Discussion Notes Accounting 1 | Đại học Thương Mại

lOMoAR cPSD| 45470709 THUONG MAI UNIVERSITY
INSTITUTE OF INTERNATIONAL TRAINING DISCUSSION
COURSE: ACCOUNTING 1 (ICAEW CFAB)
Teacher: Pham Thi Mai Anh
Code Module : 25100EACC 2331
Class: CN19.UWED Group: 3 Ha Noi, Viet Nam September, 2024 1 lOMoAR cPSD| 45470709 TABLE OF CONTENT
CHAPTER 1: Introduction of Financial Accounting……………..….3
CHAPTER 2: Cash and Trade Receivable……………………….....10
CHAPTER 3: Inventory………………………………………….…24
CHAPTER 4: Property, Plant and Equipment……………………....39
CHAPTER 5: Intangible Assets………………………………….…46
*CHAPTER 1*: INTRODUCTION OF FINANCIAL ACCOUNTING
Question 1: Which groups of people are most likely to be interested in the financial
statements of a sole trader? 1. Shareholders of the company. 2. The business's bank manager. 3. The tax authorities. 4.
Financial analysts.A. 1 and 2 only. B. 2 and 3 only. C. 2, 3 and 4 only.
D. 1, 2 and 3 only. Answer: D. 1, 2, and 3 only Explanation: 2 lOMoAR cPSD| 45470709 1.
Shareholders of the company: Shareholders, whether in a large corporation or
a sole proprietorship, are always keenly interested in financial statements. They want
to know how their investment performs and whether the business is profitable. 2.
The business’s bank manager: Bank managers pay close attention to financial
statements because they assess the financial health of the business. They want to
ensure that the business can meet its financial obligations, especially when it comes to loan repayments. 3.
The tax authorities: Tax authorities such as the IRS in the United States need
accurate financial information to calculate taxes owed by the sole trader. They use
financial statements to verify income, expenses, and compliance with tax regulations. 4.
Financial analysts: While financial analysts primarily focus on publicly traded
companies, they might also analyze the financial statements of sole traders. These
analysts look for trends, ratios, and insights to make informed investment decisions.
So, the correct answer is D. 1, 2, and 3 only. These three groups have a vested interest
in a sole trader’s financial statements.
Question 2. Which of the following statements is/are true? 1.
A supplier of goods on credit is interested only in the statement of financial
position, ie an indication of the current state of affairs. 2.
The objective of financial statements is to provide information about the
financial position, performance and changes in the financial position of an entity that
is useful to a wide range of users in making economic decisions. A. 1 only. B. 2 only. C. Both 1 and 2.
D. Neither 1 or 2.Answer: B. 2 only Explanation: 1.
A supplier of goods on credit is interested only in the statement of financial
position: This statement is not entirely accurate. While a supplier may indeed be
interested in a business's financial position, they typically look at more than just the
statement of financial position (also known as the balance sheet). Suppliers often want
to assess the company's overall financial health, including its ability to pay debts and meet obligations. 2.
The objective of financial statements is to provide information about the
financial position, performance, and changes in financial position of an entity:
This statement is true. Financial statements such as the income statement (profit and
loss statement), balance sheet, and cash flow statement serve precisely this purpose.
They offer insights into a company’s financial health, profitability, liquidity, and 3 lOMoAR cPSD| 45470709
solvency. These statements are crucial for various stakeholders, including investors,
creditors, management, and regulatory authorities.
So, the correct answer is B. 2 only. Financial statements aim to provide
comprehensive information about an entity’s financial position, performance, and changes over time.
Question 3: Why might a company oppose stricter accounting regulations?
A) Stricter regulations typically lead to higher profits
B) Compliance with stricter regulations can be costly and time-consuming
C) Stricter regulations eliminate the need for external audits
D) Compliance with regulations provides no benefits to the company
Answer: B) Compliance with stricter regulations can be costly and timeconsuming Explanation:
Companies may oppose stricter accounting regulations because compliance often
requires significant resources, including time, money, and personnel. Meeting these
regulations can involve implementing new systems, training staff, and potentially
changing how financial information is gathered and reported. This can be
burdensome, particularly for smaller companies.
