Free ATT and CIOT Principles of Accounting CBE Practice Questions

Sample Practice Questions

Try these 10 sample questions from the ATT and CIOT Principles of Accounting CBE practice bank. Each includes the answer and explanation. Continue with the interactive practice above to review the full question set.

1. 1Why are general purpose financial statements particularly useful to external users who cannot demand reports designed for their individual needs?

   1. A.They provide financial information for economic decisions.Correct answer: A
   2. B.They replace the user's need to assess future business risks.
   3. C.They establish the precise market selling price of the entity.
   4. D.They prescribe the operating decisions management must take.

   Explanation: The objective is information that is "useful for economic decision-making by a broad range of users". These reports serve users unable to demand tailored reports. They inform judgement; they do not eliminate risk assessment, value the whole business at its selling price, or prescribe management decisions.

   Reference: FRS 102: The Financial Reporting Standard applicable in the UK and Republic of Ireland — Section 2, paragraph 2.2

2. 2Under double-entry bookkeeping, what must be true of the entries recording a single transaction?

   1. A.Every debit must be entered in an asset account.
   2. B.Every transaction must affect the bank account.
   3. C.Total debits must equal total credits for that transaction.Correct answer: C
   4. D.Each business must record the other party's ledger entries.

   Explanation: The rule is that "the value of the debit entries is the same as the value of the credit entries". Accounts need not all be assets or include bank, and each entity keeps its own records.

   Reference: ACCA Principles and concepts of accounting — Duality

3. 3Electricity payments during the year total £9,400. Accrued electricity is £700 at the start and £1,100 at the end, with no prepayments. What electricity expense belongs in the year's income statement?

   1. A.£9,000
   2. B.£9,400
   3. C.£10,500
   4. D.£9,800Correct answer: D

   Explanation: The accounts recognise "costs that have been consumed, but not yet paid for (accrued expenses)." Expense = £9,400 − £700 opening accrual + £1,100 closing accrual = £9,800. £9,000 reverses both accrual adjustments; £9,400 uses cash alone; £10,500 ignores the opening accrual.

   Reference: ACCA Principles and concepts of accounting — Accrual accounting

4. 4A sole trader pays £320 for a personal holiday from the business bank account. How should this be recorded in the business accounts?

   1. A.Debit travel expense; credit bank
   2. B.Debit wages expense; credit bank
   3. C.Debit drawings; credit bankCorrect answer: C
   4. D.Debit trade receivables; credit bank

   Explanation: Personal withdrawals are recorded "with a debit entry in the drawings account and credit entry in the bank account." The holiday is not a business travel or wages expense and does not create a customer receivable.

   Reference: ACCA Principles and concepts of accounting — Business entity

5. 5For a UK company that is not exempt from preparing individual accounts, who has the statutory duty to prepare them for each financial year?

   1. A.The company's largest trade creditor
   2. B.The directors of the companyCorrect answer: B
   3. C.The company's external auditor
   4. D.The registrar of companies

   Explanation: "The directors of every company must prepare accounts for the company for each of its financial years", subject to the statutory exemption. Employing accountants or auditors does not transfer this duty to them, creditors or the registrar.

   Reference: Companies Act 2006, section 394 — Section 394

6. 6A company's current tax charge for the year is £18,000. It has paid £12,500 towards that same liability, with no opening balance or other adjustments. What current tax liability remains at year end?

   1. A.£5,500Correct answer: A
   2. B.£12,500
   3. C.£18,000
   4. D.£30,500

   Explanation: "An entity shall recognise a current tax liability for tax payable on taxable profit". Unpaid tax = £18,000 − £12,500 = £5,500. The alternatives report payments, the full charge before payments, or their sum.

   Reference: FRS 102: The Financial Reporting Standard applicable in the UK and Republic of Ireland — Section 29, paragraph 29.3

7. 7Revenue is £250,000 and cost of sales is £175,000. What is the gross profit margin, rounded to one decimal place?

   1. A.30.0%Correct answer: A
   2. B.42.9%
   3. C.70.0%
   4. D.300.0%

   Explanation: "Gross margin= (Gross profit ÷ Revenue) x100%". Gross profit = £250,000 − £175,000 = £75,000; margin = £75,000/£250,000 × 100 = 30.0%. 42.9% uses cost of sales as denominator (markup); 70.0% is the cost-of-sales percentage; 300.0% introduces a tenfold percentage error.

   Reference: ACCA Ratio analysis — Profitability, Gross margin

8. 8An investor uses annual accounts to assess how responsibly directors used the resources placed under their control. Which purpose of financial statements is being served?

   1. A.Establishing the entity's tax residence
   2. B.Demonstrating management's stewardshipCorrect answer: B
   3. C.Determining the entity's replacement cost
   4. D.Specifying management's business budget

   Explanation: Stewardship concerns "the accountability of management for the resources entrusted to it." The investor is evaluating this accountability. Tax residence, replacement cost and an operating budget are different issues.

   Reference: FRS 102: The Financial Reporting Standard applicable in the UK and Republic of Ireland — Section 2, paragraph 2.3

9. 9A trader buys £760 of goods for resale on credit, using a purchases account. VAT is ignored. Which entry records the purchase?

   1. A.Debit purchases £760; credit trade payables £760Correct answer: A
   2. B.Debit trade payables £760; credit purchases £760
   3. C.Debit purchases £760; credit trade receivables £760
   4. D.Debit bank £760; credit trade payables £760

   Explanation: ACCA explains that "a credit entry is required in her trade payables account. It follows that the entry in her purchases account will be a debit." The purchase creates a supplier liability. Reversing both entries, using a customer account or recording bank receipts misstates that transaction.

   Reference: ACCA Principles and concepts of accounting — Duality

10. 10On 1 October a business pays £3,600 for insurance covering the next 12 months evenly. Its year ends on 31 December. What insurance prepayment should be carried forward?

    1. A.£900
    2. B.£2,700Correct answer: B
    3. C.£3,600
    4. D.£4,500

    Explanation: Prepayments are "costs that have been paid, but not yet consumed (prepaid expenses)". Nine months remain: £3,600 × 9/12 = £2,700. £900 is the three-month expense; £3,600 ignores consumption; £4,500 wrongly adds the expense to the payment.

    Reference: ACCA Principles and concepts of accounting — Accrual accounting