PRINCIPLES OF ACCOUNTING

UNIT-1
INTRODUCTION
1. The information generated by final reports of enterprise is known as _______
a) Financial Accounting
b) Cost Accounting
c) Management Accounting
d) Corporate Accounting
Ans: (a)
2. ______ assumes that the business entity will continue its activities independently
a) Going concern concept
b) Money Measurement concept
c) Dual aspect concept
d) Accounting Period concept
Ans: (d)
3. In Matching concept which of the following will be matched _______
a) Expenses with capital
b) Assets with liability
c) Capital with profit
d) Revenues with expenses
Ans: (d)
4. The procedure of recording both the receiving and giving aspect is called ______
a) Single entry system
b) Double entry system
c) Double account system
d) Imprest system
Ans: (c)
5. The policy of anticipate no profit and provide for all possible losses arise due to _____
a) Convention of consistency
b) Convention of conservatism
c) Convention of materiality
d) Convention of full disclosure
Ans: (b)
6. Book keeping is mainly concerned with ___________
a) preparing financial statements
b) Analysing
c) Recording day to day financial transactions
d) Auditing the books of accounts
Ans: (c)
7. Every debit has a corresponding credit in the concept of ________
a) Incomplete records
b) Cost sheet
c) Single entry system
 d) Double entry system
Ans: (d)
8. Revenue and expense accounts are referred as _______
a) Nominal account
b) Real account
c) Personal account
d) Bank account
Ans: (a)
9. Book-keeping is based on the principle of ____________
a) Double entry concept
b) Single entry concept
c) Money measurement concept
d) Cost concept
Ans: (a)
10. Accounting equation is _________
a) Capital = Assets + Liabilities
b) Profit = Assets - Liabilities
c) Assets = Liabilities + Capital
d) Capital = Assets- Liabilities
Ans: (d)
11. Business transaction in journal are recorded _______
a) In chronological order
b) Weekly
c) At the end of the month
d) In numerical order
Ans: (a)
12. Journal is a book of ______
a) prime entry / original entry
b) only cash transactions
c) secondary entry
d) credit transactions
Ans:(a)
13. Commission received is _______
a) Personal Account
b) Real Account
c) Nominal Account
d) Capital Account
Ans: (c)
14. Nominal Account having credit balance represents _______
a) Income and gain
b) expenses or losses
c) Assets
d) Liabilities
 Ans: (a)
15. The process of transferring entries from books of original entry to the ledger is called ___
a) Journalising
b) Posting
c) Balancing
d) Analysing
Ans: (b)
16. ______ helps business to classify transaction according to the nature.
a) General journal
b) Ledger Account
c) Real Account
d) Nominal Account
Ans: (b)
17. Ledger contains ______
a) Personal Account
b) Real Account
c) Nominal Account
d) All of the above
Ans: (d)
18. Ledger accounts are prepared on the basis of ______
a) Single entry system
b) Double entry system
c) Accrual concept
d) Double account system
Ans: (b)
19. Ledger is a book of ______
a) original entry
b) secondary entry
c) final entry
d) cash entry
Ans: (b)
20. The process of transferring entries from journal to ledger is called _____
a) Balancing
b) Posting
c) Transferring
d) Carried down
Ans: (b)
TRAIL BALANCE

1. Trail balance is prepared to check arithmetical accuracy of ____

a. Ledger balances
b. Balance sheet balances
c. Profit and loss account
 d. Cash flow statement account balances
Ans: (a)
2. Trail balance is generally prepared ______
a) commonly during the year
b) At the end of the accounting period
c) At the end of the month
d) At the end of the year
Ans: (b)
3. Correctness of recording in books of account is tested by the preparation of _______
a) Trail balance
b) Income statement
c) Trading account
d) Receipts and payments account
Ans: (a)
4. Trial balance is a list of _____
a) All the debit and credit balances of the accounts in a ledger
b) All the assets and liabilities of the firm
c) All the debtors and creditors of the firm
d) All the revenues and expenses of the firm
Ans: (a)
5. The total debit balances are equal to the total credit balances indicates that ______
a) No error in recording transactions
b) Accounts are correctly balanced
c) No error in posting to ledger account
d) Assets – capital + Liabilities
Ans: (b)
6. Prepaid rent given in trial balance is treated as ____
a) An asset
b) An expense
c) A revenue
d) An income
Ans: (a)
7. Suspense account in trial balance on the debit side is entered in the ______
a) Assets side
b) Liabilities side
c) Balance sheet
d) Trading account
Ans: (b)
8. Suspense account having credit balance in trial balance will be shown on the ____
a) Credit side of profit and loss account
b) Liabilities side of balance sheet
c) Assets side of Balance sheet
d) Trading account Debit side
 Ans: (c)
9. Trial balance will not reveal the ______
a) Errors of complete omission
b) Error of carrying forward
c) Partial Omission
d) Wrong totalling of the purchase books
Ans: (a)
