Accounting MCQs (Syeda Abeeda Hassan Sherazi)

1. A bank statement
a. lets a depositor know the financial position of the bank as of a certain date.
b. is a credit reference letter written by the depositor's bank.
c. is a bill from the bank for services rendered.
d. shows the activities that increased or decreased the depositor's account balance.
2. A check returned by the bank marked "NSF" means
a. no service fee.
b. no signature found.
c. not satisfactorily filled out.
d. not sufficient funds.
3. A bank reconciliation should be prepared
a. whenever the bank refuses to lend the company money.
b. when an employee is suspected of fraud.
c. to explain any difference between the depositor's balance per books with the
balance per bank.
d. by the person who is authorized to sign checks.
4. Internal users of accounting information include which of the following:
A. Company officers.
B. Investors.
C. Financial Institutions
D. Competitors
5.Which of the following is not an accounting convention?
A. Substance over form
B. Consistency
C. Depreciation
D. Matching
6.If during the accounting period the assets increased by Rs. 10,000, and equity increased by
Rs. 2,000, then how did liabilities change?
A. Increased by Rs. 8,000
B. Increased by Rs. 12,000
C. Decreased by Rs. 8,000
D. Decreased by Rs. 12,000
7.Accrued expenses affects:
A. assets and expenses.
B. liabilities and revenues.
C. assets and revenues.
D. expenses and liabilities.
8.In a bank reconciliation, deposits in transit are:
A. deducted from the cash book balance.
B. added to the cash book balance.
C. added to the bank statement balance.
D. deducted from the bank statement balance.
9.Which of the following records is not a book of prime entry?
A. Bank statements
B. Petty cash book
C. Journal
D. Sales returns day book.
10.The method that ignores scrap value in determining the amount of depreciation is the:
 A. straight-line method.
B. units-of-activity method.
C. declining-balance method.
D. None of these options.
11.The correct entry to record increase in the provision for doubtful debts is:
Debit Credit
A. Profit & Loss Provision for doubtful debts
B. Bad debts Provision for doubtful debts
C. Provision for doubtful debts Profit & Loss
D. Provision for doubtful debts Bad debts
12.Wages and salaries payable are classified as a:
A. Current liability.
B. Long-term liability.
C. Non-current liability.
D. Intangible liability.
13.The first part of the accounting process is
a. communicating.
b. identifying.
c. processing.
d. recording.
14.If total liabilities decreased by $25,000 and owner’s equity increased by $5,000 during a
period of time, then total assets must change by what amount and direction during that same
period?
a. $20,000 decrease
b. $20,000 increase
c. $25,000 increase
d. $30,000 increase
15.Collection of a $500 Accounts Receivable
a. increases an asset $500; decreases an asset $500.
b. increases an asset $500; decreases a liability $500.
c. decreases a liability $500; increases owner's equity $500.
d. decreases an asset $500; decreases a liability $500.
16. Performing services on account will have following effects on the components of the
basic accounting equation:
a. increase assets and decrease owners' equity.
b. increase assets and increase owners' equity.
c. increase assets and increase liabilities.
d. increase liabilities and increase owners' equity.
17.Purchasing supplies for cash will have what effect on the components of the accounting
equation?
a. Increase in cash and a decrease in equity
b. Increase in cash and an increase in supplies
c. Increase in supplies and a decrease in cash
d. Increase in equipment and an increase in equity
18.In a service-type business, revenue is considered earned
a. at the end of the month.
b. at the end of the year.
c. when the service is performed.
d. when cash is received.
19.The time period assumption states that
 a. a transaction can only affect one period of time.
b. estimates should not be made if a transaction affects more than one time period.
c. adjustments to the enterprise's accounts can only be made in the time period when
the business terminates its operations.
d. the economic life of a business can be divided into artificial time periods.
20.When wages are incurred in one period and paid in the next period, this often leads to
which account appearing on the balance sheet at the end of the time period?
a. Due from Employees
b. Due to Employer
c. Wages Payable
d. Wages Expense
21.A debit is not the normal balance for which of the following?
a. Asset account
b. Drawing account
c. Expense account
d. Capital account
22.Including private costs incurred in running a car as business costs would violate the
concept of:
a. Dual aspect
b. Business entity
c. Going concern
d. Consistency
23.The chart of accounts is a
a. list of accounts and their balances at a given time.
b. device used to prove the mathematical accuracy of the ledger.
c. listing of the accounts and the account numbers which identify their location in
the ledger.
d. required step in the recording process.
24. Adjusting entries are required
a. because some costs expire with the passage of time and have not yet been
journalized.
b. when the company's profits are below the budget.
c. when expenses are recorded in the period in which they are incurred.
d. when revenues are recorded in the period in which they are earned.
25. As prepaid expenses expire with the passage of time, the correct adjusting entry will be a
a. debit to an asset account and a credit to an expense account.
b. debit to an expense account and a credit to an asset account.
c. debit to an asset account and a credit to an asset account.
d. debit to an expense account and a credit to an expense account.
26. As per the Matching concept, Revenue – ? = Profit
a. Expenses
b. Liabilities
c. Losses
d. Assets
27. Sales – Gross Profit = ________
a. Cost of goods sold
b. Net sales
c. Gross Sales
d. Liabilities
28. Immediately after purchasing a truck of Rs.50,000. Rs.1000 was spent for painting the
truck for the purpose of advertisement of a product. Rs.1000 spent for painting is
____
a. added in total cost of truck
b. advertisement cost
c. Repair cost
d. None
29.Which method of depreciation is approved as per the income tax rules?
