MCQ Accounting for Business Decisions (101)

Introduction to Accounting and Financial Statements

1. Which of the following is not a fixed asset?
a. Building.
b. Bank Balance.
c. Plant.
d. Patents.
e. Goodwill.
2. Which of the following is/are not a revenue reserve?
a. General reserve.
b. Investment allowance reserve.
c. Revaluation reserve.
d. Capital reserve.
e. Both (c) and (d) above.
3. Gross profit is the difference between
a. Net sales and cost of goods sold.
b. PAT and dividends
c. Net sales and cost of production
d. Net sales and direct costs of production.
4. Recording of capital contributed by the owner as liability ensures the adherence of
principle of
a. Double entry
b. Going concern
c. Separate entity
d. Materiality
e. Consistency
5. The basic concept related to balance sheet are
a. Cost concept
b. Business entity concept
c. Accounting period concept
d. Both (a) and (b) above
e. All the above
6. The basic concept related to P&L Account are
a. Realization concept
b. Matching concept
c. Cost concept
d. Both (a) and (b) above

e. All of (a), (b) and (c) above.

7. As per the double entry concept
a. Assets + Liabilities = Capital
b. Capital = Assets Liabilities
c. Capital Liabilities = Assets
d. Capital + Assets = Liabilities
e. None of the above.
8. Only the significant events which affect the business must be recorded as per the
principle of
a. Separate entity
b. Accrual
c. Materiality
d. Going concern
e. None of the above
9. P&L account is prepared for a period of one year by following
a. Consistency concept
b. Conservatism concept
c. Time period concept
d. Cost concept
e. None of the above
10. If the going concern concept is no longer valid, which of the following is true?
a. All prepaid assets would be completely written-off immediately
b. Total contributed capital and retained earnings would remain unchanged.
c. The allowance for uncollectible accounts would be eliminated
d. Intangible assets would continue to be carried at net amortized historical cost.
e. Land held as an investment would be valued at its realizable value
11. Under which of the following concepts are shareholders treated as creditors for the
amount they paid on the shares they subscribed to?
a. Cost concept.
b. Duality concept
c. Business entity concept
d. Going concern concept
e. Since the shareholders own the business, they are not treated as creditors.
12. The underlying accounting principle(s) necessitating amortization of intangible asset(s)
is/are
a. Cost concept
b. Realization concept
c. Matching concept
d. Both (a) and (c) above
e. Both (b) and (c) above

13. Which of the following practices is not in consonance with the convention of
conservatism?
a. Creating provision for bad debts.
b. Creating provision for discount on creditors.
c. Creating provision for discount on debtors.
d. Creating provision for tax.
e. None of the above.
14. The accounting measurement that is not consistent with the going concern concept is
a. Historical cost
b. Realization
c. The transaction approach
d. Liquidation value
e. Continuity
15. Recording of fixed assets at cost ensures adherence of
a. Conservatism concept
b. Going concern concept
c. Cost concept
d. Both (a) and (b) above
e. Both (b) and (c) above
16. Certain fundamental accounting assumptions underlie the preparation and presentation of
financial statements. They are usually not specifically stated because their acceptance and
use are assumed. Disclosure is necessary if they are not followed. Which of the following
are not fundamental assumptions specified under Accounting Standard-1?
a. Going concern concept.
b. Consistency concept
c. Accrual concept
d. Materiality concept
e. Both (a) and (b) above.
17. Which of the following statements is /are true?
i.
The entity concept of accounting is not applicable to sole trading concerns and
partnership concerns
ii.
Assets are to be shown in the balance sheet at their replacement cost on
liquidation.
iii.
Money measurement concept takes into account changes in the value of monetary
unit.
iv.
When a creditor is paid, this results in decrease of one asset and a corresponding
increase in another asset.
a. Both (i) and (iii) above
b. Both (i) and (ii) above
c. Both (iii) and (iv) above

d. Both (ii) and (iv) above

e. All (i), (ii),(iii) and (iv) are false
18. Omission of paise and showing the round figures in financial statement is based on
a. Conservation concept
b. Consistency concept
c. Materiality concept
d. Realization concept
e. Cost concept
19. X Ltd., purchased goods for Rs.5lakhs and sold 9/10th of the value of goods for Rs. 6
lakh. Net expenses during the year were Rs. 25,000. The company reported its net profit
as Rs. 75,000. Which of the following concept is violated by the company?
a. Realization
b. Conservation
c. Matching
d. Accrual
e. Materiality
20. Accounting does not record non-financial transaction because of
a. Entity concept
b. Accrual concept
c. Cost concept
d. Money measurement concept
e. Continuity concept.
21. Mr. Rohit, owner of Rohit Furniture Ltd. Owns a personal residence that cost
Rs.6,00,000, but has a market value of Rs.9,00,000. During preparation of the financial
statement for the business, the entire value of property was ignored and was not shown in
the financial statements. The principle that was followed was
a. The concept of business entity
b. The concept of the cost principle
c. The concept of going concern principle
d. The concept of duality principle
e. The concept of realization principle
22. Provision for bad debt is made as per the
a. Entity concept
b. Conservatism concept
c. Cost concept
d. Going concern concept
e. Time period concept
23. Fixed assets and current assets are categorized as per concept of
a. Separate entity
b. Going concern

