Accountancy MCQs | Chapter-wise Multiple Choice Questions with Answers

Question #61

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A credit balance in the bank column of a cash book signifies:

A. Fixed deposit

B. Error in accounting

C. Cash at bank

D. Bank overdraft

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Correct Answer: Option D

Explanation:
Since bank is an asset (usually debit balance), a credit balance means the business has withdrawn more than deposited, creating an overdraft liability.

This question belongs to: Accountancy and Statistics Accountancy and Book Keeping

Question #62

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In a three-column cash book, the discount columns are:

A. Ignored at month end

B. Transferred to suspense account

C. Balanced like cash columns

D. Totalled but not balanced

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Correct Answer: Option D

Explanation:
Discount Allowed and Discount Received are separate nominal accounts. Their columns are only totalled and posted directly to the respective ledger accounts.

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Question #63

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The primary objective of a statutory financial audit is to:

A. Prepare the financial statements for management

B. Express an independent opinion on the financial statements

C. Detect all frauds and errors

D. Guarantee the future viability of the company

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Correct Answer: Option B

Explanation:
The main objective is to form and express an independent opinion on whether the financial statements present a true and fair view.

This question belongs to: Accountancy and Statistics Accountancy and Book Keeping

Question #64

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Examining documentary evidence to ascertain the accuracy and authenticity of transactions is called:

A. Verification

B. Vouching

C. Internal checking

D. Valuation

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Correct Answer: Option B

Explanation:
Vouching is the practice of checking the entries in the books of accounts with supporting documents (vouchers) to prove their accuracy.

This question belongs to: Accountancy and Statistics Accountancy and Book Keeping

Question #65

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Verification of assets primarily ensures:

A. Existence, ownership, and correct valuation

B. Detection of minor cash thefts

C. Arithmetical accuracy

D. Timely payment to creditors

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Correct Answer: Option A

Explanation:
Verification goes beyond vouching; it involves physically confirming the existence, legal ownership, possession, and proper valuation of assets.

This question belongs to: Accountancy and Statistics Accountancy and Book Keeping

Question #66

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An auditor is considered a 'watchdog and not a bloodhound'. This implies:

A. The auditor works only at night

B. The auditor must approach the work with reasonable care and skepticism, but not assuming everyone is dishonest

C. The auditor investigates only cash transactions

D. The auditor must be aggressive in finding fraud

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Correct Answer: Option B

Explanation:
Coined in the Kingston Cotton Mill case, it means an auditor must exercise reasonable skill and care but isn't required to approach the audit with suspicion of fraud.

This question belongs to: Accountancy and Statistics Accountancy and Book Keeping

Question #67

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Which of the following is a limitation of a financial audit?

A. It provides absolute assurance

B. It relies on test checking and sampling

C. It is completely objective with no use of judgment

D. It detects all minor errors

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Correct Answer: Option B

Explanation:
Audits provide reasonable (not absolute) assurance because they heavily rely on sampling and test checking, making it impossible to check every transaction.

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Question #68

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The policies and procedures adopted by management to assist in achieving orderly and efficient conduct of business is known as:

A. Statutory Audit

B. Continuous Audit

C. Vouching

D. Internal Control

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Correct Answer: Option D

Explanation:
Internal control is the system designed by management to safeguard assets, ensure accurate records, and promote operational efficiency.

This question belongs to: Accountancy and Statistics Accountancy and Book Keeping

Question #69

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The foundational principle of Double Entry Bookkeeping is:

A. Cash received must equal cash paid

B. Expenses must equal incomes

C. Assets must be greater than liabilities

D. Every debit has a corresponding credit

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Correct Answer: Option D

Explanation:
Double entry bookkeeping relies on the dual aspect concept, meaning every transaction affects at least two accounts with equal debits and credits.

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Question #70

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What is the rule of Double Entry for Real Accounts?

A. Debit the increase, Credit the decrease

B. Debit the receiver, Credit the giver

C. Debit what comes in, Credit what goes out

D. Debit all expenses, Credit all incomes

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Correct Answer: Option C

Explanation:
Real accounts relate to tangible or intangible assets. The golden rule is 'Debit what comes in, Credit what goes out'.

