PART-B: FINANCIAL ACCOUNTING-II
Unit-6: Financial Statements:
### 1. Which of the following is NOT a type of financial statement?
- A) Balance Sheet
- B) Trial Balance
- C) Trading Account
- D) Cash Flow Statement
**Answer:** B) Trial Balance
### 2. In a trading account, wages are categorized as:
- A) Fixed asset
- B) Direct expense
- C) Liability
- D) Indirect expense
**Answer:** B) Direct expense
### 3. Who among the following would typically require accounting information for regulatory purposes?
- A) Current owner
- B) Government
- C) Manager
- D) Prospective owner
**Answer:** B) Government
### 4. The main purpose of preparing a trading and profit and loss account is to:
- A) Show the total assets and liabilities
- B) Calculate the profit or loss for an accounting period
- C) Record all cash transactions
- D) Maintain a record of inventory
**Answer:** B) Calculate the profit or loss for an accounting period
### 5. Capital expenditure is distinguished from revenue expenditure in that it:
- A) Benefits only one accounting period
- B) Is recorded in the trading account
- C) Benefits more than one accounting period
- D) Is charged to the profit and loss account directly
**Answer:** C) Benefits more than one accounting period
### 6. Which entry is recorded to close the purchases return account?
- A) Trading A/c Dr.
- B) Purchases return A/c Dr.
- C) Sales A/c Dr.
- D) Profit and Loss A/c Dr.
**Answer:** B) Purchases return A/c Dr.
### 7. Operating profit is calculated as:
- A) Gross Profit + Non-Operating Expenses - Non-Operating Incomes
- B) Net Profit - Non-Operating Expenses + Non-Operating Incomes
- C) Net Profit + Non-Operating Expenses - Non-Operating Incomes
- D) Gross Profit - Non-Operating Expenses + Non-Operating Incomes
**Answer:** C) Net Profit + Non-Operating Expenses - Non-Operating Incomes
### 8. In a balance sheet arranged in order of permanence, which asset would appear first?
- A) Cash
- B) Bank
- C) Debtors
- D) Furniture
**Answer:** D) Furniture
### 9. When recording the closing stock, the following journal entry is made:
- A) Closing Stock A/c Dr. to Trading A/c
- B) Trading A/c Dr. to Closing Stock A/c
- C) Closing Stock A/c Dr. to Profit and Loss A/c
- D) Trading A/c Dr. to Sales A/c
**Answer:** A) Closing Stock A/c Dr. to Trading A/c
### 10. If a company’s gross profit is greater than its operating profit, it means:
- A) The company has no direct expenses.
- B) The company’s non-operating expenses are high.
- C) The company’s indirect expenses are high.
- D) The company’s revenues are low.
**Answer:** C) The company’s indirect expenses are high.
---
### 11. Which of the following is classified as a **current asset** in the balance sheet?
- A) Goodwill
- B) Bank overdraft
- C) Stock of raw materials
- D) Long-term loan
**Answer:** C) Stock of raw materials
### 12. Which account is credited when goods are returned by a customer?
- A) Purchases Account
- B) Sales Account
- C) Sales Return Account
- D) Trading Account
**Answer:** B) Sales Account
### 13. Capital receipts in accounting are those that:
- A) Do not create an obligation to return money
- B) Increase the owner’s equity
- C) Are recorded in the profit and loss account
- D) Decrease the owner’s equity
**Answer:** B) Increase the owner’s equity
### 14. If an expenditure benefits only the current accounting period, it is classified as:
- A) Deferred expense
- B) Capital expenditure
- C) Revenue expenditure
- D) Fixed asset
**Answer:** C) Revenue expenditure
### 15. Which of the following best describes **gross profit**?
- A) Revenue - Expenses - Taxes
- B) Revenue - Indirect Expenses
- C) Sales - (Cost of Goods Sold + Direct Expenses)
