Free CIMA BA3 Fundamentals of Financial Accounting Practice Questions

Sample Practice Questions

Try these 10 sample questions from the CIMA BA3 Fundamentals of Financial Accounting practice bank. Each includes the answer and explanation. Continue with the interactive practice above to review the full question set.

1. 1Why do managers provide financial statements to shareholders as part of their stewardship role?

   1. A.To account for their management of shareholders’ resourcesCorrect answer: A
   2. B.To transfer ownership of company assets to the directors
   3. C.To replace the shareholders’ voting rights with profit targets
   4. D.To guarantee that every management decision earns a profit

   Explanation: The source states: "Stewardship is a relationship of accountability by one person or group for their management of resources and decision-making on behalf of another person or group" Managers must explain how entrusted resources were used. Stewardship does not transfer ownership, remove voting rights or guarantee a profit.

   Reference: Kaplan CIMA BA3 Fundamentals of Financial Accounting Study Text — Chapter 1, section 4, p.8

2. 2In a manual accounting system, which book of prime entry lists invoices issued for credit sales of goods?

   1. A.Sales day bookCorrect answer: A
   2. B.Purchases day book
   3. C.Sales returns day book
   4. D.General journal

   Explanation: The source states: "The sales day book is simply a list of the sales invoices that are to be processed for a given period (e.g. a week)." Issued sales invoices belong in the sales day book. Supplier invoices, customer credit notes and non-routine journals serve different transactions.

   Reference: Kaplan Financial Accounting: Preparing Financial Statements — Chapter 1, section 2.2, p.8

3. 3At year end, £430 of electricity has been consumed but has not been invoiced, paid or recorded. Which adjustment is required?

   1. A.Debit Accrued expenses £430; credit Electricity £430
   2. B.Debit Electricity £430; credit Accrued expenses £430Correct answer: B
   3. C.Debit Electricity £430; credit Bank £430
   4. D.Debit Prepayments £430; credit Electricity £430

   Explanation: The source states: "Expenses should be recognized when goods or services are consumed." The period has incurred a £430 expense and owes that amount: debit electricity, credit accruals. A reverses this, C records cash not paid and D describes an asset for a future benefit rather than a consumed service.

   Reference: Institute of Chartered Accountants in Malawi — Accounting Framework Manual — Chapter 9, section 9.9, p.102

4. 4What does the trade receivables collection period estimate?

   1. A.The average time taken to pay trade suppliers
   2. B.The average time inventory remains before sale
   3. C.The proportion of long-term finance provided by debt
   4. D.The average time taken to collect credit sales from customersCorrect answer: D

   Explanation: The source gives: "Receivables collection period = receivables ÷ credit sales × 365 days". Receivables relative to annual credit sales express the average customer collection time in days. Supplier payment days, inventory holding days and gearing address different questions.

   Reference: ACCA Ratio analysis — Activity ratios — Receivables collection period

5. 5What is the accounting purpose of retaining supporting documents for a transaction?

   1. A.To postpone recording until the annual statements are prepared
   2. B.To replace classification of transactions in the accounting system
   3. C.To provide evidence of the transaction’s occurrence, date and valueCorrect answer: C
   4. D.To show that the related customer has already paid in full

   Explanation: The source states: "With most transactions a supporting document will be created to confirm that the transaction has taken place, when the transaction took place and the associated value of the transaction." Documents provide source evidence for measurement and recording. They neither defer recording nor replace classification, and a credit invoice does not establish settlement.

   Reference: Kaplan CIMA BA3 Fundamentals of Financial Accounting Study Text — Chapter 1, section 3, p.6

6. 6A retailer receives several invoices for inventory bought on credit. Which day book records these invoices before their totals are posted to the ledgers?

   1. A.Sales returns day book
   2. B.Sales day book
   3. C.Purchases day bookCorrect answer: C
   4. D.Cash book

   Explanation: The source states: "The purchases day book is simply a list of the purchases invoices that are to be processed for a given period (e.g. a week)." These supplier invoices are purchases, not sales, customer returns or payments. Credit purchases do not enter the cash book until cash settlement.

   Reference: Kaplan Financial Accounting: Preparing Financial Statements — Chapter 1, section 2.2, p.8

7. 7On 1 October, a business pays £2,400 for insurance covering twelve months from that date and initially expenses the full payment. At its 31 December year end, what prepayment adjustment is required?

   1. A.Debit Insurance £1,800; credit Prepayments £1,800
   2. B.Debit Prepayments £600; credit Insurance £600
   3. C.Debit Prepayments £1,800; credit Insurance £1,800Correct answer: C
   4. D.Debit Insurance £600; credit Bank £600

   Explanation: The source states: "The value of accruals and prepayments for items which relate to a period of time is found by apportioning the cost of the item on time basis." Nine of twelve months are future cover. Prepayment = £2,400 × 9/12 = £1,800, debited to an asset and credited out of expense. A reverses it; B uses the three months consumed; D records another payment.

   Reference: Institute of Chartered Accountants in Malawi — Accounting Framework Manual — Chapter 9, section 9.9, p.103

8. 8What does non-current asset turnover primarily help an analyst assess?

   1. A.How efficiently long-term productive assets generate revenueCorrect answer: A
   2. B.How much interest is due on the company’s borrowings
   3. C.How long customers take to pay outstanding invoices
   4. D.How much current debt is covered by cash and receivables

   Explanation: The source states: "the fixed-asset turnover ratio, for example, will show how well the company is using its productive capacity." It relates sales activity to productive non-current assets. Interest obligations, collection speed and liquid-asset coverage are different measures.

   Reference: FAO Agricultural and Food Marketing Management — Chapter 2: Financial, managerial accounting and reporting — The interpretation of company accounts — Activity

9. 9A supplier is deciding whether to offer a business 30-day trade credit. Which information most directly addresses the supplier’s concern as a creditor?

   1. A.The voting rights attached to the business’s ordinary shares
   2. B.The business’s capacity to pay for supplies when amounts fall dueCorrect answer: B
   3. C.The remuneration arrangements for the business’s board members
   4. D.The proportion of annual profits distributed as staff bonuses

   Explanation: The source states: "Suppliers will wish to ensure that the entity will be capable of paying for the goods/services supplied when payment becomes due." The specific credit decision concerns payment capacity. Voting, directors’ remuneration and bonus allocation do not establish whether this trade debt can be settled.

   Reference: Kaplan CIMA BA3 Fundamentals of Financial Accounting Study Text — Chapter 1, section 5(e), p.11

10. 10A business issues a credit note because a customer returns goods previously sold on credit. Which book of prime entry records the credit note?

    1. A.Purchases day book
    2. B.Sales returns day bookCorrect answer: B
    3. C.Sales day book
    4. D.Petty cash book

    Explanation: The source states: "The sales returns day book is simply a list of the credit notes that are to be processed for a given period (e.g. a week)." The customer return reverses part of a sale. It is not a new sale, an invoice for goods bought or a petty cash payment.

    Reference: Kaplan Financial Accounting: Preparing Financial Statements — Chapter 1, section 2.2, p.8