1870+ Financial Accounting Solved MCQs

These multiple-choice questions (MCQs) are designed to enhance your knowledge and understanding in the following areas: Bachelor of Business Administration in Computer Applications (BBA [CA]) , Bachelor of Business Administration (BBA) , Bachelor of Accounting and Finance (BAF) , Bachelor of Commerce (B Com) , Cost Accounting .

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851.	During the year 2011-2012, the value of closing inventory was overstated by ` 25,000. Which of the following is true?
A.	The cost of goods sold was overstated during 2011-2012 and income will be understated during 2012-2013
B.	The income was overstated during 2011-12 and closing inventory will be overstated during 2012- 2013
C.	The retained earnings was overstated during 2011-2012 and retained earnings will be understated during 2012-2013
D.	The cost of goods sold was understated during 2011-2012 but retained earnings will not be affected during 2012-2013
Answer» C. The retained earnings was overstated during 2011-2012 and retained earnings will be understated during 2012-2013

852.	Which of the following is true?
A.	Error of casting affects personal accounts
B.	Omission of a transaction from a subsidiary record affects only one account
C.	Error of carry forward affects two accounts
D.	Error of principle involves an incorrect allocation of expenditure or receipt between capital and revenue
Answer» D. Error of principle involves an incorrect allocation of expenditure or receipt between capital and revenue

853.	Journal proper is meant for recording
A.	Credit purchase of fixed assets ;
B.	Return of goods
C.	All such transactions for which no special journal has been kept by the business
D.	None of these
Answer» C. All such transactions for which no special journal has been kept by the business

854.	The adjustment to be made for income received in advance is:
A.	Add income received in advance to respective income and show it as a liability
B.	Deduct income received in advance from respective income and show it as a liability
C.	Add income received in advance to respective income and show it as asset
D.	Deduct income received in advance from respective income and show it as an asset in the Balance Sheet
Answer» B. Deduct income received in advance from respective income and show it as a liability

855.	Which of the following statements is correct?
A.	The Trial Balance is prepared after preparing the Profit and Loss Account
B.	The Trial Balance shows only balances of Assets and Liabilities
C.	The Trial Balance shows only nominal account balances
D.	The Trial Balance has no statutory importance from the point of view of law
Answer» D. The Trial Balance has no statutory importance from the point of view of law

856.	While finalizing the current year‘s accounts, the company realized that an error was made in the calculation of closing stock of the previous year. In the previous year, closing stock was valued more by ` 50,000. As a result
A.	Previous year‘s profit is overstated and current year‘s profit is also overstated.
B.	Previous year‘s profit is understated and current year‘s profit is overstated.
C.	Previous year‘s profit is overstated and current year‘s profit is understated.
D.	There will be no impact on the profit of either the previous year or the current year.
Answer» C. Previous year‘s profit is overstated and current year‘s profit is understated.

857.	Which of the following is not correct?
A.	Errors which affect one account can be errors of posting
B.	Errors of omission arise when any transaction is left to be recorded
C.	Errors of carry forward from one year to another year affect both Personal and Real A/c
D.	Errors of commission arise when any transaction is recorded in a fundamentally incorrect manner
Answer» D. Errors of commission arise when any transaction is recorded in a fundamentally incorrect manner

858.	Which of the following errors is an error of omission?
A.	Purchase of ` 2,000 has been recorded in the Sales Return Book
B.	Repairs to machinery has been debited to Machinery Accounts
C.	The total of purchase journal has not been posted to the Purchase Account
D.	Legal charges paid to Mr. Lawyer have been debited to his account
Answer» C. The total of purchase journal has not been posted to the Purchase Account

859.	If goods worth ` 1,750 returned to a supplier is wrongly entered in sales return book as ` 1,570 , then
A.	Net Profit will decrease by ` 3,140 ;
B.	Gross Profit will increase by ` 3,320
C.	Gross Profit will decrease by ` 3,500 ;
D.	Gross Profit will decrease by ` 3,320
Answer» D. Gross Profit will decrease by ` 3,320

860.	For the past 3 years, DK Ltd. has failed to accrue unpaid wages earned by workers during the last week of the year. The amounts omitted, which were considered material, were as follows: March 31,2010 - ` 56,000 March 31, 2011 - ` 51,000 March 31, 2012 - ` 64,000 The entry on March 31, 2012 to rectify these omissions would include a
A.	Credit to wage expense for ` 64,000
B.	Debit to wage expense for ` 64,000
C.	Debit to wage expense for ` 51,000
D.	Debit to wage expense for ` 13,000
Answer» D. Debit to wage expense for ` 13,000

