VCE-ACCT-U12 4.1 📋 – VCE Accounting Practice Exam 1

VCE Accounting Practice Exam 1

Accounting Principles, Source Documents and General Journal

Question 1  (4 marks)

Question 2  (4 marks)

Question 3  (4 marks)

Question 4  (4 marks)

Question 5  (4 marks)

Question 6  (4 marks)

Question 7  (4 marks)

Question 8  (4 marks)

Question 9  (4 marks)

Question 10  (5 marks)

Question 11  (5 marks)

Question 12  (3 marks)

✦ Model Answer – Question 1 (4 marks)

Accounting equation: Assets = Liabilities + Owner’s Equity. Every transaction has a dual effect maintaining balance.
Components: Assets = resources owned providing future economic benefit. Liabilities = obligations to external parties. Owner’s Equity = owner’s residual interest = assets minus liabilities.
Transaction 1 – Owner invests $20,000 cash: Assets (Cash) +$20,000; OE (Capital) +$20,000. ✓
Transaction 2 – Buy equipment $8,000 cash: Assets (Equipment) +$8,000; Assets (Cash) -$8,000. Net change = $0. Equation unchanged. ✓
The equation always balances because every economic event has two equal and opposite effects.

✦ Model Answer – Question 2 (4 marks)

1. Entity assumption: only business transactions recorded – owner’s personal finances kept separate.
2. Going concern: business assumed to continue – assets recorded at cost and depreciated, not at liquidation values.
3. Historical cost: assets recorded at original purchase price – objective, verifiable.
4. Accrual basis: transactions recorded when they occur (revenue when earned; expenses when incurred) regardless of cash movement – ensures statements reflect economic activity in the correct period.
5. Consistency: same methods used period to period – allows meaningful comparison over time.
6. Matching: expenses matched to the period in which related revenue is earned – ensures accurate profit measurement.

✦ Model Answer – Question 3 (4 marks)

1. Sales invoice: prepared by seller for credit sale – evidences amount owed by customer; records AR and Sales Revenue.
2. Purchase invoice: received from supplier for credit purchase – evidences amount owed to supplier; records AP and Purchases.
3. Receipt: issued when cash received – evidences cash inflow from cash sale or debtor payment.
4. Cheque butt / EFT record: business’s record of cash payment – evidences cash outflow.
5. Credit note: issued by seller when goods returned – evidences reduction in amount owed.
6. Bank statement: used to verify and reconcile Cash at Bank ledger account.

✦ Model Answer – Question 4 (4 marks)

(i) Cash at Bank Dr $15,000
Capital Cr $15,000 [Owner’s capital contribution]

(ii) Equipment Dr $6,000
Cash at Bank Cr $6,000 [Purchased equipment for cash]

(iii) Inventory Dr $4,500
Accounts Payable – Metro Supplies Cr $4,500 [Credit purchase]

Analysis: (i) Asset+/OE+; (ii) Asset+/Asset-; (iii) Asset+/Liability+.

✦ Model Answer – Question 5 (4 marks)

Double-entry: every transaction has two effects – at least one debit and one equal credit. Debits always equal credits.
Rules: Assets increase → Debit; decrease → Credit. Liabilities increase → Credit; decrease → Debit. OE/Revenue increase → Credit. Expenses increase → Debit.
Why used: 1. Accuracy – self-checking mechanism; 2. Complete picture – both sides of every transaction captured; 3. Audit trail – chain from source document to financial statements; 4. Error detection – trial balance tests debit = credit.

✦ Model Answer – Question 6 (4 marks)

Current assets: expected to be converted to cash, sold or consumed within 12 months.
Examples: (1) Cash at Bank; (2) Accounts Receivable; (3) Inventory.
Non-current assets: provide economic benefit for more than 12 months – held for use in operations.
Examples: (1) Buildings; (2) Motor Vehicles; (3) Office Equipment.
Importance: current assets indicate liquidity; non-current assets indicate productive capacity. Distinction appears on classified balance sheet.

✦ Model Answer – Question 7 (4 marks)

Owner’s Equity = Total Assets – Total Liabilities. The owner’s residual financial interest.
Three ways it changes:
1. Capital contributions: owner invests additional assets → OE increases.
2. Net profit: revenue exceeds expenses → OE increases. Net loss decreases OE.
3. Drawings: owner withdraws cash/assets for personal use → OE decreases.
Formula: Closing OE = Opening OE + Capital Contributions + Net Profit – Drawings.

✦ Model Answer – Question 8 (4 marks)

General journal: book of original entry for non-routine transactions. Shows date, accounts debited, accounts credited, amounts and narration.
Purpose: chronological record of all transactions not belonging to special journals.
Types: purchase/sale of assets on credit; depreciation; owner’s drawings (non-cash); correction of errors; accruals and prepayments.
Special journals (sales, purchases, cash receipts, cash payments) handle high-volume routine transactions; the general journal handles everything else.

✦ Model Answer – Question 9 (4 marks)

Principle 1 – Entity assumption: business is separate from its owner. The mortgage is personal – completely unrelated to business operations. Only business transactions should appear in business accounts.
Principle 2 – Matching/accrual basis: business expenses must relate to costs incurred in generating business revenue. A personal mortgage has no connection to earning business income.
Correct treatment: should NOT be recorded as a business expense. Record as Drawings:
Dr Drawings $X; Cr Cash at Bank $X
Drawings reduces Owner’s Equity but is not an expense – business profit is unaffected. Financial statements accurately reflect only business performance.

✦ Model Answer – Question 10 (5 marks)

Importance:
1. Evidence: objective proof that a transaction occurred – who, when, what amount.
2. Audit trail: each transaction traced from source document to financial statement.
3. Legal/tax: ATO requires records kept 5+ years; missing records may mean deductions disallowed.
4. Error detection: discrepancies between documents and ledger reveal errors.
5. Basis for journal entries: accounts to debit/credit and amounts determined from source documents.
Risks from missing documents:
1. Disputed transactions: cannot resolve supplier or customer disputes without documentary evidence.
2. Tax exposure: claimed deductions may be denied without supporting documentation.
3. Fraud: without document control, fictitious transactions easier to conceal.
4. Audit failure: clean audit opinion requires supporting documentation.
5. Error correction: errors cannot be identified or corrected without a record.

✦ Model Answer – Question 11 (5 marks)

A = L + OE
(i) Cash +$20,000 = 0 + Capital +$20,000 ✓
(ii) Cash +$10,000 = Bank Loan +$10,000 + 0 ✓
(iii) Vehicle +$12,000; Cash -$12,000 = 0 + 0 (asset swap) ✓
(iv) AR +$5,000 = 0 + Revenue/OE +$5,000 ✓
(v) Cash -$2,000 = 0 + Wages/OE -$2,000 ✓
Totals: Assets = Cash($16K)+Vehicle($12K)+AR($5K)=$33K; Liabilities=$10K; OE=$23K. Check: $33K=$10K+$23K ✓

✦ Model Answer – Question 12 (3 marks)

Owner’s Equity = Total Assets – Total Liabilities. Owner’s residual financial interest.
Importance to owner: measures wealth in the business; growing OE indicates profitability; declining OE signals unsustainable losses or excessive drawings.
Importance to external parties: Lenders – high OE relative to liabilities provides security buffer; Prospective buyers – OE is part of business valuation; Creditors – strong OE means the business can absorb losses without defaulting.