AP 2 practice question - confusion

Hi,

I am just going through a question on a mock exam and just wondering what answer you would get.


You are working on the books of a different business where the cash book is showing a large credit balance.
The accountant enters a low value bank transaction into the records. When the transaction is entered, the assets, liabilities and capital of the business all remain unchanged.

Question - Which one of the following transactions has the accountant entered?

-A bank payment to a credit supplier
-A bank receipt from a credit customer
-A bank payment for propietor's drawings
-A bank receipt for a cash sale.


What answer would you choose?
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Comments

  • coojee
    coojee Registered Posts: 794
    I know it's late and I'm tired but surely the answer is none of them as a bank receipt or payment of any kind would affect either assets or liabilities as the bank account is an asset or a liability depending whether it's overdrawn or not. Even if you choose the cash sale it still increases the bank balance. The first 3 options wouldn't change the overall capital of the business (assets-liabilities=capital) but the split between assets, liabilities and capital would change.
  • Joe Barraclough
    Joe Barraclough Registered Posts: 69 ? ? ?
    if it was me i would say, a bank receipt for cash sale, as you are losing x amount of stock (asset) but gaining x amount of cash (asset)
  • MarkT
    MarkT Registered Posts: 302
    A Bank payment to a credit supplier - I know, took me ages to figure out that one, too....

    I do believe that it works from the accounting equation - Assets - liabilities = capital.

    Therefore, you have paid a credit supplier, so your PLCA (liability) has decreased and your bank (asset) account has decreased, but, your purchases (liabilities) have stayed the same and your stock (asset) has remained the same.. Aspirin time ;)
  • janwal
    janwal Registered Posts: 1,189
    Well hope there easier in the exam, I would have failed!! I agreed with Joe, but does make sence Mark.
  • Clarekaye
    Clarekaye Registered Posts: 307
    I would have said the top answer too, took me a little while though. Good luck :-)
  • crispy
    crispy Registered Posts: 465 Dedicated contributor ? ? ?
    I would of said the second option - receipt from credit customer, Bank goes up and debtors go down by same amount- therefore assets remained unchanged.

    Bank receipt for cash sale would be Assets increase, Sales (P&L Income) increase.
    Payment to credit supplier - Liabilites (creditors) and Assets (bank) reduce
    Payment for drawings - Assets (Bank) and Capital (drawings) reduce

    HTH
  • KaySarah
    KaySarah Registered Posts: 215 ? ? ?
    MarkT wrote: »
    A Bank payment to a credit supplier - I know, took me ages to figure out that one, too....

    I do believe that it works from the accounting equation - Assets - liabilities = capital.

    Therefore, you have paid a credit supplier, so your PLCA (liability) has decreased and your bank (asset) account has decreased, but, your purchases (liabilities) have stayed the same and your stock (asset) has remained the same.. Aspirin time ;)

    No wonder you passed your Mock AP2 so well Mark ... you have a very methodical and logical brain ... Pass the Aspirin this way please ..
  • MarkT
    MarkT Registered Posts: 302
    KaySarah wrote: »
    No wonder you passed your Mock AP2 so well Mark ... you have a very methodical and logical brain ... Pass the Aspirin this way please ..
    Hah! It didn't come straight away, I had the answers to check after the mock question - I've seen this question before. Luck would have it, I did get the question right, but where I got them wrong, I went to find the answer then try and justify why it was the correct answer. I do think that the AAT are expecting high standards from us and not making it easy and making us all think is not a bad thing
  • crispy
    crispy Registered Posts: 465 Dedicated contributor ? ? ?
    Hi,

    I do not believe payment of credit supplier is the correct answer, the journal for this transaction would be Dr Creditors, Cr Bank - therefore both assets and liabiltites have changed. I stand by the second answer for above reason as per my earlier message, however if I am wrong I will gladly eat my ledger :)
  • MarkT
    MarkT Registered Posts: 302
    crispy wrote: »
    Hi,

    I do not believe payment of credit supplier is the correct answer, the journal for this transaction would be Dr Creditors, Cr Bank - therefore both assets and liabiltites have changed. I stand by the second answer for above reason as per my earlier message, however if I am wrong I will gladly eat my ledger :)

    The question is task 1.2 on the first practice CBA for the AP2. The answer that is provided by the AAT is the first one.
  • crispy
    crispy Registered Posts: 465 Dedicated contributor ? ? ?
    Sorry Mark but I just cannot see how that is correct - maybe a fellow qualified can have a look as well to verify.

    My reason:
    If you pay supplier then - Assets go Down and Liabilties go Down (therfore both have changed - there is no other transaction)
    When you receive payment from customer - Debtors (Asset) goes down and Bank (Asset) goes up - therefore assets value has not changed (niether have liabilites/equity).

