Free Accounting Principles MCQs with Answers

• A. Posting the letters in drop box
• B. Posting suitable person to a suitable job
• C. Entering in the ledger the information contained in the ledger
• D. All the three

Explanation: Posting means transferring transaction information from the journal or subsidiary books to the appropriate ledger accounts.

• A. Nominal A/c
• B. Tangible Asset
• C. Intangible Asset
• D. Fictitious Asset

Explanation: Goodwill has no physical substance but represents benefits such as reputation, customer loyalty and business connections, so it is an…

• A. Outstanding Salary A/c
• B. Rent A/c
• C. SBI A/c
• D. Debtors A/c

Explanation: Rent is an expense incurred during the accounting period, so Rent Account is a nominal account.

• A. Outstanding Salary A/c
• B. Rent A/c
• C. SBI A/c
• D. Bad debts A/c

Explanation: Outstanding Salary Account represents the employees or salary recipients to whom the amount is payable, making it a representative…

• A. Postage stamps
• B. B/R
• C. Cheque Deposited with Bank
• D. B/R endorsed

Explanation: Postage stamps are treated as part of cash in hand in this traditional classification because they are readily usable for business…

• A. Assets
• B. Expenditure
• C. Liability
• D. None

Explanation: Petty cash is a small amount of cash held by the business for routine minor payments, so its balance is an asset.

• A. Bank column
• B. Discount column
• C. Cash column
• D. None

Explanation: The cash column cannot show a credit balance because cash cannot be paid out beyond the amount available.

• A. Liability
• B. Gain
• C. Assets
• D. Loss

Explanation: The petty cash book records the cash remaining with the petty cashier, which is owned by the business and therefore is an asset.

• A. Cash received from debtors
• B. Cash paid to creditors
• C. Salary remained outstanding
• D. Cash deposited with bank

Explanation: A cash book records transactions involving cash or bank. Salary that remains outstanding creates a liability but no cash movement, so it…

• A. Cash column
• B. Bank column
• C. Petty cash column
• D. Discount column

Explanation: A three-column cash book contains cash, bank and discount columns. Petty cash is maintained separately in a petty cash book, not as a…

• 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

Explanation: Crediting travelling expenses when the expense should be debited creates an error in one ledger account and causes a trial-balance…

• 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

Explanation: Installation costs necessary to bring a new plant into working condition are capital expenditure and should be added to the plant account.

• A. Errors of complete omission
• B. Errors of principle
• C. Errors of posting to wrong account
• D. All the three

Explanation: Complete omission, an error of principle and posting to a wrong account generally involve the two sides or accounts of a transaction, even…

• A. Errors of casting
• B. Errors of carry forward
• C. Errors of posting
• D. All the three

Explanation: A casting error, carry-forward error or posting error is normally confined to one ledger total or account, although the related…

• 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

Explanation: Administration and general expenses do not normally bring a fixed asset to its location or working condition, so they are charged as…

• 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.

Explanation: Damages paid for breaching a contract to supply goods do not create or improve an asset, so they are revenue 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

Explanation: Installation charges directly incurred to make office equipment ready for use form part of the equipment's acquisition cost.

• A. Liability
• B. Assets
• C. Revenue receipts
• D. Capital receipts

Explanation: A donation restricted to a specific purpose is not freely available for ordinary operations and is treated as a capital receipt or…

• 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

Explanation: Legal expenses for defending a claim arising from the ordinary supply of goods are revenue expenses because they relate to routine…

• 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

Explanation: Capital expenditure provides a benefit beyond the current period, commonly by acquiring or improving a long-term asset.