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Free Questions › ACCA › Financial Accounting
Free ACCA Financial Accounting Practice Questions & Answers
400 exam-style Financial Accounting questions. Pick your answer, hit Check answer, and see the worked solution — free to start, no signup.
100% free · No login to startQuestion 241
What is 'mark-up' vs 'margin'?
Select an option first.
Correct answer: B — Mark-up = profit as % of COST; margin = profit as % of SELLING PRICE. A 25% mark-up on £100 cost = £25 profit = £125 selling price = 20% margin
Explanation: B is correct. Mark-up = Profit ÷ Cost × 100%. Margin = Profit ÷ Selling price × 100%. Same £25 profit: mark-up 25%; margin 20%. A is wrong. C reverses the definitions. D is true but incomplete as an explanation.
Question 242
A business applies a 40% mark-up on cost. Cost of goods is £70. What is the selling price?
Select an option first.
Correct answer: B — £98
Explanation: B is correct. Selling price = Cost × (1 + mark-up %) = £70 × 1.40 = £98. A is just the mark-up amount. C uses 60% incorrectly. D miscalculates.
Question 243
A 25% gross profit margin. Revenue is £120,000. What is gross profit?
Select an option first.
Correct answer: A — £30,000
Explanation: A is correct. GP margin = GP ÷ Revenue. 25% margin → GP = 25% × £120,000 = £30,000. B is cost of sales. C uses wrong %. D applies 20% not 25%.
Question 244
What is 'incomplete records' accounting?
Select an option first.
Correct answer: B — A situation where full double-entry records have not been kept — missing figures estimated using the accounting equation, mark-up/margin ratios, opening/closing balances, and control account reconstructions
Explanation: B is correct. Incomplete records: reconstruct using opening/closing net assets, receivables control, payables control, mark-up/margin, and bank account analysis. A says no records at all (too extreme). C and D are wrong.
Question 245
What is 'carriage inwards' vs 'carriage outwards'?
Select an option first.
Correct answer: B — Carriage inwards (cost of receiving goods) is added to cost of purchases/cost of sales; carriage outwards (cost of delivering to customers) is a selling/distribution expense
Explanation: B is correct. Carriage inwards: part of acquiring inventory → cost of sales. Carriage outwards: delivering to customers → distribution expense (below gross profit). A is wrong. C is partially correct (inwards only). D is wrong.
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Question 246
What are 'sales ledger' and 'purchase ledger' and how do they relate to control accounts?
Select an option first.
Correct answer: B — Sales ledger contains individual customer accounts (trade receivables); purchase ledger contains individual supplier accounts (trade payables). Control accounts (SLCA/PLCA) in the nominal ledger should equal the sum of individual balances
Explanation: B is correct. Subsidiary ledgers: sales ledger (one account per customer), purchase ledger (one account per supplier). Control accounts summarise the total — providing a reconciliation check. Discrepancy = error. A, C and D are wrong.
Question 247
Effect on SLCA when a customer pays their invoice?
Select an option first.
Correct answer: C — Debit Bank; Credit SLCA — the SLCA balance decreases as cash is received
Explanation: C is correct. Customer pays: Dr Bank (cash in) and Cr SLCA (reduce total trade receivable). Mirrors the entry in the individual customer account. A reverses the SLCA direction. B and D are wrong.
Question 248
What is a 'purchase day book' and what does it record?
Select an option first.
Correct answer: B — A book of prime entry recording all credit purchases from supplier invoices — totals posted to purchases account and PLCA in the nominal ledger
Explanation: B is correct. Purchase day book: book of prime entry for credit purchases. Individual entries → purchase ledger; totals → nominal ledger (Dr Purchases, Cr PLCA). A is cash purchases. C is purchase orders. D is purchase returns day book.
Question 249
What is a 'cash book' and what accounts does it combine?
Select an option first.
Correct answer: B — A book of prime entry (and part of double-entry) combining the bank account and cash account — records all receipts and payments; used directly in the trial balance
Explanation: B is correct. Cash book serves as both a book of prime entry AND a ledger account. Records cash and bank transactions. Totals feed into the trial balance. A is too narrow. C excludes cash. D confuses it with the bank statement.
Question 250
What is 'standard costing' and what is a 'variance'?
Select an option first.
