Financial Accounting MCQs ~ Professional PK

1. Which English alphabet is similar to the shape of an account?

(a) I

(b) T

(d) None

2. Gross Profit is the difference between

(a) Net Sales and Cost of goods sold

(b) PAT and Dividends

(d) Net Sales and Direct costs of productions

[Hints: (a) Trading account is prepared to find out the Gross Profit due to the operations of a business. It is the difference between the Net Sales (i.e., Sales less sales return) and the Cost of goods sold. Cost of goods sold= Opening Stock+ Net Purchases - Closing Stock + Direct expenses. Hence option (a) is the right option. Option (c) is incorrect because cost of production does not consider the opening stock and closing stock adjustment. Similarly option (d) ignores stock balance adjustment.]

3. Recording of Capital contributed by the owner as liability ensures the adherence of principle of

(a) Double Entry

(b) Going Concern

(d) Materiality

[Hints: (c) Recording of capital contributed by the owner as liability ensures the

adherence of principle of the “Separate entity or Business entity concept". The concept requires the business to be treated as distinct from the persons who own it; then it becomes possible to record transactions of the business with the proprietor also. Without such a distinction, the affairs of the firm will be mixed up with the private affairs of the proprietor and the true picture of the firm will not be available.

Under the Going Concern Concept, it is assumed that the business will exit for a long time and transactions are recorded from this point of view. It is this that necessitates distinction between expenditure that will render benefit over a long period and that whose benefit will be exhausted quickly.

Under Double-entry or Dual aspect concept, each transaction has two aspects, if a business has acquired an asset, it must have resulted in one of the following:

❖ Some other asset has been given up.

❖ The obligation to pay for it has arisen.

❖ There has been a profit, leading to an increase in the amount that the business owes to the proprietor.

❖ The proprietor has contributed money for the acquisition of the asset.

❖ The concept of Materiality requires all the material items to be recorded and disclosed separately.]

4. The basic concepts related to Balance Sheet are

(a) Cost Concept

(b) Business Entity Concept

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

[Hints: (d) Cost concept requires the transactions to be recorded in the books of accounts at the amounts actually involved. Suppose a firm purchases a piece of land for ' 1,50,000 but considers its worth ' 3,00,000. The purchase will be recorded at '

1,50,000. Business entity concept requires the business to be treated as distinct from the persons who own it; then it becomes possible to record transactions of the business with the proprietor also. Without such a distinction, the affairs of the firm will be mixed up with the private affairs of the proprietor and the true picture of the firm will not be available. Accounting period concept is applicable to the Profit

& Loss Account which is prepared for the year ending and cannot be applied to Balance Sheet as it is a statement prepared as on a particular date. Therefore, cost and entity concepts are related to Balance Sheet.]

5. The basic concepts related to P & L Account are

(a) Realization Concept

(b) Matching Concept

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

[Hints: (d) Under Realization concept, accounting is a historical record of transactions and unless money has been realized - either cash has been received or a legal obligation to pay has been assumed by the customer- no sale can be said to have taken place and no profit can be said to have arisen. Matching concept requires that all the revenues must be matched with the expenses. Therefore, the above concepts are related to the Profit & Loss Account.]

6. Which of the following is (are) characteristic(s) of Bad Debt?

(a) It is a definite loss to the business

(b) It must be shown in Profit & loss account

(d) All of the given options

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

(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

(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

(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

account

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.]

69. The book which all accounts of the firm are maintained is known as

(a) Cash book

(b) Ledger (c) Journal (d) Daybook

70. ? 500 paid as cartage on new Plant and Machinery, this was debited to Carriage

Inward A/c. This is an error of-

(a) Principle

(b) Omission

(d) Compensating

71. ? 4,500 paid to Madan as salary for the month of December'12, this was debited to his A/c, this is a/an ..error.

(a) Principle

(b) Omission

(d) Compensating

72. While checking the accounts of ABC the following discrepancies were noticed, even though the Trial Balance was made to balance by putting the difference to Suspense A/c.

(i) Sales day book for the month of June'12 was found overcast by ? 7,000.

(ii) A credit purchase of ? 3,000 was omitted to be recorded in the days book.

(iii) ? 4,300. Received from A credited to A A/c ? 3,400.

(iv) Purchase of Office Equipment worth ? 5,000 included in trading purchases.