861.	Purchase journal is kept to record
A.	All purchases of goods ;
B.	All credit purchases of goods ;
C.	All credit purchases;
D.	None of these
Answer» B. All credit purchases of goods ;

865.	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 equipment
D.	Small expenditures on long- lived assets, such as ` 20 for a paper weight.
Answer» C. Sales tax paid in connection with the purchase of office equipment

866.	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 a permanent asset
D.	Results in the acquisition of a current asset
Answer» C. Results in the acquisition of a permanent asset

867.	Which of the following is not a deferred revenue expenditure?
A.	Expenses in connection with issue of equity shares
B.	Preoperative expenses
C.	Heavy advertising expenses to introduce a new product
D.	Legal expenses incurred in defending a suit for breach of contract to supply goods
Answer» D. Legal expenses incurred in defending a suit for breach of contract to supply goods

868.	Any donation received for a specific purpose is a
A.	Liability ;
B.	Assets ;
C.	Revenue receipts ;
D.	Capital receipts
Answer» D. Capital receipts

862.	The beginnings inventory of the current year is overstated by ` 5,000 and closing inventory is overstated by ` 12,000. These errors will cause the net income for the current year by
A.	17,000 (overstated)
B.	12,000 (understated)
C.	7,000 (overstated)
D.	7,000 (understated)
Answer» C. 7,000 (overstated)

863.	Which of the following errors affects the agreement of a Trial Balance?
A.	Mistake in balancing an account
B.	Omitting to record a transaction entirely in the subsidiary books
C.	Recording of a wrong entry in the subsidiary books
D.	Posting an entry on the correct side but in the wrong account
Answer» A. Mistake in balancing an account

864.	Which of the following statements is/are true? (i) An error in casting the subsidiary books is an error of commission (ii) An error in wrong casting of the sales day book will not affect the personal accounts of debtors (iii) Mistake in transferring the balance of an account to the Trial Balance will not affect the agreement of the Trial Balance (iv) The mistake of treating a liability as an income or vice versa will not affect the agreement of a Trial Balance
A.	Only (i) above
B.	Only (ii) above
C.	Both (i) and (ii) above
D.	(i),(ii) and (iv) above
Answer» D. (i),(ii) and (iv) above

869.	Which of the following is an item of capital expenditure?
A.	Research and development costs during the year
B.	Interest on borrowed fund utilized for acquisition of Office Furniture
C.	Installation charges paid in conjunction with the purchase of Office Equipment
D.	Monthly rent of a machinery used in the business
Answer» C. Installation charges paid in conjunction with the purchase of Office Equipment

870.	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.	Goods lost by fire need not be accounted for since they are not sales
D.	Free samples received are business gains
Answer» B. The distinction between capital and revenue items is important because it is of fundamental importance to the determination of profits

871.	The balance 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
Answer» D. Closing stock

872.	Which one of the following should be considered a revenue expenditure?
A.	1000 paid for the execution of a new plant
B.	Loss of `10,000 incurred in increasing the sitting accommodation of a hotel
C.	Damage paid on account of breach of a contract to supply certain goods
D.	Repair to machinery purchased, second hand.
Answer» C. Damage paid on account of breach of a contract to supply certain goods

873.	Which of the following statements are / is true? ―Events after Balance Sheet‖ are
A.	All the significant events after the Balance Sheet date
B.	The events after Balance Sheet date but before submitting 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 before its approval
Answer» C. The events after Balance Sheet date but before its approval by the board

874.	Which one of the following is a capital expenditure?
A.	Compensation paid to Directors on termination of their services
B.	Expenditure incurred in connection with the renewal of a Trade Mark.
C.	Gratuities paid to Directors on termination of their services.
D.	Royalty paid in installments for the purchase of rights to manufacture and sell patient medicines.
Answer» A. Compensation paid to Directors on termination of their services

875.	Which of the following enhances the earning capacity of an asset?
A.	Increase in working capacity of an asset
B.	Reduction in operating costs
C.	Replacing damaged parts of an asset
D.	Both (a) and (c) above
Answer» D. Both (a) and (c) above

1870+ Financial Accounting Solved MCQs

During the year 2011-2012, the value of closing inventory was overstated by ` 25,000. Which of the following is true?

Which of the following is true?

Journal proper is meant for recording

The adjustment to be made for income received in advance is:

Which of the following statements is correct?

