1. Which one of the following accounting equation is correct?

a) Liabilities = Assets + capital.

b) Assets + liabilities = capital.

c) Assets - capital = liabilities.

d) Liabilities = capital - assets.

2. Book-keeping is concerned with

a) Recording financial transactions in terms of money.

b) Recording financial transactions in terms of quantities.

c) Interpreting accounting information.

d) Reporting accounting information.

3. What is the purpose of balancing capital account periodically? To

a) Determine the amount outstanding.

b) Determine the amount prepaid.

c) Give a base for preparing a balance sheet.

d) Give a base for preparing income statement.

4. Given the periodic imprest of shs400, 000 and shs156,000 spent on petty cash items, what amount will be re-imbursed?

a) Shs400,000

b) Shs156,000

c) Shs244,000

d) Shs516,000

5. What does a credit balance brought down in a rent A/C mean? The firm

a) Owes that rent

b) Is owed rent

c) Has prepaid rent

d) Has paid rent.

6. Which one of these transactions should be recorded in the journal proper?


a) Of goods for cash

b) Of goods on credit

c) Returns

d) Of an office equipment.

7. The normal balance in an asset account is

a) Zero balance

b) Debit balance

c) Credit balance

d) Nominal balance.

8. Baba bought 10 cartons of Tyson Waragi on credit amounting to shs2, 000,000. He returned ¼ of the cartons which was damaged in transit. He paid less discount of 5%for the reminder. Calculate the discount earned by Baba.

a) Shs100,000

b) Shs500,000

c) Shs1,500,000

d) Shs76,000

9. Purchases advance to a partnership should be credited to

a) A loan account

b) His capital account

c) His current account

d) An appropriate account.

10. If sales account had been overcast, what accounting entries are needed to correct this error?

a) Debit debtors A/C; credit suspense A/C.

b) Debit suspense A/C; credit sales A/C.

c) Debit sales A/C; credit suspense A/C.

d) Credit debtors A/C; debit sales A/C.

11. If the total of the debit column of a trial balance exceeds the total of the credit column, then it is shown as

a) An asset in the balance sheet.

b) A liability in the balance sheet.

c) An expense in the profit and loss account.

d) Revenue in the profit and loss account.

12. Which one of the following items is transferred to the trading account?

a) Carriage outwards.

b) Discount received.

c) Discount allowed.

d) Carriage inwards.

13. What effect will the sale of a motor vehicle at a loss have on the business assets, liabilities and capital?

a) Capital and assets will decrease.

b) Liabilities and capital will increase.

c) Assets and capital will increase.

d) Liabilities and assets will decrease.

14. When payment for repairs on a machinery is debited in error to equipment account, there will be

a) No effect on capital.

b) Overstatement in capital.

c) Overstatement in total expenses.

d) Understatement in capital.

15. A cheque paid by a customer is returned by the bank marked NSF/RD. this should be recorded in the books as a

a) Debit to bank account.

b) Credit to debtors account.

c) Debit to debtors account.

d) Debit to cash account.

16. The cost of goods available for sale in stores for the month of January was shs540, 000. The gross profit percentage was put at 40%. The net sales was shs600, 000. Determine the closing stock.

a) Shs180,000

b) Shs300,000

c) Shs144,000

d) Shs240,000

17. Which one of these is a capital expenditure to a sole trader?

a) Purchase of goods.

b) Cost of renting a premise for shop attendant.

c) Cost of petrol for a truck used in business.

d) Cost of extending business premises.

18. Which one of the following statements best defines a bank statement? It

a) Is a statement used for reconciliation.

b) Shows that the customer of the bank is good.

c) Gives the details of the bank accounts of all customers with the bank.

d) Gives the details of the customer account with the bank.

19. The following form part of the double entry system except

a) Sales ledger.

b) Sales journal.

c) Purchases ledger.

d) Profit and loss account.

20. On receipt of a cheque from a debtor, the book-keeper debits debtors account and credits cash account. Which error has been committed? Error of

a) Commission.

b) Original entry.

c) Complete reversal of entries.

d) Principle.

SECTION B: (80 marks)

21. a) State any four reasons why a bank statement may not have the same balance as that shown in the cash book.

b) The auditor of MAMBO BADO AUDIT FIRM investigated the books of PRECISE DELIVERIES LTD. One of the things he discovered was that no bank reconciliation statement had been prepared for the month of October, 1999. His investigation revealed the following information:

i. The balance appearing in the firm's cash book was shs19,000,000 and the bank statement disclosed an overdraft of shs4,700,000 as at 31st October, 1999.

ii. The cash book balance had been incorrectly brought down at 1st October, 1999 as a debit balance of shs12, 000,000 instead of shs11, 000,000.

iii. A cheque paid to GAPCO Kampala for shs3, 400,000 had been entered in the cash book as shs4, 300,000.

iv. Cash paid into the bank for shs1, 000,000 had been entered in the cash book as shs900, 000.

v. Cheques drawn amounting to shs400, 000 had not yet been presented to the bank.

vi. A receipt of shs100, 000 shown on the bank statement had not been entered in the cash book.