    I passed this unit (not sure what it was called back then) many years ago, please can someone verify that I have not lost the plot...:)
  • MarkT
    MarkT Registered Posts: 302
    crispy wrote: »
    Sorry Mark but I just cannot see how that is correct - maybe a fellow qualified can have a look as well to verify.

    My reason:
    If you pay supplier then - Assets go Down and Liabilties go Down (therfore both have changed - there is no other transaction)
    When you receive payment from customer - Debtors (Asset) goes down and Bank (Asset) goes up - therefore assets value has not changed (niether have liabilites/equity).

    I passed this unit (not sure what it was called back then) many years ago, please can someone verify that I have not lost the plot...:)

    I don't know how to convince you further other than asking you to go to the practice papers and then look at the answer to the question as I have mentioned. It would not be right for me to actually scan a copy of the practice CBA answer sheet that is supplied by the AAT to this question on here - please check it out
  • crispy
    crispy Registered Posts: 465 Dedicated contributor ? ? ?
    I must admit I do not know where on the site to look at practice questions/answers. However, I would like for yourself or someone else to just look at my answer and explain with logic how it could be wrong? If I see and understand the logic I will gladly accept I am incorrect.

    Maybe I am not understanding the question - I am taking it that the entry will make no difference to the values of assets/liabilites/equity? In which case I am sticking with what I said originally.
  • MarkT
    MarkT Registered Posts: 302
    crispy wrote: »
    Sorry Mark but I just cannot see how that is correct - maybe a fellow qualified can have a look as well to verify.

    My reason:
    If you pay supplier then - Assets go Down and Liabilties go Down (therfore both have changed - there is no other transaction)
    When you receive payment from customer - Debtors (Asset) goes down and Bank (Asset) goes up - therefore assets value has not changed (niether have liabilites/equity).

    I passed this unit (not sure what it was called back then) many years ago, please can someone verify that I have not lost the plot...:)

    As you have asked :)

    The first part of your answer is indeed correct. However, this question says that the assets and liabilities and capital remain unchanged. Your answer is only half completed:

    Part 1 - When you pay your supplier, your asset (bank) goes down and your liability (PLCA) goes down. These balance one another out.

    But your liabilities (purchases) on SFP have not changed and your stock (asset) have remained the same.

    Therefore as the accounting equation states "Assets less Liabilities = Capital"
  • crispy
    crispy Registered Posts: 465 Dedicated contributor ? ? ?
    Mark,

    If I receive £100 from credit customer then the journal is:
    Dr Bank (Asset) £ 100
    Cr Debtors (Asset) £ 100

    If I pay credit supplier the journal is:
    Dr Creditors (Liability) £ 100
    Cr Bank (Asset) £ 100

    There is no transaction involving purchases (which is an expense - not a liabilty) or stock - so not sure where you are going with this one.

    My answer is not half completed - it is completed :) Sometime things are really not as complicated as they may first seem.

    Crispy MAAT
  • Yazi
    Yazi Registered Posts: 225 ? ? ?
    Bank payment to a credit supplier as the overdraft and supplier account are both liabilities and the amount just moves between them without changing the total value of liabilities..
  • MarkT
    MarkT Registered Posts: 302
    crispy wrote: »
    Mark,

    If I receive £100 from credit customer then the journal is:
    Dr Bank (Asset) £ 100
    Cr Debtors (Asset) £ 100

    If I pay credit supplier the journal is:
    Dr Creditors (Liability) £ 100
    Cr Bank (Asset) £ 100

    There is no transaction involving purchases (which is an expense - not a liabilty) or stock - so not sure where you are going with this one.

    My answer is not half completed - it is completed :) Sometime things are really not as complicated as they may first seem.

    Crispy MAAT

    I'm not going further on this Crispy - Also, please do not stamp the MAAT foot down on me.

    Seeing that you have admitted to not knowing where to find the answer as to the AAT question. I am going to draw the line and leave it at that. I know what I am reading as I have the question answer sheet printed off from the AAT website that posed this question right in front of me.

    Please do not try and carry on your arguement until you've taken the time to read the actual question answer paper on MyAAT. Please then, take it up with them as they have obviously made a mistake
  • sdv
    sdv Registered Posts: 585
    Tjcgti wrote: »
    Hi,

    I am just going through a question on a mock exam and just wondering what answer you would get.


    You are working on the books of a different business where the cash book is showing a large credit balance.
    The accountant enters a low value bank transaction into the records. When the transaction is entered, the assets, liabilities and capital of the business all remain unchanged.

    Question - Which one of the following transactions has the accountant entered?

    -A bank payment to a credit supplier
    -A bank receipt from a credit customer
    -A bank payment for propietor's drawings
    -A bank receipt for a cash sale.


    What answer would you choose?