10. Loan borrowed will be shown on the ______ of the trial balance.
a) Credit side
b) Credit side or Debit side
c) Credit side and Debit side
d) Debit side
Ans: (a)
SUBSIDIARY BOOK
1. Purchase book records all ______
a) Purchase
b) Cash purchases
c) Credit purchases
d) Credit purchase of goods
Ans: (c)
2. Returns outwards book has ____
a) Credit balance
b) Debit balance
c) Cash balance
d) Bank balance
Ans: (a)
3. When business purchased goods on credit from Mr. Ram then which of the following
A/C will be credited ____
a) Sales A/C
b) Mr. Ram A/C
c) Purchases A/C
d) Bank A/C
Ans: (b)
4. The periodic total of purchases returns journal is posted to _____
a) Goods A/C
b) Purchase returns A/C
c) Sales return A/C
d) Purchases A/C
Ans: (b)
5. The sale of goods on credit is recorded in _____
a) Sales book
b) Purchases book
c) Purchases return book
 d) Sales return book
Ans: (a)

6. All credit sales are entered in the ____

a) Purchase book
b) Bills receivable book
c) Sales book
d) Sales return book
Ans: (c)
7. Trade discount is allowed at the time of _____
a) Purchase
b) Credit purchase
c) Cash payment
d) Sales
Ans: (b)
8. Petty cash book is maintained for _______
a) Small purchases
b) Small payments
c) Bills collection
d) Small purchase and payments
Ans: (d)
9. Journal proper otherwise termed as ____
a) Purchase book
b) Sales book
c) Sales return book
d) Residual book
Ans: (c)

10. Bills received from the customers can be ascertained by preparing ______
a) Cash book
b) Bills payable book
c) Bills receivable book
d) Journal proper
Ans: (c)
CASH BOOK
1. In the bank column of cash book, a credit balance indicates_____
a) Cash
b) Bank
c) Petty cash
d) Overdraft
Ans: (d)
2. The simplest and most commonly used form of journal is ____
a) cash book
 b) petty cash book
c) subsidiary book
d) day book
Ans: (a)
3. cash book records _____
a) cash receipts
b) cash payment
c) cash receipt and payments
d) neither receipt nor payments
Ans: (c)
4. an entry which is made on both the sides of cash book is called _____
a) compound entry
b) contra entry
c) cash entry
d) bank entry
Ans: (b)
5. payment of salary is recorded on ______
a) receipt side
b) payment side
c) Income
d) Expenditure
Ans: (b)
6. A cash book with cash, bank and discount column is commonly referred to as _____
a) Single column cash book
b) Double column cash book
c) Triple column cash book
d) Petty cash book
Ans: (c)
7. A petty cash book is kept under ______
a) Single entry system
b) double entry system
c) imprest system
d) receipts and payments A/C
Ans: (c)
8. the balance in petty cash book is ______
a) an asset
b) profit
c) a liability
d) income
Ans: (d)
9. the small payment of cash is generally recorded in _____
a) single column cash book
b) petty cash book
 c) double column cash book
d) triple column cash book
Ans: (b)
10. which of the following transactions should be entered in the petty cash book ____
a) Payment of rent
b) Payment of salaries
c) Advances
d) Postage and stamps
Ans: (d)
11. Recording of transactions and events as of when they occur and classifying them into
suitable A/C heading is the subject matter of: ____
a) financial accounting
b) cost accounting
c) management accounting
d) book-keeping
Ans: (d)
12. Book – keeping is mainly concerned with the recording of financial data relating to the
_____ in significant and orderly manner.
a) Business
b) Personal
c) Company
d) Monetary
Ans: (a)
13. Basic function of accounting is to ______
a) Record all business transactions of monetary nature
b) Interpret the financial data
c) Assist the management in performing functions effectively
d) Summarise the data
Ans: (a)
14. There are two systems of accounting i.e. cash basis system of accounting and_____ basis
system of accounting.
a) Double entry
b) Accrual
c) Dual aspect
d) Single entry
Ans: (b)
15. The alternative to cash basis of accounting is called ___basis of accounting
a) Receipt
b) Due
c) Credit
d) Accrual
Ans: (d)
16. The system of recording transactions based on dual aspect concept is called _____
 a) Double A/C system
b) Double entry system
c) Single entry system
d) Accrual basis of accounting
Ans: (b)
17. As per dual aspect concept ______
a) Assets=liabilities + capital
b) Assets=liabilities – capital
c) Assets + capital – liabilities
d) Assets + liabilities = capital
Ans: (a)
18. Liabilities of a firm are Rs. 6,00,000 and capital of the proprietor is Rs. 4,00,000. The
total assets are: ______
a) Rs. 6,00,000
b) Rs. 10,00,000
c) Rs. 8,00,000
d) Rs. 2,00,000
Ans: (c)
19. Assets are Rs.10,00,000 and liabilities are Rs.2,00,000 his capital would be _____
a) Rs.10,00,000
b) Rs.12,00,000
c) Rs.8,00,000
d) Rs.2,00,000
Ans: (c)
20. Capital + liabilities = _______
a) Total assets
b) Losses
c) Current assets
d) Fixed assets
Ans: (a)
21. Which of the following will be goods for a business run by a furniture merchant? ____
a) Electrical appliances
b) Shoes
c) Tables and chairs
d) Pens and pencils
Ans: (c)
22. Which of the following is not a business transaction? _____
a) Rent paid to landlord 5,000
b) Goods purchased from Z 20,000
c) Placed an order to Chandra & co. for purchasing the goods for Rs. 35,000
d) Received interest from bank Rs. 2000
Ans: (c)
23. Which of the following item is not financial in nature? ______
 a) Purchase of a car on credit
b) Dismissing an employee from job
c) Withdrawal of cash by proprietor for his personal use
d) Purchase of building for cash
Ans: (b)
24. Total assets of a trader are Rs.4,25,000 and outside liabilities are Rs. 1,75,000 owner’s
equity will be _____
a) Rs.6,00,000
b) Rs.2,50,000
c) Rs.4,25,000
d) None of the above
Ans: (b)
25. According to the going concern concept, a business entity is assumed to have _____
a) A long life
b) A very short life
c) An indefinite life
d) None of the above
Ans: (a)
26. Contingent liability is shown in the balance sheet because of _____
a) Convention of consistency
b) Convention of materiality
c) Convention of disclosure
d) All the above
Ans: (c)
27. Revenue is considered as being earned when ______
a) Cash is received
b) Production is done
c) Sale is affected
d) None of the above
Ans: (c)
28. Accounting does not record non-financial transactions because of ____
a) Entity concept
b) Accrual concept
c) Measurement concept
d) Matching concept
Ans: (c)
29. In which concepts even the owner of the business who provides capital is treated as a
creditor of the business? _____
a) Entity concept
b) Cost concept
c) Money measurement concept
d) Matching concept
Ans: (a)
30. Appending notes to the financial statements as per__ convention
a) Materiality
b) Disclosure
c) Consistency
d) Convertism

Ans: (b)

31. Accounting of a small calculator as an expense and not as an asset is due to____
convention.
