All Free Accounting MCQs with Answers

• A. Rs. 140,000
• B. Rs. 160,000
• C. Rs. 170,000
• D. Rs. 220,000

Explanation: Cost of goods sold equals opening inventory plus purchases less closing inventory. Therefore, Rs. 40,000 + Rs. 150,000 - Rs.

• A. Profit and assets are overstated
• B. Profit and assets are understated
• C. Profit is overstated and assets are understated
• D. Profit is understated and assets are overstated

Explanation: A machine purchase is capital expenditure and should be recognised as an asset.

• A. Operating activity
• B. Investing activity
• C. Financing activity
• D. Non-cash activity

Explanation: Issuing shares changes the entity's equity financing and creates a cash inflow from owners.

• A. It is held for resale as inventory
• B. It is readily convertible to a known cash amount
• C. It has a maturity of more than one year
• D. It is expected to earn a high return

Explanation: Cash equivalents are short-term, highly liquid investments that can be converted readily into known amounts of cash with insignificant…

• A. Assets and liabilities both decrease
• B. Assets and equity both decrease
• C. Liabilities and equity both decrease
• D. Assets increase and liabilities decrease

Explanation: Cash, an asset, decreases by Rs. 25,000, while the amount owed to the creditor, a liability, also decreases by the same amount.

• A. Rs. 50,000
• B. Rs. 60,000
• C. Rs. 65,000
• D. Rs. 80,000

Explanation: Depreciable cost is Rs. 240,000, calculated as Rs. 260,000 less Rs. 20,000. Depreciation per unit is Rs.

• A. Rs. 350,000
• B. Rs. 400,000
• C. Rs. 450,000
• D. Rs. 550,000

Explanation: Net sales are Rs. 850,000 after deducting sales returns. Gross profit is net sales less cost of goods sold, so Rs. 850,000 - Rs.

• A. Profit includes only cash sales
• B. Profit may include revenue not yet collected
• C. Cash payments are excluded from accounting
• D. Non-current assets are treated as liabilities

Explanation: Under accrual accounting, revenue is recognised when earned even if the customer has not yet paid.

• A. Increase furniture and decrease capital
• B. Increase furniture and increase owner's capital
• C. Increase expenses and increase owner's capital
• D. Increase cash and decrease owner's capital

Explanation: The business receives furniture, so its assets increase. Because the owner has provided personal funds for a business asset, owner's…

• A. Accumulated depreciation
• B. Sales commission
• C. Cost of goods sold
• D. Office electricity

Explanation: Accumulated depreciation is a contra-asset balance that reduces the carrying amount of the related non-current asset in the statement of…

• A. Recognise revenue of Rs. 48,000
• B. Recognise a contract liability of Rs. 48,000
• C. Recognise an accrued expense of Rs. 48,000
• D. Reduce trade receivables by Rs. 48,000

Explanation: The business has received cash but has not yet earned the revenue. Therefore, the amount is recorded as a contract liability until the…

• A. Rs. 94,000
• B. Rs. 100,000
• C. Rs. 106,000
• D. Rs. 6,000

Explanation: Trade receivables are presented net of the expected credit loss allowance. Thus, Rs. 100,000 less Rs. 6,000 gives a carrying amount of Rs.

• A. A gain of Rs. 30,000
• B. A loss of Rs. 30,000
• C. A gain of Rs. 150,000
• D. No gain or loss

Explanation: The loss or gain is measured by comparing sale proceeds with carrying amount. Since Rs. 150,000 is Rs. 30,000 below Rs.

• A. Rs. 90,000
• B. Rs. 110,000
• C. Rs. 150,000
• D. Rs. 40,000

Explanation: The net increase in cash is Rs. 55,000 minus Rs. 40,000 plus Rs. 20,000, which equals Rs. 35,000.

• A. Assets increase and equity increases
• B. Assets increase and liabilities increase
• C. Expenses increase and equity decreases
• D. Assets decrease and equity increases

Explanation: Cash received from issuing shares increases the company's assets. The share capital component of equity also increases by the amount…

• A. Salaries expense
• B. Utilities expense
• C. Dividends declared
• D. Rent expense

Explanation: Dividends are distributions of profit to owners, not costs incurred to generate revenue.

• A. Rs. 6,000
• B. Rs. 30,000
• C. Rs. 36,000
• D. Rs. 3,000

Explanation: Two months of the contract, November and December, have expired, so expense is Rs. 6,000.

• A. Assets overstated and profit overstated
• B. Assets understated and profit understated
• C. Assets overstated and liabilities understated
• D. Assets and profit both unaffected

Explanation: The equipment should be recognised as a non-current asset rather than as an immediate expense.

• A. Closing profit is transferred to non-current assets
• B. Profit or loss is included in the movement of retained earnings
• C. Total expenses are added directly to share capital
• D. Revenue is transferred directly to trade payables

Explanation: The profit or loss for the period contributes to the change in retained earnings.

• A. Rs. 240,000
• B. Rs. 320,000
• C. Rs. 400,000
• D. Rs. 80,000

Explanation: Profit after tax is calculated by deducting income tax expense from profit before tax. Therefore, Rs. 320,000 minus Rs. 80,000 equals Rs.