Which entity is most likely to use the Cash Basis of accounting? MCQ with Answer and Explanation

Which entity is most likely to use the Cash Basis of accounting?
A. An insurance company
B. A listed manufacturing company
C. A small medical practitioner
D. A commercial bank
Answer: Option C
Solution (By JKSSB Mock Tests)
Professionals (like doctors, lawyers) often use cash basis because of its simplicity, whereas companies must use accrual basis under the Companies Act.

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Practice More Accountancy and Book Keeping Questions

Question #1
Payment of a liability out of cash will result in:
A. Decrease in an asset and decrease in capital
B. Increase in an asset and increase in a liability
C. Decrease in an asset and decrease in a liability
D. Increase in a liability and decrease in capital

Correct Answer: Option C


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

Question #2
The primary objective of 'Tax Audit' is:
A. To assess corporate governance
B. To audit GST returns
C. To certify financial statements for banks
D. To check compliance with income tax provisions

Correct Answer: Option D


Explanation:
Tax audit under Section 44AB ensures compliance with income tax law and correct reporting of income.

Question #3
The 'Peer Review' of audit firms is conducted by:
A. ICAI's Peer Review Board
B. SEBI
C. NFRA
D. MCA

Correct Answer: Option A


Explanation:
ICAI has a Peer Review Board to ensure quality of audit services.