a) Disclosure
b) Materiality
c) Consistency
d) Conservatism
Ans: (b)
32. Valuation of stock is done at lower of cost or market value because of___ convention.
a) Disclosure
b) Consistency
c) Conservatism
d) Materiality
Ans: (c)
33. Making provision for doubtful debts is a per____ convention
a) Disclosure
b) Consistency
c) Conservatism
d) Materiality
Ans: (c)
34. Contingent liability shown in the balance sheet, arises due to the accounting conversion of
_____
a) Consistency
b) Conservatism
c) Disclosure
d) Materiality
Ans: (c)
35. Accounting principles are generally based on ____
a) Practicability
b) Subjectivity
c) Convenience in recording
d) Objectivity
Ans: (a)
36. According to money measurement concept the following will be recorded in the book of
accounts of the business ____
a) Health of director
b) Quality of company goods
c) Value of plant and machinery
d) Utility of managers
 Ans: (c)
37. The convention of conservatism when applied to the balance sheet results in _____
a) Understatement of assets
b) Overstatement of assets
c) Understatement of liability
d) Overstatement of liabilities
Ans: (a)
38. Accounting concepts include those assumptions upon which the science of_________ is
based.
a) Accounting
b) Recording
c) Book – keeping
d) Double entry system
Ans: (a)
39. A firm follows the straight-line method of depreciating fixed assets year after year due to
____
a) Convenience
b) Comparability
c) Consistency
d) None of the above
Ans: (c)
40. A change in accounting policy is justified ____
a) To comply with law
b) To comply with accounting standard
c) To ensure better presentation of the financial statements of the firm
d) All of the above
Ans: (d)
41. Which of the following is the fundamental accounting assumption? ___
a) Full disclosure
b) Materiality
c) Going concern
d) Accounting period
Ans: (c)
42. Revenue is generally recognized at the point of sale which principle is applied? ____
a) Consistency
b) Marketing
c) Realisation
d) Cost realisation
Ans: (c)
43. The assumption that a business enterprise will not be sold or liquidated in the new future
is known as ______
a) Separate entity
b) Going concern
c) Periodic
d) Conservatism
Ans: (b)
44. Companies must prepare financial statement at least yearly due to the____ concept
 a) Business entity
b) Going concern
c) Periodic
d) Accrual
Ans: (c)
45. The ____ principal requires that same accounting method should be used from one
accounting period to the next.
a) Accounting period
b) Consistency
c) Conservatism
d) Materiality
Ans: (b)

46. Expenses not yet paid but belonging to the same accounting period are recorded as per
_____concept
a) Accrual
b) Realisation
c) Conservatism
d) Money measurement
Ans: (a)
47. Classification of assets as current assets and fixed assets is as per _____ concept
a) Money measurement
b) Going concern
c) Dual aspect
d) Cost
Ans: (a)
48. The convention that states that the accounting practice should be followed consistently
over the year ___
a) Consistency
b) Conservation
c) Materiality
d) Disclosure
Ans: (a)
49. General reserve is created on the basis of convention of ______sss
a) Conservatism
b) Uniformity
c) Materiality
d) Full disclosure
Ans: (a)

TRAIL BALANCE
1. In book-keeping posting means ______
a) to record the transactions from the journal to ledger
b) to record the transaction in journal
c) to record the transaction in ledger
 d) None of the these
Ans: (a)
2. The basic rule of book-keeping “debit the receiver, credit the giver” is applicable to _____
a) Nominal account
b) Real account
c) Personal account
Ans: (c)
3. Goods if the value Rs 1500 taken by the proprietor for his personal use should be debited
to__
a) Drawings account
b) Sales account
c) Purchase account
Ans: (a)
4. Goods destroyed by fire should be credited to _______
a) purchase account
b) sales account
c) loss of goods by fire account
Ans: (c)
5. The credit balance of the bank account indicates ______
a) Amount payable by the bank
b) Amount payable to the bank
c) Cash at bank
Ans: (b)
6. Principal Book of accounts is ______
a) Journal
b) Ledger
c) Subsidiary book
d) Cash book
Ans: (b)
7. Shiva who was a creditor for ₹47000 his account was settled for ₹45850. At the time of
settlement, shiva’s account would be debited by _____
a) ₹45850
b) ₹47000
c) ₹1150
d) None of these
Ans: (b)
8. Cash purchases are made at the list price of ₹40000 at a trade discount @5% and a cash
discount @2% cash payable is ___
a) ₹40000
b) ₹38000
a) c)₹37240
b) d)₹38800
Ans: (c)
9. Goods costing ₹1000 (sale price ₹1200) used in making furniture should be credited to ___
a) sales account with ₹1200
b) sales account with ₹1000
c) purchase account with ₹1000
d) Furniture account with ₹1000
Ans: (c)
10. Sale of goods has ___
a) Only Revenue effect
b) Only Expense effect
c) Both Revenue and Expense effect
d) None of the above
Ans: (c)
