Fundamentals of Accounting MCQ
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Questions and Answers

What is the definition of inter-state supply?

  • Transactions between different countries
  • Transactions between states (correct)
  • Transactions within the same state
  • All forms of transactions

Which of the following statements about the Trial Balance is true?

  • It is a statement of balances (correct)
  • It is a book of accounts
  • It is a type of ledger
  • It organizes financial statements

From which document can posting to the ledger be carried out?

  • Final accounts
  • Journal book (correct)
  • Trial balance
  • Ledger Book

What is the primary objective of preparing the Trial Balance?

<p>All of the above (D)</p> Signup and view all the answers

What type of error occurs when there is a difference between Capital and Revenue Expenditure?

<p>Error of Principle (A)</p> Signup and view all the answers

Gross Profit or Gross Loss is calculated using which of the following?

<p>Sales minus Adjusted Purchases (C)</p> Signup and view all the answers

Which account should Fuel and Power expenses be charged to?

<p>Trading Account (D)</p> Signup and view all the answers

What is included in the Profit & Loss account?

<p>Both Indirect Expenses and Income (D)</p> Signup and view all the answers

Which of the following is not an intangible asset?

<p>Furniture (C)</p> Signup and view all the answers

How many components are there in final accounts?

<p>3 (D)</p> Signup and view all the answers

What does the Balance Sheet represent?

<p>Assets and Liabilities of the company (C)</p> Signup and view all the answers

When is the Profit & Loss account typically prepared?

<p>After the Trading Account (D)</p> Signup and view all the answers

Closing Stock is recorded in which of the following accounts?

<p>Both Trading Account and Profit &amp; Loss Account (A)</p> Signup and view all the answers

What account is debited when goods are returned by a customer?

<p>Sales Return Account (B)</p> Signup and view all the answers

What type of accounting focuses primarily on the cost of production?

<p>Cost Accounting (C)</p> Signup and view all the answers

Which type of account does Dividend Income fall under?

<p>Nominal Account (B)</p> Signup and view all the answers

What is the first step in the bookkeeping process?

<p>Measuring identified transactions &amp; events (D)</p> Signup and view all the answers

Who qualifies as an internal user of accounting information?

<p>Manager (B)</p> Signup and view all the answers

Under the Traditional Approach of accounting, what are the classifications of accounts?

<p>Personal, Real, and Nominal Accounts (B)</p> Signup and view all the answers

What does the left-hand side of a ledger account represent?

<p>Debit Side (C)</p> Signup and view all the answers

Which basis of accounting records transactions when cash is received or paid?

<p>Cash Basis (A)</p> Signup and view all the answers

What does a balance sheet primarily tabulate?

<p>Assets and liabilities of the company (D)</p> Signup and view all the answers

Which of the following statements about closing stock is correct?

<p>Closing stock is recorded in both Trading Account and Balance sheet (B)</p> Signup and view all the answers

Which of the following is considered an example of indirect expense?

<p>Carriage Outward (A)</p> Signup and view all the answers

What is the correct classification of 'Goodwill'?

<p>Intangible Asset (B)</p> Signup and view all the answers

Which of the following describes a current asset?

<p>Sundry debtors (A)</p> Signup and view all the answers

Which of the following is not included in the Profit and Loss Account?

<p>Drawings (B)</p> Signup and view all the answers

What is the formula to calculate Net Sales?

<p>Sales - Return Inward (A)</p> Signup and view all the answers

Which of the following is an example of a business liability?

<p>Creditors (D)</p> Signup and view all the answers

Which accounting concept ensures that revenue and expenses are recognized in the same accounting period?

<p>Matching Concept (C)</p> Signup and view all the answers

Which of the following is a characteristic of Ind AS?

<p>Harmonized with global standards (IFRS) (D)</p> Signup and view all the answers

Which type of account is 'Bank' classified under in the classification of accounts?

<p>Personal Account (D)</p> Signup and view all the answers

Which accounting convention emphasizes the practice of recording expenses or losses when they are probable but not recording revenues until they are realized?