    Second answer is correct - No change in Assets, Liabilities or Capital

    Changes in .............................................................Asset......................Liability........................Capital

    Effrects of the following
    A bank payment to a credit supplier........................Reduce.....................Reduce........................none
    -A bank receipt from a credit customer....................None........................None..........................None
    - Convert debotrs (Asset) into Cash (Asset)
    -A bank payment for propietor's drawings................Reduce.....................None..........................Reduce
    -A bank receipt for a cash sale.................................Increase.......................................(profit)...increase

    I hope this helps
  • MarkT
    MarkT Registered Posts: 302
    Yazi wrote: »
    Bank payment to a credit supplier as the overdraft and supplier account are both liabilities and the amount just moves between them without changing the total value of liabilities..

    Thank you - more succinct and eloquently placed than I could have :)
  • Yazi
    Yazi Registered Posts: 225 ? ? ?
    I asked a friend!!! So cannot take the credit..
  • Yazi
    Yazi Registered Posts: 225 ? ? ?
    "Credit" haha...
  • crispy
    crispy Registered Posts: 465 Dedicated contributor ? ? ?
    Ahhhhh - Thanks to Yazi, I was ignoring the fact the bank A/c was in fact overdrawn to start with.

    Mark, see I can admit to something when I understand the logic behind it. Your answer is correct, but not for the right reason. Good to debate, it helps learning.
  • MarkT
    MarkT Registered Posts: 302
    crispy wrote: »
    Ahhhhh - Thanks to Yazi, I was ignoring the fact the bank A/c was in fact overdrawn to start with.

    Mark, see I can admit to something when I understand the logic behind it. Your answer is correct, but not for the right reason. Good to debate, it helps learning.

    Thank you - I am still learning. But I had got this question right first time when I attempted the mock cba. I then had a nagging question as to why? The answer was there, maybe my justification was incorrect, but if I get questions wrong, I look at the answers then I try and figure out why the answers are how they are. I'd never learn otherwise :)
  • crispy
    crispy Registered Posts: 465 Dedicated contributor ? ? ?
    Excellent - It also brings into attention to RTFQ (Read the Full Question) which I did not do.
  • Tjcgti
    Tjcgti Registered Posts: 40 ? ? ?
    Funny I have just worked out why the answer was this now. Writing it down using T accounts proves effective.

    All due to the bank being a credit as stated in question therefore is a liablility.

    You are increasing the liablility in the bank but then decreasing the liability in the Creditors account therefore the total liability doesn't get affected.

    Nice to see it wasn't just me :confused1:
  • KaySarah
    KaySarah Registered Posts: 215 ? ? ?
    Tjcgti wrote: »
    Funny I have just worked out why the answer was this now. Writing it down using T accounts proves effective.

    All due to the bank being a credit as stated in question therefore is a liablility.

    You are increasing the liablility in the bank but then decreasing the liability in the Creditors account therefore the total liability doesn't get affected.

    Nice to see it wasn't just me :confused1:

    I was a bit slow to respond before this flurry of activity ... BUT I decided to Test Crispy's theory (though I didn't doubt Marks) ... so I DID the transaction in SAGE for real ... Crispy's theory Reduces Liabilities.

    Sorry Crispy - great learning debate though - thank you :-) it's a lesson to remember.
  • KaySarah
    KaySarah Registered Posts: 215 ? ? ?
    crispy wrote: »
    Hi,

    I do not believe payment of credit supplier is the correct answer, the journal for this transaction would be Dr Creditors, Cr Bank - therefore both assets and liabiltites have changed. I stand by the second answer for above reason as per my earlier message, however if I am wrong I will gladly eat my ledger :)

    Are you munching yet Crispy lol ..
  • KaySarah
    KaySarah Registered Posts: 215 ? ? ?
    :lol: Credit ....
  • crispy
    crispy Registered Posts: 465 Dedicated contributor ? ? ?
    Haha - yes cough,spit tastes awful but is fully deserved for not reading propely.

    My answer logic was sound, but committed the worst mistake you can do - not reading the full question and then giving an answer to your own question. Hopefully though, anyone reading this now has the correct answer, and the resaon behind it. If you guys keep up the same poistive attitude you will all be passing through these exams with no problems at all(I would put bet on it), so keep it going :)
  • KaySarah
    KaySarah Registered Posts: 215 ? ? ?
    crispy wrote: »
    Haha - yes cough,spit tastes awful but is fully deserved for not reading propely.

    My answer logic was sound, but committed the worst mistake you can do - not reading the full question and then giving an answer to your own question. Hopefully though, anyone reading this now has the correct answer, and the resaon behind it. If you guys keep up the same poistive attitude you will all be passing through these exams with no problems at all(I would put bet on it), so keep it going :)

    can I do this in a light hearted spirit?? :001_tt2: .. thanks for your gracious apology and eating of crow Crispy. The debate was a great lesson - thanks to you all ...
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