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 3 of 18
- A. Assets and owner's equity increase
- B. Assets and liabilities increase
- C. Liabilities and owner's equity decrease
- D. Assets and owner's equity decrease
Explanation: Retained profit increases the resources of the business and becomes part of owner's equity.
Correct answer: Assets and owner's equity increase- A. A debtor pays an outstanding account
- B. The owner contributes additional cash
- C. The business purchases goods on credit
- D. The business pays an outstanding loan
Explanation: When a debtor pays, cash increases while receivables decrease by the same amount.
Correct answer: A debtor pays an outstanding account- A. Debit wages expense and credit wages payable
- B. Debit wages payable and credit wages expense
- C. Debit cash and credit wages payable
- D. Debit wages expense and credit cash
Explanation: The expense belongs to the period in which employees performed the work, so wages expense is debited.
Correct answer: Debit wages expense and credit wages payable- A. Cash paid for office equipment
- B. A bank loan received by the business
- C. The employees' high level of motivation
- D. Goods purchased for resale on credit
Explanation: The money measurement concept records events that can be expressed reliably in monetary terms.
Correct answer: The employees' high level of motivation- A. Its effect is unlikely to influence users' decisions
- B. It has no physical existence in the business
- C. It is always purchased with cash
- D. It must be classified as a liability
Explanation: Materiality allows an item to be treated in a simpler manner when its omission or different classification would not affect users'…
Correct answer: Its effect is unlikely to influence users' decisions- A. Its original purchase cost
- B. Its estimated resale price
- C. Its current replacement cost
- D. Its expected future selling price
Explanation: Historical cost records an asset at the amount paid to acquire it, including directly attributable acquisition costs where appropriate.
Correct answer: Its original purchase cost- A. Preparing financial statements for a defined twelve-month period
- B. Recording every transaction only when the business closes
- C. Reporting income only when all customers have paid
- D. Combining the records of several unrelated businesses
Explanation: The accounting period concept divides the continuing life of a business into artificial periods for reporting purposes.
Correct answer: Preparing financial statements for a defined twelve-month period- A. Debit the expense account and credit a payable account
- B. Credit the expense account and debit a payable account
- C. Debit the payable account and credit the expense account
- D. Credit both the expense and payable accounts
Explanation: An expense increases on the debit side, while the unpaid obligation increases the payable liability on the credit side.
Correct answer: Debit the expense account and credit a payable account- A. Revenue expenditure
- B. Capital expenditure
- C. Capital receipt
- D. Drawings
Explanation: Legal fees arising from routine operations provide a current-period benefit and are normally charged as revenue expenditure.
Correct answer: Revenue expenditure- A. It provides a benefit extending beyond the current accounting period
- B. It is consumed entirely in the current reporting period
- C. It is always paid in cash immediately
- D. It is recorded only when revenue is received
Explanation: Capital expenditure creates or improves a long-term resource whose benefits extend beyond the current period.
Correct answer: It provides a benefit extending beyond the current accounting period- A. Depreciation
- B. Physical deterioration of the asset
- C. Decrease in market value of the asset
- D. Valuation of an asset at a point of time
Explanation: Depreciation systematically allocates the cost of a fixed asset, after any residual value, as an expense over its useful life.
Correct answer: Depreciation- A. Discount
- B. Voucher
- C. Allowance
- D. Price
Explanation: A voucher is written documentary evidence supporting a transaction, such as an invoice, receipt, or payment slip.
Correct answer: Voucher- A. Discount
- B. Cash discount
- C. Allowance
- D. Trading discount
Explanation: An allowance is a reduction granted because goods are defective, damaged, or otherwise unsatisfactory while the buyer keeps them.
Correct answer: Allowance- A. Capital
- B. Loan
- C. Drawing
- D. None of these
Explanation: Cash introduced by the owner increases the owner's capital, which represents the owner's claim on the business.
Correct answer: Capital- A. Paid price
- B. Invoice price
- C. Book price
- D. Discount
Explanation: A discount is a reduction from the stated or list price of goods or services.
Correct answer: Discount- A. Return received
- B. Return Payed
- C. Return inward
- D. Return outward
Explanation: Goods sent back by customers are sales returns, also called returns inward because the goods come back into the seller's business.
Correct answer: Return inward- A. Purchases
- B. Return inward
- C. Sales
- D. Return outwards
Explanation: When a trading business sells the goods in which it deals, the transaction is recorded as sales.
Correct answer: Sales- A. Merchandise return
- B. Purchase return
- C. Return inwards
- D. Sales return
Explanation: Goods returned to a supplier are purchase returns, also called returns outward from the buyer's business.
Correct answer: Purchase return- A. Liabilities
- B. Revenues
- C. Expenses
- D. Assets
Explanation: A business obligation is an amount it must pay or settle in the future, such as a loan or amount owed to a supplier.
Correct answer: Liabilities- A. Capital
- B. Business
- C. Drawings
- D. All of themSearch Public Records
Explanation: The proprietor’s initial investment creates the owner’s capital, which represents the owner’s claim on the business.
Correct answer: Capital