a.Sinking fund method
b. Written Down Value Method
c. Annuity Method
d. None of the above
30. Capital A/c is a _______ A/c.
a. Personal
b. Real
c. Nominal
d. None
30.Cash A/c is a ________ A/c.
a. Personal
b. Real
c. Nominal
d. None
31 Which is not only a subsidiary book, but also a principal book?
a. Cash book
b. Sales book
c. Purchase book
d. Bills receivable book
32.The principle “Debit the receiver and credit the giver” is related to_____
a.Personal a/c
b. Real a/c
c. Nominal a/c
d. None
33. Wages paid for erection of machinery is debited to _____
a. Machinery A/c
b. Wages A/c
c. Cash A/c
d. None of these
34.The goods or cash taken by the proprietor for his personal use will be debited to _____
a. Expenditure a/c
b. Debtors a/c
c. Drawings a/c
d. None of these\
35.Interest on drawings is a ___ to the business
a. Expenditure
b. Gain
c. Liability
d. Loss
36.Which of the following would not fall under the definition of an asset:
a. land
b. building
 c. cash
d. owner’s equity
37.The financial position of the business on a given date is reported on the
a. Income Statement
b. Balance Sheet
c. Statement of Changes In Owner's Equity
d. Statement of Cash Flows
38.The net profit or loss for a particular period of time is reported on the
a. Income Statement
b. Balance Sheet
c. Trial Balance
d. Statement of Changes In Owner's Equity
39.The investment of cash into the business results in a/an
a. increase in cash and a decrease in capital
b. increase in cash and an increase in capital
c. decrease in cash and an increase in capital
d. increase in fees earned and an increase in capital
40. The purchase of supplies for cash will result in a/an
a. increase in cash and a decrease in capital
b. increase in cash and an increase in supplies
c. increase in supplies and a decrease in cash
d. increase in equipment and an increase in capital
41.Services rendered for cash will result in a/an
a. increase in cash and a decrease in capital
b. increase in cash and an increase in fees earned
c. decrease in cash and an increase in fees earned
d. increase in fees earned and an decrease in capital
42.Cash is received from a client for office rental space.
a. cash increases and rental fees earned decreases
b. cash increases and rental fees earned increases
c. cash decreases and capital increases
d. cash decreases and withdrawals increases
43. Keeping the records of the business separate from the personal records of the owner of
the business is said to be adherence to which accounting principle or concept?
a. Continuing-concern concept
b. Business entity principle
c. Realization principle
d. Objectivity principle
44.Peter Atli decided to pay himself a salary of $3,000 per month for the work he performs
for his business, a single proprietorship. Each time a cheque is recorded for $3,000, which
account should be increased?
a. Salaries Expense
b. Capital
 c. Peter Atli, Withdrawals
d. Owner Salary Expense
45.The personal telephone bill of Junior Sample was paid by issuing a cheque from the
business chequing account. No business calls had been made from Junior's personal phone.
What account must be charged for this transaction?
a. Junior, Capital
b. Cash
c. Junior, Withdrawals
d. Telephone Expense
46.Which of the following accounts is NOT a liability?
a. Accounts Payable
b. Accounts Receivable
c. Salaries Payable
d. Notes Payable
47.Assets total $50,000 and Liabilities total $10,000. The equity of the business must total
a. $4,000
b. $40,000
c. $400
d. $40
48.The resulting amount when total liabilities are subtracted from total assets is known as
a. owner's equity or net assets
b. net income or net loss
c. total expenses
d. total revenue
49.A broad rule adopted by the accounting profession as a guide in measuring, recording, and
reporting the financial affairs and activities of a business is known as
a. an accounting concept
b. an accounting principle
c. the basic accounting equation
d. objectivity principle
50. Using a sales invoice as the basis for recording a sale of merchandise is an example of
using which accounting principle or concept for recording transactions?
a. Recognition principle
b. Objectivity principle
c. Realization principle
d. Continuing-concern concept
51.Keith Manich deposited $5,000 in a bank account he established for a pet store that he is
going to own and operate as KM's Pets. Recording the deposit will
a. increase an asset, increase a liability
b. decrease an asset, decrease a liability
c. increase an asset, increase owner's equity
d. decrease an asset, decrease owner's equity
52.The owner of a computer services business was able to acquire a new computer, valued at
$5,000, by establishing an account with the computer vendor, Com Pewters Unlimited. There
was no down payment. Recording the transaction will
a. increase an asset, increase a liability
b. decrease an asset, decrease a liability
c. increase an asset, increase owner's equity
d. decrease an asset, decrease owner's equity
53.A sole proprietor recorded the payment of an account payable to an office supplies store.
Recording the transaction will
a. increase an asset, increase a liability
b. decrease an asset, decrease a liability
c. increase an asset, increase owner's equity
d. decrease an asset, decrease owner's equity
54.If during the accounting period the assets increased by $5,000, and the owner's equity
increased by $1,000, then the liabilities must have
a. increased by $6,000
b. increased by $4,000
c. decreased by $4,000
d. decreased by $6,000
55.If during the accounting period the assets increased by $7,000, and the owner's equity
decreased by $3,000, then the liabilities must have
a. increased by $10,000
b. increased by $4,000
c. decreased by $4,000
d. decreased by $10,000
56. Which one of the following items would fall under the definition of a liability?*
a. Cash
b. Debtors
c. Owner’s equity
d. Tax owed
57.Which of the following statements are false?*
a. A liability is a debt for your business.
b. Debtors are a debt for your business.
c. The accounting equation shows how much of your assets belong to the owner, and
how much ‘belong’ to people outside the business.
d. If you cannot work out a value for an item that will bring you future benefits, then you
cannot keep this as an asset in your records.

