Accounting Level 2 Comprehensive
Practice Exam & Answer Key
This resource contains 65 practice questions designed for Accounting Level 2
assessment preparation. Topics covered include double-entry bookkeeping, trial
balances, control accounts, accruals and prepayments, depreciation methods, inventory
valuation, and basic financial statements.
Question 1
Which source document is issued by a seller to notify a customer that a credit adjustment
has been made to their account for returned goods?
A. Sales Invoice
B. Purchase Order
C. Credit Note
D. Debit Note
Correct Answer: C
Explanation: A credit note reduces the amount a customer owes following a return or
overcharge. Invoices request payment, while purchase orders authorize purchases.
Students often confuse credit notes with debit notes, which are sent to request a credit
note or increase amounts owed.
Question 2
What is the primary purpose of preparing a trial balance?
A. To check the mathematical accuracy of double-entry postings
B. To calculate the net profit for the accounting period
C. To detail individual customer balance breakdowns
D. To verify bank statement balances
,Correct Answer: A
Explanation: A trial balance ensures total debit entries equal total credit entries across all
accounts. It does not calculate profit or reveal errors of principle. Students incorrectly
assume a balanced trial balance guarantees error-free accounts.
Question 3
An business purchased machinery for $12,000. It has an estimated useful life of 5 years
and a residual value of $2,000. Using the straight-line method, what is the annual
depreciation charge?
A. $2,400
B. $2,800
C. $1,920
D. $2,000
Correct Answer: D
Explanation: Straight-line depreciation is calculated as (Cost − Residual Value) ÷ Life,
which gives ($12,000 − $2,000) ÷ 5 = $2,000 per year. A common mistake is failing to
subtract the residual value before dividing by the useful life.
Question 4
If a trial balance's debit column totals $45,200 and the credit column totals $44,800,
what entry is required in the Suspense Account to balance it temporarily?
A. Debit $400
B. Credit $400
C. Debit $800
D. Credit $800
Correct Answer: B
Explanation: The credit side is short by $400 ($45,200 − $44,800), so a credit entry of
$400 is placed in the suspense account to make the totals balance. Students often place
the entry on the larger side rather than the deficit side.
, Question 5
At year-end, electricity expense paid was $3,400. An unpaid electricity bill for $300
remains outstanding for the period. How should this be recorded in the final accounts?
A. Charge $3,100 to Profit and Loss; record a current asset of $300
B. Charge $3,700 to Profit and Loss; record a current liability of $300
C. Charge $3,400 to Profit and Loss; record a current liability of $300
D. Charge $3,700 to Profit and Loss; record a current asset of $300
Correct Answer: B
Explanation: The accruals concept requires total expenses incurred ($3,400 + $300 =
$3,700) to be charged to the income statement, with unpaid amounts ($300) recorded as
an accrued liability on the balance sheet. Students frequently subtract unpaid amounts
instead of adding them.
Question 6
Which entry records the purchase of office stationery paid by business cheque?
A. Debit Bank, Credit Stationery Expense
B. Debit Capital, Credit Bank
C. Debit Trade Payables, Credit Bank
D. Debit Stationery Expense, Credit Bank
Correct Answer: D
Explanation: Purchasing an expense item via bank requires debiting the expense account
(increasing expenses) and crediting the bank account (reducing assets). Students
sometimes debit trade payables, but stationery bought outright does not involve trade
accounts payable.
Practice Exam & Answer Key
This resource contains 65 practice questions designed for Accounting Level 2
assessment preparation. Topics covered include double-entry bookkeeping, trial
balances, control accounts, accruals and prepayments, depreciation methods, inventory
valuation, and basic financial statements.
Question 1
Which source document is issued by a seller to notify a customer that a credit adjustment
has been made to their account for returned goods?
A. Sales Invoice
B. Purchase Order
C. Credit Note
D. Debit Note
Correct Answer: C
Explanation: A credit note reduces the amount a customer owes following a return or
overcharge. Invoices request payment, while purchase orders authorize purchases.
Students often confuse credit notes with debit notes, which are sent to request a credit
note or increase amounts owed.
Question 2
What is the primary purpose of preparing a trial balance?
A. To check the mathematical accuracy of double-entry postings
B. To calculate the net profit for the accounting period
C. To detail individual customer balance breakdowns
D. To verify bank statement balances
,Correct Answer: A
Explanation: A trial balance ensures total debit entries equal total credit entries across all
accounts. It does not calculate profit or reveal errors of principle. Students incorrectly
assume a balanced trial balance guarantees error-free accounts.
Question 3
An business purchased machinery for $12,000. It has an estimated useful life of 5 years
and a residual value of $2,000. Using the straight-line method, what is the annual
depreciation charge?
A. $2,400
B. $2,800
C. $1,920
D. $2,000
Correct Answer: D
Explanation: Straight-line depreciation is calculated as (Cost − Residual Value) ÷ Life,
which gives ($12,000 − $2,000) ÷ 5 = $2,000 per year. A common mistake is failing to
subtract the residual value before dividing by the useful life.
Question 4
If a trial balance's debit column totals $45,200 and the credit column totals $44,800,
what entry is required in the Suspense Account to balance it temporarily?
A. Debit $400
B. Credit $400
C. Debit $800
D. Credit $800
Correct Answer: B
Explanation: The credit side is short by $400 ($45,200 − $44,800), so a credit entry of
$400 is placed in the suspense account to make the totals balance. Students often place
the entry on the larger side rather than the deficit side.
, Question 5
At year-end, electricity expense paid was $3,400. An unpaid electricity bill for $300
remains outstanding for the period. How should this be recorded in the final accounts?
A. Charge $3,100 to Profit and Loss; record a current asset of $300
B. Charge $3,700 to Profit and Loss; record a current liability of $300
C. Charge $3,400 to Profit and Loss; record a current liability of $300
D. Charge $3,700 to Profit and Loss; record a current asset of $300
Correct Answer: B
Explanation: The accruals concept requires total expenses incurred ($3,400 + $300 =
$3,700) to be charged to the income statement, with unpaid amounts ($300) recorded as
an accrued liability on the balance sheet. Students frequently subtract unpaid amounts
instead of adding them.
Question 6
Which entry records the purchase of office stationery paid by business cheque?
A. Debit Bank, Credit Stationery Expense
B. Debit Capital, Credit Bank
C. Debit Trade Payables, Credit Bank
D. Debit Stationery Expense, Credit Bank
Correct Answer: D
Explanation: Purchasing an expense item via bank requires debiting the expense account
(increasing expenses) and crediting the bank account (reducing assets). Students
sometimes debit trade payables, but stationery bought outright does not involve trade
accounts payable.
