Unit 3: Recording of Business Transactions
Voucher and Transaction :
1. **Which of the following is the first step in the accounting process?**
- A) Summarising transactions
- B) Identifying transactions
- C) Communicating results
- D) Auditing transactions
- **Answer:** B) Identifying transactions
2. **What is the purpose of a source document in accounting?**
- A) To summarise financial statements
- B) To record the value of assets
- C) To provide evidence of a transaction
- D) To classify transactions
- **Answer:** C) To provide evidence of a transaction
3. **A cash memo, invoice, or pay-in-slip is an example of a:**
- A) Ledger entry
- B) Source document
- C) Journal voucher
- D) Complex voucher
- **Answer:** B) Source document
4. **In accounting, which aspect of a transaction is considered the "take" aspect?**
- A) Payment of cash
- B) Delivery of goods
- C) Receipt of cash
- D) Debiting the account
- **Answer:** B) Delivery of goods
5. **What is the balance sheet equation?**
- A) Assets = Liabilities + Cash
- B) Capital = Liabilities + Cash
- C) Assets = Liabilities + Capital
- D) Liabilities = Assets + Capital
- **Answer:** C) Assets = Liabilities + Capital
6. **Which of the following is NOT an essential element of an accounting voucher?**
- A) Name of the firm
- B) Date of transaction
- C) Transaction amount in words
- D) Signature of the authorised person
- **Answer:** C) Transaction amount in words
7. **What type of voucher is used to record a transaction with multiple debits and credits?**
- A) Debit voucher
- B) Credit voucher
- C) Journal voucher
- D) Cash voucher
- **Answer:** C) Journal voucher
8. **If Rohit started a business with capital of ₹5,00,000, what would be his balance sheet equation?**
- A) Assets = Liabilities + ₹5,00,000
- B) Assets = Liabilities + ₹2,50,000
- C) Liabilities = Assets + ₹5,00,000
- D) Capital = Liabilities + ₹5,00,000
- **Answer:** A) Assets = Liabilities + ₹5,00,000
9. **What is a T-account used for in accounting?**
- A) To record financial statements
- B) To summarise assets and liabilities
- C) To visually represent debits and credits
- D) To compute balance sheet totals
- **Answer:** C) To visually represent debits and credits
10. **The accounting equation A = L + C stands for:**
- A) Assets = Loans + Cash
- B) Accounts = Liabilities + Credit
- C) Assets = Liabilities + Capital
- D) Allowances = Liabilities + Cash
- **Answer:** C) Assets = Liabilities + Capital
11. **Which of the following accounts is increased by a debit?**
- A) Cash
- B) Liabilities
- C) Capital
- D) Revenues
**Answer:** A) Cash
12. **When a business pays rent in cash, which accounts are affected?**
- A) Rent Expense (Debit) and Cash (Credit)
- B) Rent Expense (Credit) and Cash (Debit)
- C) Rent Expense (Debit) and Revenue (Credit)
- D) Cash (Debit) and Rent Expense (Credit)
**Answer:** A) Rent Expense (Debit) and Cash (Credit)
13. **In a transaction where goods are sold on credit, which account is debited?**
- A) Sales Account
- B) Cash Account
- C) Debtors Account
- D) Purchases Account
**Answer:** C) Debtors Account
14. **Which of the following statements is true regarding the rules of debit and credit?**
- A) An increase in liabilities is debited.
- B) An increase in assets is credited.
- C) An increase in expenses is debited.
- D) A decrease in capital is credited.