vii. A transfer of shs15, 000,000 shown to a fixed deposit account in crane bank had not been entered in the cash book.

viii. Bank charges of shs200, 000 do not appear in the cash book.

ix. Receipts of shs9, 000,000 paid into the bank on 30th October, 1999 do not appear on the bank statement until 1st November, 1999.

x. A standing order payment to UEB of shs300, 000 has not been entered in the cash book.

xi. A cheque for shs500, 000 previously received and paid into the bank had been returned by the debtor's bank marked "account closed".

xii. Cheques paid into the bank had been incorrectly totaled. The total amount shown on the bank statement should have been shs1, 700,000 instead of shs1, 500,000.

xiii. One of the firm's customers had made a direct deposit of shs1, 000,000 in settlement of his account.


a) Amended cash book for the month of October, 1999.

b) A bank reconciliation statement.

22. a) State any three reasons why final accounts (balance sheet inclusive) are prepaid by business firms.

b) MARAKA Wholesalers operate a shop in kumi town. The following balances were extracted from the books of the shop as at 31st December, 1999.






Purchases 8,235,000

Carriage on purchase 514,000

Drawings 780,000

Rent 400,000

Rates 160,000

Insurance 102,000

Postage and telephone 200,000

Stationery 100,000

Advertising 133,000

Salaries and wages 2,640,000

Bad debts 87,000

Provision for bad debts

Debtors 1,210,000


Cash in hand 17,700

Cash at bank 102,000

Stock 1/1/99 1,192,000

Furniture at cost 5,800,000

Accumulated depreciation on










Additional information:

a) accrued rent shs21,000

b) prepaid rates shs88,000

c) provision for bad debts is to be increased to shs120,000

d) stock at close of business shs1,355,000

e) Depreciate furniture by 10% per annum, using straight line method.


a) A trading profit and loss account for the year ended 31st December, 1999.

b) A balance sheet as at that date.

23. OROMO CLINIC had the following trial balance extracted from its books of accounts on 30th june, 1999.




Debit (shs)

Credit (shs)

Land and buildings

Laboratory equipment

Beds and beddings

Furniture and fittings

Motor vehicle (Ambulance)

Stock of medicines (1/7/98)

Sale of medicine

Consultation fees

Treatment fees

Purchases (medicines)

Purchases returns (medicine)

Carriage inwards (medicine)

Visiting doctors' allowances & transport

Nurses' salaries

Subscription fees to Uganda medical association

Cleaning expenses

General expenses

Board of trustee allowances


Accumulated fund























Additional information:

a) Stock of unused medicine shs4,250,000

b) Uncollected treatment fees shs2,349,500

c) Nurses salaries for the six months are shs3,000,000

d) Donation of a generator has not been recorded. It was valued at shs8,000,000

e) Depreciate lab equipment by 10% p.a; Beds and beddings, furniture and fittings, motor vehicles and generator at 5% per annum.


a) INCOME AND EXPENDITURE ACCOUNT for the year ended 30/6/99 and a BALANCE SHEET as at that date.

24. a) Give six errors not revealed by the trial balance.

b) The following errors had been made and later discovered after a thorough search was made.

i. A sale of goods to Hudson Okello worth shs35, 000 was debited to general expenses account.

ii. A withdrawal of cash shs63, 000 by the owner was debited to a customer's account. A bongomin, who shares the same name with him.

iii. A purchase of an office safe for shs120, 000 was posted to office expenses account.

iv. A payment of shs1, 000 o T. Wava for stationery previously supplied was debited to stationery account.

v. Shs390, 000 paid to workers who installed a new generator was debited to wages account instead of capitalizing it.

vi. A discount allowed to Mugisha Adolf was credited to the discount received account shs29, 000.

vii. A payment to UEB for electricity was not recorded in the electricity account shs117,000

viii. Hire charges for transportation of goods bought by customers during the year have been credited to carriage outwards account, shs55, 000.


Journal entries to correct the above entries.

25. Adrabo and Adebo are in partnership business. Their partnership agreement provided the following:

i. Share of profits or losses in proportion to their capitals.

ii. 4% p.a interest is allowed on partners' capital.

iii. 3% p.a interest is charged on partners drawings.

iv. Adebo is allowed a salary of shs1, 500 per month.

The following information is also available as:


Net profit 802,500

Debtors 210,000

Creditors 75,000

Furniture 360,000

Cash at bank 150,000

Prepaid electricity 7,500

Motor vehicles 450,000

Capitals: Adrabo 210,000

Adebo 150,000

Current accounts: Adrabo 30,000 (Dr)

Adebo 45,000 (Dr)

Drawings: Adrabo 75,000

Adebo 30,000


a) Appropriation account,

b) Partners current accounts.

26. a) i) Define the term depreciation.

ii) Give any four causes of depreciation.

iii) Mention two methods commonly used in calculating depreciation.

b)OTADA GENERAL TRANSPORTERS bought a bus at a cost of shs150,000,000 by banker's draft on 1st May, 1990. The vehicle was estimated to have a scrap value of shs75,000,000 after a period of ten years.

Show the following accounts for the first three years.

i. Bus account.

ii. Provision for depreciation on bus accounts.

iii. Depreciation account.