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 83 of 99
- A. Profit decreases and a liability increases
- B. Profit increases and a liability decreases
- C. Cash decreases and profit increases
- D. Assets increase and liabilities decrease
Explanation: The estimated warranty cost is charged to the period in which the related sales occur, reducing profit.
Correct answer: Profit decreases and a liability increases- A. Debit expense Rs 10,000 and credit allowance Rs 10,000
- B. Debit expense Rs 25,000 and credit allowance Rs 25,000
- C. Debit allowance Rs 10,000 and credit expense Rs 10,000
- D. Debit receivables Rs 10,000 and credit allowance Rs 10,000
Explanation: The required allowance is 5% of Rs 500,000, or Rs 25,000. Since Rs 15,000 already exists, only the Rs 10,000 increase is charged as…
Correct answer: Debit expense Rs 10,000 and credit allowance Rs 10,0001643. A prepaid expense is normally shown in the statement of financial position as which type of item?
- A. A current asset representing future benefit
- B. A current liability representing future payment
- C. An expense representing current consumption
- D. A provision representing an uncertain obligation
Explanation: A prepaid expense is a payment made before the related benefit is consumed, so it represents a future economic benefit.
Correct answer: A current asset representing future benefit- A. Debit expense and credit cash
- B. Debit cash and credit expense
- C. Debit prepaid expense and credit cash
- D. Debit cash and credit prepaid expense
Explanation: The payment creates a prepaid expense asset because the service has not yet been consumed.
Correct answer: Debit prepaid expense and credit cash1645. At the end of an accounting period, an accrued expense is best described as an expense that is:
- A. Paid and consumed during the same period
- B. Consumed but unpaid at the reporting date
- C. Paid but related to a future period
- D. Estimated but unrelated to any obligation
Explanation: An accrued expense has already been incurred because the related goods or services have been received, but payment has not yet been made.
Correct answer: Consumed but unpaid at the reporting date- A. Debit provision Rs 90,000 and credit cash Rs 90,000
- B. Debit warranty expense Rs 90,000 and credit provision Rs 90,000
- C. Debit cash Rs 90,000 and credit warranty income Rs 90,000
- D. Debit provision expense Rs 90,000 and credit inventory Rs 90,000
Explanation: Recognizing the provision records the expected cost in the income statement and the obligation in the statement of financial position.
Correct answer: Debit warranty expense Rs 90,000 and credit provision Rs 90,0001647. When an established warranty provision is used to pay a valid claim, which entry is normally made?
- A. Debit warranty expense and credit cash
- B. Debit provision and credit cash
- C. Debit cash and credit provision
- D. Debit inventory and credit warranty income
Explanation: The provision was already charged as an expense when the expected obligation was recognized.
Correct answer: Debit provision and credit cash- A. Prepaid expense
- B. Contingent liability
- C. Capital reserve
- D. Trade payable
Explanation: A contingent liability is a possible obligation whose existence or amount depends on uncertain future events.
Correct answer: Contingent liability- A. Original purchase cost of the related asset
- B. Best estimate of the expenditure required to settle it
- C. Maximum possible loss in every case
- D. Expected profit from avoiding the obligation
Explanation: The measurement of a provision is based on the best estimate of the expenditure needed to settle the present obligation at the reporting…
Correct answer: Best estimate of the expenditure required to settle it- A. Expense Rs 12,000 and prepaid asset Rs 36,000
- B. Expense Rs 36,000 and prepaid asset Rs 12,000
- C. Expense Rs 48,000 and prepaid asset nil
- D. Expense nil and prepaid asset Rs 48,000
Explanation: Only one of the four months has been consumed by 31 December, so the expense is Rs 12,000.
Correct answer: Expense Rs 12,000 and prepaid asset Rs 36,000- A. To recognize the expense twice in both periods
- B. To prevent the later cash payment from being recorded as expense twice
- C. To convert the liability into a fixed asset
- D. To cancel the original expense permanently
Explanation: The reversal removes the prior-period accrual so that the subsequent payment can be recorded through the normal expense or payable…
Correct answer: To prevent the later cash payment from being recorded as expense twice- A. Existence or amount and timing of settlement
- B. Payment method and supplier address
- C. Invoice number and purchase order
- D. Currency used for recording the transaction
Explanation: A trade payable is usually supported by an invoice and has relatively certain amount and settlement timing.
Correct answer: Existence or amount and timing of settlement- A. Collected from the customer
- B. Earned by providing goods or services
- C. Included in the cash budget
- D. Transferred to the bank account
Explanation: Accrual accounting recognizes revenue when the earning activity occurs, regardless of when cash is collected.
Correct answer: Earned by providing goods or services1654. Cash received from a customer before the related service is provided is normally recorded as a:
- A. Trade receivable
- B. Deferred income liability
- C. Prepaid expense
- D. Accrued income asset
Explanation: The business still owes the customer goods or services, so the receipt creates a liability.
Correct answer: Deferred income liability- A. Cash is deposited
- B. Invoice is approved
- C. Economic benefit is consumed
- D. Supplier is selected
Explanation: A prepayment represents a future economic benefit, so it remains an asset until that benefit is used.
Correct answer: Economic benefit is consumed- A. Total assets increase
- B. Total assets decrease
- C. Total assets remain unchanged
- D. Total assets become liabilities
Explanation: The payment changes cash into a prepaid asset of equal value. Therefore, total assets do not change at that moment, although their…
Correct answer: Total assets remain unchanged- A. Are always paid in cash
- B. Do not create a present obligation
- C. Are recorded as capital assets
- D. Must be approved by auditors
Explanation: Future operating losses do not arise from a present obligation at the reporting date.
Correct answer: Do not create a present obligation- A. Announced a general cost-cutting intention
- B. Created a valid expectation among affected parties
- C. Collected cash from its customers
- D. Approved its annual depreciation budget
Explanation: A detailed plan alone is insufficient; the entity must also create a valid expectation that the restructuring will be carried out.
Correct answer: Created a valid expectation among affected parties- A. Inflation is completely absent
- B. The time value of money is material
- C. The liability is paid immediately
- D. The estimate has no uncertainty
Explanation: A provision is discounted when the time value of money is material, because settlement may occur in the future.
Correct answer: The time value of money is material- A. Transferred to share capital
- B. Reversed through profit or loss
- C. Added to inventory cost
- D. Kept permanently as a reserve
Explanation: A provision must represent a current obligation at the reporting date. When that obligation no longer exists, the unused provision is…
Correct answer: Reversed through profit or loss