While stricter regulations can enhance financial transparency and reduce the risk of
fraud, they do not inherently lead to higher profits (A), nor do they eliminate the need
for external audits (C). Compliance with regulations, contrary to option (D), can
provide benefits such as increased investor trust and reduced risk of legal issues, but
the associated costs might be a concern for some companies.
Question 4: How do accounting regulations impact the global business environment?
A) They create barriers that prevent international trade
B) They foster uniformity, making it easier for companies to operate across borders
C) They reduce the need for multinational companies to comply with local laws
D) They make it difficult for investors to compare companies from different countries 4 lOMoAR cPSD| 45470709 Answer: B) Explanation:
Accounting regulations, particularly those set by international bodies like the IFRS,
help to create a more uniform set of standards that companies worldwide can follow.
This uniformity is essential for multinational companies, as it reduces the complexity
and costs associated with having to comply with different accounting standards in
each country. It also helps investors by making financial statements more comparable
across borders, enhancing their ability to make informed investment decisions.
The idea that regulations create trade barriers (A) or reduce the need to comply with
local laws (C) is incorrect. Instead, they facilitate smoother international operations.
The assertion that regulations make it difficult to compare companies across countries
(D) is the opposite of what these regulations aim to achieve.
Question 5: Which of the 4 statements relates to financial performance? A-
Statement of financial position B- Statement of profit and loss C- Statement of cash flow D-
Statement of changes in equity Answer: B
The P&L, or profit and loss account, is a financial statement that summarizes a
company's revenues, costs and expenses over a given period. It is used to calculate the
net profit or loss by subtracting total expenses from total revenues. This statement is
crucial in assessing a company's financial performance, as it shows whether it is
generating a profit or incurring a loss, reflecting its ability to manage costs effectively and generate revenue.
Question 6:Listed below are some characteristics of financial information. 1 Neutrality 2 Prudence 3. Completeness 4 Timeliness 5 lOMoAR cPSD| 45470709
Which of these characteristics contributes to relevant, according to the IASB's
Framework for the Preparation and Presentation of Financial Statements? A, 1, 3 and 4 only B, 1, 2 and 3 only C, 1, 2 and 4 only D, 2, 3 and 4 only Answer: B
The correct answer is B, 1, 2 and 3 only.
According to the IASB's Framework for the Preparation and Presentation of Financial
Statements, the characteristics that contribute to reliability are: ●
Neutrality (trung lâp): Information should be free from bias.̣ ●
Prudence (thân trọng): When uncertainty exists, the accounting ̣ treatment should be cautious. ●
Completeness (đầy đủ thông tin): Information should be complete to avoid misleading.
Timeliness is an enhancing qualitative characteristic of relevance, not reliability. It
means that information should be available to users in time to be relevant to their decision-making.
Question 7: What is a faithful representation? A - Complete B - Neutral
C – Free from errorD - All of the above Answer D:
The financial information must be represented faithfully, also there are 3 characteristics of it : -
Complete: The user has all the information necessary to understand the event - Neutral does mean unbiased 6 lOMoAR cPSD| 45470709 -
Free from error: it does mean there are no errors/ omissions in the process
usedto produce the reported information. It doesn’t mean that information is perfect.
Question 8: A company has received an invoice for $10,000 for services provided in
the last month of the financial year. The invoice is dated in the new financial year.
Under the accruals concept, how should this invoice be treated in the financial
statements of the year in which the services were provided? A) Record the invoice in the new financial year.
B) Record the invoice as an accrual in the financial statements of the current year.
C) Ignore the invoice until payment is made.
D) Record the invoice as a prepaid expense in the financial statements of the current year. Answer: B.