58. Which of the following statements are true?*

a. A business whose liabilities are greater than its assets has a bad financial position.
b. A business whose liabilities are greater than its owner’s equity has a bad financial
position.
c. A business whose assets are greater than its owner’s equity has a bad financial position.
d. a) and b)
e. All the above
59.Journal is also called:
a. A day book b. Book of original entry
c. Both A and B d. King of all the books
60.The resources owned by a business are called:
a. Assets b. Liabilities
c. Expenses d. Owner’s equity
61.The receipt of cash from customer is recorded as:
a. Debit to cash and credit to accounts receivables
b. Debit to accounts receivables and credit to cash
c. Debit to cash and credit to accounts payable
d. Debit to accounts payable and credit to cash
62.If the equipment account has a balance of Rs. 22500 and its accumulated depreciation
account has a balance of Rs. 14000, the book value of equipment is:
a. 36500 b. 14000
c. 22500 d. 8500
63.Which of the following cost incurred in connection with acquiring machinery will be
added in the total cost of asset:
a. Freight b. Installation cost
c. Both A and B d. Neither A nor B
64.When service charges are deducted by bank from client’s account, it will send the
following to client:
a. A debit memorandum b. A credit memorandum
c. An invoice d. A bill
65.Under direct write off method, the entry to write off uncollectible will be:
a. Debit to uncollectible and credit to allowance for uncollectible
b. Debit to uncollectible and credit to accounts receivables
c. Debit to accounts receivables and credit to uncollectible
d. None of the above
66.An accounting equation is the expression of equality between:
a. Assets and liabilities b. Assets and owner’s equity
c. Assets and liabilities plus owner’s equity d. None of the above
67.------------shows the financial position of business on a particular date:
a. Income statement b. Balance sheet
c. Statement of retained earnings d. none of the above
68.The depreciation method under which amount of depreciation continuously decreases is
called:
a. Straight-line method b. diminishing balance method
c. 200% diminishing balance method d. both B and C
69. Which of the following is incorrect:
a. Assets = Liabilities + Capital b. Assets =Liabilities
c. Assets = Owner’s equity d. Both B and C
70.Prepaid rent given in trial balance will be treated as:
a. Asset b. Liability
c. Expense d. Revenue
71.Depreciable amount + Residual value of a fixed asset =?
a. Depreciation expenses b. Accumulated depreciation
 c. Cost of the fixed asset d. Future economic benefits of asset
72.All of the following are forms of organizations except:
a. Proprietorship b. Corporation
c. Retailer d. Partnership
73.Economic resources of a business that are expected to be of benefit in the future are
referred to as:
a. Liabilities b. Owner’s equity
c. Withdrawals d. Assets
74.An owner investment of each into the business would:
a. Increase assets b. Decrease liabilities
c. Increase withdrawals d Decrease owner’s equity
75.Balance sheet is always prepared:
a. For the year ended b. As on a specific date
c. For the month ended d. None of these
76.Louise introduces her car into her business. Which parts of the business’ accounting equation will
change?
a. assets and capital b. Capital and Profit
c. Liabilities and assets d. Capitals and Liabilities
77.The concept of going concern says:
a. Record all expenses as they incurred
b. Record all revenues when they are received
c. Record expected losses but not expected profits
d. Business will go for indefinite time period
78.Salvage value is the other name of
a. Cost value b. Breakup value
c. Scrap value d. Both b & c
79.The contra entry in the cash book would include:
a. Totalling up bank and cash columns at the end of each month
b. Transferring the discount to the accounts in general ledger
c. Transferring cash into petty cash book
d. Withdrawing cash from bank account
80. A trader whose assets exceed from his liabilities is called:
a. Debtor b. Creditor
c. Solvent d. Insolvent
81.The balance of provisions for doubtful debts account as at 13.12.2011 was Rs. 550 and as
at 31.12.2012 was Rs. 850. Total of outstanding debtors as at 31.12.2012 was Rs. 8800. The
net value of debtors shown on the balance sheet as on 31.12.2012 would be:
a. Rs. 7950 b. Rs. 8800
c. Rs. 8250 d. Rs. 8500
82.If a business shows a debit balance in its own records of its bank balance; this indicates:
a. Business has a bank overdraft
b. Business is a debtor of the bank
c. Business has money in the bank
d. Ledger entry must be wrong
83. The main object of providing depreciation is to:
a. Calculate true profit
b. Show true financial position
c. Reduce tax
d. Provide funds for replacement
84. Depreciation arises because of:
 a. Fall in market value of asset
b. Physical wear and tear
c. Fall in value of money
d. None of the above
85. Depreciation is a process of:
a. Vauation b. allocation
c. both a and b d. none of the above
86. Total depreciation cannot exceed:
a. Cost of asset b. scrap value of asset
c. depreciable value of asset d. Market value of asset
87. The book value of an asset is obtained by deducting depreciation from its:
a. Market value b. Scrap value
c. Cost d. Market + cost price
88.If a company uses special journals, cash sales should be recorded in which journal?