c. Contingency
d. Consistency
e. Time period
24. Capital is shown under liabilities because of the
a. Conservatism concept
b. Accrual concept
c. Entity concept
d. Revenue recognition concept
e. Matching concept
25. Which of the following statements is true?
a. Going concern concept assumes that business will be carried on for a definite period.
b. Time period concept facilitates the comparison of the results of one accounting
period of a business with that in the past.
c. The capital losses must not be deducted to ascertain net income.
d. Provision for bad and doubtful debts is created in recognition of business entity
concept.
e. Materiality concept states that all business transactions are to be recorded however
insignificant they may be.
26. The expenses and income pertaining to full trading period are taken to the Profit and Loss
account of a business irrespective of their payment or receipt. This is in recognition of
a. Time period concept
b. Business entity concept
c. Going concern concept
d. Accrual concept
e. Duality concept.
27. Which of the following is an example of capital expenditure?
a. Insurance premium
b. Taxes and legal expenses
c. Depreciation on machinery
d. Discount allowed
e. Customs duty on import of machinery.
28. Which of the following events is/are not recorded in the books of a business?
a. Significant monetary events after the balance sheet date.
b. Death of a chief executive of the business.
c. Government investigations into the pricing policies of the business
d. Both (b) and (c) above
e. All of (a), (b) and (c) above.
29. Which of the following concept is not considered a basic principle of accounting?

a.
b.
c.
d.
e.

Materiality concept
Cost concept
Consistency concept
Matching concept
Logical concept

30. In contract accounting, the percentage of completion method is an exception to the

a. Matching principle
b. Going concern principle
c. Historical cost principle
d. Business entity principle
e. Revenue recognition principle
31. Which of the following concepts assumes that a business will last indefinitely?
a. Business entity.
b. Going concern.
c. Periodicity
d. Conservatism
e. Consistency.
Accounting Standards
32. In the accounting year 2004-2005 there was a change in the method of charging
depreciation (from SLM to WDV) in such a case
a. There is no need to disclose the new accounting policy
b. Disclose the new accounting policy
c. Disclose the old policy
d. Both (b) and (c) above.
33. Which of the following statements are/is true? Events after balance sheet date are
a. All the significant events after the balance sheet date.
b. The events after balance sheet date but before submitted it to the Registrar of
Companies.
c. The events after balance sheet date but before its approval by the board.
d. All changes after balance sheet date but before its approval.
e. All the errors rectified after the balance sheet date.
34. Which of the following is the example of contingencies?
a. Compulsory acquisition of part of land of the company by the Government.
b. A suit filed by the employee against the company.
c. A debtor of the company is declared insolvent, resulting in bad debts to the company.
d. Both (b) and (c) above.
e. All of (a), (b) and (c) above.
35. Costs incurred by a contractor before securing a contract which are not specifically
attributable is/are
a. Treated as part of contract cost

b.
c.
d.
e.

Deferred to future
Treated as a revenue cost
Both (b) and (c) above
None of the above

36. In case of fixed price contracts using percentage of completion method profits can be
recognized only
a. On completion of the contract
b. At the time of entering contract
c. At the commencement of the contract
d. If 20% to 25% of work is completed
e. If 50% of work is completed.
37. Payments received in advance from a customer for a contract can be
a. Shown as a deduction from contract work-in-progress on asset side
b. Shown as a liability
c. Shown as an asset
d. Credited to P & L a/c
e. Either (a) or (b) above
38. As per the delivery method revenue should be recognized
a. When the goods are transferred (delivered)
b. Only when the title of goods is transferred
c. When the invoice of the goods is raised
d. On the receipt of order for goods
e. Only on the payment of amount.
39. Delivery method of revenue recognition is not applicable in case of
a. Hire purchase
b. Consignment
c. Goods sent on approval basis
d. Both (b) and (c) above
e. Both (a) and (c) above
40. Which of the following areas of accounting does not encounter multiplicity of accounting
policies
a. Valuation of Inventories
b. Treatment of Contingent Liabilities.
c. Treatment of Goodwill
d. Both (b) and (c) above
e. None of the above.
41. Which of the following is/are monetary items?
a. Foreign currency balances in banks.
b. Loans in foreign currency
c. Payables in foreign currencies

d. Both (a) and (b) above.

e. All of (a), (b) and (c) above.
42. In which of the following cases closing rate is used for conversion (if denominated in
foreign currency)?
a. Closing inventory.
b. Debtors
c. Salaries paid
d. Both (a) and (b) above.
e. Both (b) and (c) above.
43. Which of the following is true with respect to reporting of contingencies?
a. Guarantees of others indebtedness are reported as loss contingencies only if the loss
is considered remote.
b. Disclosure of a loss contingency is to be made if there is a remote possibility that the
loss has been incurred.
c. Disclosure of a loss contingency must include a rupee estimate of the loss.
d. Disclosure of a loss contingency is required for unasserted claims even if there is
no manifestation of the claim and only a remote possibility that the outcome will
be unfavorable.
e. A loss that is probable but cannot be estimated must be disclosed with a notation that
the amount of the loss cannot be estimated.
44. If a company has contingent liabilities, they appear in the
a. Balance sheet
b. Directors report
c. Notes on account to balance sheet
d. Chairmans report
e. Notice to shareholders.
45. Which of the following statements is/are true as per Accounting Standards?
i.
Change in accounting estimate which has a material effect on the financial
statements should be disclosed and quantified.
ii.
If it is difficult to clearly distinguish between changes in accounting policy and
change in accounting estimates, then such changes should be treated as changes in
accounting estimates.
iii.
If an estimate of contingent loss cannot be made, then the existence and nature of
contingency should be disclosed.
iv.
By-product (inventory) is measured at cost and their value is deducted from cost
of main product.
a. (i) and (ii) only
b. (i) and (iii) only
c. (ii) and (iii) only
d. (i), (ii) and (iii) only
e. All of (i),(ii),(iii) and (iv) above.