Explanation: The accruals concept requires that expenses and revenues are
recognized in the period they occur, not necessarily when cash is received or paid.
Since the services were provided in the financial year just ended, the expense should
be recorded in that year’s financial statements, even though the invoice is dated and
received in the new year. This is done by recording an accrual, which represents the
obligation to pay for the services that have been received but not yet invoiced or paid.
Explanation of Why Other Answers are Incorrect:
A) Record the invoice in the new financial year.
The accruals concept requires expenses to be recognized in the period in which they
are incurred, not necessarily when the invoice is received or paid. Since the services
were provided in the previous financial year, the expense should be recorded in that
year’s financial statements, even though the invoice was received in the new financial year.
C) Ignore the invoice until payment is made.
Ignoring the invoice until payment is made violates the accruals concept, which
mandates that expenses must be recognized when they are incurred, regardless of
payment timing. By ignoring the invoice, the company would be deferring the
expense recognition and misrepresenting its financial position for the previous year.
D) Record the invoice as a prepaid expense in the financial statements of the current year. 7 lOMoAR cPSD| 45470709
Prepaid expenses represent costs that have been paid in advance for future periods.
Since the services were provided in the previous financial year, the invoice should not
be recorded as a prepaid expense for the current year. Instead, it should be recognized
as an accrual in the previous year’s financial statements.
Question 9: Company According to the Historical Cost principle, how should
Company X treat the value of the building in its 2023 financial statements?
A. Record the building at its market value of $600,000.
B. Record the building at its original cost of $500,000.
C. Record the building at a value of $550,000, the average of cost and market value.
D. Record the building at cost but add information about the market value in the financial statement notes. Answer: B
Explanation: Under the cost principle, assets must be recorded and maintained at
their original cost at the time of purchase, regardless of any subsequent changes in
market value. This ensures that financial statements consistently and reliably reflect
the historical value of assets paid, helping to avoid short-term fluctuations in the
market from affecting the financial statements.
Explain why the other answers are incorrect:
Option A: This choice does not comply with the Historical Cost principle. The cost
principle requires assets to be recorded at their original cost at the time of purchase
$500,000 and not at their current market value of $600,000. Recording assets at
market value can cause financial statements to inaccurately reflect the actual value of
the assets at the time of purchase, leading to errors in assessing the financial situation of the enterprise.
Option C: This option is also inconsistent with the original price principle. This
principle does not allow assets to be recorded at the average value between original
cost and market value. Using the average price will not accurately reflect the
company's actual cost to purchase the asset.
Option D: This choice can be confusing. According to the historical cost principle,
assets are recorded at their original cost of $500,000, however, the disclosure of
market value in the financial statements is not required according to this principle.
Market value disclosures can be made if the company wants to provide additional
information, but the value recorded on the financial statements must still be at cost. 8 lOMoAR cPSD| 45470709
Question 10: What are the ethical implications of using artificial intelligence in
accounting, and how can these implications be mitigated? A. There are no
ethical implications of using AI in accounting B. AI can lead to job losses
C. AI can introduce bias into financial reporting D. All of the above Answer: D
Explanation: The use of artificial intelligence in accounting can have several ethical implications:
● Job losses: AI can automate certain accounting tasks, potentially leading to job losses.
● Bias: AI algorithms can be biased, leading to inaccurate or discriminatory financial reporting.
● Privacy concerns: AI can collect and process large amounts of sensitive
financial data, raising privacy concerns.
To mitigate these implications, it's important to:
● Implement ethical guidelines: Develop and follow ethical guidelines for the use of AI in accounting.
● Ensure transparency: Be transparent about the use of AI and its limitations.
● Regularly review and update AI systems: Continuously review and update AI
systems to address potential biases and ensure accuracy.
*CHAPTER 2*: CASH AND TRADE RECEIVABLE
Question 1: A trader's net profit for the year may be computed by using which of the
following formulate?
