Q: Which formula correctly calculates Gross Profit?

$$\text{Gross Profit} = \text{Sales} - \text{Cost of Sales}$$

Q: Which equation is used to calculate the margin in financial accounting?

$$\text{Margin} = \frac{\text{Gross Profit}}{\text{Sales}}$$

Q: Which formula is used to calculate Net Profit?

$$\text{Net Profit} = (\text{Gross Profit} + \text{Other Income}) - \text{Expenses}$$

Question 1

Which of the following best describes the purpose of preparing a trial balance at the end of an accounting period?

Accepted Answer

To confirm that the total debits equal the total credits in the ledger accounts.

Question 2

A business has the following balances on 1 January: Inventory K10,000; Cash at bank K3,000; Accounts payable K2,000. What is the capital at this date?

Accepted Answer

K18,000

Question 3

Which of the following errors would NOT be detected by preparing a trial balance?

Accepted Answer

A transaction entered in the wrong account but with equal debit and credit.

Question 4

Given the following information: Opening stock K1,000; Purchases K2,000; Closing stock K1,500. What is the cost of goods sold?

Accepted Answer

K1,500

Question 5

Which formula correctly calculates Gross Profit?

Accepted Answer

$$	ext{Gross Profit} = 	ext{Sales} - 	ext{Cost of Sales}$$

Question 6

Which of the following is an example of capital expenditure?

Accepted Answer

Purchase of machinery for the business.

Question 7

A business records the purchase of a delivery van in the Purchases account instead of the Motor Vehicles account. What type of error is this?

Accepted Answer

Error of principle

Question 8

Which of the following best describes a Three Column Cash Book?

Accepted Answer

It has columns for cash, bank, and discounts.

Question 9

If a ledger account has total debits of K15,000 and total credits of K8,000, what is the balance and on which side will it appear?

Accepted Answer

K7,000 debit balance

Question 10

Which of the following is NOT a function of the trial balance?

Accepted Answer

To ensure that every transaction has been posted twice.

Question 11

Which equation is used to calculate the margin in financial accounting?

Accepted Answer

$$	ext{Margin} = \frac{	ext{Gross Profit}}{	ext{Sales}}$$

Question 12

Which of the following is classified as revenue expenditure?

Accepted Answer

Repairs and maintenance of machinery.

Question 13

A business has sales of K210,000 and cost of sales of K115,000. What is the gross profit?

Accepted Answer

K95,000

Question 14

Which of the following statements about the Income Statement is correct?

Accepted Answer

It is also known as the Profit and Loss Account.

Question 15

Which formula is used to calculate Net Profit?

Accepted Answer

$$	ext{Net Profit} = (	ext{Gross Profit} + 	ext{Other Income}) - 	ext{Expenses}$$

Question 16

Which of the following is NOT a feature of capital expenditure?

Accepted Answer

It is charged to the trading and profit and loss account.

Question 17

Which of the following is a compensating error?

Accepted Answer

Two errors made in different accounts that offset each other.

Question 18

If a business wants to set the selling price using mark-up, which formula should be used?

Accepted Answer

$$	ext{Mark-up} = \frac{	ext{Gross Profit}}{	ext{Cost of Sales}}$$

Question 19

Which of the following is true about the Petty Cash Book?

Accepted Answer

It is a subsidiary cash book for small cash payments.

Question 20

Which of the following is the correct formula for calculating cost of goods sold?

Accepted Answer

$$	ext{Cost of Goods Sold} = (	ext{Opening Stock} + 	ext{Purchases}) - 	ext{Closing Stock}$$

Financial Accounting Fundamentals: Ledger Accounts, Cash Books, and the Accounting Cycle

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