Accounting 4AC1 | Paper 1 Mock 01 | Written Paper 1

A dishonoured cheque is one the bank has refused to pay, usually because the customer's account lacks the funds. The original receipt must be cancelled, because the money that appeared to arrive has been taken back out again.

When the cheque was banked, the supplier debited bank and credited the customer in trade receivables, clearing the amount owed. Reversing that entry means debiting trade receivables and crediting bank with $380. The customer's account is restored to a debit balance, so the ledger once again shows that the $380 is owed, and the bank balance is reduced to the figure the bank actually holds.

Debiting bank and crediting trade receivables repeats the original receipt and would show the money arriving twice. Debiting irrecoverable debts assumes at once that the amount is lost, which is premature: a cheque can be dishonoured for a technical reason and be represented successfully. The debt is written off only when it is clear the customer will not pay. Crediting sales would record a second sale, when only one sale has taken place and the goods have not been returned.

Exam reminder: a dishonoured cheque is entered in the cash book when it is updated, not treated as a timing difference in the bank reconciliation statement, because the business itself must record the reversal.

This item tests the accruals concept: an expense belongs to the year in which the service was used, not the year in which the invoice arrives or the money leaves the bank.

The telephone service covering April, May and June was consumed entirely before 30 June, so the whole charge is a cost of the year ended 30 June and must be included in that year's income statement. Because nothing has been paid by the year end, the business owes the amount at that date. The correct treatment is therefore to charge it in the year to 30 June and to show the unpaid amount as an other payable within current liabilities.

Charging it in the following year when the bill is settled would be cash accounting: three months of telephone use would be reported in a year in which none of it happened, understating expenses and overstating profit for the year to 30 June. Treating it as an other receivable reverses the position, because an other receivable is an expense already paid that relates to a later period, and here nothing has been paid. Omitting it from both years would leave the cost recorded nowhere at all, which breaks the matching of expenses against the revenue they helped to earn.

Exam reminder: a supplier who bills in arrears normally produces an accrual at the year end, so expect an other payable rather than an other receivable.

The document described is a periodic summary sent by a supplier to a credit customer, listing every invoice, credit note and payment recorded on the account during the month and showing the balance still outstanding. That is a statement of account.

Its purpose is to let Kestrel Mobile check the supplier's version of the account against its own purchases ledger record of Zenith Distribution, so that missing invoices, unrecorded credit notes or payments in transit can be identified before payment is made. No entries are made in the books from a statement of account; it is a checking document, and the ledger entries come from the invoices and credit notes themselves.

A remittance advice travels the other way, from Kestrel to Zenith, telling the supplier which invoices a payment covers. A pro forma invoice is issued before a sale is agreed, typically where goods are supplied on approval or where payment is required in advance, and it never creates a ledger entry. A goods received note is prepared internally when a delivery arrives, recording what was actually received so that it can be checked against the invoice.

The clue in the wording is the combination of a full month of activity and a closing balance; only a statement of account carries both.

This tests the double entry for a credit purchase, where goods or services are received now and paid for later. Two things happen at once: an expense is incurred, and a liability to the supplier is created.

The diesel is an expense of buying goods for the business, so the purchases account is debited with $2,400. Metroline does not pay yet, so it now owes Farid Fuels, and a liability is recorded by crediting the supplier's personal account. The correct pair is therefore debit purchases, credit Farid Fuels. The credit sits in the purchases ledger, and it will be cleared later by a debit when the invoice is settled.

Reversing the entries, debiting Farid Fuels and crediting purchases, would record the opposite: that Farid Fuels owes Metroline and that the company has sold something. Any entry involving bank is wrong at this date, because no money has moved on 12 June; bank only enters the records when the invoice is actually paid.

Examination reminder: the word "credit" in "credit purchase" tells you the timing of payment, not which side the purchase goes on. The purchase itself is still a debit.

The invoice was entered for the right amount, $240, and on the right side, as a debit. The only fault is that the debit went to one customer's account instead of another's, and both accounts are of the same type: personal accounts of credit customers in the sales ledger.

This is an error of commission: a correct amount posted to the wrong account of the right class. Because a debit of $240 has still been made somewhere in the ledger to match the $240 credit to sales, the two columns of the trial balance still agree, which is why the mistake escapes detection. It is nonetheless a real problem: one customer is shown as owing $240 more than they do and will be chased for it, while another's debt goes unbilled. Total trade receivables in the statement of financial position, however, are correct.

An error of principle is different: it means posting to an account of the wrong class, such as putting the invoice in an expense account instead of a customer's account. An error of omission would mean the invoice never entered the books at all, whereas here it was entered twice over. A compensating error requires two separate errors of equal amount on opposite sides that cancel out, and only one error has occurred.