- D) Net Profit + Non-Operating Incomes
**Answer:** C) Sales - (Cost of Goods Sold + Direct Expenses)
### 16. The **final amount** shown in the trading and profit and loss account represents:
- A) Net profit or net loss
- B) Gross profit
- C) Total revenue
- D) Total assets
**Answer:** A) Net profit or net loss
### 17. Which of the following stakeholders primarily need information about the liquidity position of a business?
- A) Government
- B) Employees
- C) Bank
- D) Customers
**Answer:** C) Bank
### 18. **Fixed assets** are typically shown in the balance sheet at:
- A) Market value
- B) Book value (cost less depreciation)
- C) Replacement cost
- D) Liquidation value
**Answer:** B) Book value (cost less depreciation)
### 19. **Deferred revenue expenditure** is an expenditure that:
- A) Benefits only the current year
- B) Benefits more than one accounting period
- C) Decreases capital
- D) Is recorded only in the balance sheet
**Answer:** B) Benefits more than one accounting period
### 20. In the preparation of financial statements, **grouping** refers to:
- A) Listing assets and liabilities in the order of liquidity
- B) Arranging similar items under a common heading
- C) Classifying assets only
- D) Showing expenses before revenues
**Answer:** B) Arranging similar items under a common heading
### 21. When the trial balance totals do not match, it indicates:
- A) The business has earned a profit
- B) A probable error in the accounting records
- C) Excess of liabilities over assets
- D) A need to prepare the trading account
**Answer:** B) A probable error in the accounting records
### 22. The **closing stock** in the trading account represents:
- A) Goods sold during the accounting period
- B) Goods purchased for future sale
- C) Goods remaining unsold at the end of the accounting period
- D) Goods returned to suppliers
**Answer:** C) Goods remaining unsold at the end of the accounting period
### 23. Which item is typically included under **non-current liabilities**?
- A) Bank overdraft
- B) Accounts payable
- C) Long-term loan
- D) Trade creditors
**Answer:** C) Long-term loan
### 24. **Return inwards** is another term for:
- A) Sales return
- B) Purchases return
- C) Cash inflow
- D) Trade discount
**Answer:** A) Sales return
### 25. If the **total expenses** are greater than total revenue in the profit and loss account, the result will be:
- A) Net profit
- B) Gross profit
- C) Net loss
- D) Surplus capital
**Answer:** C) Net loss
### 26. The **balance sheet** is prepared:
- A) Before the trial balance
- B) Before closing entries are made
- C) After preparing the trading and profit and loss account
- D) At the beginning of the accounting period
**Answer:** C) After preparing the trading and profit and loss account
### 27. When assets are arranged by how quickly they can be converted into cash, the balance sheet is prepared in:
- A) Order of permanence
- B) Order of liquidity
- C) Financial order
- D) Order of capital intensity
**Answer:** B) Order of liquidity
### 28. Which of the following best defines **capital expenditure**?
- A) An expenditure that benefits only the current accounting period
- B) An expenditure that increases the business’s earning capacity and benefits multiple accounting periods
- C) An expenditure on goods purchased for resale
- D) An expenditure incurred to reduce the liabilities of the business
**Answer:** B) An expenditure that increases the business’s earning capacity and benefits multiple accounting periods
### 29. **Revenue receipts** refer to:
- A) Receipts that create an obligation to return money
- B) Receipts that do not create an obligation to return money and are earned from normal business activities
- C) Receipts from selling fixed assets
- D) Receipts that are recorded in the balance sheet as liabilities
**Answer:** B) Receipts that do not create an obligation to return money and are earned from normal business activities
### 30. A **balance sheet** is:
- A) A record of all transactions occurring during a period
- B) A statement that shows a business’s financial position by listing assets, liabilities, and capital on a given date
- C) A statement of cash inflows and outflows
- D) A summary of revenues and expenses
**Answer:** B) A statement that shows a business’s financial position by listing assets, liabilities, and capital on a given date
###31. **Gross profit** is defined as:
- A) Total revenue minus all expenses
- B) The profit made after deducting direct expenses from sales revenue
- C) The excess of sales over indirect expenses
- D) Total revenue minus capital expenditure
**Answer:** B) The profit made after deducting direct expenses from sales revenue
### 32. **Trial balance** is best described as:
- A) A list of all revenue and expenses for an accounting period
- B) A record of transactions made over a period
- C) A statement that checks the arithmetical accuracy of the ledger by ensuring total debits equal total credits
- D) A summary of closing stock and opening stock
