Cambridge International Examinations

Cambridge Ordinary Level

PRINCIPLES OF ACCOUNTS 7110/11

Paper 1 Multiple Choice October/November 2017
1 hour
Additional Materials: Multiple Choice Answer Sheet
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Write your name, Centre number and candidate number on the Answer Sheet in the spaces provided
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There are thirty questions on this paper. Answer all questions. For each question there are four possible
answers A, B, C and D.
Choose the one you consider correct and record your choice in soft pencil on the separate Answer Sheet.

Read the instructions on the Answer Sheet very carefully.

Each correct answer will score one mark. A mark will not be deducted for a wrong answer.
Any rough working should be done in this booklet.
Calculators may be used.

This document consists of 10 printed pages and 2 blank pages.

IB17 11_7110_11/RP
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1 What would be the most useful way of monitoring the progress of a retail business?

A comparing the financial statements of one year with those of previous years
B comparing the financial statements with those of a business in another country
C comparing the financial statements with those of a business of a different size
D comparing the financial statements with those of a manufacturing business

2 Which statement about a computerised accounting system is correct?

A Anyone with a computer can gain access to the accounting records.

B Data input can only be used for one specific purpose.
C Data output can only be understood by computer programmers.
D Operator error may result in inaccurate information.

3 What increases owner’s capital?

A bank loan extended from five to ten years

B purchase of inventory on credit
C purchase of machinery by cheque
D transfer of vehicle to business from private use

4 Which account always has a credit balance?

A capital account
B cash account
C drawings account
D premises account

5 Kamal purchases and sells goods on credit.

Where does he maintain the accounts of his credit suppliers?

A purchases journal
B purchases ledger
C sales journal
D sales ledger

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6 Ali sold goods, $600, on credit to Malik on 19 October.

The terms of the sale were 2 21 % cash discount if payment was received within 14 days.

Payment was received on 25 October.

How would Ali record this discount?

debit credit

A discount allowed Malik

B discount received Malik
C Malik discount allowed
D Malik discount received

7 What is correct about a bank reconciliation statement?

prepared by prepared by part of double entry

the bank the trader book-keeping

A no yes no
B no yes yes
C yes no no
D yes no yes

8 Which transaction of a manufacturer would be entered in the general journal?

A payment of wages by cash

B purchase of raw materials on credit
C sales of finished goods on credit
D writing off a bad debt

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9 The following account appeared in Sue’s ledger.

Tony account
$ $

May 1 balance b / d 400 May 16 returns 21

12 sales 590 28 bank 284
discount 6
31 balance c / d 679
990 990

Which statement is correct?

A On 12 May Tony sold goods, $590, to Sue.

B On 16 May Sue returned goods, $21, to Tony.
C On 28 May Tony received discount, $6, from Sue.
D On 31 May Sue owed $679 to Tony.

10 The totals of a trial balance agreed.

What does this mean?

A All the arithmetic in the ledger is correct.

B All transactions have been entered in the correct ledger accounts.
C All transactions have been entered on the correct sides of the ledger.
D Total debit balances equal total credit balances in the ledger.

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11 Gary rents his business premises. His financial year ends on 30 September. On 1 October 2016
rent prepaid amounted to $3000. During the year ended 30 September 2017 a total of $7000 rent
was paid. On 30 September 2017 rent outstanding amounted to $2000.

Which journal entry shows the transfer of the rent to the income statement on
30 September 2017?

debit credit
$ $
A income statement 8 000
rent 8 000
B income statement 12 000
rent 12 000
C rent 8 000
income statement 8 000
D rent 12 000
income statement 12 000

12 Ann’s financial year ends on 31 August. The annual rates on her shop are $3000. On
1 September 2016 rates prepaid amounted to $750. Rates paid during the year ended
31 August 2017 amounted to $2750.

What was the balance brought down on the rates account on 1 September 2017?

A $250 credit
B $250 debit
C $500 credit
D $500 debit

13 Ajay maintains a provision for doubtful debts of 3% of trade receivables.

On 1 January 2016, the balance on the provision for doubtful debts account was $70. The trade
receivables amounted to $3500 on 31 December 2016.

Which entry did Ajay make on 31 December 2016?

debit credit

A bad debts account provision for doubtful debts account

B income statement provision for doubtful debts account
C provision for doubtful debts account income statement
D provision for doubtful debts account trade receivables account

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14 Mona paid $32 000 for a new motor vehicle. This included $100 for fuel and $250 for road tax.
She debited the purchases account and credited the cash book with $32 000.

