Cambridge AS & A Level Accounting
(9706) Paper 2: 100+ Exam-Style
Questions, Answers & Rationales
### Section A: The Accounting Equation and Double-Entry Bookkeeping
**Question 1: What is the accounting equation?**
**Answer:** Assets = Capital + Liabilities (or Assets – Liabilities =
Capital)
**Rationale:** The accounting equation is the foundation of double-
entry bookkeeping. It shows that all assets are financed either by the
owner (capital) or by external parties (liabilities). Every transaction
affects at least two items in this equation, maintaining its balance .
**Question 2: State the double-entry rule for assets.**
**Answer:** Increases in assets are recorded as debits; decreases in
assets are recorded as credits.
**Rationale:** Assets have a debit balance. Therefore, to increase an
asset account, you debit it; to decrease it, you credit it. This follows the
,fundamental principle that debit entries represent increases in assets
and expenses .
**Question 3: State the double-entry rule for liabilities.**
**Answer:** Increases in liabilities are recorded as credits; decreases in
liabilities are recorded as debits.
**Rationale:** Liabilities have a credit balance. When a business
borrows money (increasing a liability), the liability account is credited.
When it repays (decreasing a liability), the liability account is debited .
**Question 4: What is the double-entry for a credit sale?**
**Answer:** Debit Trade Receivables; Credit Sales Revenue.
**Rationale:** A credit sale creates an asset (the right to receive
money from the customer), so Trade Receivables is debited. It also
generates income (Sales Revenue), which is credited .
**Question 5: What is the double-entry for a cash purchase of
inventory?**
**Answer:** Debit Purchases (or Inventory); Credit Cash/Bank.
**Rationale:** Purchasing inventory increases an expense or asset
(debited) and decreases the business's cash or bank balance (credited) .
**Question 6: What is the double-entry for a credit purchase of
inventory?**
**Answer:** Debit Purchases (or Inventory); Credit Trade Payables.
,**Rationale:** Purchasing inventory on credit increases an
expense/asset (debited) and creates a liability to the supplier (credited)
.
**Question 7: What is the double-entry for cash received from a credit
customer?**
**Answer:** Debit Cash/Bank; Credit Trade Receivables.
**Rationale:** Cash received increases an asset (debited) and reduces
the amount owed by the customer (Trade Receivables is credited) .
**Question 8: What is the double-entry for the owner introducing
capital into the business?**
**Answer:** Debit Cash/Bank; Credit Capital.
**Rationale:** The business receives cash (asset increase, debited) and
the owner's claim on the business increases (capital credited) .
**Question 9: What is the double-entry for the owner withdrawing
cash for personal use?**
**Answer:** Debit Drawings; Credit Cash/Bank.
**Rationale:** Drawings represent the owner taking assets out of the
business. Drawings is debited (it reduces capital), and Cash is credited
(asset decreases) .
**Question 10: What is the double-entry for paying rent by cheque?**
**Answer:** Debit Rent Expense; Credit Bank.
, **Rationale:** Rent is an expense, so it is debited. The bank balance
decreases, so Bank is credited .
**Question 11: What is the double-entry for a discount allowed to a
customer?**
**Answer:** Debit Discount Allowed; Credit Trade Receivables.
**Rationale:** Discount Allowed is an expense (debited) and reduces
the amount the customer owes (Trade Receivables credited) .
**Question 12: What is the double-entry for a discount received from a
supplier?**
**Answer:** Debit Trade Payables; Credit Discount Received.
**Rationale:** The amount owed to the supplier decreases (Trade
Payables debited) and Discount Received is income (credited) .
**Question 13: What is the double-entry for depreciation?**
**Answer:** Debit Depreciation Expense; Credit Accumulated
Depreciation.
**Rationale:** Depreciation is an expense (debited) and Accumulated
Depreciation is a contra-asset account that reduces the carrying
amount of the non-current asset (credited) .
