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Saturday, 11 May 2019

Financial Accounting MCQs /page 6




43.    If the Petty Cash fund is not reimbursed just prior to year end and an appropriate
adjusting entry is not made, then
(a)  The petty cash account is to be returned to the company's cashier
(b Expenses are overstated and Cash is understated (c Cash is overstated and expenses are understated (d)  Cash is overstated and expenses are overstated
[Hints: (c) Under the imprest system, an amount is given to petty cashier to meet expenses during a period. At the end of the period he is given cash equal to the amount spent during the relevant period, if this adjusting entry is not made, the
cash balance in the main cash book is overstated to the extent of the expenses routed through the petty cash book and the expenses are unstated.]

44.    XYZ Ltd. Paid wages of ? 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
[Hints: (b) Wages paid for the erection of machinery is included in the cost of the machinery as it is specifically incurred for the machinery and cannot be categorized as an operating expense. Therefore, Machinery Account should be debited and Cash Account should be credited.]
45.    Purchase of goods on credit
(a Increases Liabilities
(b Increases Assets
(c Increases both Assets and Liabilities
(d Decreases Assets
[Hints: (c) Purchase of goods on credit increases the inventory (Asset) and increases the creditors for goods (Liabilities).]

46.    Purchase of Raw Material for Cash
(a Increases total Assets
(b Leaves total Assets unchanged
(c Increases total Fixed Assets
(d Increases total Current Assets
[Hints: (b) Purchase of raw materials for cash leaves total assets unchanged as the increase in inventory (Asset) is compensated by decrease in cash (Asset).]

47.    Which of the following is not an Asset?
(a)  Stock of stationery
(b)  Goodwill
(c Profit and Loss Account (Credit Balance)
(d)  Accounts Receivable
[Hints: (c) Stock of stationery (a), Goodwill (b) and Accounts Receivable (d) are the assets and not the correct answers. Profit & Loss Account (credit balance) (c) is the




amount belongs to the owner of the business and it is a liability to the business. Hence it is not an asset, and (c ) is the correct answer.]

48.    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
(a)  Only (ii) above
(b)  Only (iv) above
(c Both (i) and (iii) above
(d Both (ii) and (iii) above
[Hints: (c) 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 a debit balance and it represents either expenditure or an asset or both. Thus, the combination of items under (i) and (iii) i.e., alternative (c) is the correct answer. The other alternatives are incorrect because, the excess of debit over credit side is not a credit balance and it is neither an income nor a liability.]

49.    Ledger is also called
(a Principal book of accounts
(b)  Cash books
(c)  Subsidiary book
(d None of these

50.    Which of the following transactions of a business is/ are recorded in Journal
Proper?
(i)    Purchase of goods on credit
(ii)   Sale of Office Furniture for cash
(iii)  Discounting of Bill of Exchange with a bank
(iv)  Endorsement of a Bill of Exchange in settlement of debt of the business
(a)  Only (i) above
(b)  Only (iv) above
(c Both (ii) and (iv) above
(d (i),(iii) and (iv) above
[Hints: (b) Endorsement of a Bill Receivable in settlement of a debt of the business is recorded in the Journal Proper (b) is the correct answer. The transactions in other alternatives are not recorded in Journal Proper and they are recorded in other subsidiary books specified for them like alternative
(i)  Purchase of goods on credit is recorded in purchase book. Sale of office Furniture for cash (ii) and Discounting of a Bill Receivable with a bank (iii) are recorded in Cash  book  and  not  in  the  Journal  Proper.  Thus,  the  combination  of  these
transactions in alternatives (a), (c ) and (d) are not the correct answers.]

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