**Answer:** C) An increase in expenses is debited.
15. **What type of journal entry involves more than two accounts?**
- A) Simple Journal Entry
- B) Compound Journal Entry
- C) Special Journal Entry
- D) Temporary Journal Entry
**Answer:** B) Compound Journal Entry
16. **When cash is deposited into the bank, which accounts are affected?**
- A) Cash (Debit) and Bank (Credit)
- B) Cash (Credit) and Bank (Debit)
- C) Cash (Debit) and Cash in Hand (Credit)
- D) Bank (Debit) and Cash (Credit)
**Answer:** D) Bank (Debit) and Cash (Credit)
17. **Which of the following transactions would decrease capital?**
- A) Goods purchased for cash
- B) Rent paid
- C) Cash received from debtors
- D) New capital introduced
**Answer:** B) Rent paid
18. **What is the primary purpose of the ledger in an accounting system?**
- A) To record transactions chronologically
- B) To summarize and group transactions related to specific accounts
- C) To analyze the financial position of the business
- D) To prepare financial statements
**Answer:** B) To summarize and group transactions related to specific accounts
19. **When furniture is purchased on credit, which account is credited?**
- A) Furniture Account
- B) Cash Account
- C) Creditors Account
- D) Purchases Account
**Answer:** C) Creditors Account
20. **Which type of account is not closed at the end of an accounting period?**
- A) Revenue Account
- B) Expense Account
- C) Capital Account
- D) Drawing Account
**Answer:** C) Capital Account
21. What does an accounting voucher document?
- (A) The monthly profit and loss statement
- (B) The credit rating of a business
- (C) Details of a financial transaction with debit and credit information
- (D) Employee payroll records
**Answer**: (C) Details of a financial transaction with debit and credit information
22. Which of the following is known as a "Compound Voucher"?
- (A) A transaction voucher with multiple debits and a single credit
- (B) A voucher with only cash transactions
- (C) A voucher for employee transactions only
- (D) A voucher with only one debit and one credit
**Answer**: (A) A transaction voucher with multiple debits and a single credit
23. According to the accounting equation, the equation \(A = L + C\) represents:
- (A) Assets equal to Liabilities and Cash
- (B) Liabilities equal to Assets and Capital
- (C) Assets equal to Liabilities plus Capital
- (D) Liabilities equal to Capital only
**Answer**: (C) Assets equal to Liabilities plus Capital
24. In a T-account, which side is generally used to record debits?
- (A) The top side
- (B) The right side
- (C) The bottom side
- (D) The left side
**Answer**: (D) The left side
25. Which book of accounts is known as the "book of original entry"?
- (A) Ledger
- (B) Journal
- (C) Balance Sheet
- (D) Trial Balance
**Answer**: (B) Journal
26. Which type of transaction would require a credit to the Bank Account?
- (A) Cash received from a debtor
- (B) Payment made to a creditor via cheque
- (C) Sale of goods on credit
- (D) Purchase of stock in cash
**Answer**: (B) Payment made to a creditor via cheque
27. What does a journal entry for purchasing equipment for $2,00,000 in cash and a balance of $8,00,000 due include?
- (A) Debit equipment for $10,00,000, Credit cash for $2,00,000, and Credit creditors for $8,00,000
- (B) Debit equipment for $2,00,000 and Credit cash for $2,00,000
- (C) Debit equipment for $8,00,000 and Credit creditors for $8,00,000
- (D) Debit cash for $10,00,000 and Credit equipment for $10,00,000
**Answer**: (A) Debit equipment for $10,00,000, Credit cash for $2,00,000, and Credit creditors for $8,00,000
28. Which of the following is considered a source document in accounting?
- (A) Sales bill
- (B) Profit and Loss statement
- (C) Balance sheet
- (D) Inventory list
**Answer**: (A) Sales bill
29. When cash is withdrawn by the owner for personal use, it is recorded as:
- (A) Increase in Capital
- (B) Drawings
- (C) An Expense
- (D) A Liability
**Answer**: (B) Drawings
30. Which accounts are considered temporary and closed at the end of an accounting period?
- (A) Assets, Liabilities, and Capital
- (B) Expenses and Revenues
- (C) Capital and Liabilities
- (D) Assets and Liabilities
**Answer**: (B) Expenses and Revenues
31. In the accounting equation, an increase in assets with no corresponding increase in liabilities or capital indicates:
- (A) A profitable transaction
- (B) An error in the accounting records
- (C) Drawings or a decrease in another asset
- (D) Additional capital investment
**Answer**: (C) Drawings or a decrease in another asset
32. In a T-account, what does the right side represent?
- (A) Debit
- (B) Credit
- (C) Total assets
- (D) Capital
**Answer**: (B) Credit
33. Which of the following transactions will increase both assets and liabilities?
- (A) Purchase of goods for cash
- (B) Purchase of goods on credit
- (C) Payment of salaries
- (D) Sale of goods for cash
**Answer**: (B) Purchase of goods on credit
34. What is the process of transferring journal entries to the ledger called?
- (A) Journalizing
- (B) Posting
- (C) Balancing
- (D) Auditing
**Answer**: (B) Posting
35. Which of the following is *not* recorded in the journal?
- (A) Cash received from customers
- (B) Opening balance of capital
- (C) Purchase returns
- (D) Cash payments for expenses
**Answer**: (B) Opening balance of capital
36. A transaction is recorded with a debit to Purchases Account and a credit to Cash Account. This transaction most likely represents:
- (A) Purchase of goods on credit
- (B) Sale of goods on credit
- (C) Purchase of goods with cash
- (D) Purchase of office equipment on credit
**Answer**: (C) Purchase of goods with cash
37. When using a "Journal Voucher," what kind of transactions does it typically record?
- (A) Only cash transactions
- (B) Only credit transactions
- (C) Transactions involving both multiple debits and multiple credits
- (D) Only transactions with a single debit and single credit
**Answer**: (C) Transactions involving both multiple debits and multiple credits
38. In accounting, the term "debit" indicates:
- (A) A decrease in all accounts
- (B) An increase in all accounts
- (C) An increase in assets or expenses and a decrease in liabilities or revenue
- (D) A decrease in assets or expenses and an increase in liabilities or revenue
**Answer**: (C) An increase in assets or expenses and a decrease in liabilities or revenue
39. Which account type is credited when there is an increase in revenue?
- (A) Expense
- (B) Liability
- (C) Asset
- (D) Revenue
**Answer**: (D) Revenue
40. What is the primary purpose of the ledger in accounting?
- (A) To record transactions in chronological order
- (B) To store only cash transactions
- (C) To classify transactions by accounts and show the balance of each account
- (D) To create financial statements
**Answer**: (C) To classify transactions by accounts and show the balance of each account
41. Which of the following entries would be used to record payment of salaries?
- (A) Debit Salaries Expense, Credit Bank/Cash
- (B) Debit Bank, Credit Capital
- (C) Debit Capital, Credit Salaries Expense
- (D) Debit Cash, Credit Accounts Payable
**Answer**: (A) Debit Salaries Expense, Credit Bank/Cash
42. A transaction that decreases one asset and increases another asset is an example of:
- (A) A simple transaction
- (B) A compound transaction
- (C) An adjusting entry
- (D) A contra-entry
**Answer**: (D) A contra-entry
43. Which of the following would be classified as a liability?
- (A) Prepaid rent
- (B) Outstanding salaries
- (C) Interest received
- (D) Owner’s capital
**Answer**: (B) Outstanding salaries
44. In which of the following situations would a debit to the Rent Expense account be appropriate?
- (A) Paying rent in cash
- (B) Receiving rent from a tenant
- (C) Recording prepaid rent
- (D) Purchasing office furniture
**Answer**: (A) Paying rent in cash
45. The "Books of Original Entry" include which of the following?
- (A) Ledger
- (B) Cash book
- (C) Balance sheet
- (D) Trial balance
**Answer**: (B) Cash book
46. When an entry is made in the journal, which of the following occurs?
- (A) Accounts to be credited are listed before accounts to be debited
- (B) Debit accounts are listed first, followed by credit accounts
- (C) Only the credit side is recorded
- (D) No particular order is required for accounts
**Answer**: (B) Debit accounts are listed first, followed by credit accounts
47. What is the primary purpose of a "Trial Balance"?
- (A) To record all transactions for the year
- (B) To check the accuracy of journal entries
- (C) To verify that total debits equal total credits in the ledger
- (D) To show the total revenue for the year