Correct answer: B — A predetermined estimated cost for a product or service — a variance is the difference between standard and actual cost. Favourable variance = actual cost < standard; Adverse = actual cost > standard
Explanation: B is correct. Standard costing: pre-set costs for planning, control, and performance measurement. Favourable variance → adds to profit; adverse variance → reduces profit. A is actual costing. C and D are wrong.
Question 251
What is an 'error of reversal'?
Select an option first.
Correct answer: B — A transaction posted to correct accounts but with debit and credit reversed — trial balance still balances because totals are equal (just in opposite accounts)
Explanation: B is correct. Error of reversal: e.g., Dr Sales Revenue and Cr Cash instead of Dr Cash and Cr Sales Revenue. Both sides wrong but totals balance. A is a cut-off error. C is error of original entry. D is a posting error.
Question 252
What are 'internal controls' and three examples?
Select an option first.
Correct answer: B — Policies and procedures to safeguard assets, ensure accuracy of records, promote efficiency, and comply with laws — examples include: segregation of duties, authorisation limits, bank reconciliations, and physical asset controls
Explanation: B is correct. Internal controls: organisation-wide policies reducing risk of error and fraud. Examples: segregation of duties, authorisation limits, bank reconciliations, access controls, physical asset counts. A is external regulation. C is too narrow. D is only one example.
Question 253
What is 'segregation of duties'?
Select an option first.
Correct answer: B — Ensuring no single person has complete control over a full transaction cycle — e.g., separating the ordering, receiving, recording, and payment functions — reduces risk of undetected fraud
Explanation: B is correct. Segregation of duties: dividing processing so collusion is needed to perpetrate and conceal fraud. E.g., the person raising a purchase order should not also approve it AND process the payment. A is a review control. C is organisational structure. D outsources.
Question 254
What is 'BACS' and how does it affect bank reconciliation timing?
Select an option first.
Correct answer: B — Bankers' Automated Clearing System — electronic funds transfer (direct debits, standing orders, salary payments) typically taking 3 working days to clear, creating a timing difference between the cash book (recorded immediately) and bank statement
Explanation: B is correct. BACS: UK electronic payment system. Payments recorded in cash book immediately but may clear the bank 1-3 working days later → timing difference on bank reconciliation. A, C and D are wrong.
Question 255
What is 'inventory write-down' and what journal entry is required?
Select an option first.
Correct answer: B — When NRV falls below cost: Debit Inventory Write-down Expense (or cost of sales); Credit Inventory — so closing inventory is stated at NRV
Explanation: B is correct. IAS 2: lower of cost and NRV — if NRV < cost, write down. Dr Inventory Write-down (or Dr Cost of Sales); Cr Inventory. Recognised in P&L. A is too restrictive. C is too narrow. D is wrong.
Question 256
What is 'cost of sales' for a retail business?
Select an option first.
Correct answer: B — Opening inventory + Purchases − Closing inventory
Explanation: B is correct. Cost of sales (retail): Opening inventory + Purchases (net of returns/discounts) − Closing inventory. Applies the matching concept. A is revenue minus a result, not a calculation. C is manufacturing. D includes selling costs (wrong).
Question 257
Opening balance of trade receivables £15,000; credit sales £90,000; cash collected £82,000; bad debts written off £1,000. Closing balance of trade receivables?
Select an option first.
Correct answer: A — £22,000
Explanation: A is correct. Closing balance = Opening + Credit sales − Cash collected − Bad debts = £15,000 + £90,000 − £82,000 − £1,000 = £22,000. B omits bad debts. C is wrong. D adds all inflows.
Question 258
Allowance for doubtful debts brought forward £2,000. Year-end estimate should be £3,500. What is the income statement charge?
Select an option first.
Correct answer: C — £1,500
Explanation: C is correct. Income statement charge = increase in allowance only: £3,500 − £2,000 = £1,500. A would be the charge if creating the allowance for the first time. B is the opening allowance. D adds the two figures.
Question 259
Journal entry to record an accrual of £800 for electricity at year end?
Select an option first.
Correct answer: B — Debit Electricity Expense £800; Credit Accruals (liability) £800
Explanation: B is correct. Accrual: Dr Electricity Expense (P&L charge); Cr Accruals (current liability on SFP). No cash moves. A uses bank (wrong). C reverses the entry. D credits prepayments (wrong).
Question 260
What is a 'nominal account'?
Select an option first.