46. A fixed asset has been acquired from a foreign country on credit during the previous year.
A change in the exchange rate has increased the liability of the company. The adjustment
corresponding to increase in liability will be
a. Shown as a footnote to the balance sheet as a contingent liability
b. Added to the cost of the fixed asset
c. Shown as a loss in the profit and loss a/c
d. Shown under miscellaneous expenditure in the balance sheet
e. The increased liability not affect the financial statements.
47. The Accounting Standard on Revenue Recognition (AS-9) deals with
a. Revenue obtained from execution of construction contracts
b. Revenue from sale under hire purchase and lease agreements
c. Interest, royalties and dividends obtained from other concerns using the resources of
the enterprise
d. Revenue from government grants and subsidies
e. Insurance premia relating to contracts received by insurance companies
48. Which of the following is not the financial statement
abcde-

Profit and loss account

Profit and loss appropriation account
Balance sheet
Cash flow statement
Trial balance

49. If unexpired insurance appear in trial balance it should be

a- Debited to trading account
b- Credited to Profit and Loss account
c- Debited to P&L account
d- Shown In liabilities in balance sheet
e- Shown on asset side of business

50. Which of the following is not a fixed asset?

a- Stock
b- Vehicle

c- FD in bank
d-a &c
e- b & c

51. Which of the following is a current asset?

a- sundry debtors
b- Stock
c- Prepaid insurance
d- Both a & b
e-All of the above
52. Which statement is false?
a- Owner equity + outsiders liability = Assets
b- Assets - capital= Liability
c- Assets + capital= Liability
d- Capital- Liability = Assets
e- Both c & d

53. Tax deducted at source appears in balance sheet

a- on asset side under current asset
b- on asset side under loans and advances
c- under current liabilities
d- on liability side under provisions
e- On asset side under miscellaneous expenses

54. Which of the following statement is not true?

a- Balance sheet discloses financial position of business

b- Increase in the value of one asset could reduce the value of other asset
c- A person who owes to business is called debtor
d- Decrease in value of an asset could decrease the value of liability.
e- Assets are to be shown in balance sheet at a realizable price

55. Which of following statement is true?

a-The balance of goods account shows the values of stock in hand
b- Balance of all accounts must be done at end of each day.
c- Balance of nominal account are carried forward to next financial year
d- Assets which are to remain in the business for continuous use and are not meant for
conversion into cash are fixed assets
e- Balance sheet discloses the income position of business

56. Which accounts appear in balance sheet of business?

a- Closing stock
b- Opening stock
c- Drawings
d- Prepaid Rent
e- Interest received but not yet earned.
f- Both a & c
g- a & c & d & e
h- All a to e

57. Which of the following is not an intangible asset

a- Goodwill
b- Trademark
c- Franchise
d- Accounts receivable
e- Patents.

58. Which of the following is a current liability?

a- Prepaid expenses
b- Trademark
c- Discount if issue of shares
e- Outstanding Salaries
f- Fixed Deposits

59. Based on following which concept, is share capital account shown on liabilities side of
balance sheet?
a- Business entity concept
b- Money Measurement Concept
c- Duality concept
d- Going concern concept
e- Matching concept
60. Which of the following is not a contingent liability?
a- Doubtful Debts
b- Uncalled liability on partly paid shares
c- Claims against company not acknowledged as debts.
d- Arrears of fixed cumulative dividend.

e- Liability on bills receivable previously discounted.

61. Which of the following are current assets of business?

- Income received in advance
- Stock
- Debtors
- Prepaid expenses
- Accrued income

a- a & d
b- b & c
c- a, b and c
d- b, c, d and e
e- a, b, c and d
62. Mr. Rohit owner of Rohit furniter ltd. owns a personal residence that costs Rs. 6, 00,000,
but has a market value of Rs. 9, 00,000. During preparation of the financial statement for
the business, the entire value of the property was ignored and was not shown in the
financial statements. The principle that was followed was
a. The concept of business entity
b. The concept of the cost principle
c. The concept of going concern principle
d. The concept of duality principle
e. The concept of realization principle
63. Provision for bad debt is made as per the
a. Entity concept
b. Conservation concept
c. Cost concept
d. Going concern concept
e. Time period concept
64. Fixed assets and current assets are categorised as per concept of
a. Separate entity