**Answer**: (C) To verify that total debits equal total credits in the ledger
Transaction Part 2
Recording of Transactions:
1. **What is the main purpose of special journals in accounting?**
- A) To record all transactions in a single book
- B) To segregate repetitive transactions for efficient recording
- C) To avoid recording transactions in a cash book
- D) To replace the general ledger
- **Answer:** B
2. **What type of transactions are recorded in a 'Journal Proper'?**
- A) Cash receipts and payments
- B) Credit sales and purchases
- C) Transactions that don’t fit into any special journal
- D) Only cash transactions
- **Answer:** C
3. **Which type of cash book contains columns for both cash and bank transactions?**
- A) Single column cash book
- B) Double column cash book
- C) Petty cash book
- D) Ledger
- **Answer:** B
4. **When a debit note is issued, it indicates that:**
- A) The customer has returned goods to the seller
- B) The supplier owes the customer money
- C) Cash has been paid to a supplier
- D) Goods are sold on credit
- **Answer:** A
5. **What is the balance called when cash withdrawn from a bank exceeds the deposit?**
- A) Closing balance
- B) Contra entry
- C) Credit balance
- D) Overdraft
- **Answer:** D
6. **In which of the following is a trade discount recorded?**
- A) Cash book
- B) Journal Proper
- C) Special Journal
- D) Trade discount is not recorded separately in any book
- **Answer:** D
7. **Which type of special journal records the credit purchases of goods?**
- A) Sales Journal
- B) Purchases Journal
- C) Cash Book
- D) Sales Return Book
- **Answer:** B
8. **What does 'C' represent in the LF column when recorded in a double column cash book?**
- A) Closing balance
- B) Contra entry
- C) Cash entry
- D) Credit entry
- **Answer:** B
9. **What is the 'Petty Cash Book' mainly used for?**
- A) Recording all transactions in an organization
- B) Recording repetitive, small payments
- C) Tracking only large cash payments
- D) Maintaining all credit transactions
- **Answer:** B
10. **What system is generally followed for maintaining petty cash?**
- A) Contra system
- B) Invoice system
- C) Imprest system
- D) Ledger system
- **Answer:** C
11. **A crossed cheque with "A/c Payee Only" written on it can be:**
- A) Cashed directly by the holder
- B) Paid only into the account of the specified person
- C) Passed on by mere delivery
- D) Cashed by anyone who holds it
- **Answer:** B
12. **Which document serves as the source for recording credit purchases in the Purchases Journal?**
- A) Debit note
- B) Invoice
- C) Credit note
- D) Pay-in-slip
- **Answer:** B
13. **What is a 'Contra Entry'?**
- A) Entry showing a cash discount
- B) An entry where both aspects are recorded in the cash book
- C) Entry made only on the credit side of a ledger
- D) A correction entry for an error in recording
- **Answer:** B
14. **In a double column cash book, which column shows bank overdrafts?**
- A) Cash column on the debit side
- B) Cash column on the credit side
- C) Bank column on the debit side
- D) Bank column on the credit side
- **Answer:** D
15. **Which type of special journal is used to record goods returned by customers?**
- A) Purchases Return Book
- B) Journal Proper
- C) Sales Return Book
- D) Cash Book
- **Answer:** C
16. **What is the purpose of a credit note?**
- A) To notify a customer of an amount owed
- B) To record goods returned to a supplier
- C) To notify a customer of a reduction in their payable amount
- D) To record a cash transaction
- **Answer:** C
17. **The Sales Journal is primarily used to record:**
- A) Cash sales
- B) Credit sales
- C) All sales, cash and credit
- D) Returns and allowances
- **Answer:** B
18. **When the cash book is balanced, the balance is generally on which side?**
- A) Debit side, as cash cannot be negative
- B) Credit side, due to cash inflows
- C) Both sides, depending on the cash balance
- D) No balance is shown in the cash book
- **Answer:** A
19. **Which of the following does not require a separate ledger posting when using a double column cash book?**
- A) Cash deposit in the bank
- B) Cash received from a customer
- C) Cash paid for purchases
- D) Overdraft fees charged by the bank
- **Answer:** A
20. **What is generally the source document for entries in the Sales Return Journal?**
- A) Debit note
- B) Invoice
- C) Credit note
