Free Financial Statements MCQs with Answers

• A. Balance Sheet discloses financial position of the business
• B. A person who owes to the business is called Debtor
• C. Decrease in the value of the asset could decrease the value of a liability
• D. Assets are to be shown in the Balance Sheet at the realizable value

Explanation: Under the usual historical-cost convention, assets are recorded at cost less applicable depreciation, not at their realizable value.

• A. On the assets side under current assets
• B. On the assets side under loans and advances
• C. On the liabilities side under current liabilities
• D. On the liabilities side under provisionsAccounting & Auditing

Explanation: Tax deducted at source is collected from payees and remains payable to the tax authority until deposited, so it is shown as a current…

• A. Sundry Debtors
• B. Stock
• C. Prepaid insurance
• D. All of A. B. and C. aboveFinance

Explanation: Sundry debtors, stock and prepaid insurance are all expected to be realized, sold or consumed within the normal operating cycle or short…

• A. Stock
• B. Vehicle
• C. Fixed deposit in bank
• D. Both A. and C. above

Explanation: Stock is a current asset, while a bank fixed deposit is an investment rather than a fixed asset used in operations.

• A. Credited to the Profit & Loss Account
• B. Debited to the Profit & Loss Account
• C. Shown on the liabilities side of the Balance Sheet
• D. Shown on the assets side of the Balance Sheet

Explanation: Unexpired insurance represents a future benefit because coverage remains available after the accounting date.

• A. Profit and Loss Account
• B. Balance Sheet
• C. Funds Flow Statement
• D. Trial BalanceAccounting & Auditing

Explanation: A trial balance is an internal listing used to check the equality of debit and credit balances, not a financial statement.

• A. Drawings
• B. Bad debts
• C. Accrued expenses
• D. Reserve for discount on Sundry Creditors

Explanation: Drawings are withdrawals of capital by the proprietor and are adjusted against capital, not treated as a business expense in the Profit…

• A. Financial results of the concern for a period
• B. Financial position of the concern on a particular date
• C. Financial results of the concern on a particular date
• D. Cost of goods sold during the periodFinance

Explanation: The Profit and Loss Account matches revenue with expenses for an accounting period to determine profit or loss.

• A. Replacement cost
• B. Current cost
• C. Cost to acquire less accumulated amortization
• D. Cost less expired portion

Explanation: A prepaid expense represents a future benefit, so the unexpired portion remains as an asset.

• A. Add prepaid expenses to respective expenses and show it as an asset
• B. Deduct prepaid expenses from respective expenses and show it as an asset
• C. Add prepaid expenses to respective expenses and show it as a liability
• D. Deduct prepaid expenses from respective expenses and show it as a liability

Explanation: A prepaid expense has not yet been consumed, so it must be removed from the current period's expense and shown as a current asset.

• A. Current Asset
• B. Current Liability
• C. Fixed Asset
• D. Income

Explanation: Prepaid insurance represents a benefit that will be received in a future period, so it is recorded as a current asset until it expires or…

• A. An Asset in the Balance Sheet
• B. A Liability
• C. By adjusting it in the P & L A/c
• D. Both B. and C. above

Explanation: Outstanding salaries are an unpaid present obligation, so they appear as a liability.

• A. Replacement cost - Accumulated Depreciation
• B. Historical cost - Salvage Value
• C. Historical cost - Depreciation portion thereof
• D. Original cost adjusted for general price-level changes

Explanation: PPE is normally reported at historical cost less accumulated depreciation, which gives its carrying or net book value.

• A. Return outwords
• B. Return inwards
• C. cost of goods sold
• D. carriage on sales

Explanation: Net sales are calculated after deducting sales returns, also called returns inward, from gross sales.

• A. Current Assets
• B. Fixed Assets
• C. Current Assets& current liabilities
• D. All of the above

Explanation: Current assets are short-term resources expected to be realised, sold or consumed within the normal operating cycle or generally within…

• A. Balance sheet
• B. income statement
• C. common size income statement
• D. All of the Above

Explanation: A common-size income statement expresses every income-statement item as a percentage of sales, making comparison between periods or…

• A. Debtors A/c
• B. Profit & Loss A/c
• C. Profit & Loss Adjustment A/c
• D. Profit & Loss Appropriation A/c

Explanation: Bad debts recovered are income because an amount previously written off as irrecoverable has been collected.

• A. Debit Profit and Loss Account and deduct the provision from debtors
• B. Credit Profit & Loss Account and deduct the provision from debtors
• C. Credit Profit and Loss Account and add the provision to debtors
• D. Debit Profit & Loss Account and add the provision to debtorsExplore Sci-Fi Shows

Explanation: Creating a doubtful-debt provision recognizes an expense by debiting Profit and Loss Account and reduces the expected collectible amount…

• A. Finished goods
• B. Work-in-process
• C. Stores and spares
• D. Advance payments made to suppliers for raw materials

Explanation: Finished goods, work-in-process, and stores and spares are inventory items held for production or sale.

• A. Written down to zero or its scrap value
• B. Shown in the Balance Sheet at its replacement cost
• C. Shown in the Balance Sheet at cost, but classified as a non-current asset
• D. Carried in the accounting records at cost until it is soldAccounting & Auditing

Explanation: Obsolete inventory cannot continue to be reported at its original cost when it is no longer saleable at that amount.