Examination point: the correction is made through the general journal, debiting the correct customer with $240 and crediting the wrong one, with no suspense account involved because the trial balance never disagreed.

The slip tells the merchant which invoices the enclosed cheque is meant to settle, so the merchant can tick the right lines off its statement of account. That is a remittance advice. It is issued by the payer, travels with the payment, and is a memorandum only: the accounting entry comes from the cheque itself through the cash book.

A statement of account travels the other way, from supplier to customer, and shows what is owed rather than what is being paid. A credit note reduces a debt after a return. A paying-in slip is used at the bank when money is deposited into the farm's own account, so it never leaves the business for the merchant.

Carriage is the cost of transporting goods, and it is classified by the direction in which the goods travel. Carriage inwards is the cost of bringing purchased goods into the business; carriage outwards is the cost of delivering goods to customers.

The $60 paid to have rice brought in from the wholesaler moves goods towards the shop, so it is carriage inwards. The $45 paid to take a bulk order out to a customer's address moves goods away from the shop, so it is carriage outwards. The correct classification is $60 carriage inwards and $45 carriage outwards.

The distinction matters because the two are treated differently in the income statement. Carriage inwards is added to purchases in the cost of sales calculation, because it is part of the cost of getting the inventory into a saleable condition, so it reduces gross profit. Carriage outwards is a selling and distribution expense charged below gross profit, so it reduces only the profit for the year. Swapping the two, or treating both the same way, leaves the profit for the year unchanged but reports the wrong gross profit and therefore the wrong gross profit margin.

A reliable check in the examination: ask whether the goods were coming in or going out, not who paid the carrier.

The sales ledger holds the personal accounts of credit customers. Reading a balance correctly means combining two facts: which side it sits on, and what kind of account it belongs to.

The balance of $265 is brought down on the debit side of an account in the sales ledger. A debit balance on a customer's account is an asset of the business, so the correct conclusion is that the customer still owes Rowan Grocers $265. This amount forms part of the trade receivables shown in the statement of financial position.

Saying Rowan owes the customer would require a credit balance, which is the reverse of what is shown. An overpayment would also produce a credit balance, because the customer would have paid more than was invoiced. If the debt had already been written off, the account would have been credited with $265 and would show no balance at all. The fact that nothing has been supplied since September does not change what the balance means; it only warns the owner that the debt is now old and may need to be reviewed for recoverability.

The general rule is worth memorising: assets and expenses carry debit balances, liabilities, capital and income carry credit balances.

A partnership that has never been registered as a company has no separate legal identity from its owners. The partners and the firm are one and the same in law, which is what unlimited liability means.

The suppliers are owed $58,000 and the business assets come to only $21,000, leaving $37,000 unsatisfied. Because liability is unlimited, the partners must meet that shortfall from their private resources, and their savings of $90,000 are more than enough to cover the $37,000 still outstanding. The suppliers may therefore recover the full $58,000.

Limiting the claim to the $21,000 of business assets would apply to a limited company, where the shareholders' liability is capped at the amount unpaid on their shares and those owed money by the company cannot reach the shareholders' private property. That protection comes from registration, which these partners never carried out. Halving the debt to $29,000 misreads the position: partners are jointly liable for the whole of the firm's debts, so a supplier may pursue either partner for the full amount and it is then for the partners to settle between themselves. Capping liability at the capital introduced is again a company idea and has no application to a partnership.

Exam reminder: unlimited liability is the standard drawback of the sole trader and the ordinary partnership, and it is the main reason a growing business considers incorporating.

A loan is money Joaquin must repay, so it creates an obligation rather than earning anything. It is not income and never enters the income statement. The correct treatment is as a capital receipt, shown as a liability rather than as income: bank is debited with $6,000 and the loan account is credited, and because the loan runs for five years it appears among non-current liabilities.

Adding it to sales would report $9,850 of income for June when only $3,850 was earned by trading, which overstates profit by the whole loan. The $6,000 is also not added to the cost of the stall: the loan and the purchase of the stall are two separate transactions, and the stall is capitalised only when and if the money is actually spent on it. The interest, when paid, is a revenue expense in the income statement, but that does not change how the loan itself is recorded.

Rent receivable is income, so its account works as the mirror image of an expense account. Amounts owed to the business at the year end are assets and amounts collected for a period not yet supplied are liabilities. The credit to the income statement is the rent earned in the twelve months, not the cash banked.

(a) Rent receivable account for the year ended 30 September 2024

Working for the income statement figure: credits total $415 + $9,860 + $340 = $10,615; the known debits are $270 + $290 = $560; the balancing debit is $10,615 - $560 = $10,055.