- D) Cash voucher
- **Answer:** C
21. **The primary benefit of maintaining special purpose books is to:**
- A) Reduce the total number of transactions
- B) Allow division of labor and simplify record-keeping
- C) Maintain a single record for all transactions
- D) Minimize the need for journals and ledgers
- **Answer:** B
22. **Which book is used to record cash and bank transactions, allowing for both to be managed together?**
- A) Journal Proper
- B) Single Column Cash Book
- C) Double Column Cash Book
- D) Petty Cash Book
- **Answer:** C
23. **A debit note is issued when:**
- A) Goods are returned by a customer
- B) A payment is made in cash
- C) An additional charge is added to a customer's account
- D) Goods are returned to a supplier
- **Answer:** D
24. **When an entry is marked with 'C' in the cash book, this signifies:**
- A) A contra entry
- B) Credit entry
- C) Commission entry
- D) Closing balance
- **Answer:** A
25. **Which of the following entries would typically appear on the debit side of a cash book?**
- A) Salaries paid
- B) Goods purchased on credit
- C) Cash sales
- D) Goods returned to supplier
- **Answer:** C
26. **The purchases return journal is used to:**
- A) Record credit purchases
- B) Track cash purchases
- C) Document goods returned to suppliers
- D) Record all returned merchandise
- **Answer:** C
27. **If a cheque deposited in the bank is dishonored, it is recorded in the cash book on:**
- A) The debit side, under bank column
- B) The credit side, under bank column
- C) The debit side, under cash column
- D) The credit side, under cash column
- **Answer:** B
28. **When the head cashier gives a fixed amount to the petty cashier at the start of a period, this is known as:**
- A) Drawings
- B) Contra entry
- C) Imprest amount
- D) Balance forward
- **Answer:** C
29. **What type of transactions are recorded in the Sales Journal?**
- A) Cash sales only
- B) Credit sales only
- C) Sales returns
- D) Cash and credit sales
- **Answer:** B
30. **Which account is credited when goods are sold on credit?**
- A) Cash Account
- B) Purchases Account
- C) Sales Account
- D) Bank Account
- **Answer:** C
31. **The Petty Cash Book is most beneficial for:**
- A) Recording large payments
- B) Simplifying the recording of frequent, small expenses
- C) Tracking only cash receipts
- D) Avoiding the need for a main cash book
- **Answer:** B
32. **A ‘sales return’ is recorded in the ledger as a debit to:**
- A) Customer’s Account
- B) Sales Account
- C) Purchases Account
- D) Sales Return Account
- **Answer:** D
33. **The ‘Purchases Book’ is posted to the ledger by:**
- A) Crediting the Purchases Account
- B) Debiting individual supplier accounts
- C) Debiting the Purchases Account
- D) Crediting the Sales Account
- **Answer:** C
34. **Which of the following is true about a double column cash book?**
- A) It records only cash transactions
- B) It does not require separate ledger posting
- C) It includes separate columns for cash and bank transactions
- D) It only has a single column on each side
- **Answer:** C
35. **A trade discount is generally:**
- A) Recorded in the Purchases Book
- B) Excluded from financial records
- C) Recorded in the Cash Book
- D) Added to the total of the purchase or sale
- **Answer:** B
36. **In a single column cash book, all cash payments are recorded on the:**
- A) Debit side
- B) Credit side
- C) Contra entry column
- D) Ledger only
- **Answer:** B
37. **When cash is withdrawn from a bank for office use, this is recorded in the cash book as a:**
- A) Credit in the bank column and debit in the cash column
- B) Debit in the bank column and credit in the cash column
- C) Debit in both cash and bank columns
- D) Contra entry
- **Answer:** D
38. **The main purpose of a 'Purchases Return Book' is to:**
- A) Record goods sold on credit
- B) Track returns made to suppliers
- C) Document cash purchases
- D) Track returns from customers
- **Answer:** B
39. **When an item purchased on credit is returned to the supplier, the journal entry would typically involve:**
- A) Debiting the Purchases Account
- B) Crediting the Purchases Return Account
- C) Debiting the Purchases Return Account
- D) Crediting the Supplier’s Account
- **Answer:** C
40. **In a double column cash book, a cash deposit into the bank is recorded as:**
- A) Debit entry in the cash column
