Purchase and Sales Accounting: Master the Basics for Business Success

Question 1

What is the primary purpose of the accounts receivable account?

Accepted Answer

To record amounts owed by customers

Answer

To record sales of goods

Answer

To record purchases of inventory

Answer

To record amounts owed to creditors

Question 2

Which of the following documents is used as the primary supporting evidence for recording a purchase of inventory?

Accepted Answer

Invoice

Answer

Receipt

Answer

Cheque

Answer

Bank statement

Question 3

What is the direct impact on the income statement when a sale of goods is recorded?

Accepted Answer

Increase in revenue

Answer

Decrease in revenue

Answer

Increase in expenses

Answer

Decrease in expenses

Question 4

Which of the following is not a characteristic of a purchase discount?

Accepted Answer

It is a type of sales discount

Answer

It represents a reduction in the price of goods purchased

Answer

It is typically offered for early payment

Answer

It is recorded as a credit to the purchases account

Question 5

What is the primary distinction between a trade discount and a cash discount?

Accepted Answer

Cash discounts are offered for early payment, while trade discounts are offered for bulk purchases.

Answer

Trade discounts are offered to specific customers, while cash discounts are offered to all customers.

Answer

Trade discounts reduce the cost of goods purchased, while cash discounts increase the cost of goods purchased.

Answer

There is no difference between trade discounts and cash discounts.

Question 6

Which of the following accounts is not directly involved in the recording of sales?

Accepted Answer

Inventory account

Answer

Sales account

Answer

Accounts receivable account

Answer

Cash account

Question 7

What is the primary purpose of a purchase order?

Accepted Answer

To authorize the purchase of goods

Answer

To record the purchase of goods

Answer

To pay for the purchase of goods

Answer

To track the delivery of goods

Question 8

How does the accounting equation ensure the accuracy of financial records?

Accepted Answer

It ensures that total debits equal total credits.

Answer

It keeps assets equal to equity.

Answer

It shows the net income for a period.

Answer

It helps businesses calculate taxes.

Question 9

When a business acquires inventory on credit in double-entry accounting, which account is credited?

Accepted Answer

Accounts Payable

Answer

Inventory

Answer

Cash

Answer

Sales Revenue

Question 10

Which of the following accounts is used to record the purchase of inventory?

Accepted Answer

Inventory

Answer

Accounts Payable

Answer

Cost of Goods Sold

Answer

Cash

Question 11

Which of the following is NOT a type of sales transaction?

Accepted Answer

Purchase returns

Answer

Cash sales

Answer

Credit sales

Answer

Sales discounts

Question 12

Which of the following documents serves as evidence of the purchase of goods?

Accepted Answer

Invoice

Answer

Purchase order

Answer

Delivery note

Answer

Statement of account

Question 13

What is a benefit of using a perpetual inventory system?

Accepted Answer

Provides real-time inventory information

Answer

Reduces the risk of stockouts

Answer

Lowers the cost of operation

Answer

Improves customer satisfaction

Question 14

In the context of inventory management, what does the term 'FIFO' refer to?

Accepted Answer

First In, First Out

Answer

First In, Last Out

Answer

Last In, First Out

Answer

Last In, Last Out

Question 15

Why is inventory turnover an important metric for businesses?

Accepted Answer

It reflects efficient inventory management practices

Answer

It guarantees high profit margins

Answer

It ensures strong cash flow

Question 16

Which of the following is the first step in the purchases recording process?

Accepted Answer

Preparing a purchase order

Answer

Receiving the goods

Answer

Issuing a payment

Answer

Updating inventory records

Question 17

Which account is debited when recording cost of goods sold?

Accepted Answer

Cost of Goods Sold

Answer

Sales

Answer

Inventory

Answer

Purchases

Question 18

What is the primary purpose of maintaining a purchases ledger?

Accepted Answer

To track individual supplier accounts and balances

Answer

To record all purchases made by the business

Answer

To monitor inventory levels

Answer

To process payments to suppliers

Question 19

Which document typically serves as the basis for recording a sale?

Accepted Answer

Sales invoice

Answer

Purchase order

Answer

Remittance advice

Answer

Statement of account

Question 20

What journal entry is made to record a cash sale?