(b) The closing balances [4]

• Rent in arrears $340 is a debit balance, an other receivable, shown under current assets. [2]
• Rent received in advance $290 is a credit balance, an other payable, shown under current liabilities. [2]

(c) Why the rent credited to the income statement differs from the rent banked [4]

1. The income statement is credited with the rent earned for the twelve months of plot use, whoever has actually handed the money over during that time. [1]
2. Rent still owed at 30 September 2024 is added even though no cash arrived, because the plots were used. [1]
3. Rent paid early for the coming season is taken out again, because the association has not yet supplied that use. [1]
4. The opening balances are released for the same reason, so no season is counted twice or missed. The net effect is that the credit of $10,055 exceeds the $9,860 banked by $195. [1]

Exam reminder: on an income account the arrears sit on the debit side (a receivable) and the amounts in advance on the credit side (a payable), which is the opposite of an expense account.

Three separate accounts are in play and keeping them apart is what this question tests. Irrecoverable debts is an expense for balances known to be lost. Allowance for irrecoverable debts is a running estimate held against receivables in general. Irrecoverable debts recovered is income arising when a debt already written off is paid after all.

Why each line takes that form:

1. Writing off removes the asset, so trade receivables is credited, and recognises the loss, so the irrecoverable debts expense is debited. No cash entry is made because no money has moved.
2. Creating the allowance charges the estimated loss to the income statement and builds up a credit balance which is later deducted from trade receivables. The receivables account itself is untouched, because no individual school has been identified.
3. Increasing the allowance repeats that entry for the increase only. Charging the whole new allowance would count the earlier part twice.
4. Reducing the allowance releases part of a charge made in an earlier year, so the allowance account is debited and the income statement credited, which raises profit.
5. The recovery brings money in, so bank is debited. The credit cannot go to trade receivables, because that balance was cleared when the fee was written off; it goes to irrecoverable debts recovered as income of the current year.

For the allowance, only the movement is posted to the income statement, and the direction of that movement decides which side of the allowance account is used.

Total .

(a) Purchases journal for April [5]

Only credit purchases of goods for resale are listed here. The two returns are excluded because they belong in their own journal.

$1,450 + $980 + $620 + $1,340 = $4,390. Each individual amount is posted to the credit of the supplier's account in the purchases ledger; only the total goes to the general ledger.

(b) Purchases returns journal for April [4]

$130 + $215 = $345. The total is credited because returns cancel part of the debit already made to purchases, and each individual amount is debited to the supplier concerned, reducing what is owed.

(c) Etosha Cycle Parts account in the purchases ledger [6]

A supplier is a trade payable, so amounts owed are credits: $760 + $1,450 + $620 = $2,830. Everything that reduces the debt is debited: the $700 cheque, the $40 discount received for prompt payment, and the $215 of goods sent back, a total of $955. The balance carried down is $2,830 - $955 = $1,875, brought down on the credit side because the shop still owes it. A frequent error is entering the cheque at $740 by adding the discount to it; the bank column must show only the money that actually left, with the discount as a separate credit in the cash book and a separate debit here.

(a) Insurance account for the year ended 31 December [8]

An expense account collects what has been paid on the debit side, and at the year end the amount actually used up in the period is transferred to the income statement. Anything paid in advance is not an expense of this year, so it is carried down as a debit balance representing an asset.

Working: the debit side totals $360 plus $1,080 plus $1,140 plus $1,200, which is $3,780. Of that, $410 relates to cover for the year ahead, so the charge to the income statement is $3,780 less $410, that is $3,370. The balance of $410 is brought down on the debit side on 1 January.

(b) Where the closing balance appears [3]

The $410 is a prepayment, shown as a current asset in the statement of financial position, normally grouped with other receivables. It is an asset because Marisol has already paid for insurance cover that the shop has yet to receive, so the insurer owes her a service rather than money.

(c) How the accruals concept settles the charge [4]

The accruals concept requires expenses to be matched to the period whose revenue they help to earn, not to the period in which the money happened to leave the bank. Cash paid during the year came to $1,080 plus $1,140 plus $1,200, which is $3,420, but that is not the charge.

1. The $360 brought down was paid in the previous year yet covers part of this year, so it is added into this year's cost.
2. The $410 was paid this year but covers next year, so it is taken out and carried forward as a prepayment.
3. The charge is therefore $3,420 plus $360 less $410, that is $3,370, which is the cover actually consumed in the year.

Without this adjustment the profit for the year would be understated by $50, the net effect of the two prepayments, and the shop would appear to hold no asset for the cover it has already bought.

(a) The Blue Anchor Cafe account in the sales ledger of Hillside Provisions [10]

This is a credit customer's personal account, so it is an asset account. Amounts that increase the debt are debited, and anything that reduces it, whether goods returned, money received or discount allowed, is credited.