- B) Credit entry in the bank column
- C) Debit entry in the bank column and credit entry in the cash column
- D) Credit entry in the cash column
- **Answer:** C
BANK RECONCILIATION
1. **What is the main purpose of a Bank Reconciliation Statement?**
- (a) To calculate interest on bank accounts
- (b) To record all cash transactions
- (c) To reconcile the balance in the cash book with the balance in the passbook
- (d) To track errors in the ledger
- **Answer:** (c) To reconcile the balance in the cash book with the balance in the passbook
2. **When a cheque is issued by a firm but not yet presented to the bank, it causes a difference in balances due to:**
- (a) Errors made by the firm
- (b) Time lag
- (c) Errors made by the bank
- (d) Overdraft
- **Answer:** (b) Time lag
3. **What does a credit balance in a passbook indicate?**
- (a) Overdraft
- (b) Favourable bank balance
- (c) Account closure
- (d) None of these
- **Answer:** (b) Favourable bank balance
4. **Which of the following will not affect the balance as per the passbook?**
- (a) Cheques issued but not presented
- (b) Cheques deposited but not collected
- (c) Interest credited by the bank
- (d) Cash sales
- **Answer:** (d) Cash sales
5. **What is it called when the bank directly deposits a customer’s payment into the firm’s bank account without notifying the firm?**
- (a) Direct debit
- (b) Direct credit
- (c) Overdraft
- (d) Cash payment
- **Answer:** (b) Direct credit
6. **If a cheque deposited by a firm is dishonoured, it will:**
- (a) Increase the cash book balance
- (b) Decrease the passbook balance
- (c) Have no effect on reconciliation
- (d) Increase the passbook balance
- **Answer:** (b) Decrease the passbook balance
7. **Which of the following could cause a difference in the balances between the cash book and passbook due to a time gap?**
- (a) Cheques issued but not presented for payment
- (b) Bank charges debited to the account
- (c) Direct deposits made into the account
- (d) All of the above
- **Answer:** (d) All of the above
8. **Bank charges deducted by the bank but not yet recorded in the cash book will:**
- (a) Increase the passbook balance
- (b) Decrease the cash book balance
- (c) Increase the cash book balance
- (d) Have no effect on reconciliation
- **Answer:** (b) Decrease the cash book balance
9. **Which of the following statements is true regarding a favourable balance?**
- (a) It is shown as a debit balance in the cash book
- (b) It is shown as a credit balance in the passbook
- (c) Both (a) and (b)
- (d) Neither (a) nor (b)
- **Answer:** (c) Both (a) and (b)
10. **What is indicated by an overdraft as per the cash book?**
- (a) A positive bank balance
- (b) A negative bank balance
- (c) A favourable balance in the passbook
- (d) An error in the bank statement
- **Answer:** (b) A negative bank balance
11. **If the bank credits interest to the firm’s account, it will initially:**
- (a) Increase the cash book balance
- (b) Decrease the passbook balance
- (c) Increase the passbook balance
- (d) Have no effect on either book
- **Answer:** (c) Increase the passbook balance
12. **Which of the following is added to the cash book balance when preparing a bank reconciliation statement?**
- (a) Cheques issued but not presented
- (b) Cheques deposited but not credited
- (c) Bank charges
- (d) Dishonoured cheques
- **Answer:** (a) Cheques issued but not presented
13. **What type of balance in the passbook represents an overdraft?**
- (a) Debit balance
- (b) Credit balance
- (c) Favourable balance
- (d) Net balance
- **Answer:** (a) Debit balance
14. **When the bank credits a dividend directly to the firm’s account without notifying the firm, it causes:**
- (a) A decrease in the cash book balance
- (b) An increase in the cash book balance
- (c) An increase in the passbook balance
- (d) No difference in reconciliation
- **Answer:** (c) An increase in the passbook balance
15. **Which of the following items will be deducted from the passbook balance if it is used as the starting point in reconciliation?**
- (a) Cheques issued but not presented
- (b) Cheques deposited but not yet cleared
- (c) Direct deposits made by customers
- (d) Interest credited by the bank
- **Answer:** (b) Cheques deposited but not yet cleared
16. **Which of the following would NOT cause a difference between the cash book and passbook balances?**
