VCE Accounting Ultimate Exam
**Question 1.** Which accounting assumption states that a business will continue to operate for an
indefinite future unless there is evidence to the contrary?
A) Period assumption
B) Entity assumption
C) Going concern assumption
D) Accrual basis assumption
Answer: C
Explanation: The going concern assumption means the entity is expected to remain in business for the
foreseeable future, influencing asset valuation and liability recognition.
**Question 2.** Under the accrual basis of accounting, revenue is recorded when:
A) Cash is received
B) The invoice is issued
C) The goods are delivered or services performed
D) The customer signs a contract
Answer: C
Explanation: Accrual accounting records revenue at the point it is earned, not when cash is received.
**Question 3.** The accounting equation is:
A) Assets = Liabilities – Owner’s Equity
B) Assets = Liabilities + Owner’s Equity
C) Assets + Liabilities = Owner’s Equity
D) Assets – Liabilities = Owner’s Equity
Answer: B
Explanation: The fundamental equation shows that a company’s resources (assets) are financed by
creditors (liabilities) and owners (equity).
**Question 4.** In double-entry bookkeeping, which of the following is true for a debit to cash?
A) Credit inventory
B) Debit assets
, VCE Accounting Ultimate Exam
C) Credit assets
D) Debit liabilities
Answer: B
Explanation: Cash is an asset; increasing an asset is recorded as a debit.
**Question 5.** Which source document provides evidence of a credit sale?
A) Cash receipt
B) Cheque but-to
C) Tax invoice
D) Credit note
Answer: C
Explanation: A tax invoice is issued when goods/services are sold on credit, showing the amount owed.
**Question 6.** The GST clearing account is used to:
A) Record GST payable on purchases only
B) Record GST receivable on sales only
C) Record both GST payable on purchases and GST receivable on sales, netting the balance
D) Record GST that is exempt from reporting
Answer: C
Explanation: The clearing account accumulates GST collected from sales and GST paid on purchases; the
net balance is either payable or refundable.
**Question 7.** Under a perpetual inventory system, the cost of goods sold is updated:
A) Only at year-end physical count
B) Each time a sale occurs
C) When inventory is written off
D) When the periodic inventory report is prepared
Answer: B
, VCE Accounting Ultimate Exam
Explanation: A perpetual system continuously records inventory movements, updating COGS with each
sale.
**Question 8.** The FIFO inventory method assumes that:
A) The cheapest items are sold first
B) The most recent purchases are sold first
C) The first items purchased are the first sold
D) Inventory is valued at net realizable value only
Answer: C
Explanation: FIFO (First-In, First-Out) assumes older stock leaves inventory before newer stock.
**Question 9.** When inventory is valued at the lower of cost and net realizable value, the principle
being applied is:
A) Historical cost principle
B) Conservatism principle
C) Matching principle
D) Revenue recognition principle
Answer: B
Explanation: The conservatism principle requires assets to be reported at the lower of cost or
recoverable amount to avoid overstating assets.
**Question 10.** Which internal control procedure best protects cash on hand?
A) Segregation of duties between cashier and recorder
B) Periodic physical inventory counts
C) Monthly bank reconciliation
D) Use of inventory cards
Answer: A
Explanation: Segregating duties reduces the risk of misappropriation by ensuring no single employee
handles cash receipt, recording, and custody.
, VCE Accounting Ultimate Exam
**Question 11.** The purpose of a trial balance is to:
A) Ensure that total debits equal total credits after posting
B) Calculate net profit for the period
C) Determine cash flow from operating activities
D) Adjust inventory to market value
Answer: A
Explanation: A trial balance checks the arithmetical accuracy of ledger postings by confirming that debits
equal credits.
**Question 12.** Which of the following is NOT a qualitative characteristic of useful financial
information?
A) Relevance
B) Verifiability
C) Predictability
D) Timeliness
Answer: C
Explanation: Predictability is not listed among the recognized qualitative characteristics (relevance,
faithful representation, comparability, verifiability, timeliness, understandability).
**Question 13.** Gross profit is calculated as:
A) Sales – Operating expenses
B) Sales – Cost of goods sold
C) Net profit + Tax expense
D) Revenue – All expenses
Answer: B
Explanation: Gross profit measures the profit after deducting the cost of goods sold from sales revenue.