11. The _____ records daily transactions of a business in the order in which they occur.
a) Journal
b) Ledger
c) Account
d) Trail balance
Ans: (a)
12. The various debit and credit balances of the different accounts are taken down in a statement
which is known as ______
a) Journal
b) Final Accounts
c) Trial balance
d) Ledger
Ans: (c)
13. As a rule, the closing balance in any account ends with suffix ____ and the opening balance
with suffix ______
a) c/d, a/c
b) c/d, b/d
c) b/d, c/d
d) b/d, a/c
Ans: (b)
14. Identify the correct golden rules for journal _____
a) Income and gains = Debit
b) Expenses + losses = Debit
c) Increase in equity and increase in liability = Debit
d) Increase in asset and decrease in liability = Credit
Ans: (b)
15. _____ occurs if the transaction is not recorded whereas ____ occurs when one error is set off
against another error.
a) Compensating error, Error of principle
b) Error of principle, Compensating error
c) Compensating error, Error of principle
d) Error of omission, compensating error
 Ans: (d)
16. Which of the following is a credit transaction ____
a) sold goods
b) sold goods for cash
c) sold goods to ram
d) sold goods to ram for cash
Ans: (c)
17. An account is a summary of ___ at one place relating to a particular head.
a) All transactions
b) some transactions
c) Journal
d) None
Ans: (a)
18. The statement showing balances of all the ledger account is known as ___
a) Trail balance
b) Balance sheet
c) Bank reconciliation statement
d) Account sales
Ans: (a)
19. An account to make the trail balance tally temporarily is called ____
a) suspense account
b) Profit / loss adjustment account
c) trading account
a) d)profit / loss account
Ans: (a)
20. A transaction affects 3 accounts, one account is debited by ₹7500, another account is credited
by ₹9000. Third account will be ____
a) credited by ₹7500
b) debited by ₹9000
c) credited by ₹1500
d) debited by ₹1500
Ans: (d)
21. Wages paid for installation of assets should be debited to ____
a) Wages account
b) assets account
c) trading account
d) profit and loss account
Ans: (b)
22. Which is the error of omission _____
a) Sale of ₹1000 was recorded in purchase journal
b) Wages and salaries paid to Mohan and Vikas
c) The total of sales journal has not been posted to sales account
d) Repairs to building have been debited to building account
 Ans: (c)
23. How many types of account can br classified?
a) 4
b) 3
c) 2
d) 5
Ans: (b)
24. If credit side is more than the debit side the balance is shown as ______
a) To balance c/d (credit side)
b) To balance c/d (debit side)
c) By balance b/d (credit side)
d) By balance b/d (debit side)
Ans: (b)
25. L.F stands for _____
a) Left Forward
b) Ledger Folio
c) Ledger Final
d) Ledger Forward
Ans: (b)
26. X sold goods worth ₹10000 at trade discount 10% & further a cash discount 5% was
provided. What amount will be debited to cash account
a) ₹10000
b) ₹9000
c) ₹8550
d) ₹9500
Ans: (c)
27. Following account has credited balance ____
a) Carriage inward
b) Carriage outward
c) Return inward
d) Return outward
Ans: (d)
28. Patent registered is a _____
a) personal account
b) real account
c) nominal account
d) expense account
Ans: (b)
29. The Golden rule for Nominal account is ________
a) Debit the receiver & credit the giver
b) Debit all expenses and credit all incomes
c) Debit what comes in and credit what goes out
d) None of these
 Ans: (b)
30. If goods are sold for cash, the entry will be recorded ______
a) in the cash book
b) in the sales book
c) in the proper journal
d) all the above
Ans: (a)
31. In a triple column cash book, the column other than discount and cash is used for recording
_______ transactions
a) Discount
b) Payment
c) Receipt
d) Bank
Ans: (d)
32. Return inward book is called as _____ and records _____
a) Purchase Return book, goods sent back to supporters
b) Sales return Book, goods returned by customers
c) sales return book, goods sent to customers
d) purchases return book, goods sent by suppliers
Ans: (b)
33. Return outward book is used to record transactions related to ______
a) Goods returned to suppliers
b) Goods returned from customers
c) Goods returned to customers
d) Goods returned from customers
Ans: (a)
34. Cash account will show ____
a) Debit or credit balance
b) credit balance
c) debit balance
d) None of these
Ans: (c)
35. Cash discount is provided on ___
a) sale
b) purchase
c) prompt payment
d) Both (a) and (b)
Ans: (c)
36. Cash book is a ___
a) Ledger Account
b) Subsidiary journal and ledger account
c) Subsidiary journal
d) None of the above
 Ans: (b)
37. A columnar cash book record _____
a) All cash transactions only
b) Both cash and bank transactions expect discount
c) Both cash and bank transactions including discount
d) All bank transactions only
Ans: (c)
38. Cash column of the cash bank can never have _____
a) credit balance
b) Debit balance
c) Zero balance
d) None of the above
Ans: (b)
