Accounting MCQs with Answers

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Important Accounting MCQs with Answers PDF for accounting test preparation online.

Accounting MCQs with Answers

Building and furniture are called ____?

  1. Current asset
  2. Fictitious asset
  3. Tangible asset
  4. Fixed assets

A sale of Rs. 50.000 to A was entered as a sale to B. This is an example of___?

  1. Error of omission
  2. Error of commission
  3. Compensating error
  4. Error of principle

Credit note is the basis for recording a transaction in which of the following journals?

  1. Purchase Journal
  2. Sales return journal
  3. General journal
  4. Cash receipt journal

___ is the first phase of accounting cycle

  1. Identifying an economic event or transaction
  2. Preparing Journal
  3. Posting entries to Ledger accounts
  4. Making decisions about business

Which of the following statements is incorrect regarding capital account?

  1. Debit increases the capital account balance
  2. Credit increases the capital account balance
  3. Fresh capital increases the capital account balance
  4. Net income increases the capital account balance

Amount paid to Masood posted to the credit side of his account would affect___?

  1. Masood’s account
  2. Cash account
  3. Cash account and Gagan’s account
  4. None of these

Journal proper is meant for recording___?

  1. Credit purchase of fixed assets
  2. Return of goods
  3. All such transactions for which no special journal has been kept by the business
  4. None of these

If goods worth 1,750 returned to a supplier is wrongly entered in sales return book as 1,570, then

  1. Net Profit will decrease by 3,140
  2. Gross Profit will increase by 3,320
  3. Gross Profit will decrease by 3,500
  4. Gross Profit will decrease by 3,320

Error which affect only one account can be

  1. Error of complete omission
  2. Error of posting
  3. Compensatory errors
  4. None of the above

Postage stamps on hand are considered as___?

  1. Bank
  2. Prepaid expenses
  3. Accounts receivable
  4. Creditor

Cash received from debtors would be deemed as __ of funds.

  1. No flow
  2. Sources
  3. Uses
  4. Gain

Benefits of preparing Bank Reconciliation Statement includes___________?

  1. It bring out any errors committed in preparation of Cash book / Bank Pass Book
  2. Highlights under delay in clearance of cheques deposited but not credited
  3. Help know actual bank balance
  4. All the three

Transactions that a BUSINESS doesn’t record in any specialised journal are recorded in which of the following journals or day books?

  1. Cash payments journal
  2. Cash receipts journal
  3. Purchases return journal
  4. General journal

Transferring entries from journal to ledger account is commonly known as____________?

  1. Recording
  2. Transferring
  3. Posting
  4. Entry making

Net sales = Sales less?

  1. Sales returns
  2. Sales discounts
  3. Sales returns & allowances
  4. Sales returns & allowances and sales discounts

The largest expense of most manufacturing firms is?

  1. Salaries Expense
  2. Amortization Expense
  3. Rent Expense
  4. Cost of goods sold

Graph which is plotted for projected net present value and capital rates is called

  1. net loss profile
  2. net gain profile
  3. net future value profile
  4. net present value profile

A point where profile of net present value crosses horizontal axis at plotted graph indicates project

  1. Costs
  2. cash flows
  3. internal rate of return
  4. external rate of return

The maintenance of accounts in a systematic way is called:

  1. Accounting
  2. Reading
  3. Book keeping
  4. Auditing

Which of following account with normal balance is shown at the debit side of the trial balance?

  1. Rent income account
  2. Credits account
  3. Cash account
  4. Unearned income account

The major government policies that can be used to pursue its macroeconomic goals are:

  1. Fiscal policy and debit policy
  2. Fiscal policy and monetary policy
  3. Fiscal policy and subsidies
  4. None

Which of following account is not an account that normally has a credit balance?

  1. Expense
  2. Liability
  3. Revenue
  4. Owner’s capital

A___ is a formal financial statement that summarizes revenue and expense for a period:

  1. Income statement
  2. Capital statement
  3. Balance sheet
  4. Statement of cash

A cost that changes with the number of units produced, but that can never be a zero, is what kind of cost ?