b. Going concern
c. Contingency
d. Consistency
e. Time period
65. Capital is shown under liabilities because of the
a. Conservation concept
b. Accrual concept
c. Entity concept
d. Revenue recognition concept
e. Matching concept
66. Which of the following is the expenses and is true?
a. Going concern concept assumes that the business will be carried on for a
definite period.
b. Time period concept facilitates the comparison of the results of one
accounting period of a business with that in the past.
c. The capital losses need not be deducted to ascertain net income.
d. Provision for bad and doubtful debts is created in recognition of conservation
concept.
e. Materiality concept states that all business transactions are to be recorded
however insignificant they may be.
67. The expenses and incomes pertaining to full trading period are taken to the Profit and
Loss account of a business, irrespective of their payment or receipt. This is in
recognition of
a. Time period concept
b. Business entity concept
c. Going concern concept
d. Accrual concept
e. Duality concept
68. Which of the following is an example of capital expenditure?
a. Insurance premium
b. Taxes and legal expenses
c. Depreciation on machinery
d. Discount allowed
e. Customs duty on import of machinery
69. Which of the following events is/are not recorded in the books of the business?
a. Significant monetary events after the balance sheet date
b. Death of a chief executive of the business
c. Government investigations in the pricing of the business
d. Both (b) and (c) above
e. All of (a),(b) and (c) above
70. Which of the following is not considered as the basic principle of accounting
a. Materiality concept
b. Cost concept
c. Consistency concept
d. Matching concept

e. Logical concept
71. Which of the following concepts assumes that a business will last indefinitely?
a. Business entity
b. Going concern
c. Periodicity
d. Conservation
e. consistency
72. Which of the following statements is/are true? Events after balance sheet date are
a. All significant events.
b. The events after balance sheet date but before its approval by the board.
c. The events after balance sheet date but its approval
d. all the errors rectified after the balance sheet date.
73. Which of the following are examples of contingencies?
a. Compulsory acquisition of part of land of the company by Government.
b. A suit filed by the employee against the company.
c. A debtor of the company is declared insolvent, resulting in bad debts to the
company.
d. b and c
e. a, b and c
74. If the petty cash fund is not reimbursed just prior to year end and an appropriate
adjusting entry is not made, then
a. A complete audit is necessary
b. The petty cash a/c is to be returned to the companys cashier
c. Expenses are overstated and the cash is understated.
d. Cash is overstated and expenses are understated.

75. The periodical total of the sales returns book is posted on the
a. Cr. Sales a/c
b. Dr. sales a/c
c. Dr. sales returns a/c
d. Cr. Sales returns a/c
e. Dr. debtors a/c
76. Trade discount allowed at the time of sale of goods
a. Is recorded in sales book
b. Is recorded in cash book
c. Is recorded in journal
d. Is not recorded in books of accounts
e. Is recorded in petty cash book.
77. Which of the following is/are true?
a. Cash book records all cash receipts and cash payments.
b. Cash book records all sale and purchase transactions of goods both in cash
and on credit.
c. Cash book records discount on cash payments.
d. a and b
e. a, b and c
78. Purchase of goods for cash from Rasheed is to be recorded by:
a. dr. purchases a/c and cr.Rasheed a/c
b. dr. cash a/c and cr. Rasheed a/c
c. dr. purchases a/c and cr. Cash a/c
d. dr. Rasheed a/c and cr. Cash a/c
e. dr. cash a/c and cr. Purchases a/c
79. Which of the following is true?
1)
2)
3)
4)

Bank account is a personal account.

Stock of stationery account is a nominal account.
Return inward is a personal account.
Capital account is a real account.
80. Which of the following is a liability of a firm?

1)
2)
3)
4)
5)

Debit balance of analytical petty cash book.

Credit balance of a bank pass book.
Debit balance of bank column of cash book.
Debit balance of cash column of cash book.
Credit balance of bank column of cash book.

Preparation of Financial Statements= Profit and Loss Account.

81. Which of the following relationships are true?

1)
2)
3)
4)
5)

net profit= gross profit- administration and other expenses.

Net profit= gross profit+ administration expenses and other expenses.
Opening stock+ purchases closing stock = cost of sales.
Opening stock + purchases+ gross profit + direct expenses closing stock.
Both b and c above.
82. Gross profit is equal to?

1)
2)
3)
4)
5)

Sales- cost of goods sold.

Sales closing stock + purchases
Opening stock + purchases closing stock.
Net profit- expenses.
None of the above.
83. Depreciation is calculated on the

1)
2)
3)
4)
5)

Cost price of the asset.

Market price.
Cost + transport + installation expenses.
Cost of market value whichever is less.
None of the above.
84. Which of the following shall not be deducted from net profit while calculating
managerial remuneration?

1)
2)
3)
4)
5)

Interest on debentures issued buy a company.

Loss on sale of undertaking
Debts considered bad and written off.
Liability arising from a breach of contract.
Managing directors remuneration.
85. Insurance prepaid is shown as

1)
2)
3)
4)
5)

Current asset
Current liability
Fixed asset
Income
Other liability.
86. Depreciation appearing in the trail balance should be

1)
2)
3)
4)
5)

Debited to P&L a/c

Shown as liability in balance sheet
Reduced from related asset in balance sheet
Both (a) and (b) above
Both (a) and (c) above.
87. Buildings account is debited with an amount towards repairs. This is an example of

1)
2)
3)
4)
5)

Error of commission
Error of principle
Error of omission
Compensating error
None of the above