Working: debits are $340 plus $1,260 plus $520, which is $2,120. Credits before balancing are $180 plus $300 plus $1,000 plus $25, which is $1,505. The balance carried down is $2,120 less $1,505, that is $615, and because the debits are the larger side it is brought down on the debit side on 1 June.

Note the treatment of 29 May. The cafe settled $1,025 of its debt with only $1,000 of money because Hillside allowed a $25 cash discount, so both the bank entry and the discount allowed entry are credited to close that part of the account. Discount allowed is then debited to the discount allowed expense account in the general ledger.

(b) What the balance brought down represents [2]

The $615 debit balance on 1 June is the amount The Blue Anchor Cafe still owes Hillside Provisions for goods already supplied but not yet paid for. It is an asset of Hillside Provisions and forms part of trade receivables in the statement of financial position.

(c) One advantage of keeping a separate sales ledger [3]

Any one developed advantage earns the marks. For example: keeping every credit customer's personal account in one ledger, away from the general ledger, means the amount owed by any individual customer can be found immediately, so overdue debts can be chased and credit limits monitored. A sales ledger control account can then be prepared from the day book totals to check the arithmetic of the whole ledger independently. Other acceptable developments include the division of work between bookkeepers, which speeds up the recording and makes fraud harder to conceal, and the reduction in the size of the general ledger, which makes it easier to locate errors.

The reconciliation starts from the bank statement figure and adjusts it for the two items the bank has not yet processed. Takings already entered in the cash book but not yet credited are added, and cheques already entered in the cash book but not yet paid out by the bank are deducted, so the result is the balance the cash book should show once it has been brought up to date.

(a) Bank reconciliation statement at 30 November [3]

Working: $1,742 + $860 - $505 = $2,097 in funds. The takings are added because the money is already in the cash book and the bank will credit it in the next few days; the cheques are deducted because the cash book has already reduced the balance for payments the bank has yet to make.

(b) The cash book figure before the charges were entered [2]

The only entry made in bringing the cash book up to date was the bank charges of $37, which are credited in the cash book and therefore reduce the balance. To find the figure before that entry, the charges are added back: $2,097 + $37 = $2,134. [2]

The check is that the updating step must lower the balance, and $2,134 is indeed $37 higher than the updated $2,097.

The bank charges appear nowhere in the reconciliation statement itself, because by the time the statement is prepared the cash book has already absorbed them. Showing them again in the statement would count them twice.

Total [5].

Two adjustments have to be applied before the expenses are listed: the wages still owing are added to the wages paid, because that work has been done, and the rent covering January 2026 is deducted from the rent paid, because that month has not yet been occupied.

(a) Cost of sales [4]

(b) Income statement for the year ended 31 December 2025 [9]

Sales returns are deducted from revenue rather than shown as an expense, because those goods came back and were never sold. Carriage outwards is the cost of delivering goods to customers and belongs after gross profit, unlike carriage inwards which forms part of cost of sales. The $800 of wages owing is an other payable at the year end and the $1,500 of rent prepaid is an other receivable.

(c) Gross margin [2]
Gross margin = gross profit / revenue x 100 = $68,400 / $183,600 x 100 = 37.25%
This is above the 35% the owner wanted, so the target was reached.

Exam reminder: the gross margin is always calculated on net revenue after sales returns, not on the $186,000 headline figure. Using $186,000 would give 36.77% and understate the margin actually achieved.

The ledger is divided so that similar accounts are grouped together and the work can be shared. The sales ledger holds the personal accounts of credit customers, the purchases ledger holds the personal accounts of credit suppliers, the cash book holds the cash and bank accounts, and the general ledger holds every remaining account, that is, the impersonal accounts covering assets, expenses, income and capital.

Why each account sits there:

1. Kalinda Wholesale is a personal account for a business Tomas buys from on credit, so it belongs with the other suppliers.
2. Shop fittings at cost is a non-current asset, an impersonal account, so it belongs in the general ledger.
3. Petty cash is money held by the business, and the petty cash book is part of the cash book, so no separate account is needed elsewhere.
4. The Blue Cafe is a personal account for a business Tomas sells to on credit, so it belongs with the other customers.
5. Discount received is an income account, and therefore impersonal, even though the discount arose on a supplier's account.

Two rows catch candidates out. Discount received is often placed in the purchases ledger because it arises when a supplier is paid early, but only the supplier's own personal account lives there. Petty cash is often placed in the general ledger, but the cash book is both a book of original entry and part of the ledger.

The quickest route through a question like this is to ask first whether the account is named after a person or business. If it is, decide between sales and purchases ledger by the direction of trade; if it is not, it is the cash book for money held and the general ledger for everything else.

Total .