Accepted Answer

Debit Cash, Credit Sales

Answer

Debit Accounts Receivable, Credit Sales

Answer

Debit Sales, Credit Cash

Answer

Debit Accounts Receivable, Credit Inventory

Question 21

Which account represents the amounts owed to the business by customers for goods or services purchased on account?

Accepted Answer

Accounts Receivable

Answer

Accounts Payable

Answer

Sales

Answer

Inventory

Question 22

Which factor is NOT typically considered when determining the credit period granted to customers?

Accepted Answer

Size of the purchase order

Answer

Customer's credit history

Answer

Industry norms and practices

Answer

Cost of offering credit

Question 23

What is the primary function of a sales ledger?

Accepted Answer

To track individual customer accounts and balances

Answer

To record all sales transactions made by the business

Answer

To process payments received from customers

Answer

To prepare customer statements

Question 24

In a periodic inventory system, which account is used to initially record the purchase of inventory?

Accepted Answer

Purchases

Answer

Inventory

Answer

Accounts Payable

Answer

Cost of Goods Sold

Question 25

Which document plays a crucial role in updating the accounts payable ledger?

Accepted Answer

Supplier invoice

Answer

Purchase order

Answer

Goods received note

Answer

Remittance advice

Question 26

What is the primary purpose of a sales ledger?

Accepted Answer

Tracking customer account balances

Answer

Recording sales made on credit

Answer

Generating invoices

Answer

Reconciling cash receipts

Question 27

Provide the journal entry for recording a sale of goods amounting to £1,000 with £200 VAT, assuming cash payment terms.

Accepted Answer

Debit Sales £1,000, Credit VAT Output Tax £200, Credit Debtors £1,200

Answer

Debit Debtors £1,200, Credit Sales £1,000, Credit VAT Output Tax £200

Answer

Debit Sales £1,000, Credit Debtors £1,000, Credit VAT Output Tax £200

Answer

Debit VAT Output Tax £200, Credit Debtors £1,000, Credit Sales £1,200

Question 28

When goods are purchased on credit, which account should be debited?

Accepted Answer

Accounts Payable

Answer

Inventory

Answer

Cash

Answer

Purchase Discounts

Question 29

What is the primary purpose of a purchase invoice?

Accepted Answer

To provide information on purchased goods and amounts due

Answer

To authorize payment to suppliers

Answer

To document the order of goods

Answer

To serve as a receipt of goods received

Question 30

Which of the following options is the most comprehensive method of recording sales transactions?

Accepted Answer

Combination of all options

Answer

Sales Journal

Answer

Invoices

Answer

Credit Notes

Question 31

When goods are sold on account, which account should be credited?

Accepted Answer

Accounts Receivable

Answer

Sales Revenue

Answer

Cash

Answer

Sales Discounts

Question 32

What is the primary function of a cash receipt voucher?

Accepted Answer

To record the receipt of cash payments

Answer

To authorize payments to customers

Answer

To provide information on customer payments

Answer

To document the issuing of credit notes

Question 33

Which aspect of electronic accounting systems is NOT considered an advantage?

Accepted Answer

Higher costs of implementation

Answer

Increased accuracy

Answer

Enhanced security

Answer

Improved efficiency

Question 34

What is the primary function of a purchase ledger?

Accepted Answer

To provide a summary of amounts payable to suppliers

Answer

To record all business purchases

Answer

To track the status of purchase orders

Answer

To maintain a record of received goods

Question 35

How does a sales return transaction impact accounts receivable?

Accepted Answer

Accounts receivable decreases by the sales price of the returned goods.

Answer

Accounts receivable increases by the sales price of the returned goods.

Answer

Sales returns do not affect accounts receivable.

Answer

Accounts receivable increases by the cost of the returned goods.

Question 36

Identify the contra-revenue account from the following options:

Accepted Answer

Sales Returns and Allowances

Answer

Sales Revenue

Answer

Accounts Receivable

Question 37

When purchasing goods on account, which account is debited?

Accepted Answer

Accounts Payable

Answer

Cash

Answer

Purchase Discounts

Answer

Inventory

Question 38

At what point should a sales transaction be recorded in the accounting system?