A. Opening capital - drawings + capital introduced - closing capital
B. Closing capital + drawings - capital introduced - opening capital
C. Opening capital - drawings - capital introduced - closing capital
D. Opening capital + drawings - capital introduced-closing capital Answer: B
Formula: Net assets EB (closing capital) = OB( opening capital) + Introduce + Profit Drawing
=> Profit = closing capital + drawing - capital introduce - opening capital
Question 2: The net assets of Altese, a trader 1 January 20X2 amounted to 9 lOMoAR cPSD| 45470709
$128,000. During the year to 31 December 20X2, Atese introduced a further
$50.000 of capital and made drawings of $48,000. At 31 December 20X2 Altese's
net assets totalled $184,000
What is Altese's total profit or loss for the year ended 31 December 20X2? A. 54,000 B. 6,000 C. 104,000 D. 182,000 Answer: A
Net assets Ending Balance = Opening Balance + Introduce + Profit - Drawing
148,000 = 128,000 + 50,000 + X - 48,000
=> X = 148,000 + 48,000 - 128,000 - 50,000 => X = 54,000 $
Question 3: At 31 October 20X6 Roger’s trial balance included following balance: $ Machinery at cost 12,890 Accumulated depreciation 8,950 Inventory 5,754 Trade receivables 11,745 Trade payables 7,830 Bank overdraft 1,675 Cash at bank 150
What is the value of Rogers current assets at 31 October 20X6? A. 21,563 B. 34,576C. 17.649 D. 12,908 Answer: C
We have inventory, trade receivables, cash at bank as current assets
=> Current assets = 5,754 + 11, 745 + 150 = 17,649
Question 4: In which accounting expense category is the bad debt expense displayed? A) Capital expenditure B) Administrative expenses 10 lOMoAR cPSD| 45470709 C) Production expenses D) Marketing expenses Answer: B
Correct answer : B) Administrative expenses
Bad debt expense is part of the cost of managing customer accounts and is classified
as an administrative expense, as it's a regular business operating cost. Incorrect Answers: A) Capital expenditure
Wrong, because capital expenditures relate to purchasing or improving assets, not
operating costs like bad debts. C) Production expenses
Incorrect, since production costs are related to manufacturing, not financial management. D) Marketing expenses
Wrong, as marketing expenses involve promoting the business, not handling receivables or bad debts.
Question 5: An increase in the allowance for receivables is shown:
A) As a gain in the cash flow statement B) As a reduction in equity
C) As an expense in the income statement
D) As a liability in the balance sheet Answers: C
Correct answer: C) As an expense in the income statement
An increase in the allowance for receivables represents a potential loss from
customers who may not pay. This adjustment is treated as an expense, reducing net
income, and is recorded in the income statement. Incorrect Answers:
A) As a gain in the cash flow statement
Wrong, because it's not a cash transaction; it's an accounting adjustment, so it doesn't
affect the cash flow statement.
B) As a reduction in equity
Incorrect. While net income (and thus equity) is indirectly affected, the increase in the
allowance is not directly recorded as a reduction in equity. 11 lOMoAR cPSD| 45470709
D) As a liability in the balance sheet
Incorrect, since the allowance is a contra-asset (reducing receivables), not a liability.
Question 6: At 31 January 20X3, Kido plc’s allowance for receivables was $18, 000.
On 31 January 20X4 it was decided to write off irrecoverable debts totalling $5,000
and to decrease the allowance for the remaining receivables to $14,000. The charge
or credit to the statement of profit or loss in respect of irrecoverable debts for the
year ended 31 January 20X4 is : A- $1,000 credit B- $1,000 debit C- $19,000 credit D- $19,000 debit Correct answer is B Solution : ● Opening balance : $18,000 ● Closing balance : $14,000
→ decrease $4,000 → increase profit
● Bad debt : $5,000 → decrease profit
→ total decrease profit is : $1,000
Question 7: Select the common explanations that may explain the differences
between the cash book and the bank statement: A)
Unrecorded bank charges or bank interest. B)
Automated payments and receipts. C) Dishonoured cheques and error D) Timing differences E) All of above Answer: E
The correct answer is “All of above”. We can find some omission on cash book.