  1. Mixed cost
  2. Period cost
  3. Variable cost
  4. Product cost

The normal balance of liability account is:

  1. Credit balance
  2. Debit balance
  3. Cash balance
  4. None of above

Credit purchases of plant and machinery is recorded in which following specialized Journals?

  1. General journal
  2. Cash journal
  3. Purchase journal
  4. Purchase return journal

The process by which companies credit value for customer and build strong customer relationship in order to capture value from customer in return is called ____.

  1. Marketing
  2. Management
  3. HRM
  4. Research

In June 2013 the circular debt in Pakistan was:

  1. 406 billion
  2. 206 billion
  3. 505 billion
  4. 606 billion

Tender is a ____

  1. Estimation of profit
  2. Estimation of cost
  3. Estimation of units
  4. estimation of selling price

Calculate the amount of cash if: Total assets=$10,000 Total liabilities=$10,000 Total Capital=$5000

  1. $6000
  2. $10,000
  3. $5000
  4. $1000

The most important economic feature in the economic measures pursued by Aladdin Khilji was:

  1. Market control
  2. Market
  3. Both
  4. None

Ledger is called :

  1. Book of original entry
  2. Book of final entry
  3. Book of compound entry
  4. None

Money in the account of account holder is called :

  1. Deposits
  2. Assets
  3. Income
  4. none

Deposits are received by which Bank ?

  1. State Bank
  2. Commercial Bank
  3. All
  4. None

Profit and loss account is prepared on :

  1. Specific time period of time
  2. Specific time period for capital
  3. income
  4. none

Which of the following product costs is both a prime cost and conversion cost?

  1. Direct labor
  2. Manufacturing overhead
  3. Indirect material
  4. All of the above

Which of the following is a control account?

  1. Capital
  2. Prepaid rent
  3. Accounts receivable
  4. Salary payable

Which of the following are closed at the end of an accounting period?

  1. Nominal accounts
  2. Personal accounts
  3. Real accounts
  4. None of them

Which of the following accounts will be debited if the business’s owner withdraws cash from business for personal use?

  1. Drawings
  2. Cash
  3. Business
  4. Stock

Which is the most important characteristic that all assets of a business have?

  1. Long life of assets
  2. Value of assets
  3. Intangible nature of assets
  4. None of the above`

Identify the asset from the following

  1. Cash and cash equivalent
  2. Creditors
  3. Notes payable
  4. Bank loan

If the Gross profit is Rs. 5,000 and the net profit is 25% of the Gross profit. The expenses?

  1. Rs. 3,750
  2. Rs. 1,250
  3. Rs. 4,150
  4. Rs. 6,250

In independent projects evaluation, results of internal rate of return and net present value lead to

  1. cash flow decision
  2. cost decision
  3. same decisions
  4. different decisions

In ___ the owner is personally liable for the debts of the business.

  1. Public unlisted company
  2. Financial statement
  3. Private limited company
  4. Sole proprietorship

A firm has a total cost of rs 7000 and variable cost rs 6000 for such unit product . what is the fixed cost?

  1. 1000
  2. 4000
  3. 8000
  4. 9000

The number whose 3% is 60, is ___ .

  1. 2000
  2. 3000
  3. 6000
  4. None of these

Cost of Goods sold is classified as which type of account?

  1. Asset
  2. Liability
  3. Revenue
  4. Expense

Who is known as father of E-mail ?

  1. David Ricardo Malthus
  2. Thomas
  3. Ray Tomlinson
  4. None

In capital budgeting, term of bond which has great sensitivity to interest rates is

  1. long-term bonds
  2. short-term bonds
  3. internal term bonds
  4. external term bonds

the term electronic cash is to execute payment through?

  1. cheque
  2. credit card
  3. ATM
  4. using computer over a network

A final statement is a means of communicating information about an enterprise in ___ terms.

  1. Import
  2. Export
  3. Financial
  4. None

Debit balance = Credit balance in a trial balance indicates that:

  1. No error in recording transactions
  2. No error in posting entries to ledger accounts
  3. Account balances are correct
  4. Mathematically Capital

_____is the residual interest of owners in assets over liability?

  1. Expenses
  2. Income
  3. Equity
  4. None of these

Which of the following is a Book of secondary entries?

