All Free Accounting MCQs with Answers
Every Accounting question in the bank, across all chapters, each with the correct answer and a written explanation. Free and unlimited, with no account needed.
1,971 questions · page 11 of 99
- A. Sales tax on retail purchases
- B. Customs duty on imported goods
- C. Income tax on taxable income
- D. Federal excise duty on products
Explanation: Income tax is imposed directly on the income of a person or entity, so the legal and economic burden usually rests with the taxpayer.
Correct answer: Income tax on taxable income- A. Tax collected at source
- B. Allowable deductible allowances
- C. Tax paid in a previous year
- D. Capital introduced into business
Explanation: Taxable income is generally determined by reducing total income by permitted deductions or deductible allowances.
Correct answer: Allowable deductible allowances- A. To postpone the filing of all returns
- B. To collect tax at the time of payment
- C. To exempt small businesses from taxation
- D. To replace every form of assessment
Explanation: Withholding tax collects tax when specified payments, such as salary, contracts or certain transactions, are made.
Correct answer: To collect tax at the time of payment- A. Claiming a deduction allowed by law
- B. Selecting a lawful business structure
- C. Concealing income from the tax authority
- D. Planning a transaction within legal rules
Explanation: Tax evasion involves illegal concealment, misrepresentation or suppression of taxable income to reduce tax.
Correct answer: Concealing income from the tax authority- A. Input tax
- B. Output tax
- C. Income tax credit
- D. Withholding allowance
Explanation: Sales tax charged by a registered supplier on taxable supplies is output tax.
Correct answer: Output tax- A. A private household expense of the owner
- B. An expense incurred wholly for business purposes
- C. A personal gift given by the proprietor
- D. A penalty imposed for breaking the law
Explanation: An expense incurred wholly and exclusively for business purposes is generally considered deductible, subject to the relevant tax law and…
Correct answer: An expense incurred wholly for business purposes- A. It is included and taxed at the highest rate
- B. It is excluded according to the exemption
- C. It is treated as a withholding payment
- D. It is converted into a tax credit
Explanation: Income specifically exempt under the applicable law is excluded from taxable income to the extent of that exemption.
Correct answer: It is excluded according to the exemption- A. They increase gross income
- B. They reduce the tax payable
- C. They increase taxable receipts
- D. They create an expense deduction
Explanation: A tax credit normally reduces the amount of tax payable after the relevant tax has been computed.
Correct answer: They reduce the tax payable- A. A return is filed by the taxpayer, while an assessment determines tax liability
- B. A return is imposed by court, while an assessment is a private estimate
- C. A return concerns only sales, while an assessment concerns only salaries
- D. A return cancels tax, while an assessment grants exemption
Explanation: A tax return is a declaration submitted by the taxpayer containing relevant income and tax information.
Correct answer: A return is filed by the taxpayer, while an assessment determines tax liability- A. Rs. 55,000
- B. Rs. 125,000
- C. Rs. 180,000
- D. Rs. 305,000
Explanation: Net sales tax payable is calculated by subtracting eligible input tax from output tax: Rs. 180,000 minus Rs. 125,000 equals Rs. 55,000.
Correct answer: Rs. 55,000- A. The tax rate rises as taxable income rises
- B. The tax rate remains fixed for every taxpayer
- C. The tax rate falls as taxable income rises
- D. The tax is charged only on imported goods
Explanation: A progressive tax applies higher rates to higher levels of taxable income.
Correct answer: The tax rate rises as taxable income rises- A. Sales tax charged on taxable supplies
- B. Income tax charged on an individual
- C. Tax on a company's taxable profit
- D. Tax on an employee's salary
Explanation: Sales tax is indirect because it is collected by the supplier but its economic burden is generally passed to the consumer.
Correct answer: Sales tax charged on taxable supplies- A. Tax avoidance
- B. Tax evasion
- C. Tax assessment
- D. Tax withholding
Explanation: Tax avoidance uses lawful provisions or planning to reduce tax liability.
Correct answer: Tax avoidance- A. It reduces taxable business income
- B. It increases gross business receipts
- C. It changes direct tax into indirect tax
- D. It converts a liability into an asset
Explanation: An allowable deduction is subtracted in determining taxable business income, subject to the relevant tax rules.
Correct answer: It reduces taxable business income215. Which item is normally treated as a capital expenditure rather than an ordinary revenue expense?
- A. Purchase of machinery for long-term business use
- B. Payment of monthly office electricity
- C. Purchase of stationery for immediate use
- D. Payment of routine equipment repairs
Explanation: Machinery acquired for continuing business use creates or improves a long-term asset and is therefore capital in nature.
Correct answer: Purchase of machinery for long-term business use- A. Rs. 75,000
- B. Rs. 95,000
- C. Rs. 115,000
- D. Rs. 20,000
Explanation: Tax deducted at source is generally credited against the taxpayer's gross tax liability. Therefore, Rs. 95,000 minus Rs. 20,000 leaves Rs.
Correct answer: Rs. 75,000- A. Income is excluded from tax under specified law
- B. Tax is collected later through withholding
- C. Tax is increased because income is undisclosed
- D. Tax is shifted from the buyer to the seller
Explanation: An exemption removes specified income, goods or transactions from tax under the applicable law.
Correct answer: Income is excluded from tax under specified law- A. Its eligible business purchases
- B. Its taxable sales to customers
- C. Its annual accounting profit
- D. Its employees' personal expenses
Explanation: Input tax is sales tax paid on eligible purchases or inputs used in making taxable supplies.
Correct answer: Its eligible business purchases- A. To substantiate figures reported in the tax return
- B. To guarantee exemption from every tax
- C. To replace the need to file a return
- D. To convert private expenses into business expenses
Explanation: Records provide evidence for receipts, expenses, assets and other amounts reported in a return.
Correct answer: To substantiate figures reported in the tax return- A. The tax takes a larger income share from poorer households
- B. The tax rate rises with each income bracket
- C. The tax burden is based only on company profit
- D. The tax is assessed after an annual audit
Explanation: A regressive tax takes a greater proportion of income from lower-income taxpayers than from higher-income taxpayers.
Correct answer: The tax takes a larger income share from poorer households