From the above details what would have been the difference in Trial Balance which was made to balance by opening Suspense A/c.

(a) Debit side short by ? 9,100 (b) Credit side short by ? 9,100 (c) Debit side more by ? 7,900 (d) Credit side more by ? 6,100

73. Cash Account is a -

(a) Personal A/c

(b) Nominal A/c

(d) Dummy A/c

74. Rent outstanding for the month of December'12 will appear on-

(a) Debit side of Cash Book

(b) Credit side of Cash Book

(d) Nowhere

75. Goods worth ? 5,000 purchased from A on credit will be recorded on-

(a) Debit side of Cash Book

(b) Credit side of Cash Book

(d) Either (a) or (b)

76. Which column of Cash Book is never balanced.

(a) Discount Column

(b) Cash

(d) Petty Cash

77. The total of debit side of discount column of Cash Book is-

(a) Balanced with credit side of discount column

(b) Posted to Discount Allowed A/c

(d) Posted to Profit & Loss A/c

78. Prepaid rent is a -

(a) Nominal A/c

(b) Representative Personal A/c

(d) None

79. Which of the following assets is a fictitious asset

(a) Goodwill A/c

(b) Prepaid Rent A/c

(d) Preliminary expenses A/c

80. Nominal A/c represents-

(a) Profit/Gain

(b) Loss/Expenses

(d) Both (a) and (b)

81. SBI A/c is a -

(a) Nominal A/c

(b) Artificial Personal A/c

(d) None

82. Liability A/c has..........Balance

(a) Debit

(b) Credit

(d) Either (a) or (b)

83. The Sales Returns Day Book would include:

(a) Goods bought on credit

(b) Fixed Assets bought that are inappropriate for business

(d) Goods bought on credit that are returned to the original supplier

84. An Investment in one asset A/c may lead to -

(a) Increase in liability A/c

(b) Decrease in A/c asset

(d) Both a/b.

85. The process of recording business transaction in a book of original entry is known as-

(a) Journals (b) Balance (c) Posting

(d) None

86. The type of A/c with a named credit balance is-

(a) Expenses A/c

(b) Assets A/c

(d) Suspense A/c

87. Overcasting of purchases journal would affect

(a) Sales account

(b) Purchase account

(d) None of these

88. Any income or profit derived by carrying on the business or during the course of business is called-

(a) Capital Receipt (b) Revenue Receipt (c) Revenue Gain

(d) Capital Gain

89. Amount received from the proprietors as capital or loan receipt is treated as-

(a) Capital Receipt

(b) Revenue Receipt (c) Revenue Income (d) Capital Income

90. When the benefits of revenue expenditure is available for a period of two or three years, the expenditure is known as-

(a) Revenue Expenditure

(b) Deferred Revenue Expenditure

(d) Depreciation.

91. Endowment fund receipt is traded as-

(a) Casual Receipt

(b) Revenue Receipt

(d) Expenses

92. Legacy are generally-

(a) Capitalized

(b) Treated Loss

(d) Deferred Revenue expenses.

93. Interest Account will have-

(a) Debit balance only

(b) Credit balance only

(d) No balance at all

94. Purchase A/c will have-

(a) No balance at all

(b) Debit balance (c) Credit balance (d) Debit or Credit

95. Which of the following voucher is used to record transactions that do not affect bank

& cash?

(a) Journal Voucher (b) Receipt Voucher (c) Payment Voucher

(d) Nominal Voucher

96. Opening entries are generally passed through-

(a) General Journal

(b) Purchase Journal

(d) Suspense A/c

97. Purchases made on credit not recorded at all would affect

(a) Purchases account

(b) Supplier's account

(d) None of these

98. 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

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

[Hints: (d) The Standard defines contingency as “a condition or situation the ultimate outcome of which gain or loss, will be known or determined only on the occurrence, or non- occurrence, of one or more uncertain future events". All the choices satisfy the criteria of contingency.]

99. Which of the following is not a contingent liability?

(a) Claims against the company not acknowledged as debts

(b) Debts included on debtors which are doubtful in nature

(d) Arrears of cumulative fixed dividends

[Hints: (b) A contingent liability is the loss which will be known or determined only on the occurrence or non-occurrence of one or more future uncertain events. Debts of debtors is not an uncertain event but only the realization of a part of the debt is doubtful for which provision must be provided, and hence it is not a contingent liability.]