Accepted Answer

When ownership of the goods is transferred to the customer

Answer

When payment is received from the customer

Answer

When the invoice is sent to the customer

Answer

When the customer places the order

Question 39

What is the primary purpose of a purchase invoice?

Accepted Answer

To serve as a record of goods or services purchased, along with their respective quantities, prices, and other relevant details.

Answer

To request payment from a supplier

Answer

To confirm the terms of a purchase order

Answer

To track inventory levels

Question 40

What is the core principle of the double-entry accounting system?

Accepted Answer

Every transaction must be recorded with equal debits and credits, ensuring that the accounting equation (Assets = Liabilities + Equity) remains in balance.

Answer

Only significant transactions need to be recorded using double-entry

Answer

Transactions can be recorded in any order or format

Question 41

What is the primary purpose of using a trial balance in accounting?

Accepted Answer

To check the mathematical accuracy of the accounting records by ensuring that the total debits equal the total credits.

Answer

To calculate the net income for a specific accounting period

Answer

To prepare the financial statements

Answer

To record adjusting entries

Question 42

Which of the following is an example of an adjusting entry?

Accepted Answer

Recording accrued expenses

Answer

Issuing a sales invoice

Answer

Receiving a purchase invoice

Answer

Depositing cash in the bank

Question 43

What is the first step in the accounting process for purchases of inventory?

Accepted Answer

Issuing a purchase order

Answer

Receiving the goods

Answer

Paying for the goods

Answer

Recording the purchase in the accounts

Question 44

What type of account is Accounts Payable?

Accepted Answer

Liability account

Answer

Asset account

Answer

Revenue account

Answer

Expense account

Question 45

What is the purpose of a purchase invoice?

Accepted Answer

To provide a detailed record of the goods purchased

Answer

To record the purchase in the accounting system

Answer

To request the goods from the supplier

Answer

To authorize the payment for the goods

Question 46

What is a sales return?

Accepted Answer

A return of goods by the customer

Answer

An order for goods placed by the customer

Answer

A payment received from the customer

Answer

A discount offered to the customer

Question 47

What is the purpose of a credit memo?

Accepted Answer

To correct an error in a previous invoice

Answer

To request payment from a customer

Answer

To record a sale

Answer

To authorize the return of goods

Question 48

What type of account is Sales Revenue?

Accepted Answer

Revenue account

Answer

Expense account

Answer

Asset account

Answer

Liability account

Question 49

When a business acquires inventory on account, which account is debited to record the transaction?

Accepted Answer

Purchases

Answer

Cash

Answer

Sales

Answer

Accounts Receivable

Question 50

When a company sells goods for cash, which account is credited to record the transaction?

Accepted Answer

Sales

Answer

Accounts Receivable

Answer

Cash

Answer

Cost of Goods Sold

Question 51

What is the term used to describe the difference between the cost of goods sold and sales revenue?

Accepted Answer

Gross Profit

Answer

Net Sales

Answer

Net Income

Answer

Operating Expenses

Question 52

When a customer purchases goods on credit, which account is debited to record the transaction?

Accepted Answer

Accounts Receivable

Answer

Cost of Goods Sold

Answer

Sales

Answer

Cash

Question 53

If a business settles an account payable for goods previously purchased on credit, which account is credited to record the transaction?

Accepted Answer

Accounts Payable

Answer

Purchases

Answer

Cash

Answer

Sales

Question 54

When a company discovers and returns defective inventory that was purchased on credit, which account is credited to record the return?

Accepted Answer

Purchases Returns and Allowances

Answer

Accounts Payable

Answer

Sales Returns and Allowances

Answer

Purchases

Question 55

If a customer returns merchandise that was purchased on credit, which account is debited to record the return?

Accepted Answer

Sales Returns and Allowances

Answer

Sales

Answer

Cash

Answer

Accounts Receivable

Question 56

Which of the following is not a widely recognized type of inventory?

Accepted Answer

Tangible Assets

Answer

Work-in-Process

Answer

Raw Materials

Answer

Finished Goods

Question 57

In the context of the periodic inventory system, what is its primary characteristic?

Accepted Answer

Inventory is updated only at the conclusion of the accounting period.

Answer

Inventory levels are monitored using barcodes.

Answer

Inventory is continuously updated throughout the period.