  1. Posting
  2. Ledger
  3. Account
  4. Transaction
  5. None of these

The Bank Reconciliation Statement is?

  1. Not a part of book of accounts
  2. A part of books of accounts
  3. A part and parcel of books of accounts
  4. Both B & C

Historical cost of inventories may be determined by using?

  1. FIFO
  2. LIFO
  3. Variable Costing Method
  4. Both A & B

Intangible Assets_____?

  1. Have physical existence
  2. Have no physical existence
  3. Which can be seen
  4. None of these

Loans obtained against hypothecation of an asset is called?

  1. Unsecured Loan
  2. Capital
  3. Secured Loan
  4. All of the above

A ______ increases in liability, while ___________ decreases in liability.

  1. Debit, Debit
  2. Credit, Debit
  3. Credit, Credit
  4. Debit, Credit

Which of the following are the functions of treasuries?

  1. Taxation and insurance
  2. Managing working capital
  3. Accounting and Auditing
  4. None of these

Project invisibility can lead to sub-optimal results when ______ is used for capital retaining

  1. NPV
  2. ARR
  3. IRP
  4. PI

Inflation, changes in interest ration and changes in economic condition affect all firms and all industries. These factors are part of?

  1. Market Risk
  2. Industry Risk
  3. Project Risk
  4. International Risk

An annuity for an infinite period of time is called?

  1. Perpetuity
  2. Capital recover factors
  3. Annual
  4. Irredeemable

IRR stands for?

  1. internal rate of remarks
  2. internal rate of refund
  3. internal rate of return
  4. internal ratio of retur

The effect of overcapitalization is and of under capitalization is ________ dividend rates.

  1. Constant, rise
  2. Fall, rise
  3. Rise, Constant
  4. Rise, Fall

IRR is also called as?

  1. The marginal Productivity of capital
  2. Managerial efficiency of Capital
  3. Yield on investment
  4. All of these

Capital Intensive industries with longer manufacturing process will have ________ requirements of working capital.

  1. Moderate
  2. Power
  3. Higher
  4. Lower

The excess of current assets over current liabilities is called:

  1. Working Capital
  2. Circulating capital
  3. Fixed capital
  4. Trading capital

Salaries paid to partners is an:

  1. Expense to partnership firm
  2. Income of the partnership firm
  3. Appropriation of profit among partners
  4. None of these

What from the following is not a current asset?

  1. Cash
  2. Inventory
  3. Patent Rights
  4. Trade Receivables
  5. None of these

The accounting process of allocation cost of intangible assets is called?

  1. Residual Value
  2. Going concern
  3. Depletion
  4. Amortization

In Modaraba?

  1. Two persons invest money
  2. Both persons invest money and labour
  3. One person invests money and the other invests labour and experiance
  4. All of these

Per Capita income is calculated as?

  1. N.I/ Population
  2. N.I + Population
  3. N.I + Population
  4. None of these

The main function of World Trade Organization (WTO) is to ensure that trade flows?

  1. Predictably
  2. Freely
  3. Smoothly
  4. All of these
  5. None of these

Deflation refers to what?

  1. A decrease in the overall price level
  2. A decrease in the overall level of economic activity
  3. An increase in the overall price level
  4. an increase in the overall level of economic activity

The expected disposal value of the asset (after deduction disposal costs) at the end of its expected useful life is called?

  1. Net book value
  2. Residual value
  3. Depreciation
  4. Substance over form

What standards are used to prepare financial statements by most of the countries and companies?

  1. International Financial Reporting Standards
  2. International Accounting & Auditing Standards
  3. International Financial Accounting Standards
  4. All of these

Custom duties are form of ______

  1. Direct Taxation
  2. Indirect Taxation
  3. Non-Tax Revenue
  4. Govt deposits

IFAC is an abbreviation of?

  1. International Federation of Accountants
  2. International Federation of Account
  3. International Founder of Accountants
  4. None

Entities are required to comply with the following standards to operative their financial statements?

  1. IAS
  2. ISA
  3. IFRS
  4. All of these
  5. None of these

What is the main purpose of Financial Accounting?