**Question 14.** Which balance-sheet classification includes accounts payable?
A) Current liabilities
B) Non-current liabilities
**Question 1.** Which accounting assumption states that a business will continue to operate for an
indefinite future unless there is evidence to the contrary?
A) Period assumption
B) Entity assumption
C) Going concern assumption
D) Accrual basis assumption
Answer: C
Explanation: The going concern assumption means the entity is expected to remain in business for the
foreseeable future, influencing asset valuation and liability recognition.
**Question 2.** Under the accrual basis of accounting, revenue is recorded when:
A) Cash is received
B) The invoice is issued
C) The goods are delivered or services performed
D) The customer signs a contract
Answer: C
Explanation: Accrual accounting records revenue at the point it is earned, not when cash is received.
**Question 3.** The accounting equation is:
A) Assets = Liabilities – Owner’s Equity
B) Assets = Liabilities + Owner’s Equity
C) Assets + Liabilities = Owner’s Equity
D) Assets – Liabilities = Owner’s Equity
Answer: B
Explanation: The fundamental equation shows that a company’s resources (assets) are financed by
creditors (liabilities) and owners (equity).
**Question 4.** In double-entry bookkeeping, which of the following is true for a debit to cash?
A) Credit inventory
B) Debit assets
, VCE Accounting Ultimate Exam
C) Credit assets
D) Debit liabilities
Answer: B
Explanation: Cash is an asset; increasing an asset is recorded as a debit.
**Question 5.** Which source document provides evidence of a credit sale?
A) Cash receipt
B) Cheque but-to
C) Tax invoice
D) Credit note
Answer: C
Explanation: A tax invoice is issued when goods/services are sold on credit, showing the amount owed.
**Question 6.** The GST clearing account is used to:
A) Record GST payable on purchases only
B) Record GST receivable on sales only
C) Record both GST payable on purchases and GST receivable on sales, netting the balance
D) Record GST that is exempt from reporting
Answer: C
Explanation: The clearing account accumulates GST collected from sales and GST paid on purchases; the
net balance is either payable or refundable.
**Question 7.** Under a perpetual inventory system, the cost of goods sold is updated:
A) Only at year-end physical count
B) Each time a sale occurs
C) When inventory is written off
D) When the periodic inventory report is prepared
Answer: B
, VCE Accounting Ultimate Exam
Explanation: A perpetual system continuously records inventory movements, updating COGS with each
sale.
**Question 8.** The FIFO inventory method assumes that:
A) The cheapest items are sold first
B) The most recent purchases are sold first
C) The first items purchased are the first sold
D) Inventory is valued at net realizable value only
Answer: C
Explanation: FIFO (First-In, First-Out) assumes older stock leaves inventory before newer stock.
**Question 9.** When inventory is valued at the lower of cost and net realizable value, the principle
being applied is:
A) Historical cost principle
B) Conservatism principle
C) Matching principle
D) Revenue recognition principle
Answer: B
Explanation: The conservatism principle requires assets to be reported at the lower of cost or
recoverable amount to avoid overstating assets.
**Question 10.** Which internal control procedure best protects cash on hand?
A) Segregation of duties between cashier and recorder
B) Periodic physical inventory counts
C) Monthly bank reconciliation
D) Use of inventory cards
Answer: A
Explanation: Segregating duties reduces the risk of misappropriation by ensuring no single employee
handles cash receipt, recording, and custody.
, VCE Accounting Ultimate Exam
**Question 11.** The purpose of a trial balance is to:
A) Ensure that total debits equal total credits after posting
B) Calculate net profit for the period
C) Determine cash flow from operating activities
D) Adjust inventory to market value
Answer: A
Explanation: A trial balance checks the arithmetical accuracy of ledger postings by confirming that debits
equal credits.
**Question 12.** Which of the following is NOT a qualitative characteristic of useful financial
information?
A) Relevance
B) Verifiability
C) Predictability
D) Timeliness
Answer: C
Explanation: Predictability is not listed among the recognized qualitative characteristics (relevance,
faithful representation, comparability, verifiability, timeliness, understandability).
**Question 13.** Gross profit is calculated as:
A) Sales – Operating expenses
B) Sales – Cost of goods sold
C) Net profit + Tax expense
D) Revenue – All expenses
Answer: B
Explanation: Gross profit measures the profit after deducting the cost of goods sold from sales revenue.
**Question 14.** Which balance-sheet classification includes accounts payable?
A) Current liabilities
B) Non-current liabilities