Errors are most often found in the cash book, but it’s possible to find mistakes on the
bank statement. Every timing difference (cheque received and cheque drawn) appears 12 lOMoAR cPSD| 45470709
on the bank statement. Some automatic payments don’t appear on cash book, such as
bank fee, interest and standing over.
Question 8: Your cash book at 31 December 20X3 shows a bank balance of $942
overdrawn. On comparing this with your bank statement at the same date, you
discover the following. 1-
A cheque for $38 drawn by you on 27 December 20X3 has not yet presented for payment. 2-
A cheque for $17 from customer, which was paid into the bank on 22
December 20X3, has been dishonoured on 31 December 20X3.
What is the correct bank balance to be shown in the statement of financial position at 31. A) $942 overdrawn B) $959 overdrawn C) $980 overdrawn D) $997 overdrawn Answer: B
The correct answer is the answer C ) 980 overdrawn
The calculation is : -942-17=-959.
We take into account only the cheque dishonoured from the customer because it don’t
appear on the bank statement. The other cheque of $38 isn’t taking into account in the
calculation because it is not already presented at the bank, so it don’t appear on the bank statement
Question 9: Which of the following items would typically require an adjustment in
the cash book during a bank reconciliation? A) Unpresented cheques B) Outstanding lodgements C) Bank charges
D) Sales returnsAnswer: C.
Explanation: These are often recorded in the bank statement but might not yet be
reflected in the company's cash book, so they require an adjustment in the cash book during reconciliation.
Explanation of Why Other Answers are Incorrect: 13 lOMoAR cPSD| 45470709 A)
Unpresented cheques: These are cheques issued by the company but not yet
cleared by the bank. They affect the bank statement, not the cash book. B)
Outstanding lodgements: These are deposits made but not yet recorded by the
bank, so no adjustment is needed in the cash book.
D) Sales returns: This affects sales and inventory, not the cash book or bank reconciliation.
Question 10: A company has trade receivables of $50,000 at the beginning of the
year. During the year, it made sales of $120,000 (all on credit), and by the end of the
year, it collected $90,000 from its customers. What is the closing balance of trade receivables? A) $20,000 B) $30,000 C) $50,000 D) $80,000 Answer: B Explanation:
Closing balance of trade receivables = Opening receivables + Credit sales - Cash received
= $50,000 + $120,000 - $90,000 = $30,000
Question 11: The Receivables Control Ledger had an opening balance of $150,000.
During the month, the following transactions were recorded, but the trainee made a
mix of correct and incorrect postings:
1. Credit sales of $50,000 were posted to the debit side.
2. Cash received from customers of $40,000 was posted to the credit side.
3. Returns from customers of $10,000 were posted to the credit side.
4. A contra entry of $5,000 was posted to the debit side.
After correcting these errors, what will be the correct closing balance in the
Receivables Control Ledger? A) $165,000 B) $170,000 C) $155,000 D) $160,000Answer: A. Explanation:
- Let’s correct each posting:
1. Credit sales of $50,000 posted to the debit side:
→ Reverse the debit entry (+$50,000), then correctly post it to
the credit side (-$50,000). No net effect on balance. 14 lOMoAR cPSD| 45470709
2. Cash received of $40,000 posted correctly: → No adjustment needed.
3. Returns from customers of $10,000 posted correctly to the credit side: → No adjustment needed.
4. Contra entry of $5,000 posted to the debit side:
→ Reverse the debit entry (+$5,000) and post it to the credit
side (-$5,000), resulting in a net deduction of $10,000.