**Answer:** C) A statement that checks the arithmetical accuracy of the ledger by ensuring total debits equal total credits
### 33. **Deferred revenue expenditure** is an expenditure that:
- A) Benefits the business in multiple accounting periods despite being a revenue item
- B) Reduces the liabilities of the business
- C) Is spent on acquiring fixed assets
- D) Benefits only one accounting period and is treated as an asset
**Answer:** A) Benefits the business in multiple accounting periods despite being a revenue item
### 34. **Capital receipts** are defined as:
- A) Receipts that arise from the core operations of a business
- B) Receipts that incur no obligation for repayment
- C) Receipts from the sale of assets, additional capital contributions, or loans that create an obligation to repay
- D) Receipts from goods sold
**Answer:** C) Receipts from the sale of assets, additional capital contributions, or loans that create an obligation to repay
### 35. **Direct expenses** are those expenses:
- A) Incurred in the day-to-day running of the business
- B) Directly related to the production or acquisition of goods for sale
- C) That increase the earning capacity of the business
- D) That appear only on the profit and loss account
**Answer:** B) Directly related to the production or acquisition of goods for sale
### 36. The **trading account** is a financial statement prepared to:
- A) Determine the overall financial position of a business
- B) Show the profit or loss on goods sold during an accounting period
- C) Summarize all cash flows within an accounting period
- D) Reflect the changes in owner’s equity
**Answer:** B) Show the profit or loss on goods sold during an accounting period
### 37. **Operating profit** is defined as:
- A) The profit earned from all sources, including non-operating activities
- B) The profit from normal business activities after deducting operating expenses, but before interest and taxes
- C) Net profit after accounting for all revenues and expenses
- D) Gross profit minus taxes
**Answer:** B) The profit from normal business activities after deducting operating expenses, but before interest and taxes
---
### 38. **Current liabilities** refer to:
- A) Liabilities that can be paid off after one year
- B) Short-term liabilities payable within one year, often using current assets
- C) Obligations that arise only from long-term borrowing
- D) Liabilities related to the purchase of fixed assets
**Answer:** B) Short-term liabilities payable within one year, often using current assets
### 39. **Capital** in accounting refers to:
- A) The total assets of a business
- B) The amount originally contributed by the owner, adjusted for profits, losses, and drawings
- C) The total revenue earned during an accounting period
- D) The liabilities owed to external creditors
**Answer:** B) The amount originally contributed by the owner, adjusted for profits, losses, and drawings
### 40. **Gross loss** is defined as:
- A) Total expenses minus total revenue
- B) The excess of direct expenses and purchases over sales revenue
- C) The net loss after all expenses are deducted from revenues
- D) The loss incurred after deducting non-operating expenses
**Answer:** B) The excess of direct expenses and purchases over sales revenue
### 41. **Marshalling** in a balance sheet means:
- A) Arranging assets and liabilities based on their accounting treatment
- B) Grouping similar items under a common heading
- C) Arranging assets and liabilities in a specific order, like liquidity or permanence
- D) Listing assets in alphabetical order
**Answer:** C) Arranging assets and liabilities in a specific order, like liquidity or permanence
### 42. **Liabilities** are defined as:
- A) Financial resources owned by the business
- B) Obligations or debts owed to outsiders that must be settled in the future
- C) Owner's capital contributed to the business
- D) Any form of income earned by the business
**Answer:** B) Obligations or debts owed to outsiders that must be settled in the future
Part 2
1. **Why are adjustments necessary in financial statements?**
- a) To exclude prepaid expenses from current year
- b) To reflect the actual profit or loss of the business
- c) To include only cash expenses in accounts
- d) To avoid preparing a trial balance
- **Answer:** b) To reflect the actual profit or loss of the business
2. **Which account is debited when recording outstanding expenses?**
- a) Prepaid Expenses A/c
- b) Profit and Loss A/c
- c) Concerned Expense A/c
- d) Income Received in Advance A/c
- **Answer:** c) Concerned Expense A/c
3. **What is the treatment for depreciation in financial statements?**
- a) Shown on the credit side of profit and loss account
- b) Deducted from the concerned asset's value in the balance sheet
- c) Added to the concerned asset's value
- d) Ignored if the asset is fully functional
- **Answer:** b) Deducted from the concerned asset's value in the balance sheet
4. **If insurance premium of ₹1,000 includes ₹300 prepaid, what amount is shown in the profit and loss account?**
- a) ₹1,000
- b) ₹1,300