While finalizing the current year‘s accounts, the company realized that an error was made in the calculation of closing stock of the previous year. In the previous year, closing stock was valued more by ` 50,000. As a result

Which of the following is not correct?

Which of the following errors is an error of omission?

If goods worth ` 1,750 returned to a supplier is wrongly entered in sales return book as ` 1,570 , then

Purchase journal is kept to record

The beginnings inventory of the current year is overstated by ` 5,000 and closing inventory is overstated by ` 12,000. These errors will cause the net income for the current year by

Which of the following errors affects the agreement of a Trial Balance?

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

Capital expenditure is an expenditure which

Which of the following is not a deferred revenue expenditure?

Any donation received for a specific purpose is a

Which of the following is an item of capital expenditure?

Which of the following statements is true?

The balance of which of the following accounts do not disappear, once they are debited/credited to Trading Account.

Which one of the following should be considered a revenue expenditure?

Which of the following statements are / is true? ―Events after Balance Sheet‖ are

Which one of the following is a capital expenditure?

Which of the following enhances the earning capacity of an asset?

Which of the following items should not be capitalized relating to fixed assets?

Which of these errors affect only one account

Which of these errors affect two or more accounts

Which of the following error is an error of principle

Which of the following is an one sided error

Any gain on the sale of non-current assets should be _________ from the net profit and the loss must be _________to the net profit in determining fund from operation

Cash book records—

In a three column cash book ---------- does not exist

Which of these transactions will not be recorded in cash book—

The closing balance of a petty cash book is a / an —

Which column of a cash book will not have credit balance —

Petty cash balance is a/an —

Which of these is a Part of cash in hand

Which of the following is a Real A/c

Which of the following is a Personal A/c

Which of the following is a representative Personal A/c

Which of the following is a Nominal A/c

Goodwill A/c is a/an —

Posting is the process of —

A book wherein various accounts are opened is called—

Which of these is not a special purpose journal

The periodic total of sales day book is posted to —

The periodic total of purchase day book is posted to —

Capital expenses are shown in —

Revenue receipts are shown in —

Any gain on the sale of non-current assets should be _ from the net profit and the loss must be _to the net profit in determining fund from operation

876.	Which of the following items should not be capitalized relating to fixed assets?
A.	Interest payable on loans or deferred credits taken for the acquisition or construction of fixed assets before they are ready for use
B.	Stand by equipment and servicing equipment
C.	Expenditure incurred on test runs and experimental production
D.	Administration and general expenses
Answer» D. Administration and general expenses

877.	Which of these errors affect only one account
A.	Errors of casting ;
B.	Errors of carry forward ;
C.	Errors of posting ;
D.	All the three
Answer» D. All the three

878.	Which of these errors affect two or more accounts
A.	Errors of complete omission ;
B.	Errors of principle ;
C.	Errors of posting to wrong account;
D.	All the three
Answer» D. All the three

879.	Which of the following error is an error of principle
A.	5,000 received from Sham credited to Ram A/c
B.	5,000 incurred on installation of new plant debited to travelling expenses A/c
C.	500 paid for wages debited to salary A/c
D.	500 being purchase of raw material debited to purchase A/c ` 50
Answer» B. 5,000 incurred on installation of new plant debited to travelling expenses A/c

880.	Which of the following is an one sided error
A.	500 purchase of old equipment not recorded in the books of A/c at all;
B.	500 being expense on travelling expense credited to travelling expenses;
C.	Both ;
D.	None
Answer» B. 500 being expense on travelling expense credited to travelling expenses;

881.	Any gain on the sale of non-current assets should be _________ from the net profit and the loss must be _________to the net profit in determining fund from operation
A.	Added, Reduced ;
B.	Added, Added ;
C.	Deducted, Added ;
D.	Deducted, Deducted
Answer» C. Deducted, Added ;

882.	Cash book records—
A.	Only cash sales ;
B.	All types of cash receipts and payments ;
C.	Only revenue receipts
D.	Only capital receipts
Answer» B. All types of cash receipts and payments ;

883.	In a three column cash book ---------- does not exist
A.	Cash column ;
B.	Bank column ;
C.	Petty cash column ;
D.	Discount column
Answer» C. Petty cash column ;

884.	Which of these transactions will not be recorded in cash book—
A.	Cash received from debtors ;
B.	Cash paid to creditors ;
C.	Salary remained outstanding
D.	Cash deposited with bank
Answer» C. Salary remained outstanding

885.	The closing balance of a petty cash book is a / an —
A.	Liability ;
B.	Gain ;
C.	Assets ;
D.	Loss
Answer» C. Assets ;