<p>Conservatism (B)</p> Signup and view all the answers

Which of the following is the first step in the accounting process?

<p>Journalizing (B)</p> Signup and view all the answers

Books of original entry are also known as:

<p>Journals (D)</p> Signup and view all the answers

Which of the following is NOT recorded in a journal?

<p>Account balances (C)</p> Signup and view all the answers

The primary purpose of preparing a trial balance is to:

<p>Check the equality of debits and credits (B)</p> Signup and view all the answers

Which process is essential for ensuring the mathematical accuracy of accounts?

<p>Check the arithmetical accuracy of accounts (A)</p> Signup and view all the answers

Which of the following errors cannot be identified by reviewing a trial balance?

<p>Errors of principle (B)</p> Signup and view all the answers

If a trial balance does not balance, where is the discrepancy temporarily recorded?

<p>Suspense Account (B)</p> Signup and view all the answers

In what situation is redrafting a trial balance necessary?

<p>Errors are rectified after the trial balance is prepared (D)</p> Signup and view all the answers

Which example best represents an error of omission?

<p>Forgetting to record a transaction (A)</p> Signup and view all the answers

What action is required to rectify a wrongly posted sales transaction attributed to a purchases account?

<p>Credit to Purchases Account and debit to Sales Account (A)</p> Signup and view all the answers

What is the consequence of posting a debit entry incorrectly as a credit entry in the ledger?

<p>The trial balance will show a double difference (B)</p> Signup and view all the answers

Which of the following best characterizes capital expenditure?

<p>Purchase of machinery (B)</p> Signup and view all the answers

Flashcards

Gross Profit/Gross Loss

The difference between sales revenue and the cost of goods sold. A positive result is gross profit; a negative result is gross loss.

Fuel and Power

Costs associated with operating machinery or equipment.

Trading Account

A financial statement that outlines the costs and revenue related to buying and selling goods.

Profit & Loss Account

A financial statement that displays the revenue and expenses of a company over a period, showing the net profit or loss after all costs are accounted for.

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Intangible Asset

A non-physical asset like goodwill, patents, or franchise rights.

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Components of Final Accounts

Typically consists of 3 components: Trading Account, Profit & Loss Account, and Balance Sheet.

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Balance Sheet

A financial statement that reports a company’s assets, liabilities, and owner’s equity at a specific point in time.

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Closing Stock

The value of unsold goods at the end of a financial period.

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Incomplete Record

An accounting record that doesn't fully document a transaction.

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Sales Return Account

Account used to record goods returned by customers.

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Cost Accounting

Accounting method focused on calculating production costs.

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Nominal Account

An account used to record revenues, expenses, and gains/losses.

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Identifying Transactions

The first step in accounting, recognizing business activities.

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Internal User of Accounting Info

A person within a company who uses accounting information.

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Personal Account

An account used for individuals (like owners or customers).

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Cash Basis Accounting

Accounting method recording transactions when cash is received or paid.

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Inter-state supply

Goods or services traded between different states within a country.

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Trial Balance

A summary of all debit and credit balances in a company's ledger accounts at a specific point in time.

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Posting to Ledger

Transferring information from the journal (where transactions are initially recorded) to the ledger (where balances are kept).

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Error of Principle

A mistake in accounting that violates fundamental accounting principles. Example: Treating revenue as an expense.

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Trial Balance Accuracy

The total of debit balances always equals the total of credit balances in a Trial Balance, reflecting the fundamental accounting equation: Assets = Liabilities + Equity.

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What does a balance sheet show?

A balance sheet provides a snapshot of a company's financial health at a specific point in time. It lists the company's assets (what it owns), liabilities (what it owes), and equity (the owner's stake).

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What is a liability?

A liability is something a business owes to others, like money owed to creditors or suppliers.

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What are tangible assets?

Tangible assets are physical things a business owns that have monetary value, like buildings or machinery.

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What are intangible assets?

Intangible assets are non-physical things a business owns that have value, like patents, trademarks, or goodwill.

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Current assets

Current assets are assets that a business expects to use or convert into cash within one year.

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What are indirect expenses?