This question belongs to: Accountancy and Statistics Accountancy and Book Keeping

Question #71

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What is the golden rule for Personal Accounts?

A. Debit the owner, Credit the bank

B. Debit what comes in, Credit what goes out

C. Debit all expenses and losses, Credit all incomes and gains

D. Debit the receiver, Credit the giver

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Correct Answer: Option D

Explanation:
Personal accounts represent individuals, firms, or companies. The rule dictates debiting the person receiving the benefit and crediting the provider.

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Question #72

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Wages paid for installation of a new machinery should be debited to:

A. Wages Account

B. Machinery Account

C. Cash Account

D. Installation Account

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Correct Answer: Option B

Explanation:
All costs incurred to bring a fixed asset to its working condition are capitalized, hence debited to the Machinery account (Real Account rule).

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Question #73

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Who is considered the father of the Double Entry System?

A. F.W. Taylor

B. Adam Smith

C. Henry Fayol

D. Luca Pacioli

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Correct Answer: Option D

Explanation:
Luca Pacioli, an Italian mathematician, first documented the principles of the double-entry bookkeeping system in 1494.

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Question #74

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Rent outstanding is an example of which type of account?

A. Real Account

B. Nominal Account

C. Artificial Personal Account

D. Representative Personal Account

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Correct Answer: Option D

Explanation:
Outstanding expenses represent amounts payable to specific persons, thus classifying them as representative personal accounts.

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Question #75

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A Trial Balance is prepared primarily to check the:

A. Financial position of the business

B. Arithmetical accuracy of ledger accounts

C. Liquidity of the firm

D. Profitability of the business

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Correct Answer: Option B

Explanation:
Trial Balance lists all debit and credit balances to ensure total debits equal total credits, verifying mathematical accuracy.

This question belongs to: Accountancy and Statistics Accountancy and Book Keeping

Question #76

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Which of the following errors will NOT be revealed by a Trial Balance?

A. Posting an amount on the wrong side

B. Posting a wrong amount on the correct side

C. Error of casting (totalling)

D. Error of principle

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Correct Answer: Option D

Explanation:
Errors of principle (like treating capital expenditure as revenue) affect debit and credit equally, hence the Trial Balance will still agree.

This question belongs to: Accountancy and Statistics Accountancy and Book Keeping

Question #77

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An error where the effect of one error is neutralized by the effect of another error is called:

A. Compensating error

B. Error of omission

C. Error of principle

D. Error of commission

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Correct Answer: Option A

Explanation:
Compensating errors mutually cancel each other out, ensuring the Trial Balance continues to tally despite the mistakes.

This question belongs to: Accountancy and Statistics Accountancy and Book Keeping

Question #78

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If the Trial Balance does not tally, the difference is temporarily transferred to:

A. Capital Account

B. Drawings Account

C. Profit & Loss Account

D. Suspense Account

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Correct Answer: Option D

Explanation:
A Suspense Account is opened temporarily to bridge the gap in a mismatched trial balance until the errors are located and rectified.

This question belongs to: Accountancy and Statistics Accountancy and Book Keeping

Question #79

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Under-casting of a Sales book by Rs 1,000 will result in:

A. Credit column of Trial Balance being short by Rs 1,000

B. No effect on the Trial Balance totals

C. Suspense account with a debit balance

D. Debit column of Trial Balance being short by Rs 1,000

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Correct Answer: Option A

Explanation:
Sales have a credit balance. If it's under-casted, the total credit postings will be Rs 1,000 less, making the credit column short.

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Question #80

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A complete omission to record a transaction in the journal will cause the Trial Balance to:

A. Tally without any difference

B. Show double the difference

C. Show a difference equal to the transaction amount

D. Show a difference equal to half the transaction amount

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Correct Answer: Option A

Explanation:
Since both debit and credit aspects are omitted completely, the Trial Balance equation remains balanced.

This question belongs to: Accountancy and Statistics Accountancy and Book Keeping

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