  1. Provide useful information to outsiders
  2. Organizing financial information
  3. Keep track of company’s expenses
  4. Keep information to maximize company profits
  5. All of these

Which financial statement uses the expanded accounting equation?

  1. Income statement
  2. Cash flow statement
  3. Statement of equities
  4. Statement of financial position

The accrual basis of accounting records revenues when they are

  1. Collected
  2. Earned
  3. Contracted
  4. Readily available for use
  5. All of these

The account format that displays debits credits balances and headings is___?

  1. General Journal
  2. General Ledger
  3. T-Account
  4. Ledger Account

Depreciation arises due to what?

  1. Physical wear and tear of the asset
  2. Fall in the market value of the asset
  3. Fall in the value of money
  4. All of these
  5. None of these

All of the following are stockholders’ equity accounts except:

  1. Common Stock
  2. Investment in Stock
  3. Retained Earnings
  4. Capital Stock

Retained earnings is classified as which type of account?

  1. Asset
  2. Liability
  3. Expense
  4. Equity
  5. All of these

Which of the following business entity is considered as a “legal person” in the eye of law?

  1. Sole trader
  2. Partnership
  3. Company
  4. All of the above
  5. None of these

Which of the following accounting principles requires businesses to record depreciation?

  1. The cost principle
  2. The matching principle
  3. The revenue recognition principle
  4. The going concern principle
  5. All of these

Which of the following are the tools of management accounting?

  1. Budgetary controls
  2. Marginal Costing
  3. Standard Costing
  4. All of these
  5. None of these

Which of the following are not the tools of management accounting?

  1. Funds flow statement
  2. Cash Flow statement
  3. Ratio Analysis
  4. Process costing

Who coined the concept of management accounting?

  1. R.N Anthony
  2. James H. Bliss
  3. Vint Cerf
  4. Thomas Edison

Managing Accounting maintains_?

  1. Ledger
  2. Journal
  3. Both of these
  4. None of these

Wealth maximization is a ________?

  1. Outdated concept
  2. Long term concept
  3. Temporary concept
  4. Short term concept
  5. All of these

Salaries, wages, depreciations, rents and utilities are used to calculate___?

  1. Operating costs
  2. Variable costs
  3. Outdoor costs
  4. Fixed costs
  5. All of these

The opinion in an auditor’s report is about attesting that the financial statement are __?

  1. Are in accordance with the national standards
  2. Are in accordance with the international standards
  3. Are free from errors, mistakes, or fraud
  4. Present fairly in all material respects

Audit Risk is the combination of_____?

  1. Three Risks
  2. Two Risks
  3. Four Risks
  4. Five risks

Audit Risk basically represents the risk that the auditor would wrongly conclude that the financial statements are?

  1. Free from material error whereas material is present
  2. Not free from material error whereas material error is not present
  3. Both A & B
  4. None of these

Inherent Risk is fundamentally?

  1. The residual risk after all precautionary measures have been taken
  2. the residual risk after proper controls are designed and implemented
  3. the risk inherent in auditor’s tests to detect misstatements
  4. None of these

Abbreviation Of GPR?

  1. Gross Profit Ratio
  2. Ground Push Reading
  3. Ground Penetrating Rule
  4. None of these

A buyer’s perception of value is considered a trade-off between

  1. Product value and psychic cost
  2. Total customer value and total customer cost
  3. Service value and monetary cost
  4. Image value & monetary cost

Verification refers to

  1. Examination of journal and ledger
  2. . Examination of voucher relating to assets
  3. Examination of physical existence and valuation of assets
  4. Calculation of the value of assets

The first and foremost function of management is

  1. planning
  2. organizing
  3. co-ordination
  4. controlling

Floating assets are valued at____?