=> Closing balance= 150,000−40,000−10,000 = 165,000
Question 12: Tallon had the following transactions:
1. Sale of goods on credit for $150 to F Rogit
2. Return of goods from B Blendigg originally sold for $300 in cash to B Blendigg
What are the correct ledger entries to record these transactions? A. Dr Receivables $150 Dr Sales Returns $300 Cr Sales $150 Cr Cash $300 B. Dr Sales $150 Dr Cash $300 Cr Receivables $150 Cr Sales Returns $300 C. Dr Receivables $450 Cr Sales $150 Cr Sales Returns $300 D. Dr Sales Returns $300 15 lOMoAR cPSD| 45470709 Dr Sales $150 Cr Cash $450
The correct answer is A. Explanation:
Transaction 1: Sale of goods on credit for $150 to F Rogit
● Debit Receivables: To increase the amount owed by F Rogit. ● Credit
Sales: To record the revenue from the sale.
Transaction 2: Return of goods from B Blendigg originally sold for $300 in cash to B Blendigg
● Debit Sales Returns: To record the return of goods.
● Credit Cash: To decrease the cash balance due to the refund.
Therefore, the correct ledger entries are:
● Dr Receivables $150
● Dr Sales Returns $300 ● Cr Sales $150 ● Cr Cash $300
Question 13: How are cash and trade receivables different in a company’s balance sheet?
A. Cash is a current asset, while trade receivables are non-current assets.
B. Cash has already been received and is ready for use, while trade receivables are
amounts the company will receive in the future.
C. Cash only exists in the form of physical currency, while trade receivables are liabilities.
D. Cash is not recorded in the balance sheet. Correct answer: B Explanation:
● Cash is the most liquid asset that the company has already received and can
use immediately to pay debts or expenses.
● Trade receivables are amounts owed to the company by customers after the
company has provided goods or services. This is an asset that the company
expects to collect in the future but does not have immediately. 16 lOMoAR cPSD| 45470709
● Both are current assets, but the key difference is that cash is available for
immediate use, whereas trade receivables need to be collected from customers.
Question 14: A company has trade receivables of $200,000 and an allowance for
doubtful accounts of $20,000. What is the net realizable value of the receivables? A. $220,000 B. $180,000 C. $200,000 D. $20,000 Correct answer: B Explanation:
● Trade receivables represent the amount the company expects to collect from
customers (in this case, $200,000).
● The allowance for doubtful accounts is the company's estimate of amounts
that may not be collectible (here, $20,000). This serves as a reserve to reflect uncollectible accounts.
● The net realizable value of the receivables, also known as the recoverable
value, is calculated by subtracting the allowance for doubtful accounts from the
trade receivables: 200,000−20,000=180,000
Question 15: At 31 December 20X2 a company's receivables totalled $400,000 and
an allowance for receivables of $50,000 had been brought forward from the year
ended 31 December 20X1. It was decided to write off debts totalling $38,000 and to
adjust the allowance for receivables to 10% of the receivables. What charge for
receivables expense should appear in the company's statement of profit or loss for
the year ended 31 December 20X2? A $74,200 B $51,800 C $28,000 D $24,200 Answer: C - Receivables total: $400,000 - Debts written off: $38,000 -
Brought forward allowance: $50,000 -
New allowance = 10% of receivables: 10% × 400,000 = 40,000 -
Required adjustment = New allowance - Brought forward allowance 17 lOMoAR cPSD| 45470709
40,000 − 50,000 = −10,000 (This indicates a reduction) -
Receivables expense = Debts written off + Adjustment to allowance: 38,000 + (−10,000) = 28,000 => C. $28,000
Question 16: Which of the following documents should accompany a return of
goods to a supplier? A. Purchase invoice B. Credit note C. Debit note D.
Remittance adviceAnswer: C Explaination:
When returning goods to supplier => sends supplier dedit note for supplier to issue credit note back to customer.
Question 17: ABC Ltd. has a closing trade receivables balance of $600,000 at the
year-end. Upon reviewing the accounts, the following errors were identified: 1.