a. cash receipts journal

b. sales journal
c. general journal
d. cash disbursements journal
89. A company manager inquires about the total amount due from all customers. To answer this
question, the company should consult the _____________.

a. general journal
b. sales journal
c. accounts receivable subsidiary ledgers
d. general ledger

90. On June 1, $800 of goods are sold with credit terms of 1/10, n/30. How much should the seller
expect to receive if the buyer pays on June 8?

a. $720 b. $784 c. $792 d. $800

91.A company estimates that $20,000 of its $500,000 of accounts receivable will be uncollectible.
Its Allowance for Doubtful Accounts presently has a credit balance of $18,000. The adjusting
entry will include a ____________________ to Bad Debts Expense.

a. debit of $2,000
b. Credit of $ 2000
c. Debit of $18000
d. None of the above
92. The term "receivables" refers to
a. amounts due from individuals or companies.
b. merchandise to be collected from individuals or companies.
c. cash to be paid to creditors.
d. cash to be paid to debtors.
93. If a company fails to record estimated bad debts expense,
a. cash realizable value is understated.
b. expenses are understated.
c. revenues are understated.
d. receivables are understated.
94. The existing balance in Allowance for Doubtful Accounts is considered in computing bad
debts expense in the
a. direct write-off method.
b. percentage of receivables basis.
c. percentage of sales basis.
d. percentage of receivables and percentage of sales basis.
95. When the allowance method is used to account for uncollectible accounts, Bad Debts
Expense is debited when
a. sale is made.
b. an account becomes bad and is written off.
c. management estimates the amount of uncollectibles.
d. a customer's account becomes past-due.
96. The collection of an account that had been previously written off under the allowance
method of accounting for uncollectible
a. will increase income in the period it is collected.
b. will decrease income in the period it is collected.
c. requires a correcting entry for the period in which the account was written off.
d. does not affect income in the period it is collected.
97. A debit balance in the Allowance for Doubtful Accounts
a. is the normal balance for that account.
b. indicates that actual bad debt write-offs have exceeded previous provisions for
bad debts.
c. indicates that actual bad debt write-offs have been less than what was estimated.
d. cannot occur if the percentage of sales method of estimating bad debts is used.

98. Under the direct write-off method of accounting for uncollectible accounts, Bad Debts
Expense is debited
a. when a credit sale is past due.
b. at the end of each accounting period.
c. whenever a pre-determined amount of credit sales have been made.
d. when an account is determined to be uncollectible.

99. An alternative name for Bad Debts Expense is

a. Deadbeat Expense.
b. Uncollectible Accounts Expense.
c. Collection Expense.
d. Credit Loss Expense.

100. Bad Debts Expense is reported on the income statement as

a. part of cost of goods sold.
b. reducing gross profit.
c. an operating expense.
d. a contra-revenue account.