All Free Accounting MCQs with Answers

• A. A unit for which cost is measured
• B. A report prepared for shareholders
• C. A rule for valuing closing stock
• D. A method for recording cash payments

Explanation: A cost object is anything for which a separate cost is required, such as a product, service, job, department or customer.

• A. Allocation assigns a whole cost, while apportionment shares a cost
• B. Allocation shares a cost, while apportionment assigns a whole cost
• C. Allocation records revenue, while apportionment records expenses
• D. Allocation measures output, while apportionment measures labour

Explanation: Allocation charges an entire overhead item to one cost centre when it can be identified with that centre.

• A. Transferred to an abnormal loss account
• B. Added to the cost of normal output
• C. Ignored because it is unavoidable
• D. Credited directly to the production account

Explanation: Abnormal loss is valued at the applicable process cost per unit and transferred to an abnormal loss account, which is ultimately charged…

• A. Actual quantity is below standard quantity for actual output
• B. Actual price is below standard price for actual purchases
• C. Actual quantity is above standard quantity for actual output
• D. Actual price is above standard price for actual purchases

Explanation: Material usage variance compares the quantity actually used with the standard quantity allowed for the actual output, usually at standard…

• A. 500 units
• B. 632 units
• C. 707 units
• D. 1,000 units

Explanation: Economic order quantity is calculated as the square root of 2DS divided by H.

• A. Rs. 50
• B. Rs. 60
• C. Rs. 600
• D. Rs. 50,600

Explanation: Marginal cost is the change in total cost divided by the change in output. The additional cost is Rs.

• A. Costs from development through disposal
• B. Only factory costs during production
• C. Only selling costs after production
• D. Only direct materials used in production

Explanation: Life-cycle costing considers costs over the entire life of a product, including research, design, production, marketing, servicing and…

• A. A permanent decrease in cost without reducing required quality
• B. A temporary postponement of payment to suppliers
• C. An increase in selling price to improve total contribution
• D. A transfer of factory costs to the administration department

Explanation: Cost reduction seeks a genuine and continuing reduction in unit cost while maintaining the required quality and performance.

• A. Commission paid to sales representatives
• B. Depreciation of factory machinery
• C. Wages of production-line workers
• D. Power used by manufacturing equipment

Explanation: Sales commission is incurred to obtain and distribute sales, so it is a selling and distribution overhead.

• A. A predetermined cost under specified operating conditions
• B. The actual cost paid after production is completed
• C. The maximum price charged to a customer
• D. The total cash balance available to a business

Explanation: A standard cost is predetermined for a product or service under stated conditions of efficiency and price.

• A. Profit decreases and liabilities increase
• B. Profit increases and liabilities decrease
• C. Assets increase and profit increases
• D. Liabilities decrease and expenses decrease

Explanation: The unpaid wages are an accrued expense, so they must be debited as an expense and credited as a liability.

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

Explanation: Closing inventory is deducted when calculating cost of goods sold and is also reported as a current asset.

• A. Rs. 80,000
• B. Rs. 90,000
• C. Rs. 100,000
• D. Rs. 110,000

Explanation: Straight-line depreciation equals depreciable cost divided by useful life. The calculation is (Rs. 500,000 minus Rs.

• A. Expense Rs. 20,000 and prepaid Rs. 100,000
• B. Expense Rs. 30,000 and prepaid Rs. 90,000
• C. Expense Rs. 90,000 and prepaid Rs. 30,000
• D. Expense Rs. 120,000 and prepaid nil

Explanation: Three months have expired by 31 December, so the expense is Rs. 120,000 multiplied by 3/12, or Rs. 30,000.

• A. Cash paid to purchase machinery
• B. Cash received from customers
• C. Cash paid to employees
• D. Cash received from issuing shares

Explanation: The purchase of machinery involves acquiring a long-term non-current asset and is therefore an investing cash flow.

• A. is a non-cash expense charged against profit
• B. creates an additional cash receipt
• C. represents a financing cash inflow
• D. is recorded only when an asset is sold

Explanation: Depreciation reduces accounting profit but does not require a cash payment in the current period.

• A. Payment of a supplier's invoice
• B. Recognition of depreciation expense
• C. Declaration of a dividend to owners
• D. Purchase of inventory on credit

Explanation: A dividend distribution reduces retained earnings and is shown as a movement in equity.

• A. Debit rent expense and credit accrued rent
• B. Debit accrued rent and credit rent income
• C. Debit cash and credit rent income
• D. Debit rent income and credit accrued rent

Explanation: The landlord has earned income and has a right to receive the amount, so accrued rent is debited as a receivable and rent income is…

• A. Profit and receivables increase by Rs. 75,000
• B. Cash and profit increase by Rs. 75,000
• C. Liabilities and cash increase by Rs. 75,000
• D. Profit decreases and receivables increase by Rs. 75,000

Explanation: Under accrual accounting, revenue is recognized when earned rather than when cash is collected.

• A. Rs. 135,000
• B. Rs. 175,000
• C. Rs. 215,000
• D. Rs. 265,000

Explanation: Begin with profit of Rs. 200,000 and add back non-cash depreciation of Rs. 40,000.