- c) ₹300
- d) ₹700
- **Answer:** d) ₹700
5. **How is income received in advance treated in financial statements?**
- a) Added to income in the profit and loss account
- b) Shown as a liability in the balance sheet
- c) Deducted from income in the balance sheet
- d) Ignored until the next accounting period
- **Answer:** b) Shown as a liability in the balance sheet
6. **If the manager's commission is 10% of profit before commission and the net profit is ₹110, what is the commission?**
- a) ₹10
- b) ₹11
- c) ₹9
- d) ₹110
- **Answer:** b) ₹11
7. **What entry is recorded to create a provision for doubtful debts?**
- a) Provision for doubtful debts A/c Dr. To Profit and Loss A/c
- b) Profit and Loss A/c Dr. To Provision for doubtful debts A/c
- c) Bad Debts A/c Dr. To Profit and Loss A/c
- d) Debtors A/c Dr. To Bad Debts A/c
- **Answer:** b) Profit and Loss A/c Dr. To Provision for doubtful debts A/c
8. **An accrued commission of ₹1,500 is yet to be received. How is this treated?**
- a) Added to commission in profit and loss and shown as an asset
- b) Deducted from commission in profit and loss
- c) Shown as a liability in balance sheet
- d) Ignored until received
- **Answer:** a) Added to commission in profit and loss and shown as an asset
9. **If an amount of ₹5,000 is received in advance for rent, how should it be recorded?**
- a) Debit Rent A/c, Credit Cash A/c
- b) Debit Rent A/c, Credit Rent Received in Advance A/c
- c) Debit Cash A/c, Credit Rent A/c
- d) Debit Rent Received in Advance A/c, Credit Rent A/c
- **Answer:** b) Debit Rent A/c, Credit Rent Received in Advance A/c
10. **What is the purpose of a provision for doubtful debts?**
- a) To record known bad debts
- b) To estimate potential future losses on debtors
- c) To adjust sales revenue
- d) To allocate funds for asset depreciation
- **Answer:** b) To estimate potential future losses on debtors
11. **In Ankit's balance sheet, prepaid salaries of ₹5,000 should appear on which side?**
- a) Debit side of profit and loss account
- b) Credit side of profit and loss account
- c) Liabilities side of the balance sheet
- d) Assets side of the balance sheet
- **Answer:** d) Assets side of the balance sheet
12. **If a company’s machinery is depreciated at 10% on a cost of ₹20,000, what will be the depreciation amount?**
- a) ₹2,000
- b) ₹1,000
- c) ₹10,000
- d) ₹20,000
- **Answer:** a) ₹2,000
13. **When preparing final accounts, closing stock is:**
- a) Shown only on the debit side of the trading account
- b) Shown only on the credit side of the profit and loss account
- c) Shown on the credit side of the trading account and as an asset in the balance sheet
- d) Not shown at all
- **Answer:** c) Shown on the credit side of the trading account and as an asset in the balance sheet
14. **Which of the following is debited to the Profit and Loss account?**
- a) Closing stock
- b) Accrued income
- c) Provision for doubtful debts
- d) Prepaid expenses
- **Answer:** c) Provision for doubtful debts
15. **If an insurance policy covers 12 months, and the year-end falls after only 6 months, what is the adjustment?**
- a) Half of the premium is added to the profit and loss account
- b) The entire premium is shown as an expense
- c) Half of the premium is shown as a prepaid expense
- d) The premium is ignored
- **Answer:** c) Half of the premium is shown as a prepaid expense
16. **The outstanding wages at the end of the period should be shown as:**
- a) A deduction from wages in the profit and loss account
- b) An addition to wages in the profit and loss account and as a liability in the balance sheet
- c) An asset in the balance sheet
- d) Income in the profit and loss account
- **Answer:** b) An addition to wages in the profit and loss account and as a liability in the balance sheet
17. **If a business provides for a 5% discount on debtors after accounting for bad and doubtful debts, this provision is:**
- a) Deducted from debtors in the balance sheet
- b) Added to debtors in the balance sheet
- c) Shown as income in the profit and loss account
- d) Ignored in the final accounts
- **Answer:** a) Deducted from debtors in the balance sheet
18. **Interest on capital is generally shown as:**
- a) A deduction from capital in the balance sheet
- b) An addition to expenses in the profit and loss account and added to capital in the balance sheet
- c) A deduction from profit only
- d) An adjustment only in the cash flow statement
- **Answer:** b) An addition to expenses in the profit and loss account and added to capital in the balance sheet
19. **Which of the following adjustments would decrease the net profit?**
- a) Accrued income
- b) Prepaid expenses
- c) Outstanding expenses
- d) Closing stock
- **Answer:** c) Outstanding expenses
20. **Provision for discount on debtors is calculated on:**
- a) The full amount of debtors
- b) Only on debtors after deducting bad and doubtful debts
- c) Only on secured debtors
- d) The total sales amount
- **Answer:** b) Only on debtors after deducting bad and doubtful debts
No comments:
Post a Comment