  1. Cost less depreciation
  2. Cost or market price whichever is lower
  3. Market price
  4. cost

At break-even point :

  1. total expenses = total revenue
  2. total expenses > total revenue
  3. total expenses < total revenue
  4. None of these

___ refers to the risk inherent to the entire market or market segment

  1. Financial risk
  2. Purchasing power
  3. Systematic risk
  4. Interest free risk

Debtors have least profit share due to

  1. Not participating in operational risk
  2. Payment to trade payable s
  3. Current ratio and quick ratio
  4. None of these

An expenditure which occurs non repeatedly and regularly is known as :

  1. Capital expendeture
  2. Revenue expenditure
  3. Deffered revenue expenditure
  4. None of these

The minimum wage rate for unskilled workers in Punjab is per month

  1. PKR 25,000 to PKR 32,000
  2. PKR 25,00 to PKR 36,000
  3. PKR 20,000 to PKR 39,000
  4. None of these

Margin of safety is computed as

  1. Actual sales – break even sales
  2. Contribution margin – fixed costs
  3. Actual sales – Contribution margin
  4. None of these

Which of the following is not involved in CVP analysis?

  1. Sales mix.
  2. Unit selling prices.
  3. Fixed costs per unit.
  4. Volume or level of activity.

Rose Company reported net income of $24,000, net sales of $400,000, and average assets of $600,000. Calculate the profit margin ratio.

  1. 12%
  2. 6%
  3. 40%
  4. 200%

A company makes a credit sale of $750 on June 13, terms 2/10, n/30, on which it grants a return of$50 on June 16. The amount received as payment in full on June 23 is:

  1. $650
  2. $685
  3. $686
  4. $700

The closing process involves separate entries to close: (1) expenses, (2) dividends, (3) revenues, and (4) income summary. The correct sequencing of the entries is:

  1. (4), (3), (2), (1)
  2. (1), (2), (3), (4)
  3. (3), (1), (4), (2)
  4. (3), (2), (1), (4)

An adjusting entry for prepaid expenses affects

  1. Liabilities and assets
  2. Liabilities and expenses
  3. Assets and expenses
  4. Assets and income

Which report gives a review on the profitability of a business?

  1. Statement of changes in equit
  2. Cash flow statement
  3. Balance sheet
  4. Income statement

An examination of the sources and uses of funds statement is part of:

  1. A forecasting technique
  2. A funds flow analysis.
  3. A ratio analysis.
  4. Calculations for the balance sheet

In Inventory Turnover calculation, what is taken in the numerator?

  1. Closing Stock.
  2. Opening Stock
  3. Cost of Goods Sold,
  4. Sales

Gross Profit Ratio for a firm remains same but the Net Profit Ratio is decreasing. The reason for such behavior could be:

  1. Decrease in Sales.
  2. Increase in Dividend
  3. If Increase in Expense
  4. Increase in Costs of Goods Sold

A Current Ratio of Less than One means:

  1. Share Capital > Current Assets
  2. Current Liabilities < Current Assets
  3. Current Assets < Current Liabilities
  4. None of these

ABC Ltd. has a Current Ratio of 1.5: 1 and Net Current Assets of Rs. 5,00,000. What are the Current Assets?

  1. Rs. 25,00
  2. Rs. 15,00,000
  3. Rs. 10,00,000,
  4. Rs. 5,00,000

ABC Ltd. has a Current Ratio of 1.5 : 1 and Net Current Assets of Rs. 5,00,000. What are the Current Assets?

  1. Rs. 25,00
  2. Rs. 15,00,000
  3. Rs. 10,00,000,
  4. Rs. 5,00,000

The dividend-payout ratio is equal to ____.

  1. dividends per share divided by current price per share.
  2. dividends per share divided by par value per share
  3. dividends per share divided by earnings per share
  4. the dividend yield plus the capital gains yield

Key factor is also known as ____

  1. Principal factor
  2. Governing factor
  3. Limiting factor
  4. All

Cost accounting is primarily concerned with:

  1. Calculating profits
  2. Recording financial transactions
  3. Analyzing and controlling costs
  4. Forecasting future sales

The person from who goods are bought on credit is known as ____________.

  1. Creditor
  2. Debtor
  3. Borrower
  4. None of these

Which of the following statement measures the financial position of the entity on particular time?

  1. Income Statement
  2. Balance Sheet
  3. Cash Flow Statement
  4. Statement of Retained Earning

Which of the following has the highest cost of capital?

