Free Financial Statements of Sole Traders MCQs with Answers

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

Explanation: Cost of goods sold is Rs. 40,000 + Rs. 140,000 + Rs. 10,000 − Rs. 30,000 = Rs. 160,000. Gross profit is net sales of Rs. 250,000 less Rs.

• A. It is added to purchases and shown as a liability
• B. It is deducted from sales and shown as an expense
• C. It is added to expenses and shown as non-current asset
• D. It is deducted in calculating cost of sales and shown as a current asset

Explanation: Closing inventory reduces the cost of goods sold because it has not yet been sold.

• A. Add Rs. 12,000 to electricity expense and show it as a liability
• B. Deduct Rs. 12,000 from electricity expense and show it as an asset
• C. Ignore Rs. 12,000 until it is paid in cash
• D. Add Rs. 12,000 to capital and show it as income

Explanation: An accrued expense relates to the current accounting period, even though it remains unpaid.

• A. Add Rs. 5,000 to insurance expense and record a liability
• B. Deduct Rs. 5,000 from insurance expense and record a current asset
• C. Transfer Rs. 5,000 to drawings and reduce capital
• D. Record Rs. 5,000 as income in the current year

Explanation: The amount relating to the next year is prepaid and is not a current-year expense.

• A. It is a cash payment shown only in the cash book
• B. It is a liability that increases the owner's capital
• C. It is an expense in the income statement and reduces the asset value
• D. It is income recorded when a fixed asset is used

Explanation: Depreciation allocates the cost of a non-current asset over its useful life.

• A. Rent of the business premises
• B. Wages paid to shop employees
• C. Carriage outward on goods sold
• D. Drawings made by the owner

Explanation: Drawings are withdrawals of business resources by the owner for personal use.

• A. Cash and capital both increase by Rs. 50,000
• B. Cash increases and liabilities increase by Rs. 50,000
• C. Cash decreases and capital increases by Rs. 50,000
• D. Profit increases by Rs. 50,000 without changing capital

Explanation: Additional capital is an investment by the owner, not business revenue.

• A. Capital = Assets + Liabilities
• B. Assets = Revenue + Expenses
• C. Assets = Capital + Liabilities
• D. Liabilities = Assets + Drawings

Explanation: The accounting equation states that business assets are financed by the owner's capital and liabilities.

• A. Debit purchases and credit cash
• B. Debit drawings and credit the supplier
• C. Debit expense and credit sales
• D. Debit motor vehicles and credit the supplier

Explanation: A delivery van is a non-current asset, so the motor vehicles account is debited.

• A. Rs. 395,000
• B. Rs. 355,000
• C. Rs. 315,000
• D. Rs. 445,000

Explanation: Closing capital equals opening capital plus profit and additional capital less drawings. Thus, Rs. 300,000 + Rs. 80,000 + Rs. 40,000 − Rs.

• A. Statement of financial position
• B. Income statement
• C. Statement of cash flows
• D. Capital account

Explanation: The income statement measures financial performance over a period by matching income with related expenses.

• A. Rs. 192,000
• B. Rs. 180,000
• C. Rs. 168,000
• D. Rs. 12,000

Explanation: Net sales equal gross sales less sales returns, so Rs. 180,000 minus Rs. 12,000 gives Rs. 168,000.

• A. Purchases account
• B. Cash account
• C. Capital account
• D. Trade payables account

Explanation: A credit purchase increases the amount owed to the supplier, so Trade Payables is credited.

• A. Trade receivables
• B. Long-term bank loan
• C. Owner's capital
• D. Accumulated depreciation

Explanation: Trade receivables are amounts due from customers and are normally expected to be collected in the operating cycle.

• A. It is added to sales revenue
• B. It is recorded as an expense
• C. It is deducted from purchases
• D. It is deducted from capital

Explanation: Discount allowed is a cost incurred to obtain prompt payment from a customer, so it is charged as an expense in the income statement.

• A. Cost of sales in the income statement
• B. Current liabilities in the statement of financial position
• C. Other income in the income statement
• D. Owner's drawings in the capital section

Explanation: Rent received from using part of the premises is income earned by the business and is normally shown as other income.

• A. Rs. 5,000
• B. Rs. 100,000
• C. Rs. 105,000
• D. Rs. 95,000

Explanation: Five percent of Rs. 100,000 is Rs. 5,000, so the reported net receivables are Rs. 95,000.

• A. Rs. 6,000
• B. Rs. 8,000
• C. Rs. 18,000
• D. Rs. 24,000

Explanation: Three months of the contract fall within the year, from October through December. The current year's expense is therefore Rs.

• A. Rs. 825,000
• B. Rs. 455,000
• C. Rs. 185,000
• D. Rs. 640,000

Explanation: Capital is calculated as assets minus liabilities under the accounting equation. Thus, Rs. 640,000 minus Rs. 185,000 equals Rs. 455,000.

• A. Rs. 1,170,000
• B. Rs. 900,000
• C. Rs. 270,000
• D. Rs. 630,000

Explanation: A non-current asset is reported at cost less accumulated depreciation. Therefore, the building's carrying amount is Rs. 900,000 minus Rs.