88. A club paid subscription fees of Rs.1400, out of which Rs.200 is prepaid, in such case
1) P&L a/c is debited with Rs.1400
2)P&L a/c is debited with Rs.1200.
3) Rs.200 is shown as current asset
4) Both (b) and (c) above
5) Both (a) and (c) above

89. Bad debts recovered is

1)
2)
3)
4)

Credited to P&L a/c

Debited to P&L a/c
Reduced from debtors in balance sheet
Both (b) and (c) above

90. The concept of conservatism will have the effect of

1)
2)
3)
4)

Overstatement of assets
Understatement of assets
Overstatement of liabilities
Understatement of liabilities

91. Bank overdraft is shown as

1)
2)
3)
4)
5)

Current liability
Contingent liability
Current asset
Unsecured loan
Provision

92. Which of the following should not be treated as revenue expenditure?

a. Interest on loans and debentures.
b. Annual fire insurance premiums on plant and equipment.
c. Sales tax paid in connection with the purchase of office furniture.
d. Repairs and maintenance on fixed assets like machines.
e. Small expenditures on long-lived assets, such as Rs.20 for a paper weight.
93. Which of the following is not true with regard to preparation of profit and loss account?
a. Profit and loss account is prepared for a certain period and hence it is an interim statement.
b. Profit and loss account does not disclose the effect of non-financial items.
c. Net profits are ascertained on the basis of current costs.
d. The profit as disclosed by P&L account is not absolute.
e. The T P&L account does not reveal true profit.
94. Capital expenditure is an expenditure which
a. Benefits the current accounting period.
b. Will benefit the next accounting period.
c. Results in the acquisition of permanent asset.
d. Results in the acquisition of a current asset.
e. Results in the acquisition of a current asset or permanent asset.
95. The Profit and Loss account shows the
a. Financial results of the concern for a period.
b. Financial position of the concern on a particular date.

c. Financial position of the concern for a period.

d. Financial results of the concern on a particular date.
e. Cost of the goods sold during the period.

96. Which of the following is not deferred revenue expenditure?

a. Expenses in connection with issue of equity shares.
b. Preliminary expenses.
c. Preoperative expenses.
d. Heavy advertising expenses to introduce a new product.
e. Legal expenses incurred in defending a suit for breach of contract to supply goods.
97. From the accounting point of view, loss means
a. Increase in liability.
b. Decrease in asset.
c. Increase in owners equity.
d. Decrease in owners equity.
e. Increase in asset.
98. Which of the following is an item of capital expenditure?
a. Annual fire insurance premiums on plant and equipment.
b. Research and Development costs during the year.
c. Interest on borrowed fund utilized for acquisition of office furniture.
d. Sales tax paid in conjunction with the purchase of office equipment.
e. Monthly rent of machinery used in the business.
99. Which of the following statement is true?
a. Provision for doubtful debts represents the amount that cannot be collected.
b. Interest paid on borrowings is a capital expenditure.

c. Cash balance on hand shows whether the business has earned profit or loss.
d. Free samples received are business gains.
e. The WDV of an asset depreciated on the reducing balance method can never become
zero.

100. Cash profit is

a. Gross profit Net profit
b. Net profit Net trading profit Depreciation and provision.
c. Gross profit Non-trading profit + Depreciation and provision.
d. Net profit + Depreciation and provision.
e. Gross profit Operational expenses.
101. Which of the following statements is false?
a. Provision for discount on debtors can be estimated only after computing the provision for
doubtful debts.
b. All pre-received incomes under the cash system of accounting are current gains.
c. Cash balance on hand shows whether the business has earned profit or loss.
d. Capital expenditure should be shown in the books by debiting asset account and crediting
supplier or cash account.
e. The distinction between capital and revenue is important for the determination of profit.
102. Which of the following statements is true?
a. Provision for doubtful debts represents the amount that cannot be collected.
b. The distinction between capital and revenue items is important because it is of
fundamental importance to the determination of profits.
c. Interest paid on borrowings is a capital expenditure.
d. Goods lost by fire need not be accounted for since they are not sales.
e. Free samples received are business gains.

103. The balances of which of the following accounts do not disappear, once they are
debited/credited to Trading account.
a. Sales
b. Purchases.
c. Inward returns.
d. Closing stock.
e. Outward returns.
104. Which of the following will not appear in Profit and Loss account of a business?
a. Drawings
b. Bad debts.
c. Provision for doubtful debts.
d. Accrued expenses.
e. Reserve for discount on sundry creditors.

105. XYZ Ltd. paid wages of Rs.8,000 for erection of machinery. The journal entry for the
transaction is
a. Debit wages and credit cash
b. Debit machinery and credit cash
c. Debit wages and credit erection charges
d. Debit machinery and credit erection charges
e. Debit wages and credit machinery account
106. Which of the following statement is not true?
a. When the bank column of a cash book shows a credit balance, it means an amount
is due to the bank.
b. When passbook shows a debit balance, it means overdraft as per passbook.
c. While preparing bank reconciliation statement, cheques paid into bank but not yet
cleared are deducted from the Debit balance as per cash book to arrive at the
balance as per passbook.
d. A bank reconciliation statement is a part of passbook.
e. A bank reconciliation statement is a statement, but not the account by the
customer of the bank.

107. Which of the following statement is true?

a.
b.
c.
d.
e.

The sale of an asset is recorded in the sales book.