39. Which of the following is a transaction of contra entry?
a) Purchased goods from X ₹10000
b) Cash deposited into bank ₹15000
c) Paid to Y ₹4800 in full settlement of ₹5000
d) Shop rent ₹6000 paid by cheque
Ans: (b)
40. Balance of petty cash book denotes ______
a) An expense
b) An asset
c) A liability
d) Capital
Ans: (b)
41. A return inwards book is kept to record ___
a) Return of goods purchased
b) Return of anything purchased
c) Return of goods sold
d) Return of anything sold
Ans: (c)
42. The total of the sales book is posted periodically to the ____
a) credit of sales account
b) Debit of purchase account
c) Credit of capital account
d) None of the above
Ans: (a)
43. Sales book is kept to record _____
a) All the sales of goods
b) All the credit sales
c) All the credit sales
d) Return of goods
Ans: (c)
44. Which of the following is not a source document ____
a) cash memo
b) invoice a bill
c) Pay-in-slip
d) cash book
Ans: (d)
45. Which of the following books should be used to record purchase of furniture on credit?
a) Cash book
b) Journal paper
c) Purchase book
d) Sales Book
Ans: (b)
46. Which of the following account is increased by debit entries?
a) Machinery account
b) Purchase account
c) Discount account
d) None of the above
Ans: (a)
47. The credit balance in the bank account ____
a) An asset
b) A liability
c) An expense
d) An income
Ans: (b)
48. The ruling of a purchase book does not include _____
a) Ledger folio
b) Invoice number
c) Details
d) Debit and credit columns for amounts
Ans: (d)
49. When the goods returned to the suppliers, the statement sent to him by the buyer is called __
a) Debit note
b) Credit note
c) Invoice
d) Bill of exchange
Ans: (d)
50. The primary record of a credit purchase of a fixed asset is mode in ___
a) cash book
b) sales book
c) purchase book
d) Journal proper
Ans: (d)
 UNIT – 2
FINAL ACCOUNTS
1. The financial statement that displays the revenues and expenses is______
a) Balance sheet
b) Income statement
c) Fund flow statement
d) Cash flow statement
Ans: (b)
2. The provision for bad and doubtful debts is made by crediting______
a) Profit and loss A/C
b) Debtors A/C
c) Income and statement A/C
d) Provision for bad and doubtful debt A/C
Ans: (d)
3. An example for intangible asset is______
a) Land and building
b) Furniture
c) Goodwill
d) Cash
Ans: (c)
4. When a business pays insurance premium in advance extending to the next accounting year it
will be treated as______
a) Accrued income
b) Prepaid expenses
c) Outstanding expense
d) Income received in advance
Ans: (b)
5. Outsider’s claim against the assets of the business is called______
a) Expenses
b) Income
c) Liability
d) Capital
Ans: (c)
6. The statement which is prepared at the end of the accounting period to know the financial
position of the business_______
a) Trial balance
b) Balance sheet
c) Profit and loss A/C
d) Trading A/C
Ans: (b)
7. Outstanding salaries are shown as_______
a) An expenses
 b) Liability
c) Asset
d) Income
Ans: (b)
8. Balance sheet reveals________
a) Closing balance of assets and liabilities
b) Expenses alone
c) Incomes alone
d) Profit and loss
Ans: (a)
9. Net profit can be expressed_______
a) Total profit
b) Total profit – trading expenses
c) Gross profit + (income – expenditure)
d) None of the above
Ans: (c)
10. Closing stock will be shown under_______
a) Fixed asset
b) Long term liabilities
c) Current liabilities
d) Current assets
Ans: (d)
11. ______ shows on the debit side of trading A/C
a) Gross profit A/C
b) Closing stock
c) Sales
d) Opening stock
Ans: (d)
12. ______ is arrived at by deducting cost of goods sold from sales
a) Net loss
b) Gross profit
c) Net profit
d) Cost of production
Ans: (b)
13. In ____ excess of debit over credit is known as
a) Profit and loss A/C, net loss
b) Profit and loss A/C, gross profit
c) Trading A/C, gross profit
d) Profit and loss A/C, net profit
Ans: (a)

14. Closing stock balance given in the debit side of the trial balance will be written in financial
statement in: ______
 a) Trading A/C debit side
b) Trading A/C credit side
c) Liabilities side
d) Asset side
Ans: (d)
15. Goodwill is a ______
a) Current asset
b) Fictitious asset
c) Tangible asset
d) Intangible asset
Ans: (d)
16. The properties owned by the business are called______
a) Assets
b) Liabilities
c) Capital
d) Accounting equation
Ans: (a)
17. A debit means______
a) An increase in asset
b) Decrease in liability
c) Increase in liability
d) Decrease in liability
Ans: (a)
18. A debit balance in which the following accounts would indicated a likely error______
a) Accounts receivable
b) Cash
c) Fees earned
d) Miscellaneous expenses
Ans: (c)
19. Profit and loss A/C is prepared by transfer of______
a) Nominal account
b) Real accounts
c) Personal accounts
d) Real and nominal accounts
Ans: (a)
20. Which of the following is an uncertain liability? ______
a) Long – term
b) Contingent
c) Current
d) Fixed
Ans: (b)
21. Balance sheet disclose______
a) Cash position of the business
 b) Financial position of the business
c) Income position of the business
d) Profit – earning capacity of business
Ans: (b)
22. Claim against the company not acknowledged as debts is: ______
a) Contingent liability
b) Current liability
c) Secured loan
d) Unsecured loan
Ans: (a)
23. External liabilities are the_____
a) Excess of capital over fixed assets
b) Excess of capital over assets
c) Excess of assets over capital
d) Excess of assets over capital liabilities
Ans: (c)
24. ‘Brand value’ for a business is ______
a) Capital
b) Asset
c) Profit
d) Liability
Ans: (b)
25. Sales Rs. 3,00,000, profit 1/3rd on cost, cost of goods available for sale Rs. 5,00,000,
purchases Rs.1,00,000, closing inventory is: _______
a) Rs.2,00,000
b) Rs.3,00,000
c) Rs.2,75,000
d) None of these
