Financial Accounting
67 free practice questions with explanations
PassNova has 67 free ACCA Applied Knowledge practice questions on Financial Accounting, each with a clear explanation. Practise them in the browser with instant feedback — 100% free, no sign-up, on any device. Updated for 2026.
Financial Accounting: example questions & answers
12 worked examples with answers and explanations below. Practise all 67 Financial Accounting questions free in the browser, with instant feedback on every answer.
Which of the following items would appear in a company's Statement of Financial Position (Balance Sheet)?
- ARevenue from sales during the year
- BDepreciation charge for the current year
- CTrade payables owed to suppliers✓
- DCost of goods sold during the year
Answer: Trade payables are a current liability appearing on the Statement of Financial Position. Revenue, depreciation, and cost of goods sold are income statement items reflecting performance over an accounting period.
The accounting equation is:
- AAssets = Liabilities + Equity✓
- BAssets = Liabilities − Equity
- CAssets + Equity = Liabilities
- DAssets − Liabilities = Revenue
Answer: The fundamental accounting equation states that Assets = Liabilities + Equity. This equation must always balance and underpins the double-entry bookkeeping system used in all financial reporting.
A business has opening inventory of £12,000, purchases of £68,000, and closing inventory of £15,000. What is the Cost of Goods Sold?
- A£65,000✓
- B£71,000
- C£80,000
- D£55,000
Answer: COGS = Opening inventory + Purchases − Closing inventory = £12,000 + £68,000 − £15,000 = £65,000. This represents the cost of inventory actually consumed or sold during the accounting period.
What does the term 'going concern' assume in the preparation of financial statements?
- AThe business will cease trading within 12 months
- BThe business will continue to operate for the foreseeable future✓
- CAll assets will be sold at their current market value
- DThe business is currently generating a profit
Answer: The going concern assumption means financial statements are prepared on the basis the entity will continue operating for the foreseeable future, with no intention to liquidate or materially curtail operations.
A business purchases equipment for £50,000. Using straight-line depreciation over 5 years with no residual value, what is the annual depreciation charge?
- A£5,000
- B£8,000
- C£10,000✓
- D£12,500
Answer: Straight-line depreciation = (Cost − Residual value) ÷ Useful life = (£50,000 − £0) ÷ 5 = £10,000 per year. This spreads the cost evenly across the asset's entire useful life.
Which accounting concept states that revenue should be recognised when it is earned, regardless of when cash is received?
- APrudence concept
- BGoing concern concept
- CAccruals concept✓
- DConsistency concept
Answer: The accruals concept (matching principle) requires that income and expenses are recognised in the period they are earned or incurred, not when cash is received or paid.
Which of the following is classified as an INTANGIBLE asset on a company's Statement of Financial Position?
- AInventory held for sale
- BProduction machinery
- CGoodwill arising on acquisition✓
- DTrade receivables from customers
Answer: Goodwill is an intangible asset — it has no physical substance. It arises when a business is acquired for more than the fair value of its net identifiable assets. Machinery, inventory, and receivables are tangible or current assets.
Which of the following would be classified as CAPITAL expenditure?
- APaying monthly rent for office premises
- BPurchasing a new delivery vehicle for the business✓
- CPaying employee wages for the month
- DBuying stationery supplies for the office
Answer: Capital expenditure relates to spending on non-current assets that provide benefits over more than one accounting period (e.g. vehicles, machinery, buildings). Revenue expenditure covers day-to-day operating costs.
A business sells goods on credit for £5,000 plus 20% VAT. What is the CORRECT double entry to record this sale?
- ADr Sales £6,000 / Cr Trade Receivables £6,000
- BDr Trade Receivables £6,000 / Cr Sales £5,000, Cr VAT Payable £1,000✓
- CDr Trade Receivables £5,000 / Cr Sales £6,000
- DDr Sales £5,000, Dr VAT £1,000 / Cr Trade Receivables £6,000
Answer: The customer owes the full £6,000 (debit receivables). The business earns £5,000 revenue (credit sales) and collects £1,000 VAT on behalf of HMRC, creating a liability (credit VAT payable).
Which of the following is the correct treatment for an irrecoverable (bad) debt?
- ADebit Trade Receivables, Credit Irrecoverable Debt Expense
- BDebit Irrecoverable Debt Expense, Credit Trade Receivables✓
- CDebit Cash, Credit Trade Receivables
- DDebit Irrecoverable Debt Expense, Credit Cash
Answer: When a debt is written off as irrecoverable, irrecoverable debt expense is debited (increasing expenses, reducing profit) and trade receivables are credited (removing the asset that is no longer expected to be collected).
A company's non-current asset has a cost of £80,000 and accumulated depreciation of £30,000. What is its NET BOOK VALUE (carrying amount)?
- A£30,000
- B£80,000
- C£110,000
- D£50,000✓
Answer: Net Book Value = Cost − Accumulated Depreciation = £80,000 − £30,000 = £50,000. This is the amount at which the asset is carried on the Statement of Financial Position after accounting for depreciation to date.
Under IAS 2, inventories should be measured at:
- AHistorical cost only
- BNet realisable value only
- CThe lower of cost and net realisable value✓
- DThe higher of cost and net realisable value
Answer: IAS 2 requires inventories to be measured at the lower of cost and net realisable value (NRV). If NRV falls below cost (e.g. due to damage or obsolescence), inventories must be written down to NRV, applying the prudence concept.