Total of return outward book is debited to return outward account.
The balance of petty cash book is liability.
Cash book is a subsidiary book as well as a ledger.
Purchase book makes a record of all purchases.

108. Which of the following is true regarding closing entries?

a. They must be followed by reversing entries.
b. They transfer the balance in all of the nominal accounts to the trading and
profit and loss account.
c. They must be made after the reversing entries but before the adjusting entries.
d. They must be made after the adjusting entries but before reversing entries.
e. They transfer the balance in all Real accounts to profit and loss account.
109. Purchase of goods on credit
a.
b.
c.
d.
e.

Increases liabilities
Increases assets
Increases both assets and liabilities
Decrease assets
Decrease liabilities.

110. Purchase of raw material for cash

a.
b.
c.
d.
e.

Increases total assets

Increases total liabilities
Total assets remains unchanged
Increases total fixed assets
Increases total current assets.

111. Which of the following is not an asset?

a.
b.
c.
d.
e.

Stock of stationery
Goodwill
Profit and loss account (Credit balance)
Accounts Receivable
Cash at bank.

112. The process of balancing of an account involves equalization of both sides of the account. If
the debit side of an account exceeds the credit side, the difference is put on the credit
side. The said balance is
i.

A debit balance

ii. A credit balance

iii.
An expenditure or an asset
iv. An income or a liability.
Only (ii) above
Only (iv) above
Both (i) and (iii) above
Both (ii) and (iii) above
Both (ii) and (iv) above

a.
b.
c.
d.
e.

113. Which of the following statement is not true?

a. Wages paid on installation of machinery should be credited to cash account.
b. A sale of computer that has been used in the business should be debited to cash
account
c. Error of posting of a correctly recorded transaction affects one or more accounts
d. Repairs of a machinery purchased second hand should be debited to machinery
account
e. Withdrawal of goods by the proprietor of the business should be credited to
capital account.
114. Which of the following transactions of a business is/are recorded in journal proper?
i.
ii.
iii.
iv.

a.
b.
c.
d.
e.

Purchase of goods on credit

Sale of office furniture for cash
Discounting of bill of exchange with a bank
Endorsement of a bill of exchange in settlement of debt of the
business.
Only (i) above
Only (iv) above
Both (ii) and (iv) above
(i), (iii) and (iv) above
All of the above.

115. Which of the following statement is/are true?

a.
b.
c.
d.
e.

i.
Drawings account is a nominal account.
ii. Capital account is a real account.
iii.
Sales account is a nominal account.
iv. Outstanding salaries account is a nominal account.
v. Patents account is a personal account.
Only (i) above
Only (iii) above
Both (ii) and (iv) above
(ii), (iv) and (v) above
All of the above.

116. They entry to record the collection of cash from sundry debtors would involve a

a.
b.
c.
d.
e.

i.
Debit to sundry debtors
ii. Debit to cash account
iii.
Credit to sundry debtors
iv. Credit to cash account
Only (i) above
Only (ii) above
Both (iii) above
Both (ii) and (iii) above
Both (i) and (iv) above.

117. ABC Ltd. makes payments to its sundry creditors through cheques and the cash discount
received on these payments is recorded in the triple columnar cash book. In the event of
dishonor of any such cheques, the discount so received should be written back through

a.
b.
c.
d.
e.

i.
A debit to discount column of the cash book.
ii. A credit discount column of the cash book.
iii.
A credit to bank cplomn of the cash book.
iv. A debit to discount account through journal proper.
v. A credit to creditors account through journal proper.
Only (i) above
Only (ii) above
Only (iv) above
Both (i) and (iii) above
Both (iv) and (v) above.

118. RS Ltd. makes purchases on credit. If the purchases are not as per the specifications, the
company returns them to the suppliers. The book, that is used to record such returns is
a.
b.
c.
d.
e.

Returns inward book

Returns outward book
Cash book
Journal proper
Purchases day book.

119. If office equipment is purchased for cash, what effect will this transaction have on the
financial position of the company?
a.
There is no change in the assets, liabilities and owners equity.
b.
There is a decrease in assets, increase in liabilities and no change in owners
equity.
c.
There is a decrease in assets, no change in liabilities and a decrease in owners
equity.
d.
There is an increase in assets, decrease in liabilities and no change in owners
equity.
e.
There is an increase in assets, no change in liabilities and increase in owners
equity.

*******************************************************************
MCQ-1st Unit
1)

The basic function of financial accounting is to

a)

Record all business transactions

b)

Interpret the financial data

c)

Assist the management in performing functions effectively

d)

None of these

2)

Management Accounting provides invaluable services to management in performing

a)

All management functions

b)

Controlling functions

c)

Interpret the financial data

d)

None of these

3)

The accounting principle which refers to tendency of accountants to resolve uncertainty and
doubt in favor of understating assets and revenues and overstating the liabilities and expenses is
known as

a)

Conservatism

b)

Materiality

c)

Consistency

d)

None of these

4)

During the life-time of an entity, accountants produce financial statements at arbitrary points in
time in accordance with which basic accounting principle?

a)

Matching

b)

Periodicity

c)

Conservatism

d)

None of these

5)

Management Accounting is

a)

Extension of financial accounting

b)

Extension of financial management

c)

Accounting for management

d)

Concerned with the provision of information to people within the organization to help them
to make better decisions

6)