Ans: (c)
26. On purchase of goods of the list price of Rs. 10,000 from ram who allowed 10% trade
discount and changed 10% value added tax (VAT), purchased A/C 60 be debited with:
________
a) Rs.10,000
b) Rs.9,000
c) Rs.9,900
d) None of these
Ans: (c)
27. When sales Rs.1,80,000, purchase Rs.1,60,000 opening stock Rs.34,000 and rate of the gross
profit Rs.20% on cost, the closing stock would be: _______
a) Rs.50,000
b) Rs.44,000
c) Rs.46,000
d) None of these
Ans: (b)
28. Closing stock is shown in the trial balance when preparing the final A/C of business concern,
the closing stock is shown_____
a) Only on the assets side of balance sheet
b) Only the credit side of trading A/C
c) On the credit side of trading A/C as well on the assets side of balance sheet
d) Nowhere
Ans: (a)
29. Income – tax paid by a sole trader on his income is shown_______
a) On the debit side of trading A/c
b) On the debit side of profit and loss A/C
c) On the debit side of profit and loss appropriation A/C
d) By way of deduction from capital in balance sheet
Ans: (d)
30. A manager is entitled to a commission @5% on profit before deducting such commission.
Gross profit is Rs.9,600 while selling and office expenses, other than commission 60
manager, totalled Rs.12,000. Manager’s commission for the year will be ______
a) Rs.4000
b) Rs.4200
c) Rs.4800
d) Rs.4562
Ans: (b)
31. At the end of accounting year, total debtors are Rs.1,00,000. Provision for bad debts and for
discount on debtors are made @5% and 2% respectively. The amount of provision for
discount on debtors will be: _______
a) Rs.2000
b) Rs.5000
c) Rs.1900
d) Rs.1950
Ans: (c)
32. Prepaid expenses given in trial balance are shown as ______
a) Miscellaneous expenses
b) Capital
c) Current liabilities
d) Asset
Ans: (d)
33. If an amount written off as a bad debt is recovered subsequently, it will be: _______
a) debited to the debtor’s personal A/C
b) credited to the debtor’s personal A/C
c) debited to bad debts recovered A/C
d) credited to bad debts recovered A/C
Ans: (d)
 UNIT 3
NON-TRADING ORGANISATION
1. A non-trading concern are started _____
a) By separate act
b) By Government order
c) By members compulsion
d) Voluntarily
Ans: (d)
2. The motive of the non-trading organisation is ____
a) Profit
b) Service
c) Profit and service
d) None of the above
Ans: (b)
3. The receipts and payment account is a ____
a) Real and nominal account
b) Nominal account
c) Personal account
d) Real account
Ans:(d)
4. Revenue receipts will shown in ___
a) Receipts and payments account
b) Income and expenditure account
c) Receipts & payment and income & expenditure account
d) Balance sheet
Ans: (c)
5. Income & expenditure is prepared in lieu of ____
a) Profit and loss account
b) Cash account
c) Balance sheet
d) Receipts and payment account
Ans:(a)
6. Life subscription received is a ______
a) Capital receipt
b) Revenue receipt
c) Capital or revenue receipt
d) Separate fund
Ans: (a)
7. Specific funds are shown on the ___
a) Assets side
b) Liabilities side
c) Credit side of income & expenditure account
d) Debit side of income & expenditure account
 Ans:(b)
8. Opening capital fund can be ascertained by preparing ____
a) Receipts and payment account
b) Opening statement of affairs
c) Income and expenditure account
d) None of the above
Ans: (b)
9. Income and expenditure account shows ____
a) Capital receipts
b) Capital expenditure
c) Both revenue receipts and revenue expenditure
d) None of the above
Ans: (c)
10. Surplus or deficit can be ascertained by preparing ____
a) Receipts and payment account
b) Income and expenditure account
c) Balance sheet
d) None of the above
Ans: (b)
11. Non-profit organisation institution prepares ____
a) Profit and loss account
b) Manufacturing account
c) Income and expenditure account
d) All the above
Ans: (c)
12. Receipts and payment account is ___
a) A nominal account
b) A real account
c) A personal account
d) None of the above
Ans: (b)
13. Receipts and payment account shows _____
a) Income and expenditure account
b) Cash receipts and payments
c) Assets and liabilities
d) Both (a) and (b)
Ans: (b)
14. Income and expenditure account reveals ____
a) Cash in hand
b) Surplus or deficiency
c) Capital account
d) All the above
Ans: (b)
15. Income and expenditure account records transaction of _____
a) Revenue nature only
b) Capital nature only
c) Both (a) and (b)
d) None of the above
Ans: (a)
16. Subscription received in advance is _____
a) An income
b) An asset
c) A liability
d) All the above
Ans: (c)
17. Subscription in arrear (given in adjustment) are shown on the ____
a) Credit side of income and expenditure account and asset side of balance sheet
b) Debit side of income and expenditure account and liability side of balance sheet
c) Only on the asset side of balance sheet
d) None of the above
Ans: (a)
18. Donation received for a specific purpose ____
a) Should be credited to a separate account and shown on the liability side of balance
sheet
b) Should be credited to income and expenditure account
c) Should not be recorded at all
d) None of the above
Ans: (a)
19. If there is a price fund then prize awarded expenses and income and transferred to _____
a) Income and expenditure account
b) Assets side of balance sheet
c) The liability side of the balance sheet
d) Both income and expenditure account and to balance sheet
Ans: (c)
20. Admission fee income should be _____
a) Capitalised
b) Treated as a revenue
c) Treated as revenue unless the amount is pretty large
d) Treated as a liability
Ans: (c)
21. Income and expenditure account is _____
a) Real account
b) Personal account
c) Nominal account
d) None of these
Ans: (c)
22. Which of the following items should not be entered in receipts and payments account of a
club?
