3/29/24, 7:49 PM Chapter 1 Multiple-choice questions - Accounting: A Smart Approach 4e Student Resources - Learning Link

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Chapter 1 Multiple-choice
questions

The Cash Budget

1. Which of the following is not true about a cash budget?

A cash budget sets out all cash receipts and payments that a
business expects to make over a period of time. 
Cash budgets are usually prepared on a month-to-month basis.

Cash budgets show the expected bank balance at the end of
the month. 
Cash budgets include personal cash receipts and expenses. 

 Cash budgets include personal cash receipts and expenses.

A cash budget should not include personal receipts and
payments as the business is a separate entity.
Page reference: 5, 6

2. A cash budget for the six months ended 30 September shows an

anticipated overdraft of approximately £9,500. Which of the
following would reduce the expected overdraft?

Allowing customers two months' credit, instead of one month's

credit, in which to pay. 
Suppliers' purchases being made for cash, instead of one
month's credit. 
Assets being leased, rather than purchased for cash. 
Charging depreciation on fixed assets at 25% on the straight-
line basis, rather than 20%. 

Leasing an asset would reduce the expected overdraft.

Page reference: 9

3. Mark sells goods at a gross profit margin of 30%. Which of the

following statements is true?

Goods sold for £800 will have cost Mark £240. 

Goods sold for £800 will have cost Mark £560. 
Goods sold for £800 will have cost Mark £320. 
Goods sold for £800 will have cost Mark £392. 

£800 x 0.7 = £560.

Page reference: 12

4. James sells bicycles at a gross profit margin of 40%. Which one

of the following statements is true? 

Bicycles costing £500 will be sold for £1,250. 

Bicycles costing £500 will be sold for £833.33. 
Bicycles costing £500 will be sold for £700. 

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3/29/24, 7:49 PM Chapter 1 Multiple-choice questions - Accounting: A Smart Approach 4e Student Resources - Learning Link
Bicycles costing £500 will be sold for £800. 

 Bicycles costing £500 will be sold for £833.33.

500 / 0.6 = 833.33.
Page reference: 12

5. John has made the following predictions for his business for the
first six months of trading to 30 June:
Sales in Jan, Feb and March= £20,000 per month
Sales in Apr, May and June= £35,000 per month
Sales will be on one month's credit
The total cash received from customers during the six months
ended 30 June, will be:

£165,000. 
£145,000. 
£185,000. 
£130,000. 

Cash received is £20k February, £20k March, £20k April, £35k

May, and £35k June = £130,000.
Page reference: 13

6. John has made the following predictions for his business for the
first six months of trading to 30 June:
Sales in Jan, Feb, and March = £20,000 per month
Sales in Apr, May, and June = £35,000 per month
Sales will be on one month's credit.
The cash received in April will be:

£40,000. 
£20,000. 
£35,000. 
£55,000. 

Cash received in April is March's sales of £20,000.

Page reference: 13

7. John has made the following predictions for his business for the
first six months of trading to 30 June:
Sales in Jan, Feb and March = £20,000 per month
Sales in Apr, May and June = £35,000 per month
Sales will be on one month's credit
Purchases will be for cash.
If goods are sold at a gross profit margin of 40%, and goods are
replaced as soon as they are sold, the amount payable to suppliers
in March, will be:

£8,000. 
£10,000. 
£12,000. 
£14,000. 


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3/29/24, 7:49 PM Chapter 1 Multiple-choice questions - Accounting: A Smart Approach 4e Student Resources - Learning Link

March sales of £20,000 x 0.6 =£12,000.

Page reference: 13

8. An extract from Eddie's Cash Budget is given below:

What is the expected bank overdraft at the end of July?

£(3,000). 
£3,000. 
£(1,000). 
£1,000. 

The balance carried forward at the end of June is £(1,000), with

net payments for July of £(2,000), giving a July balance of £(3,000).
Page reference: 13

9. An extract from Charlie's Cash Budget is given below:

Which of the following overdraft facilities would you advise

Charlie to request for the three months ended 30th November?

No overdraft facility is required. 

An overdraft of a little over £5,000 is required. 
An overdraft of a little over £8,000 is required. 
An overdraft of a little over £20,000 is required. 

 An overdraft of a little over £20,000 is required.


An overdraft of a little over the largest overdrawn amount is

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3/29/24, 7:49 PM Chapter 1 Multiple-choice questions - Accounting: A Smart Approach 4e Student Resources - Learning Link
required, this is £20,000.
Page reference: 13

10. Which of the following statements are not true?

Cash sales are made when cash is received at the same time as
the goods or services are delivered. 
Credit sales are made when the payment is received after the
goods or services have been delivered. 
Cash purchases are those purchases for which cash payment
will be made at the same time as the goods or services are
received. 
Credit purchases are where the goods or services have not yet
been received by the business and payment has not yet been
made. 

Credit purchases are where the good or services have been

received by the business but payment has not yet been made.
Page reference: 13

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