- (a) Bank interest credited directly to the passbook
- (b) Errors made in the cash book
- (c) All cash payments recorded in the cash book
- (d) Cheques issued but not presented for payment
- **Answer:** (c) All cash payments recorded in the cash book
17. **The balance shown by the passbook is usually higher than the cash book when:**
- (a) The firm has issued cheques that haven’t been presented
- (b) Bank charges are deducted from the passbook
- (c) Cheques deposited are dishonoured
- (d) The firm records direct debits from the bank
- **Answer:** (a) The firm has issued cheques that haven’t been presented
18. **If a cheque recorded twice in the cash book remains uncorrected, the bank reconciliation statement will show a:**
- (a) Higher cash book balance
- (b) Lower passbook balance
- (c) Lower cash book balance
- (d) Higher passbook balance
- **Answer:** (c) Lower cash book balance
19. **A bank reconciliation statement is generally prepared by the:**
- (a) Firm’s bank
- (b) Firm’s accountant
- (c) Bank manager
- (d) Firm’s customers
- **Answer:** (b) Firm’s accountant
20. **If the cash book shows a favourable balance, it means that:**
- (a) There is an overdraft
- (b) Deposits exceed withdrawals
- (c) The balance is negative
- (d) The bank has deducted charges
- **Answer:** (b) Deposits exceed withdrawals
21. **In the bank reconciliation process, an unrecorded bank charge in the cash book would be:**
- (a) Added to the passbook balance
- (b) Deducted from the cash book balance
- (c) Added to the cash book balance
- (d) Deducted from the passbook balance
- **Answer:** (b) Deducted from the cash book balance
22. **Which of the following is NOT a reason for a difference between the passbook and cash book balances?**
- (a) Cheques issued but not presented
- (b) Delay in cheque clearing
- (c) Recording cash transactions in the cash book
- (d) Bank interest credited directly to the passbook
- **Answer:** (c) Recording cash transactions in the cash book
23. **If the firm has instructed the bank to pay an insurance premium directly, this will:**
- (a) Reduce the balance as per the cash book
- (b) Increase the balance as per the passbook
- (c) Reduce the balance as per the passbook
- (d) Have no effect on either balance
- **Answer:** (c) Reduce the balance as per the passbook
24. **A debit balance in the passbook represents:**
- (a) A credit balance in the cash book
- (b) A favourable balance in both books
- (c) An unfavourable balance in both books
- (d) An error in reconciliation
- **Answer:** (a) A credit balance in the cash book
25. **Which statement about timing differences is correct?**
- (a) They result from transactions recorded at the same time in both books
- (b) They occur due to recording errors in the cash book
- (c) They are temporary differences in recording transactions in both books
- (d) They do not impact the reconciliation process
- **Answer:** (c) They are temporary differences in recording transactions in both books
26. **Which of the following statements is true about cheques deposited but not yet credited?**
- (a) They are added to the passbook balance in reconciliation
- (b) They reduce the cash book balance
- (c) They are deducted from the cash book balance in reconciliation
- (d) They have no effect on either book
- **Answer:** (c) They are deducted from the cash book balance in reconciliation
27. **When a cheque issued by the firm is not presented for payment, it results in:**
- (a) A higher cash book balance than the passbook
- (b) A lower cash book balance than the passbook
- (c) An equal balance in both books
- (d) No impact on the cash book balance
- **Answer:** (a) A higher cash book balance than the passbook
28. **Which of the following would increase the balance in the cash book?**
- (a) Bank charges
- (b) Direct deposits made by customers
- (c) Cheques issued but not presented
- (d) Dishonoured cheques
- **Answer:** (b) Direct deposits made by customers
29. **Bank reconciliation statements are usually prepared:**
- (a) Weekly
- (b) Monthly
- (c) Annually
- (d) Daily
- **Answer:** (b) Monthly
30. **What effect does a bank error crediting another customer’s cheque into the firm’s account have on the passbook balance?**
- (a) Increases the passbook balance
- (b) Decreases the passbook balance
- (c) Has no effect on either book
