TRADING ACCOUNT and PROFIT AND LOSS ACCOUNT

The discount allowed of $50 was wrongly recorded as discount received. What is the effect on net profit?
1. Net profit is understated by $50.
2. Net profit is understated by $100.
3. Net profit is overstated by $50.
4. Net profit is overstated by $100.
A debit balance in the Trading Account indicates a/an
1. Expense
2. Income
3. Profit
4. Loss
The following should be debited to the Profit and Loss account, except
1. carriage outwards.
2. commission revenue.
3. interest expense.
4. rent expense.
Net profit is
1. excess of sales over the cost of goods sold.
2. sales less purchases.
3. revenues less expenses.
4. gross profit less expenses.
The cost of sales is also known as
1. Cost of goods available for sale
2. Cost of goods sold
3. Net sales
4. Opening stock
Carriage inwards $25 is wrongly recorded in the General Expenses Account.
This error results in the following effect(s):

I. Net profit is overstated by $25.

II. Gross profit is overstated by $25.

III. Gross profit remains unchanged.

IV. Net profit remains unchanged.
1. I only
2. IV only
3. I and II only
4. II and IV only
Net profit is transferred to the credit side of
1. Capital Account
2. Trading Account
3. Profit and Loss Account
4. Cash Account
Net profit is determined in the
1. Trial Balance.
2. Balance Sheet.
3. Profit and Loss Account.
4. Trading Account.
A debit balance in the Profit and Loss Account means a
1. net loss.
2. net profit.
3. gross loss.
4. gross profit.
If other revenues received for the year are $15,000, operating expenses are $50,000 and the net profit is $35,000, the gross profit is
1. $85,000
2. $70,000
3. $50,000
4. $100,000
During December 2002, your firm had sales of $205,000, which made a gross profit of $56,000. Purchases amounted to $160,000 while returns outwards totalled $3,000. Opening stock was $13,000.

What was the value of the closing stock?
1. $5,000
2. $21,000
3. $24,000
4. $27,000
Which of the following transactions will result in a decrease in net profit?
1. Paid $100,000 to acquire land.
2. Paid $55,000 to creditors.
3. Paid commission of $2,000 to sales personnel.
4. Repaid loan $8,000.
Which of the following is not shown in the Profit and Loss Account?
1. Stationery
2. Carriage inwards
3. Annual business registration fee
4. Registration fee for delivery van
If the capital at the end of the accounting period is $50,000, the net profit for the year is $15,000 and drawing is $3,000, what is the capital at the beginning of the period?
1. $47,000
2. $32,000
3. $38,000
4. $62,000
Which of the following statements is/are correct?

I. The increase in cash represents profit.

II. Profit increases capital.

III. Drawings reduce profit.

IV. Personal vehicle introduced by owner into the business increases the capital of the business.
1. I and II
2. I and IV
3. II and III
4. II and IV
The following expenses are treated as part of the cost of goods sold, except
1. carriage on sales
2. duty on purchases
3. insurance on goods bought
4. wages paid for processing of goods
The following accounts are transferred to the Trading Account for calculation of gross profit, except:
1. Returns inwards
2. Returns outwards
3. Carriage inwards
4. Carriage outwards
From the following figures, calculate the Cost of Goods Sold:

Sales $28,500
Opening Stock $4,690
Closing Stock $7,240
Carriage Inwards $570
Carriage Outwards $450
Purchases $21,360
1. $9,120
2. $18,810
3. $19,380
4. $19,830
If wages are expenses incurred in making goods into a saleable condition, they should be charged to the
1. Trading Account.
2. Profit and Loss Account.
3. Trial Balance.
4. Balance Sheet.
How is gross profit calculated?
1. Net Sales - Cost of Goods Available for Sale
2. Net Sales - Cost of Goods Sold
3. Sales - Cost of Goods Available for Sale
4. Sales - Cost of Goods Sold
Tan buys and sells furniture for a profit. If $700 worth of goods purchased for resale are incorrectly debited to the Furniture Account,
1. net profit will be understated by $700.
2. net profit will be overstated by $700.
3. asset value will be understated by $700.
4. net profit will be unaffected.
Gross loss is shown on the
1. credit side of the Profit and Loss Account.
2. debit side of the Profit and Loss Account.
3. credit side of the Trading Account.
4. debit side of the Trading Account.
When the owner takes out goods for his own use, which account should be credited?
1. Capital Account
2. Drawings Account
3. Purchases Account
4. Stock Account
Given opening capital of $9,000, closing capital as $10,000 and drawings of $800, then
1. net profit for the year was $3,600.
2. net loss for the year was $3,600.
3. net profit for the year was $1,800.
4. net loss for the year was $1,800.
The following expenses were omitted from the calculation of gross profit of $28 900:

Carriage inwards $1 500
Custom Duties $1 000
Carriage outwards $1 800

What would be the correct gross profit?
1. $26 100
2. $26 400
3. $27 400
4. $27 900
On 30 September 2002, the value of the closing stock of a firm was overstated. The effect on the cost of goods sold and gross profit for the year ended 30 September 2002 would be to
1. understate cost of goods sold and overstate gross profit.
2. understate cost of goods sold and understate gross profit.
3. overstate cost of goods sold and understate gross profit.
4. overstate cost of goods sold and overstate gross profit.

TRADING ACCOUNT and PROFIT AND LOSS ACCOUNT

Multiple-choice exercise