Examiner’s report

FA1 Recording Financial transactions

For CBE exams covering September 2017 to June 2018

General Comments

The examination consists of 50 objective test questions, each worth 2 marks. The purpose of this
report is to provide illustrations of questions which have especially posed problems for candidates.

The three sample multiple-choice questions below cover different aspects of the syllabus. The
approach to correctly answering each question is explained and the common incorrect
approaches, along with the misunderstandings which they indicate, are highlighted. Answering
objective test questions requires candidates to have both a clear understanding of the subject
matter being examined and a logical approach.

Sample questions for discussion

Example 1

On 4 June, Matthew received $3,000 cash from a credit customer and $360 from a cash sale.
Matthew is registered for sales tax at 20%.

What amount of sales tax should be recorded in the cash book on 4 June?

A $560

B $60

C $72

D $672

What does it test?

The process of recording the sales tax in the day books. The rule is that sales tax should be
recorded the first time a transaction is recorded.

What is the correct answer?

The correct answer is B

Therefore when there is a credit sale this will initially be recorded in the sales day book, at that
point the sales tax will be recorded and accounted for. This means that when the cash is actually
received there is no recording of the sales tax in the cash book as it has already been done in the
sales day book previously.

With the cash transaction this is the first time it is recorded in the cash book and therefore the
sales tax should also be recorded in the cash book.

Examiner’s report – FA1 Sept 2017-June 2018 1

So with this question only the cash receipt of $360 would require sales tax to be recorded in the
sales day book, this amount will be the gross amount and therefore to calculate the sales tax 360 x
20/120 = 60 .

Option A included the credit customer receipt in the calculation

Option C took the £360 but treated that as the net amount
Option D took both the $3000 and the $360 and treated both as the net amount

Example 2

The balance on the petty cash account is $350 but the cash in hand amounts to $368.

Which of the following would explain the difference?

A A petty cash voucher for $68 had been credited in the petty cash account as $50

B A payment of $18 was made but not recorded

C The petty cash account was incorrectly balanced and overstated by $18

D A cash receipt for $97 from an employee, for the purchase of postage stamps, was recorded as
$79

What does it test?

The working of the petty cash imprest system, the petty cash account is the ledger account in the
nominal ledger, the petty cash in hand is the total of the actual physical cash and the vouchers that
have been submitted when cash is removed.

What is the correct answer?

The correct answer is D

If cash received was recorded at a lower amount then the balance on the ledger would be lower
than the actual cash in hand as illustrated in option D.

Option A: As credit entries reduce petty cash, if the voucher had be credited $50 rather than $68 in
the ledger, this would mean that the balance on the ledger account would be $18 higher not lower

Option B: If a payment of $18 had been made and not recorded the petty cash ledger account
would be higher than the actual cash in hand

Option C: If the ledger account had been overstated it would be higher than the actual cash in
hand not lower

Examiner’s report – FA1 Sept 2017 -June 2018 2

Example 3

The columns of Simeon’s trial balance did not agree and a suspense account was created. The
following errors were identified.
(i) $36,750 paid as wages was correctly recorded in the cash book but had been debited to the
wages account as $37,650

(ii) Drawings of $14, 500 had been debited to the wages account.

When the errors are corrected, which would require an entry in the suspense account?

A 1 only

B 2 only

C Both 1 and 2

D Neither 1 and 2

What does this test?

Errors which affect the trial balances

What is the correct answer?

The correct answer is A

If the trial balance does not balance then a suspense account is created. This will happen when
there is a mismatch of debits and credits.

Statement 1: the double entry is correct in that the cash account has been credited and wages
debited but because these are different amounts then there will be a mismatch and the trial
balance will not balance, this means the statement will require a suspense account.

Statement 2: the wrong account has been debited here but the correct amount has still been
debited so there is no mismatch between the debits and credits and therefore the trial balance will
still balance and no suspense account is required.

Examiner’s report – FA1 Sept 2017 -June 2018 3

Summary

Based on the performance of candidates in these questions, it can be observed that the questions
which are more knowledge based score much higher than those which require application.

Candidates appear to struggle with applying their knowledge to the given scenarios or do not read
the questions carefully enough, so the wrong options are then chosen.

As noted in previous comments the best way for candidates to prepare for future sittings is to
ensure that they have developed a clear understanding of the key points of each area of the
syllabus and that they read carefully and think logically when attempting questions.

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