Indirect expenses are costs that support the business's operations but don't directly relate to product creation.

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What is closing stock?

Closing stock is the value of goods unsold at the end of an accounting period.

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What is Net Sales?

Net sales is the total sales revenue after deducting returns by customers.

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Suspense Account

A temporary account used to hold the difference when a trial balance does not tally. It helps identify and rectify errors later on.

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Error of Omission

A mistake where a transaction is completely forgotten and not recorded in the accounting system.

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Error of Commission

A mistake made when entering or recording a transaction, but the wrong amount or account is used.

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Redrafting Trial Balance

The process of revising a trial balance after correcting errors. It's done to ensure the accuracy of the financial records.

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Rectifying Errors

The process of correcting mistakes in the accounting records, ensuring the financial data is accurate and reliable.

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Capital Expenditure

An expense for acquiring long-term assets, like machinery, buildings, or land, that provides benefits over multiple accounting periods.

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Matching Concept

Ensures that revenues and expenses are recognized in the same accounting period. This helps provide an accurate picture of a company's financial performance.

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Ind AS

Indian Accounting Standards, harmonized with International Financial Reporting Standards (IFRS) to promote consistency and transparency in financial reporting.

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Bank Account - What type is it?

A 'Bank' account is classified as a Personal Account in accounting. This refers to individuals or organizations that we owe money to or who owe money to us.

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Conservatism

An accounting convention that emphasizes recording expenses or losses when they are probable, but delaying the recognition of revenues until they are realized. This creates a more cautious financial picture.

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First step in Accounting

The first step in the accounting process is journalizing, which is the process of recording transactions in a journal.

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Books of Original Entry

Books of original entry, also known as journals, are the first place where transactions are recorded in an accounting system.

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GST

Goods and Services Tax (GST) is a tax on the supply of goods and services in India.

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Trade Discount vs Cash Discount

A trade discount is a reduction in price given for bulk purchases, while a cash discount is offered for prompt payment.

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Study Notes

Fundamentals of Accounting - MCQ Questions

  • Original Book of Entry: The Journal is known as the "Original Book of Entry".
  • Accounting Equation: Assets = Liabilities + Owner's Equity.
  • Plant and Machinery Account Type: Plant and Machinery is a Real Account.
  • Modern Accounting Approach Account Classification: Accounts are classified under three groups.
  • Characteristic of Accounting Information: Reliable accounting information is a characteristic.
  • Basis of Accounting: Cash Basis and Accrual Basis are two fundamental bases of accounting.
  • Ledger Definition: A ledger is also known as the "book of original entry".
  • Double Entry Accounting System: Accounts of both aspects of a transaction are recorded in this accounting system.
  • Ledger - Information Excluded: Cash Discount information is not shown in a ledger.
  • Financial Year Period: April 1st to March 31st.
  • Accounting Concept - Currency Unit: A business should only record transactions that can be stated in terms of a currency unit.
  • Goods Returned by Customer Account: This will be recorded in the Sales Return Account.
  • Production Cost Accounting: Cost accounting is concerned with the cost of production.
  • Dividend Income: Dividend Income is categorized as a Nominal Account.
  • First Step in Bookkeeping: Identifying transactions and events is the first step in the bookkeeping process.
  • Internal User of Accounting Information Examples: Employees, customers, and government personnel are examples of internal users of accounting information.
  • Traditional Accounting Approach Classification of Accounts: Personal, real, and nominal accounts are the categories in the traditional accounting approach.
  • Trial Balance - Base: Balance sheet, cash account, and cash flow statement are the bases for preparing a trial balance.
  • Owner's Capital in Accounting: Owner's capital is classified as a Personal Account under the traditional accounting approach.
  • Accounting Basis - Recording Transactions: The accrual basis records transactions as they are earned or incurred, not when cash changes hands.
  • Salary Account Type: Salary account is a Nominal Account.

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Description

Test your knowledge with this multiple-choice quiz on the fundamentals of accounting. Covering key concepts such as the accounting equation, journal, ledger, and classification of accounts, this quiz is designed for students to assess their understanding of essential accounting principles.

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