- (d) Corrects the cash book balance
- **Answer:** (a) Increases the passbook balance
31. **If the cash book is used as the starting point for a bank reconciliation statement, unpresented cheques should be:**
- (a) Added to the passbook balance
- (b) Deducted from the cash book balance
- (c) Added to the cash book balance
- (d) Ignored in reconciliation
- **Answer:** (c) Added to the cash book balance
32. **The term 'favourable balance' as per cash book means:**
- (a) The firm’s account is overdrawn
- (b) The firm has a positive bank balance
- (c) The firm’s passbook is in debit
- (d) The bank has charged fees
- **Answer:** (b) The firm has a positive bank balance
33. **Which of these would NOT be included in a bank reconciliation statement?**
- (a) Cheques issued but not presented
- (b) Cash payments recorded in the cash book
- (c) Bank charges deducted by the bank
- (d) Interest credited directly by the bank
- **Answer:** (b) Cash payments recorded in the cash book
34. **Which of the following would lead to an overdraft as per the cash book?**
- (a) Excessive deposits over withdrawals
- (b) Cheques issued exceed cheques deposited
- (c) Direct credits from customers
- (d) Unpresented cheques
- **Answer:** (b) Cheques issued exceed cheques deposited
35. **A cheque of ₹2,000 recorded in the cash book but not sent to the bank will:**
- (a) Decrease the passbook balance
- (b) Increase the cash book balance
- (c) Have no effect on reconciliation
- (d) Be added to the bank reconciliation statement
- **Answer:** (d) Be added to the bank reconciliation statement
36. **What does a debit balance in the cash book signify?**
- (a) A favourable bank balance
- (b) An overdraft
- (c) A bank charge
- (d) A credit balance in the passbook
- **Answer:** (a) A favourable bank balance
37. **When preparing a bank reconciliation statement, cheques deposited but not yet collected are:**
- (a) Added to the passbook balance
- (b) Deducted from the cash book balance
- (c) Ignored
- (d) Added to the cash book balance
- **Answer:** (b) Deducted from the cash book balance
38. **What causes the balance in the passbook to be higher than the cash book balance?**
- (a) Cheques issued but not presented
- (b) Bank charges
- (c) Dishonoured cheques
- (d) Direct payments by the bank
- **Answer:** (a) Cheques issued but not presented
39. **If a cheque issued for ₹500 is recorded as ₹50 in the cash book, it will cause:**
- (a) A lower passbook balance than cash book
- (b) A higher cash book balance than passbook
- (c) A higher passbook balance than cash book
- (d) No impact on reconciliation
- **Answer:** (b) A higher cash book balance than passbook
40. **Bank charges debited to the firm’s account but not recorded in the cash book are:**
- (a) Added to the passbook balance
- (b) Deducted from the passbook balance
- (c) Deducted from the cash book balance in reconciliation
- (d) Ignored in reconciliation
- **Answer:** (c) Deducted from the cash book balance in reconciliation
41. **If a cheque deposited by the firm is dishonoured, it will:**
- (a) Increase the passbook balance
- (b) Decrease the cash book balance
- (c) Have no effect on reconciliation
- (d) Be deducted from the passbook balance
- **Answer:** (d) Be deducted from the passbook balance
42. **A cash deposit made into the bank but not yet credited will:**
- (a) Increase the passbook balance
- (b) Increase the cash book balance
- (c) Be added to the passbook balance in reconciliation
- (d) Have no impact on the passbook balance
- **Answer:** (c) Be added to the passbook balance in reconciliation
43. **An overdraft in the cash book indicates:**
- (a) More deposits than withdrawals
- (b) Excess withdrawals over deposits
- (c) Equal deposits and withdrawals
- (d) No activity in the account
- **Answer:** (b) Excess withdrawals over deposits
44. **Which item would you add to the passbook balance if it is the starting point for reconciliation?**
- (a) Bank charges
- (b) Direct credits by the bank
- (c) Cheques issued but not presented
- (d) Dishonoured cheques
- **Answer:** (c) Cheques issued but not presented
45. **If the passbook shows a favourable balance, it is recorded in the bank reconciliation statement as a:**
- (a) Debit
- (b) Credit
- (c) Liability
- (d) Loan
- **Answer:** (b) Credit
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