31 December 2021, the following information is available:

• Revenue f or the year 100 000

• Inventory at the start of the year 12 000

• Purchases for the year 75 000

• Carriage inwards 1500

The mark-up is 25%

What is the value of inventory at the end of the year?

A. $5500 B. $8500 C. $10 500 D. $13 500

41
Skills Exercises

4. Aden and Bill commenced a partnership in 1 June 2020, sharing profits and losses. They provided
the f ollowing information at 31 May 2021.

$ $

Prof it for the year 74 000

Interest on capital: Aden 5000

Bill 4000 9000

Salary: Bill 12 000

Drawings: Aden 20 000

Bill 15 000 25 000

What is the balance on Bill’s current account at 31 May 2021?

A. $14 200 B. $22 200 C. $24 800 D. $32 800

5. Some members of a sports club had not paid their annual subscriptions at the end of the financial
year.

Where will these unpaid subscriptions be shown in the financial statements?

Complete the table by placing a tick ( ) in the correct columns.

receipts and payments income and expenditure statement of financial

account account position

42
 Skills Exercises

Worksheet 10: Use of formats answers

1. What was the profit/loss on the sale of the motor vehicle?

A. $1875 – This required a disposal account format.

Disposal Account

Debit (DR) Credit (CR)

Date Details Amount $ Date Details Amount $

Accumulated
1 Jan 2017 Cost 30 000 31 Dec 2020 17 344
Depreciation
Prof it on
disposal/State Sale
31 Dec 2020 ment of profit 1344 30 July 2020 14 000
proceeds/Bank
or loss/Income
statement
Loss on
disposal/State
ment of profit -
or loss/income
statement

31 344 31 344

2. How much were the credit sales for the year?

D. $17 480 debit

Sales Ledger Control Account

Debit (DR) Credit (CR)

Details Amount $ Details Amount $

Balance b/d 1290 Sales returns 1160

Sales 17 480 Bank 15 320

- Balance c/d 2170

Discount allowed 120

18 770 18 770

43
Skills Exercises

3. What is the value of inventory at the end of the year?

B. $8500

Amount $

Revenue 100 000

Opening inventory 12 000

Purchases 75 000

1500
Carriage inwards
88 500

Closing inventory 8500 80 000

Gross Profit 20 000

4. What is the balance on Bill’s current account at 31 May 2021?

B. $22 200

Bill’s current account

Debit (DR) Credit (CR)

Details Amount $ Details Amount $

Drawings 15 000 Interest on capital 4000

Balance c/d 22 200 Salary 12 000

Prof it share 21 200

37 200 37 200

5. Where will these unpaid subscriptions be shown in the financial statements?

D. Income statement and statement of financial position

receipts and payments income and expenditure statement of financial

account account position

D  

44
Cambridge Assessment International Education
The Triangle Building, Shaftesbury Road, Cambridge, CB2 8EA, United Kingdom
t: +44 1223 553554
e: [email protected] www.cambridgeinternational.org

© Cambridge University Press & Assessment 2022 (updated October 2023)