An invoice for $40,000 was issued and recorded in trade receivables but the
goods were not delivered by the year-end, meaning the invoice should not have been included. 2.
A customer payment of $25,000 was mistakenly recorded as a liability rather
than reducing the receivables balance. 3.
Bad debts of $35,000 were written off during the year, but this was not
removed from the trade receivables balance. 4.
An unrecorded invoice of $15,000 for goods delivered in the last week of
Decemberwas discovered and should have been included in the trade receivables. 5.
A customer returned goods worth $10,000, which was correctly recorded in
sales returns but not adjusted in trade receivables.
What is the correct adjusted closing balance of trade receivables? A) $525,000 B) $540,000 C) $545,000 D) $555,000 18 lOMoAR cPSD| 45470709
Correct Answer: D) $555,000 Solution Explanation: 1.
Invoice for undelivered goods: Subtract $40,000 (since the goods were not delivered by year-end). 2.
Misrecorded payment: Add $25,000 (the customer payment was recorded as a
liability, but it should reduce receivables). 3.
Bad debts not removed: Subtract $35,000 (the written-off debts should be
removed from trade receivables). 4.
Unrecorded invoice: Add $15,000 (the unrecorded invoice should increase trade receivables). 5.
Goods return: Subtract $10,000 (the customer return should decrease trade receivables). - Calculate:
600,000 - 40,000 + 25,000 - 35,000 + 15,000 - 10,000 = 555,000 ($)
→ Correct Answer: D) $555,000
Question 18: Which of the following is an example of a timing difference commonly
identified during a bank reconciliation?
A) Bank charges that have not yet been recorded in the company’s books
B) Outstanding cheques issued but not yet cleared by the bank
C) A deposit recorded in the company’s books as $5,000 but incorrectly recorded by the bank as $500
D) A bank transfer made to a supplier that has been incorrectly recorded in the
company’s books Correct Answer: B Explanation:
Timing differences: refer to transactions that have been recorded in one party's books
(either the company’s or the bank’s) but have not yet been recorded by the other party,
typically due to the processing time required for certain transactions.
In option B, outstanding cheques are cheques that the company has issued and
recorded in its cash book but have not yet been cleared or processed by the bank. This
creates a difference between the company's records and the bank's statement until the 19 lOMoAR cPSD| 45470709
cheque clears, which is a classic example of a timing difference in a bank reconciliation.
Why the other options are incorrect:
A) Bank charges: This is an adjustment item, not a timing difference. Bank charges
may not yet be recorded in the company’s books, but they appear on the bank
statement. This needs to be adjusted, not due to timing, but because the company has not yet recorded it. C)
Deposit recorded incorrectly: This is an error, not a timing difference. The
incorrect recording of a deposit by the bank requires correction, but it is not due to
timing. It’s a mistake that must be reconciled, but it doesn't represent a delay between the two records. D)
Bank transfer incorrectly recorded: This is also an error in the company's
books. Like option C, it needs correction, but it doesn't reflect a timing issue.
Question 19: When a company purchases goods on credit and the transaction
includes VAT, how is VAT treated in relation to trade payables?
A) VAT is included in trade payables and recorded as an expense
B) VAT is excluded from trade payables and recorded separately as a liability
C) VAT is included in trade payables and recorded as revenue
D) VAT is recorded as an asset until it is paid Answer: B Explanation:
When a company makes a purchase that includes Value Added Tax (VAT), the
treatment of VAT in the accounting records depends on whether the company can
reclaim VAT (input VAT). Generally, in the case of trade payables: 1.
Trade payables represent the amount owed to the supplier excluding VAT. The
payable is for the goods or services provided by the supplier. 2.
The VAT amount is recorded separately, typically in a VAT control account as a
liability or asset, depending on the type of VAT. If the company can reclaim VAT
(input VAT), it is recorded as a current asset, as the company expects to get a refund
from the tax authorities. If the company needs to pay the VAT (output VAT), it would be recorded as a liability. 20