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 3 of 99
- 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. To prepare the entity’s accounting records
- B. To provide reasonable assurance on fair presentation
- C. To detect every instance of fraud
- D. To guarantee the entity’s future profitability
Explanation: An audit provides reasonable assurance that the financial statements are free from material misstatement and are fairly presented.
Correct answer: To provide reasonable assurance on fair presentation- A. Checking the physical condition of assets
- B. Comparing recorded transactions with supporting documents
- C. Estimating the useful life of fixed assets
- D. Recalculating the entity’s tax liability
Explanation: Vouching tests recorded transactions by tracing them to documents such as invoices, receipts and payment records.
Correct answer: Comparing recorded transactions with supporting documents- A. The physical size of an accounting document
- B. The importance of a misstatement to users’ decisions
- C. The total value of all assets in an entity
- D. The number of transactions recorded during a year
Explanation: A matter is material when its omission or misstatement could influence the decisions of financial statement users.
Correct answer: The importance of a misstatement to users’ decisions- A. One employee authorizes, records and safeguards cash
- B. The cashier prepares and approves the bank reconciliation
- C. Different employees authorize, record and handle transactions
- D. The accountant keeps all accounting documents personally
Explanation: Segregation of duties divides authorization, recording and custody among different people.
Correct answer: Different employees authorize, record and handle transactions- A. An oral explanation given by the client’s cashier
- B. A management-prepared estimate without supporting records
- C. An external confirmation received directly by the auditor
- D. An unsigned schedule prepared by an accounting clerk
Explanation: Evidence obtained directly from an independent external source is generally more reliable than unsupported internal explanations or…
Correct answer: An external confirmation received directly by the auditor- A. They replace the entity’s permanent accounting records
- B. They document the audit work, evidence and conclusions
- C. They serve as the entity’s official financial statements
- D. They provide management with a complete operating manual
Explanation: Working papers record the procedures performed, evidence obtained and conclusions reached by the auditor.
Correct answer: They document the audit work, evidence and conclusions- A. The auditor reviews the client’s accounting policies
- B. The auditor owns a significant financial interest in the client
- C. The auditor requests supporting documents from management
- D. The auditor discusses audit findings with the audit committee
Explanation: A significant financial interest creates a direct self-interest threat because the auditor may benefit from the client’s financial…
Correct answer: The auditor owns a significant financial interest in the client- A. When financial statements contain material and pervasive misstatements
- B. When the auditor finds no material misstatement
- C. When the auditor cannot attend the inventory count but obtains other evidence
- D. When management corrects all material errors before the report date
Explanation: An adverse opinion is issued when misstatements are both material and pervasive, so the financial statements do not present fairly.
Correct answer: When financial statements contain material and pervasive misstatements- A. Accounting examines records, while auditing records transactions
- B. Accounting records and summarizes transactions, while auditing evaluates them
- C. Accounting investigates suspected fraud, while auditing prepares ledgers
- D. Accounting issues audit opinions, while auditing prepares trial balances
Explanation: Accounting involves recording, classifying and summarizing financial transactions.
Correct answer: Accounting records and summarizes transactions, while auditing evaluates them- A. An investigation addresses a specific question or suspected irregularity
- B. An investigation always covers every transaction in the entity
- C. An investigation is performed only to prepare annual accounts
- D. An investigation never uses documentary or testimonial evidence
Explanation: An investigation is normally directed at a particular matter, such as suspected fraud, misconduct or a disputed claim.
Correct answer: An investigation addresses a specific question or suspected irregularity