a) Sale of old newspaper
b) Loss on sale of old furniture
c) Subscriptions received in advance
d) Expenses for previous year
Ans: (b)
23. The receipts and payment account generally begins with ____
a) Credit balance
b) Debit balance
c) Both (a) and (b)
d) None of the above
Ans: (b)
24. Income and expenditure account _____
a) May have a debit opening balance
b) May have a credit opening balance
c) May have either a debit or a credit opening balance
d) Does not have an opening balance
Ans: (d)
25. For a non-profit organisation, subscription received in advance is ______
a) An income
b) An expense
c) An asset
d) A liability
Ans: (d)
UNIT 4
BANK RECONCILIATION STATEMENT
1. Bank Reconciliation Statement is prepared by the _____
a) Bank
b) Creditors
c) Customers of a bank
d) Debtors
Ans: (c)
2. Debit balance in the cash book represents _____
a) Overdraft as per pass book
b) Unfavourable balance in cash book
c) Overdraft as per cash book
d) Favourable balance in cash book
Ans: (b)
3. Bank overdraft as per pass book shows ___
a) Debit side balance in pass book
b) Credit side balance in passbook
c) Equal balance
 d) Excess balance
Ans: (a)
4. Checks issued but not presented for payment must be added in cash book when it is started
with _____
a) Cash book with unfavourable balance
b) Pass book with favourable balance
c) Cash book with favourable balance
d) Pass book with unfavourable balance
Ans: (c)
5. Bank charges debited in the pass book reduces the balance in _____
a) Cash book
b) Pass book
c) Invoice book
d) Cash book & pass book
Ans: (d)
6. Bank Reconciliation Statement is prepared to verify ____
a) Pass book
b) Cash book
c) Arithmetical accuracy
d) Trial balance
Ans: (a)
7. Check deposited increases the balance in ______
a) Cash book
b) Pass book
c) Bank Reconciliation book
d) Cash and pass book
Ans: (d)
8. When all the differences are adjusted the balance in the cash and pass book must be ____
a) Higher balance in cash book
b) Higher balance in cash book
c) Higher balance in pass book
d) Equal balance
Ans: (b)
9. Reconciliation can be done with ____
a) Favourable balance / unfavourable balance in pass book
b) Favourable balance / unfavourable balance in cash book
c) Favourable balance / unfavourable balance in cash and pass book
d) favourable balance with pass book only
Ans: (c)
10. Bank pass book is maintained by ___
a) Banker
b) Creditor
c) Customer
 d) Both banker and customer
Ans: (a)
11. In cash book debit balance of ₹112 was brought forward as credit balance of ₹121. While
preparing a Bank Reconciliation Statement taking the balance as per cash book as the
starting point _____
a) ₹112 to be added
b) ₹233 to be added
c) ₹121 to be added
d) ₹112 to be subtracted
Ans: (b)
12. In case of an ‘unpresented cheque’ ____
a) Bank balance in cash book is more than bank pass book
b) Bank balance in cash book is less than bank pass book
c) Either (a) and (b)
d) No effect in both the books
Ans: (b)
13. Debit balance in cash book means ______
a) Overdraft as per pass book
b) Credit balance as per pass book
c) Overdraft as per cash book
d) None of the above
Ans: (b)
14. When balance as per cash book is starting point, to ascertain balance as per pass book
interest allowed by bank is ____
a) Subtracted
b) Added
c) Not adjusted
d) Divided
Ans: (b)
15. When balance as per cash book is the starting point, to ascertain balance as per pass book,
interest charged by bank is ____
a) Added
b) Subtracted
c) Not adjusted
d) Divided
Ans: (b)
16. When the balance as per cash book id the starting point to ascertain balance as per pass book,
direct deposits by customers are ____
a) Added
b) Subtracted
c) Not adjusted
d) None of the above
Ans: (a)
17. When the balance as per cash book is the starting point to ascertain balance as per pass book,
direct payment by bank is _____
a) Added
b) Subtracted
c) Not adjusted
d) All the above
Ans: (b)
18. A bank pass book is a copy of _____
a) The cash column of a customer’s cash book
b) The bank column of the customer’s cash book
c) The customer’s account in the bank’s ledger
d) None of the above
Ans: (c)
19. The bank statement shows an overdrawn balance of ₹2000. A cheque for ₹500 drawn in
favour of a creditor has not yet been presented for payment. When the creditor presents the
cheque for payment, the bank balance will be ____
a) ₹1500
b) ₹2500 (overdrawn)
c) ₹2500
d) ₹1000
Ans: (b)
20. Royalty account is _____
a) Nominal account
b) Personal account
c) Real account
d) Both (a) and (b)
Ans: (a)
21. Short workings can be recouped out of ______
a) Minimum rent
b) Excess of actual royalty over
c) Excess of minimum rent over actual royalty
d) Profit and loss account
Ans: (b)
22. the lessee’s right to recoup short working’s related to ______
a) first four years
b) terms of the agreement
c) subsequent three years
d) none of the above
Ans: (b)
23. Royalty payable is debited by lessee to _____
a) Royalty account
b) Landlord account
c) Profit and loss account
d) Short working’s
 Ans: (a)
