Saturday, 11 May 2019

Financial Accounting MCQs /page 8

59.    If you start with cash book favorable balance in Bank Reconciliation Statement, which item will be added?
(a)  Cheque deposited but not credited by the bank
(b)  Cheques omitted to be deposited into bank
(c)  Any amount directly collected by bank on behalf of customer but not recorded in cash book
(d)   Debit side of cash book was overcast

60.    The amount of Owners' equity in a business is not affected by
(a)  The percentage of Total Assets held in cash
(b)   Investments made in the business by the owner
(c)  The profitability of the business
(d)  The amount of dividends paid to Stock holders
[Hints: (a) Owners' equity in a business is the amount of funds belonging to the owners. The composition of assets does not affect the owners' equity. Hence, the percentage of total assets held in cash does not affect the owners' equity. On the other hand it indi cates the liquidity position of the business. Owners' equity represents investments made in the business by the owners (b), the profits of the business (c) and the owners' equity is affected by a change in any of these items. The amount of dividends paid to stockholders (d) affects the owners' equity in the business with a corresponding decrease in the equity. Hence, transaction in alternative (d) adversely affects the owners' equity in a business. Thus, correct answer is (a) which does not affect the owners' equity.]

61.    When a Fixed Asset is obtained as a gift, the account to be credited is
(a)  Goodwill A/c
(b)  Capital Reserve A/c
(c)   Donor's A/c
(d)  General Reserve A/c
[Hints: (b) Fixed assets received as a gift implies the asset account should be debited and the corresponding credit is given to Capital Reserve Account, since it  is a capital asset.]

62.    Which of the following is/are fixed asset(s)?
(a)  Closing inventory
(b)   Fixed Deposits in a bank
(c)   Patents
(d)   Prepaid expenses
[Hints: (c) Fixed assets are for use over relatively long period and they are meant   for   resales. category   of   Fixed

not Patents (c) satisfy the characteristics of fixed assets and are shown

are current assets.

under the assets. Closing inventory (a) Fixed deposits in bank (b) and Prepaid expenses (d) Thus (c ) is the correct answer.

63.    Bank Overdraft is shown as a
(a)  Current Liability
(b)  Contingent Liability
(c)   Unsecured Loan
(d)   Provision

64.    Which of the following is NOT a characteristic of Cash Book?
(a)   It has two identical sides—left hand side, the debit side and right hand side, the
credit side
(b)   It verifies the arithmetic accuracy of posting of entries from the Journal to the
(c)  The difference between the total of two sides of cash book shows cash in hand
(d)   It always shows debit balance. It can never show credit balance

65.    If Machinery Account is debited with the amount of repairs incurred on the
machine, this is an example of
(a)  Compensating error
(b)   Error of principle
(c)   Error of commission
(d)   Error of omission
[Hints:  (b)  Error  of  principle  denotes  wrong  classification  of  expenditure  or revenue.  If  a  company  pays  for repairs  on a  machine,  it  should  be debited  to Repairs Account. If it is charged to machinery account, it is an error of principle. Compensating error (a) is the one where one error is compensated by another error or series of errors and the debit to Machinery Account on account of repairs is neither  compensated  by  another  error  or  by  series  of  errors  and  hence  it  is incorrect. Error of commission (c) is incorrect because this is an error made in recording the amount involved in a transaction while journalizing or posting to ledger accounts. Error of omission (d) may be partial or complete. Under completed omission, the recording of an entry is completely omitted and error of partial omission is result of omission one aspect of a transaction and it is incorrect answer. Thus,
(b) is the correct answer.]

66.    Which of the following is true?
(a)   Bank Account is a Personal Account
(b)  Stock of stationery Account is a Nominal Account
(c)   Returns Inward Account is a Personal Account
(d)  Outstanding rent Account is a Nominal Account
[Hints: (a) Bank Account is a Personal Account is a correct statement. Alternative (b) is  incorrect because,  Stock  of  stationery  Account is  a  Real  Account, which indicates the value of stationery in stock. Returns Inward Account (c) is a Nominal Account  which  indicates  the  sales  returns  and  to  be  reflected  in  the  Trading Account of a business. Outstanding Rent account (d) is a representative Personal Account and not Nominal Account. Thus (a) is the correct answer.]

67.    Which of the following is a liability of a firm?
(a)   Debit balance of analytical Petty Cash Book
(b)  Credit balance of Bank Pass book
(c)   Debit balance of Bank column of Cash Book
(d)  Credit balance of Bank column of Cash Book
[Hints: (d) Bank balances and cash balances represent Real Accounts and the debit balances in bank column and cash column represent assets and the credit balances represent liabilities to a firm. But credit balance in cash column is only hypothetical and it never happens in practical life. The credit balance in bank column of cash book represents overdraft and it is a liability of a business.]

68.    Which of the following errors is an error of principle?
(a)  Total sales figure was taken as ' 19,373 instead of ' 19,733
(b)  A discount of ' 30 allowed to Mr. A was not recorded in the discount allowed

(c)   Legal charges for acquisition of building for ' 500 was entered in the Legal
Expenses Account
(d)  ' 1,000 received from Mr. X was posted to the credit of Mr. M
[Hints: (c) An error of principle involves an incorrect allocation of expenditure or receipt between capital and revenue.]

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