  1. Preference shares
  2. Bonds
  3. Loans
  4. Equity shares

Criterion for IRR (Internal Rate of Return)?

  1. Accept IRR = Cost of capital
  2. Accept IRR < Cost of capital
  3. Accept IRR > Cost of capital
  4. None of these

What should be the criteria of selection when choosing among mutually exclusive projects?

  1. Selecting a project with a lower cost of capital
  2. Selecting a project with the quickest payback
  3. Selecting a project with the longest payback
  4. Selecting a project with the highest net present value

Which statement shows the flow of cash and cash equivalents during the financial period?

  1. Income statement
  2. Balance sheet
  3. Cash flow statement
  4. Statement of changes in equity

Which of the following options is not recorded in the Balance sheet?

  1. Goodwill
  2. Building
  3. Rent expenses
  4. Cash

____ refer to those goods which satisfy the wants of the consumer directly.

  1. Consumption goods
  2. Capital goods
  3. Producer goods
  4. None of these

Which of the following accounts are not closed at the end of an accounting period?

  1. Asset accounts
  2. Drawing accounts
  3. Expense accounts
  4. Revenue accounts

Economic order quantity is that quantity at which cost of holding and carrying inventory is:

  1. Maximum and equal
  2. Minimum and equal
  3. It can be maximum or minimum depending upon case to case
  4. Minimum and unequal

Which round of international trade negotiations resulted in the creation of the World Trade Organization ?

  1. Doha Round of 2003-2007
  2. Uruguay Round of 1986-1993
  3. Tokyo Round of 1973-1979
  4. Kennedy Round of 1964-1967

The reduction or covering of foreign exchange risk is called ?

  1. arbitrage
  2. intervention
  3. speculation
  4. hedging

GAAP stands for

  1. Generally accepted accounting principles
  2. Globally accepted accounting practices
  3. Generally accepted accounting policy
  4. Generally accepted accounting practices

When the sales increase from Rs 40,000 to Rs 60,000 and profit increases by Rs 5,000, the P/V ratio is —

  1. 0.25
  2. 6.78
  3. 1.00
  4. 2.00

Audit fess is a part of _______.

  1. administration overhead
  2. distribution overhead
  3. selling overhead
  4. works on cost

Depreciation of fixed assets is an example of:

  1. Deferred Revenue Expenditure
  2. Capital Expenditure
  3. Revenue Expenditure
  4. None of these

Stock control through stock levels and EOQ is called .

  1. automatic order method.
  2. control by important and exception.
  3. perpetual inventory system.
  4. demand and supply method.

Which one of the following is a single-use plan?

  1. Strategy
  2. Budget
  3. Rule
  4. Method

Offshoring is :

  1. Importing
  2. Exporting
  3. Subcontracting a part of production to another firm.
  4. Substituting foreign for domestic labor.

What does the consumer price index (CPI) calculate?

  1. Price of services only
  2. Price of goods only
  3. Price of both goods and services
  4. None of the above

On balance sheet, accruals, notes payable, and account payable are listed under which category?

  1. Current Liabilities
  2. Accumulated Liabilities
  3. Non current Liabilities
  4. Accrued Liabilities

In cash book, the favorable balance indicates

  1. Credit Balance
  2. Debit Balance
  3. Bank Overdraft
  4. Adjusted Balance

In cash book, the favorable balance indicates

  1. Credit Balance
  2. Debit Balance
  3. Bank Overdraft
  4. Adjusted Balance

An un adjusted balance in cash book is because of the result of which error?

  1. Unpresented cheques
  2. Outstanding cheques
  3. The omission of Bank charges
  4. Deposit in transit

A method used in a comparative analysis of financial statement is:

  1. Graphical analysis
  2. Preference analysis
  3. Common size analysis
  4. Returning analysis

Which statement shows the flow of cash and cash equivalents during the financial period ?

  1. Cash flow statement
  2. Statement of changes in equity
  3. Balance sheet
  4. Income statement

All these basic Accounting MCQs with Answers PDF for accounting exam test preparation. These basic Accounting MCQs help students in their Accounting jobs test preparation.

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