24. Royalty earned by the lessee to ____
a) Sub-lease account
b) Profit and loss account
c) Royalty account
d) All the above
Ans: (c)
25. In case of right to recoup short working’s is transferred to _____
a) Landlord account
b) Profit and loss account
c) Royalty account
d) Short working’s accounts
Ans: (b)
UNIT – 5 DEPRECIATIONS

1. The permanent decline in the value of the fixed assets which can arise due to time factor
is ___________
a) Depreciation
b) Diminution
c) Reduction
d) Discount
Ans: (a)
1. The depreciation is a cost accumulating from________
a) The use of fixed assets
b) The use of various services
c) The consumption of same consumable stores
d) None of the above
Ans: (a)
2. Depreciation is the process of __________
a) Allocation of cost of the fixed asset during the period of its life
b) Valuation of stock
c) Reduction its market value
d) Valuation of fixed assets
Ans: (a)
3. The amount of depreciation is fixed for all the years under______
a) Diminishing balance method
b) Straight line method
c) Annuity method
d) Depreciation fund method
Ans: (b)
4. Under diminishing balance method the amount of depreciation is________
a) Increasing every year
b) Decreasing every year
 c) Fixed for all the years
d) All the above
Ans: (b)
5. The method of depreciation recognized by income tax act_______
a) Annuity method
b) Some of years digit method
c) Revaluation method
d) Diminishing balance method
Ans: (d)
6. Mines and queries follows the______ method of depreciation
a) Depletion method
b) Revaluation
c) Insurance policy
d) None of the above
Ans: (a)
7. The method of depreciation suitable for lease hold property______
a) Insurance policy
b) Revaluation method
c) Sinking fund method
d) Annuity method
Ans: (d)
8. Depreciation is calculated under hourly basis in________
a) Straight line method
b) Some of years digit method
c) Machine hour rate method
d) Diminishing balance method
Ans: (c)
9. Small items like livestock or loose tools follow_______
a) Revaluation method
b) Annuity method
c) Straight line method
d) Depletion method
Ans: (a)
10. The main objective of providing depreciation is_______
a) To calculate true profit
b) To show the true financial position in the balance sheet
c) To reduce tax burden
d) To provide funds for replacement of fixed assets
Ans: (a)
11. Depreciation arises because of_______
a) Fall in the market value of an asset
b) Physical wear and tear
c) Fall in the value of money
 d) All the above
Ans: (b)
12. Under the straight line method of charging depreciation, depreciation_______
a) Increase every year
b) Decrease every year
c) Is constant every year
d) None of the above
Ans: (c)
13. Under the diminishing balance method depreciation is calculated on________
a) Original cost
b) Written down value
c) The scrap value
d) All the above
Ans: (b)
14. A diminishing balance method of providing for depreciation is one according to
which________
a) The amount of depreciation is reduced from year to year
b) The rate percent declines from year to year
c) The rate percent as well as the amount reduce every year
d) None of the above
Ans: (a)
15. Depreciation on the diminishing balance method of Rs.2000 at the rate of 10% p.a. after
three years will be_______
a) Rs.1400
b) Rs.1458
c) Rs.542
d) None of the above
Ans: (b)
16. The amount of depreciation charged on a machinery will be debited to_______
a) Machinery A/C
b) Depreciation A/C
c) Cash A/C
d) All the above
Ans: (c)
17. Loss on scale of machinery should be written off against_______
a) Securities premium reserve A/C
b) Sales A/C
c) Depreciation fund A/C
d) None of the above
Ans: (c)
18. Service hours method of providing depreciation is useful when______
a) Use of an asset can be measured in returns of time
b) Output can be measured
 c) Use of an asset is dependent on sale
d) Name of the above
19. Depreciation is an expense resulting______
a) From the consumption of current asset
b) From the use of various securities
c) From the use of fixed assets
d) None of the above
Ans: (c)
20. Under the annuity system, the amount of total depreciation is determined by adding to
the cost of asset_______
a) Interest there on at an expected rate
b) Repair charges there on during the life of the asset
c) Obsolescence cost
d) None of the above
Ans: (a)
21. The cost of a fixed asset of a business has to be written off over its_____
a) Natural life
b) Accounting life
c) Physical life
d) Estimated economic life
Ans: (d)
22. Reduction in the value of assets due to its continuous use is treated as_____
a) Loss
b) Profit
c) Appreciation
d) Depreciation
Ans: (d)
23. Amount set apart to meet loss due to bad-debts is a_______
a) Provision
b) Reserve
c) Appropriation
d) None of the above
Ans: (a)
24. Revenue reserves are built out of_____
a) Recurring profit
b) Non recurring profit
c) Capital reserve
d) None of the above
Ans: (a)
25. A capital reserve is built out of_______
a) Recurring profits
b) Non-recurring profits
c) Revenue
d) Reserve fund
Ans: (b)