Accountancy MCQs | Chapter-wise Multiple Choice Questions with Answers

Question #1

Which of the following qualitative characteristics of accounting information requires that information should not be biased?

A. Reliability

B. Comparability

C. Relevance

D. Understandability

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Correct Answer: Option A

Explanation:
Reliability ensures that the accounting information is free from error and bias, faithfully representing what it purports to represent.

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Question #2

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Under the accrual basis of accounting, expenses are recognized when they are:

A. Budgeted

B. Incurred

C. Approved by management

D. Paid in cash

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Correct Answer: Option B

Explanation:
The accrual concept dictates that expenses are recognized when incurred, regardless of when the cash is actually paid.

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Question #3

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Which accounting principle mandates that a business will continue its operations indefinitely?

A. Business Entity Concept

B. Going Concern Concept

C. Dual Aspect Concept

D. Accounting Period Concept

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Correct Answer: Option B

Explanation:
The Going Concern Concept assumes the enterprise has neither the intention nor the need to liquidate or curtail materially the scale of its operations.

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Question #4

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Assertion (A): Capital is treated as an internal liability of the business. Reason (R): The business and its owner are considered distinct entities under the Business Entity Concept.

A. Both A and R are true and R is the correct explanation of A

B. A is false but R is true

C. A is true but R is false

D. Both A and R are true but R is not the correct explanation of A

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Correct Answer: Option A

Explanation:
The Business Entity Concept treats the owner as a separate entity from the business, making the capital invested by the owner an internal liability.

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Question #5

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If a company changes its depreciation method from Straight Line to Written Down Value to manipulate profits, which accounting convention is violated?

A. Consistency

B. Full Disclosure

C. Materiality

D. Conservatism

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Correct Answer: Option A

Explanation:
The convention of Consistency requires that accounting policies remain unchanged from one period to another to allow valid comparisons.

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Question #6

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Contingent liabilities are shown as a footnote to the balance sheet to comply with which accounting convention?

A. Conservatism

B. Full Disclosure

C. Consistency

D. Materiality

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Correct Answer: Option B

Explanation:
Full disclosure requires all significant information to be completely and fairly disclosed, including contingent liabilities via footnotes.

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Question #7

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If total assets are Rs 5,00,000 and outside liabilities are Rs 2,00,000, what is the owner's equity?

A. Rs 7,00,000

B. Rs 2,00,000

C. Rs 2,50,000

D. Rs 3,00,000

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Correct Answer: Option D

Explanation:
According to the accounting equation (Assets = Liabilities + Equity), Equity = 5,00,000 - 2,00,000 = Rs 3,00,000.

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Question #8

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A business purchased goods for Rs 50,000 on credit. What is the effect on the accounting equation?

A. Assets increase, Liabilities increase

B. Assets increase, Capital increases

C. Assets decrease, Liabilities decrease

D. Liabilities increase, Capital decreases

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Correct Answer: Option A

Explanation:
Stock (Asset) increases by Rs 50,000 and Creditors (Liability) increase by Rs 50,000, maintaining the equation balance.

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Question #9

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Payment of a liability out of cash will result in:

A. Decrease in an asset and decrease in a liability

B. Increase in an asset and increase in a liability

C. Increase in a liability and decrease in capital

D. Decrease in an asset and decrease in capital

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Correct Answer: Option A

Explanation:
Cash (Asset) decreases and the corresponding Liability also decreases, keeping the accounting equation balanced.

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Question #10

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An amount of Rs 10,000 withdrawn by the proprietor for personal use will cause:

A. Decrease in Cash and Increase in Capital

B. Increase in Drawings and Increase in Liabilities

C. No change in total assets

D. Decrease in Cash and Decrease in Capital

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Correct Answer: Option D

Explanation:
Drawings reduce cash on the asset side and simultaneously reduce the proprietor's capital on the equity side.

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Question #11

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Which of the following transactions leaves the total of the accounting equation unchanged?

A. Purchasing machinery on credit

B. Introduction of fresh capital

C. Collection of cash from debtors

D. Paying electricity bill

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Correct Answer: Option C

Explanation:
Collecting cash from debtors increases one asset (Cash) and decreases another (Debtors) by the same amount, leaving total assets unchanged.

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Question #12

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If opening capital is Rs 1,00,000, closing capital is Rs 1,50,000, and drawings are Rs 20,000, what is the profit for the year assuming no additional capital?

A. Rs 1,70,000

B. Rs 30,000

C. Rs 70,000

D. Rs 50,000

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Correct Answer: Option C

Explanation:
Profit = Closing Capital + Drawings - Opening Capital. Profit = 1,50,000 + 20,000 - 1,00,000 = Rs 70,000.

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Question #13

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The fundamental accounting equation is a mathematical expression of which concept?

A. Dual Aspect Concept

B. Going Concern Concept

C. Cost Concept

D. Money Measurement Concept

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Correct Answer: Option A

Explanation:
The Dual Aspect Concept states that every transaction has a two-fold effect, expressed as Assets = Liabilities + Capital.

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Question #14

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Which of the following books is known as the book of original entry?

A. Ledger

B. Trial Balance

C. Balance Sheet

D. Journal

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Correct Answer: Option D

Explanation:
The Journal is the primary book where transactions are first recorded in chronological order.

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Question #15

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In a journal entry, a brief explanation of the transaction written below the entry is called:

A. Folio

B. Voucher

C. Narration

D. Posting

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Correct Answer: Option C

Explanation:
Narration is a short description of the transaction written in brackets immediately below the journal entry.

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Question #16

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Goods distributed as free samples should be credited to which account?

A. Sales Account

B. Free Samples Account

C. Advertisement Account

D. Purchases Account

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Correct Answer: Option D

Explanation:
Goods distributed as free samples reduce the stock of purchased goods, hence Purchases Account is credited at cost price.

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Question #17

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A trade discount is:

A. Deducted from the list price and not recorded in the books

B. Given for prompt payment

C. Treated as a non-operating expense

D. Recorded separately in the books of accounts

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Correct Answer: Option A

Explanation:
Trade discount is a reduction from the catalogue price given for bulk purchases and is not recorded in the accounting books.

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Question #18

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When bad debts previously written off are recovered, which account is credited?

A. Suspense Account

B. Debtor's Personal Account

C. Bad Debts Recovered Account

D. Bad Debts Account

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Correct Answer: Option C

Explanation:
Bad debts recovered represent a gain for the business and are credited to a separate nominal account called 'Bad Debts Recovered Account'.

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Question #19

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What is the correct journal entry for depreciation charged on machinery?

A. Debit Depreciation A/c, Credit Cash A/c

B. Debit P&L A/c, Credit Machinery A/c

C. Debit Depreciation A/c, Credit Machinery A/c

D. Debit Machinery A/c, Credit Depreciation A/c

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Correct Answer: Option C

Explanation:
Depreciation is an expense (Debit), and it reduces the value of the asset, so Machinery Account is credited.

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Question #20

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A compound journal entry is an entry that:

A. Affects only two accounts

B. Is passed at the end of the year

C. Corrects previous errors

D. Involves more than one debit or more than one credit account

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Correct Answer: Option D

Explanation:
A compound entry contains multiple debits and/or multiple credits, combining related transactions on the same date.

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