Correct answer: B — An income or expense account closed to retained earnings at the end of each period — it starts at zero each year
Explanation: B is correct. Nominal (temporary) accounts: income and expense accounts closed to P&L/retained earnings at year end, resetting to zero. Contrast with real (permanent) accounts: assets, liabilities, equity — carry balances forward. A is a personal account. C and D describe real accounts.
Question 261
What is a 'real account'?
Select an option first.
Correct answer: B — A permanent account — assets, liabilities, and equity — whose balance is carried forward to the next period
Explanation: B is correct. Real (permanent) accounts: assets, liabilities, equity — carry closing balances forward as opening balances next period. Nominal (temporary) accounts reset. A describes nominal accounts. C and D are wrong.
Question 262
What is the accounting equation effect if a business buys inventory on credit for £4,000?
Select an option first.
Correct answer: B — Assets (inventory) increase £4,000; liabilities (trade payables) increase £4,000
Explanation: B is correct. Buying on credit: Inventory (asset) +£4,000; Trade Payables (liability) +£4,000. Equation stays balanced: both sides increase equally. A increases equity (wrong). C decreases liabilities (wrong). D reduces both (wrong).
Question 263
What is the double-entry for returning goods to a supplier worth £600?
Select an option first.
Correct answer: B — Debit Trade Payables £600; Credit Purchase Returns £600
Explanation: B is correct. Returning goods to supplier: Trade Payables (liability) decreases — debit; Purchase Returns (reduces cost) — credit. A increases purchases (wrong). C and D bring in cash (wrong — no cash on a credit return).
Question 264
What is the double-entry to record interest received of £400 in cash?
Select an option first.
Correct answer: B — Debit Bank £400; Credit Interest Income £400
Explanation: B is correct. Interest received: Bank (asset) increases — debit; Interest Income (income) increases — credit. A reverses the entry. C records it as a receivable. D credits the wrong account.
Question 265
What is 'depletion' and to which assets does it apply?
Select an option first.
Correct answer: B — The systematic allocation of the cost of natural resources (e.g., oil, gas, coal, timber) as they are extracted or used up — often calculated on a units-of-production basis
Explanation: B is correct. Depletion: cost allocation for natural resources. Often units-of-production basis. A is too broad. C describes amortisation. D is financial asset impairment.
Question 266
What is the correct treatment for a £500 settlement discount received from a supplier?
Select an option first.
Correct answer: B — Debit Trade Payables £500; Credit Discount Received (income) £500
Explanation: B is correct. Settlement discount received: Dr Trade Payables (reduces liability) £500; Cr Discount Received (income) £500. A and C use wrong accounts. D reverses the entry.
Question 267
What is 'WIP (work-in-progress)' in a manufacturing cost statement?
Select an option first.
Correct answer: B — Partly completed goods — opening WIP added to manufacturing costs, closing WIP deducted, to arrive at cost of goods completed and transferred to finished goods
Explanation: B is correct. Manufacturing: Prime cost + Overheads + Opening WIP − Closing WIP = Cost of goods completed. This feeds into cost of sales with finished goods inventory. A is finished goods. C is raw materials. D is wrong.
Question 268
What is a 'provision for depreciation account' vs the asset account?
Select an option first.
Correct answer: B — The asset account holds original cost (debit balance); the provision for depreciation (accumulated depreciation) account holds all depreciation to date (credit balance — a contra account). NBV = Asset − Provision
Explanation: B is correct. Separate accounts: Asset account (cost — debit, unchanged); Accumulated depreciation account (credit, increases each year). NBV derived by netting. A is wrong. C describes current year charge. D is wrong.
Question 269
What is 'interest received' classification in a cash flow statement under IAS 7?
Select an option first.
Correct answer: B — Under operating activities (component of profit) or investing activities (return on investment) — an accounting policy choice applied consistently
Explanation: B is correct. IAS 7: interest received — operating or investing (accounting policy choice). For non-financial entities, investing is often used. A and C say 'always' (wrong). D is incorrect.
Question 270
What is the 'net pay' method of recording wages?
Select an option first.
Correct answer: B — Recording the net amount paid to employees in the cash book, with PAYE and NIC deductions as separate liabilities — total wages cost = net pay + PAYE + employee NIC + employer NIC
Explanation: B is correct. Net pay method: cash book records actual cash paid (net wages). PAYE and NIC are current liabilities until remitted to HMRC. The total wages cost (P&L) = gross pay + employer NIC. A is too narrow. C is incomplete. D is incorrect.
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Taxation300
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Strategic Business Leader300
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