Management accounting renders useful information to management in performing

a)

All management functions

b)

Control functions

c)

Co-ordination functions

d)

Business functions

7)

Management accounting involves

a)

Recording of costs

b)

Recording of transactions

c)

Preparation of financial statement

d)

Analysis and interpretation of data

8)

Management accounting and Cost Accounting are

a)

Supplementary to each other

b)

Complementary to each other

c)

Independent to each other

d)

Opposite to each other

9)

Cost accounting is different from financial accounting in respect of

a)

Inventory valuation

b)

Ascertainment of cost

c)

Recording of cost

d)

Reporting of cost

10)

Cost refers to

a)

The value of the sacrifice made to get some goods or services

b)

The present value of future benefits

c)

An asset which has given benefit and is now expired

d)

All of these

11)

Accounting records

a)

Qualitative aspect of business

b)

Quantitative aspect of business

c)

Economic aspect of business

d)

Financial aspect of business

12)

Accounting records

a)

Qualitative aspect of business

b)

Quantitative aspect of business

c)

Economic aspect of business

d)

Financial aspect of business

13)

Management accounting

a)

Is the process of accounting and controlling the cost of a product

b)

Is mainly confined to the preparation of financial statements

c)

Is a branch of financial accounting

d)

Is to find out the profitability

14)

Objective of cost accounting

a)

Is to keep the management fully informed about the latest position of the concern

b)

Is to summarise the financial performance of the business for external stakeholders

c)

Is to create a common internal global 'language' in decision making

d)

Is to ascertain. the profitability of the activities carried out or planned _

15)

The art of recording the business transactions in a systematic and regular manner refers to

a)

Accounting

b)

Cost accounting

c)

Book- keeping

d)

Financial accounting

16)

In financial accounting only transactions

a)

In monetary terms are considered

b)

In non-monetary terms are considered

c)

In an orderly manner are considered

d)

In the balance sheet are considered

17)

The full disclosure principle states

a)

That accounting practices should remain unchanged from one period to another

b)

The tendency to maintain a state of affairs without a sudden change

c)

That all information significant to the users of financial statements should be disclosed

d)

To the relative importance of an item or event

18)

Planning and forecasting is the function of

a)

Financial accounting

b)

Book-keeping

c)

Cost accounting

d)

Management accounting

19)

Managers implement strategies by translating them into

a)

Actions

b)

Services

c)

Results

d)

Policies

20)

Essential characteristic of accounting is

a)

Identification, measurement, recording, classification, analyzing and communication

b)

Tracking methods that allow control of operations

c)

To satisfy the wishes of the management

d)

To act as a co-coordinator among different financial departments

21)

One of the external users of accounting information are

a)

Managers

b)

Proprietors

c)

Creditors

d)

Employees

22)

Limitations of financial accounting include:

a)

Recording of Monetary Transactions Only

b)

Recording of non-monetary Transactions Only

c)

May be Manipulated

d)

Both (a) & (c)

23)

Who are the external users of accounting?

a)

Proprietors

b)

Creditors

c)

None

d)

Managers

24)

Which among the following is not a concept of financial accounting?

a)

Accrual Concept

b)

Going Concern Concept

c)

Similar Entity Concept

d)

Dual Aspect Concept

25)

Decision Making as a role of management accounting in a Business Organization means :

a)

Track the costs of each activity

b)

Helping management by providing relevant information

c)

Ensuring value for money for the customers.

d)

Creating value by enhancing their supply chain

26)

Scope of management accounting includes:

a)

Covering financial accounting, cost accounting and all aspects of financial management.

b)

Preparing Trading Ne, Profit and Loss Ne and Balance Sheet.

c)

Measuring the economic performance of the cost centres.

d)

Focus attention on past and current operations.

27)

Cost Accounting:

a)

Uses information generated by economics, mathematics, statistics, etc.

b)

Uses output data.

c)

Uses the basic records (voucher's etc.) of financial accounting for generation of information.

d)

Both (a) and (b)

28)

In financial accounting classification of recorded facts, with entities of one nature at one place is
done in the book called:

a)

Trial Balance

b)

Journal

c)

Income Statement

d)

Ledger

29)

Historical nature of financial accounting takes into account

a)

The transaction which have already taken place

b)

Futuristic transactions

c)

Transactions taking place

d)

Both (a) and (b)

30)

At any time the accounting equation is

a)

Net Income = Net Expenses - Net Revenues

b)

Assets = Capital - Liabilities

c)

Assets = Liabilities + Capital

d)

Net Income = Net Revenues - Net Expenses

31)

Which of the following is not a convention of financial accounting?

a)

Consistency

b)

Non - Materiality

c)

Full Disclosure

d)

Conservatism

Answers:
a
6) A
11) B
16) A
I)

21) c
26) a
JI) b

2)

7) d

12) b
17) c
22) d
27) c

3) a
8) b
13) c
18) d
23) b
28) d

4)b
9) d
14) d
19) a
24) c
29) a

5)
IO)
15)
20)
25)
30)

d
a
c
a
b
c

MCQ- 2nd Unit

I)

Outstanding expenses appearing in the Trial Balance are shown in the

a)

Profit and loss Ne

b) Balance sheet

c)

In both (a) and (b)

d) None of these

2)

Sales are equal to

a)