Which journal entry corrects this error?

debit credit
$ $

A motor vehicle 32 000

purchases 32 000

B purchases 32 000
motor vehicles 32 000

C motor vehicles 31 650

motor vehicle expenses 350
purchases 32 000

D purchases 32 000
motor vehicles 31 650
motor vehicle expenses 350

15 A trader incorrectly posted sales returns of $100 to the credit of purchases returns account.

What was the effect on the gross profit?

A overstated $100
B overstated $200
C understated $100
D understated $200

16 A purchases ledger control account includes interest charged by a supplier on an overdue

account and a contra entry to a sales ledger control account.

How will these items be recorded in a purchases ledger control account?

interest charged on contra entry to sales

overdue account ledger control account
debit credit debit credit

A  
B  
C  
D  

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17 The owner of a business paid $5000 into the business bank account.

A loan for $10 000 repayable in 2020 was also obtained and the money used to purchase a motor
vehicle.

Which changes would take place in the statement of financial position as a result of these
transactions?

non-current owner’s non-current

assets equity liabilities

$ $ $
A +5 000 +10 000 +5 000
B +10 000 –5 000 +10 000
C +10 000 +5 000 +10 000
D +15 000 +15 000 –10 000

18 Tareq started a business on 1 October 2016. He provided the following information.

On 28 November 2016 he paid an insurance premium, $1800, for the year starting
1 December 2016.

On 31 December 2017 he paid advertising costs for 1 July to 31 December 2017 totalling $2400.

What was shown in the statement of financial position at 30 September 2017?

other other
receivables payables
$ $

A advertising 400 insurance 300

B advertising 1200 insurance 300
C insurance 300 advertising 400
D insurance 300 advertising 1200

19 Which business is not a service business?

A accountant’s practice
B computer repair shop
C flower shop
D hairdressing salon

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20 What is a disadvantage of forming a partnership?

A additional skills are available

B profits are shared
C responsibilities are shared
D risks are shared

21 Abi and Erni are in partnership. They share profits and losses equally. Erni is entitled to an
annual partnership salary of $3000. The profit for the year ended 31 August 2017 was $12 600.

On 1 September 2016 the partners’ current account balances were as follows.

Abi 2500 credit

Erni 1400 debit

What was the credit balance on Erni’s current account on 1 September 2017?

A $400 B $3200 C $6400 D $9200

22 A golf club has 230 members. The annual subscription is $100.

At the beginning of the year subscriptions prepaid amounted to $1000 and at the end of the year
subscriptions in arrears amounted to $1500.

How much did the club receive for subscriptions during the year?

A $20 500 B $22 500 C $23 500 D $25 500

23 What would not appear in the income and expenditure account of a sports club?

A cost of sports equipment

B depreciation of sports equipment
C insurance of sports equipment
D repairs to sports equipment

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24 Karim did not keep proper accounting records, but was able to provide the following information.

capital at 1 January 58 000

drawings during the year 8 500
capital introduced in the year 15 000
capital at 31 December 82 500

What was the profit for the year?

A $16 000 B $18 000 C $33 000 D $48 000

25 Sumit does not maintain a full set of accounting records.

What does Sumit not need to calculate his credit sales?

A customer’s dishonoured cheque

B discounts allowed
C discounts received
D returns inwards

26 Which is shown as loan capital in the statement of financial position of a limited company?

A bank overdraft
B debentures
C ordinary shares
D preference shares

27 The financial year of AB Limited ends on 30 September.

Debenture interest is paid annually in arrears on 1 October each year.

Where did debenture interest appear in the financial statements for the year ended
30 September 2017?

income statement of statement of

statement changes in equity financial position

A  
B 
C  
D 

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28 In year 1, Sam’s gross profit was calculated as follows.

$ $

revenue 180 000

opening inventory 6 000
purchases 118 000
124 000
closing inventory (4 000) 120 000
gross profit 60 000

In year 2, the amount of revenue and gross profit was the same as in year 1 but the purchases
increased to $124 000.

What was the rate of turnover of inventory in year 2?

A 20 times B 21 times C 24 times D 30 times

29 Stephan’s major competitor has invested in a new machine for making goods more cheaply.
Stephan knows this will affect his sales but did not record this in his accounting records.

Which accounting principle is Stephan applying?

A going concern
B materiality
C money measurement
D prudence

30 At the end of the financial year Omar’s inventory was 100 units of which 10 units were damaged
and could not be sold.

The selling price per unit is $5 and the cost price per unit is $3.50.

Which value should Omar place on his inventory?

A $315 B $350 C $450 D $500

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