Accountancy MCQs
Topic Notes: Accountancy
General Description
Plato
- Biography: Ancient Greek philosopher (427–347 BCE), student of Socrates and teacher of Aristotle, founder of the Academy in Athens.
- Important Ideas:
- Theory of Forms
- Philosopher-King
- Ideal State
1
Which account is utilized to rectify errors that affect only one side of the ledger?
Answer:
Suspense account
A suspense account is a temporary account used to hold the difference in a trial balance when the debits and credits do not match. One-sided errors, which occur when only one account is incorrectly recorded or omitted, cause this imbalance. Once the error is identified, the suspense account is cleared by making a correcting journal entry, ensuring the books are balanced.
2
Is it correct to state that a suspense account is not utilized for the rectification of two-sided errors?
Answer:
False
A suspense account is specifically used to temporarily hold a difference in the trial balance caused by one-sided errors. Two-sided errors, which affect both debit and credit sides equally, do not cause a trial balance disagreement and therefore do not require a suspense account for their correction. They are rectified by direct journal entries adjusting the affected accounts.
3
A business granted a $30 cash discount to a customer, Smith. The entry was correctly made in the Discount Allowed Account but was omitted from Smith's personal account. A suspense account was used to balance the books. What is the necessary entry to rectify this error?
Answer:
debit suspense account $30, credit Smith’s account $30
Since the discount was correctly recorded in the Discount Allowed account (a debit), the omission in Smith's account means the credit side of the double entry is missing. The suspense account currently holds a credit balance of $30. To rectify this, we must debit the suspense account to clear it and credit Smith's account to reflect the reduction in the amount he owes.
4
If the Purchase Returns account is undercast by $50, requiring a correction via a suspense account, what is the correct journal entry?
Answer:
debit suspense account $50, credit purchase returns account $50
An undercast in a credit-balance account (Purchase Returns) means the total is too low. To correct this, we must credit the account for the missing $50. Since no other account is affected, the corresponding debit must be made to the Suspense account.
5
If sales were overcast by $70 at year-end, what journal entry is required to correct this error using a suspense account?
Answer:
debit sales account $70, credit suspense account $70
Sales are normally credited. If sales are overcast (recorded too high), the account balance must be reduced by debiting the sales account. To balance the double-entry system, the corresponding credit is made to the suspense account until the error is fully identified and rectified.
6
Which of the following accounting errors necessitates the use of a suspense account for correction?
Answer:
A credit sale to A Banter’s was entered on the credit side of A Banter’s account
A suspense account is used when a trial balance does not balance due to a one-sided error. In option C, posting a credit sale to the credit side of the debtor's account instead of the debit side causes an imbalance in the trial balance, requiring a suspense account entry to rectify the discrepancy.
7
A business granted a $30 cash discount to a customer named Smith. The entry was correctly recorded in the Discount Allowed account but omitted from Smith's personal account, leading to a suspense account entry. What is the required correction?
Answer:
Debit suspense account $30, credit Smith’s account $30
Since the discount was correctly debited to the Discount Allowed account but omitted from the credit side of Smith's account, the trial balance would be unbalanced. To rectify this, the suspense account (which holds the temporary difference) must be cleared by crediting Smith's account and debiting the suspense account to balance the books.
8
A suspense account was initialized with a credit balance of $840. Which specific error would result in this balance?
Answer:
A check of $420 received from a customer was debited to his account
If a check of $420 is received, the bank should be debited and the customer credited. If the customer's account is debited instead, the credit side of the trial balance will be short by $840 ($420 for the missing credit and $420 for the incorrect debit), necessitating a $840 credit to the suspense account.