Net income + Expenses + Cost of goods sold

b)

Gross profit + Cost of sales + Expenses

c)

Net income + Cost of goods sold

d)

None of these

3)

Bank overdraft is shown as a

a)

Current liability

b)

Contingent liability

c)

Current asset

d)

Unsecured loan

4)

Returns inward are deducted from

a)

Current liability

b)

Purchases

c)

Returns outward

d)

None of these

5)

Gross profit Net profit

a)

Gross profit -Net profit

b)

Net profit - Non-trading profit - Depreciation and provision

c)

Gross profit - Non-trading profit + Depreciation and provision

d)

Net profit + Depreciation and provision

6)

Which of the following is not a financial statement

a)

Profit and loss account

b)

Profit and loss appropriation account

c)

Balance sheet

d)

Trial balance

7)

The Companies Act prescribes the format for

a)

Both Profit and Loss Account and Balance Sheet

b)

Only Profit and Loss Account

c)

Only Balance Sheet

d)

Neither of the two

8)

As per Schedule VI of the Companies Act, 1956, unclaimed dividends are to be shown

a)

As a deduction from claimed dividends

b)

As an addition to unpaid interest

c)

As a deposit in a nationalized bank

d)

As a current liability

9)

Which of the following is not an example of fixed asset?

a)

Plant and machinery

c)

Royalty

10)

Features of a partnership firn are

b) Land and building

d) Patent

a)

Two or more persons carrying common business under an agreement.

b)

Sharing profits and losses in the agreed ratio.

c)

Business carried by all or any of them acting for all.

d)

All of the above.

1l)

In the absence of any agreement, partners are entitled to

a)

12% simple interest

b)

12% Compounded annually

c)

6% Simple interest

d)

6% p.a. Simple interest

12)

A partner acts as for a firm.

a)

An agent

b)

Third Party

c)

Employee

d)

None of these

13)

Profit and Loss Appropriation Account is prepared

a)

For proprietorship firm

b)

c)

Both (a) and (b)

d) None of these

14)

Under fluctuating capital account method interest on withdrawal will be debited to which
account?

a)

Capital account

b)

Trading account

c)

Current account

d)

Profit and loss appropriation account

15)

A gets profit 3.5 times of B while C gets profit twice of B.

For partnership firm

If the profit of the firm is Rs.39,000. Find share

a)

Rs.12,000

b)

Rs.6,000

c)

Rs.2l,000

d)

None of these

16)

All intangible assets

a)

Arc current assets

b)

Arc fixed assets

c)

Arc fictitious assets

d)

Arc closing stock

17)

Authorized capital is also called

a)

Nominal capital

b)

Issue capital

c)

Paid up capital

d)

unpaid calls

18)

The trading account is an account

a)

Which relates to the entity's ability to use the economic resources available in a profitable manner

b)

Which shows the result of buying and selling of goods/services

c)

Which assess whether entity has made satisfactory contribution to their investments or not

d)

Which help to a large extent in preparing financial statements

19)

Gross profit is transferred to

a)

Balance sheet

b)

Capital account

c)

Trading account

d)

Profit and loss account

20)

In case the manufacturing account is not prepared wages are debited to

a)

Trading account

b)

Purchase account

c)

Sales account

d)

Profit and loss 8ccount

21)

In profit and loss appropriation account

a)

Interim dividend is shown in credit side

b)

Proposed dividend is shown in credit side

c)

Dividend is shown in debit side

d)

Distribution tax is shown in credit side

22)

Sundry debtors should be classified between debts outstanding for a period exceeding

a)

Two months

b)

Three months

c)

Six months

d)

Five months

23)

The standard gross profit ratio is between

a)

I 0% to 20%

b)

15% to 25%

c)

30% to 40%

d)

20% to 300%.

24)

Changes in financial position means how

a)

A business activity has affected the investors' stake in the entity

b)

Well entity managed to general considerable cash flows by consuming such resources

c)

Entity uses the resources at its disposal to adapt the changing business requirements and solvency

d)

To get the full impression of the business

25)

That portion of the expenses, the benefit of which will be received during the next accounting
year, is known as

a)

Prepaid Expenses

b)

Outstanding expenses

c)

Depreciation

d)

Bad debts

26)

A balance sheet

a)

Helps in assessment of financial position of the firm

b)

Tells about current assets and current liabilities

c)

Is affected by the accounting policies relating to inventory valuation

d)

All of the above

27)

Preparation of financial statements is governed by

a)

Company Act

b)

Partnership Act

c)

Generally Accepted Accounting Principles (GAAP)

d)

All of the above

28)

Trial balance

a)

Reflects the true financial position of the firm

b)

Is accepted by the court as documentary evidence

c)

is prepared annually or half yearly

d)

None of these

29)

As per Partnership Deed

a)

Each partner may have to bring Capital from his private sources at the time of
formation

b)

Capital account will show the same result year after year

c)

The adjusted profit will be distributed amongst the partners

d)

Interest on capital is always calculated on the capital in the beginning of the year

Answers
1)
6)

b
d

11) d

16) c
21) c

26) d

2)
7)

d
c
l2) a

3)

8)

17) a
22) c
27) d

18) b

13)

23) d
28) d

4)
9)
14)
19)
24)

a
d

a
29) a

d
10) d
15) a

5)

20) a
25) a