Free Accounting Principles MCQs with Answers
351 Accounting Principles MCQs from Accounting, each with the correct answer and a written explanation of why it is correct. Free and unlimited, with no account needed.
Accounting principles explain the rules used to record, classify and report business transactions. Coverage includes the accounting equation, double-entry system, accrual and cash bases, matching and prudence concepts, consistency, going concern, business entity, and the difference between capital and revenue items.
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351 questions · page 12 of 18
- 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.
Explanation: Sales tax paid to acquire office equipment is directly attributable to its purchase and forms part of the equipment's capital cost.
Correct answer: Sales tax paid in connection with the purchase of office equipment- 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
Explanation: An error in balancing an account can place an incorrect balance in the Trial Balance and make its totals disagree.
Correct answer: Mistake in balancing an account- A. The Trial Balance will not agree
- B. The balance of creditors is understated
- C. The purchases are understated
- D. The favorable bank balance as per Pass Book is less than the Bank balance as per Cash book
Explanation: The cash book records a payment that is 1,800 lower than the amount actually debited by the bank, so the pass-book balance is 1,800 less…
Correct answer: The favorable bank balance as per Pass Book is less than the Bank balance as per Cash book- A. All purchases of goods
- B. All credit purchases of goods
- C. All credit purchases
- D. None of these
Explanation: The purchase journal records credit purchases of goods purchased for resale.
Correct answer: All credit purchases of goods- 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
Explanation: The current year’s omitted accrual is 64,000, but the prior year’s omitted accrual of 51,000 must be adjusted through the previous-period…
Correct answer: Debit to wage expense for ` 13,000226. 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
Explanation: The incorrect entry reduces sales by 1,570, whereas the correct purchase return should reduce purchases by 1,750.
Correct answer: Gross Profit will decrease by 3,320- 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
Explanation: An error of commission is a clerical mistake such as posting to the wrong account or entering the wrong amount; a fundamentally incorrect…
Correct answer: Errors of commission arise when any transaction is recorded in a fundamentally incorrect manner- 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
Explanation: A trial balance is an internal check of debit and credit equality, not a statement with independent statutory authority under company law.
Correct answer: The Trial Balance has no statutory importance from the point of view of law- A. It is already adjusted in the opening stock
- B. It is adjusted in the Purchase A/c
- C. It is adjusted in the Cost of Sale A/c
- D. It is adjusted in the Profit &Loss A/c
Explanation: When closing stock is included in the trial balance, it has already been adjusted through the Purchases Account, usually by crediting…
Correct answer: It is adjusted in the Purchase A/c- 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
Explanation: Journal proper records transactions for which no specialised book, such as the purchases, sales, or returns journal, has been maintained.
Correct answer: All such transactions for which no special journal has been kept by the business- A. Sale of ` 100 was recorded in the Purchases Journal
- B. Wages paid to Mohan have been debited to his account
- C. The total of the sales journal has not been posted to the Sales Account
- D. Repairs to buildings have been debited to buildings account
Explanation: Failing to post the sales journal total to the Sales Account omits the credit entry, so it is an error of omission.
Correct answer: The total of the sales journal has not been posted to the Sales Account- A. Error of commission
- B. Error of principle
- C. Error of omission
- D. Compensating error
Explanation: Repairs are revenue expenditure and should be debited to Repairs Expense, not to the Buildings Account, which represents capital…
Correct answer: Error of principle- A. Dividend
- B. Royalty
- C. Purchase consideration
- D. Installment
Explanation: Royalty is the consideration paid for using rights owned by another person, such as copyright, patents, or mineral rights.
Correct answer: Royalty- A. They must be followed by reversing entries
- B. They transfer the balances in all of the Nominal Accounts to the Trading and Profit and Loss Account
- C. They must be made after the reversing entries but before the adjusting entries
- D. They must be made after the adjusting entries but before the reversing entries
Explanation: Closing entries transfer nominal account balances to Trading and Profit and Loss Account after adjustments have been recorded.
Correct answer: They must be made after the adjusting entries but before the reversing entries- A. Masood's account
- B. Cash account
- C. Cash account and Gagan's account
- D. None of these
Explanation: Posting an amount to the credit side of Masood's personal account directly changes Masood's account, regardless of whether that posting is…
Correct answer: Masood's account- A. Scrap value
- B. Residual value
- C. Market value
- D. Depreciable value
Explanation: Depreciable value is the asset's cost less its residual value, and this is the maximum amount that can be depreciated.
Correct answer: Depreciable value- A. Assets accounts
- B. liability accounts
- C. Cash accounts
- D. Revenue accounts
Explanation: A chart of accounts commonly begins with assets, followed by liabilities, equity, revenue and expenses.
Correct answer: Assets accounts- A. Recording the transaction
- B. Identifying the transaction
- C. Posting the transaction
- D. Preparing the source documents
Explanation: Accounting begins by identifying an event as a transaction that affects the business financially; only then is it recorded from the…
Correct answer: Identifying the transaction- A. Capital account
- B. Fixed assets account
- C. Building account
- D. Cash account
Explanation: Purchasing a building for cash increases the Building account and decreases Cash.
Correct answer: Cash account- A. Alphabetical order
- B. Numeric order
- C. Bullets order
- D. Chronological order
Explanation: Journal entries are recorded in chronological order, meaning transactions are entered according to the dates on which they occur.
Correct answer: Chronological order