**Question 14: What is the double-entry for writing off a bad debt?**
**Answer:** Debit Bad Debts Expense; Credit Trade Receivables.
(9706) Paper 2: 100+ Exam-Style
Questions, Answers & Rationales
### Section A: The Accounting Equation and Double-Entry Bookkeeping
**Question 1: What is the accounting equation?**
**Answer:** Assets = Capital + Liabilities (or Assets – Liabilities =
Capital)
**Rationale:** The accounting equation is the foundation of double-
entry bookkeeping. It shows that all assets are financed either by the
owner (capital) or by external parties (liabilities). Every transaction
affects at least two items in this equation, maintaining its balance .
**Question 2: State the double-entry rule for assets.**
**Answer:** Increases in assets are recorded as debits; decreases in
assets are recorded as credits.
**Rationale:** Assets have a debit balance. Therefore, to increase an
asset account, you debit it; to decrease it, you credit it. This follows the
,fundamental principle that debit entries represent increases in assets
and expenses .
**Question 3: State the double-entry rule for liabilities.**
**Answer:** Increases in liabilities are recorded as credits; decreases in
liabilities are recorded as debits.
**Rationale:** Liabilities have a credit balance. When a business
borrows money (increasing a liability), the liability account is credited.
When it repays (decreasing a liability), the liability account is debited .
**Question 4: What is the double-entry for a credit sale?**
**Answer:** Debit Trade Receivables; Credit Sales Revenue.
**Rationale:** A credit sale creates an asset (the right to receive
money from the customer), so Trade Receivables is debited. It also
generates income (Sales Revenue), which is credited .
**Question 5: What is the double-entry for a cash purchase of
inventory?**
**Answer:** Debit Purchases (or Inventory); Credit Cash/Bank.
**Rationale:** Purchasing inventory increases an expense or asset
(debited) and decreases the business's cash or bank balance (credited) .
**Question 6: What is the double-entry for a credit purchase of
inventory?**
**Answer:** Debit Purchases (or Inventory); Credit Trade Payables.
,**Rationale:** Purchasing inventory on credit increases an
expense/asset (debited) and creates a liability to the supplier (credited)
.
**Question 7: What is the double-entry for cash received from a credit
customer?**
**Answer:** Debit Cash/Bank; Credit Trade Receivables.
**Rationale:** Cash received increases an asset (debited) and reduces
the amount owed by the customer (Trade Receivables is credited) .
**Question 8: What is the double-entry for the owner introducing
capital into the business?**
**Answer:** Debit Cash/Bank; Credit Capital.
**Rationale:** The business receives cash (asset increase, debited) and
the owner's claim on the business increases (capital credited) .
**Question 9: What is the double-entry for the owner withdrawing
cash for personal use?**
**Answer:** Debit Drawings; Credit Cash/Bank.
**Rationale:** Drawings represent the owner taking assets out of the
business. Drawings is debited (it reduces capital), and Cash is credited
(asset decreases) .
**Question 10: What is the double-entry for paying rent by cheque?**
**Answer:** Debit Rent Expense; Credit Bank.
, **Rationale:** Rent is an expense, so it is debited. The bank balance
decreases, so Bank is credited .
**Question 11: What is the double-entry for a discount allowed to a
customer?**
**Answer:** Debit Discount Allowed; Credit Trade Receivables.
**Rationale:** Discount Allowed is an expense (debited) and reduces
the amount the customer owes (Trade Receivables credited) .
**Question 12: What is the double-entry for a discount received from a
supplier?**
**Answer:** Debit Trade Payables; Credit Discount Received.
**Rationale:** The amount owed to the supplier decreases (Trade
Payables debited) and Discount Received is income (credited) .
**Question 13: What is the double-entry for depreciation?**
**Answer:** Debit Depreciation Expense; Credit Accumulated
Depreciation.
**Rationale:** Depreciation is an expense (debited) and Accumulated
Depreciation is a contra-asset account that reduces the carrying
amount of the non-current asset (credited) .
**Question 14: What is the double-entry for writing off a bad debt?**
**Answer:** Debit Bad Debts Expense; Credit Trade Receivables.
