Accounting Process – III – CS Foundation Fundamentals of Accounting and Auditing Notes

→ Capital Expenses or Expenditures:
These are payments by a business for fixed assets, like buildings and equipment. Capital expenses are not used for ordinary day-to-day operating expenses of a business, like rent, utilities, and insurance. Another way to consider capital expenses is that they are used to buy assets that have a useful life of more than one year.

→ For example, if you buy office supplies for your business, that purchase is an operating expense, because office supplies don’t typically last more than one year (although you may have those boxes of staples lying around for a long time). On the other hand, if you buy office furniture, it is expected that it will last longer than a year, so you are buying a fixed asset, and that purchase is considered a capital expense. The cost of alterations, are normally capital expenditure as they involve improving or changing an asset and so providing an enduring benefit to the business.

→ The following are the capital expenditures Examples:

Cost of goodwill.
Cost of freehold land and building and the legal charges incurred in this connection,
Cost of lease.
Cost of machinery, plants, tools, fixtures, etc.
Cost of trade marks, patents, copy rights, designs, etc.
Cost of car, lorry etc.
Cost of installation of lights and fans,
Cost of any other assets acquired by way of equipment,
Erection cost of plant and machinery,
Cost of addition to existing assets.
Structural improvements and alteration in the existing assets,
Expenses for developments in case of mines and plantations.
Expenses for administration incurred during construction and equipment of any industrial enterprise,
Expenses incurred in experimenting which finally result in the acquisition of a patent or other rights.

→ Revenue Expenditure
Revenue expenditure is expenditure concerned with the costs of doing business on a day to day basis. When companies make a revenue expenditure, the expense provides immediate benefits, rather than long term ones. This is contrasted with capital expenditures, which are long term investments intended to help a business grow and thrive. Revenue expenditures include things like maintenance, wages and salaries, and costs for utilities. The revenue expenditure consists of expenses which must be covered immediately to keep the business running and which provide immediate benefits. A repair to an asset restores it to what it originally had been and is normally an allowable revenue expense.

→ Following are the examples of revenue expenditure :

Wages or salaries paid to factory workers.
Machine Oil to lubricate.
Electricity or Power required to run machinery or motor.
Expenditure incurred in the ordinary conduct and administration of business, i.e. rent, carriage on saleable goods, salaries, wages manufacturing expenses, commission, legal expenses, insurance, advertisement, free samples, postage, printing charges etc.
Repair and maintenance expenses incurred on fixed assets.
Cost of saleable goods.
Depreciation of fixed assets used in the business.
Interest on borrowed money.
Freight, cartage, octroi duty, transportation, insurance paid on saleable goods. ‘
Petrol or diesel consumed in motor vehicles.
Service charges to motor vehicles.
Bad debts.

→ Deferred Revenue Expenditure – Sometimes, some expenditure is of revenue nature but its benefit likely to be derived over a number of years generally 3 to 5 years. Such expenditure is called deferred revenue expenditure. Example of deffered revenue expenditure are :

heavy advertisement expenditure
discount on debentures
insurance premiums
Advertisement
Licensing

→ Revenue Receipts: It is related to normal activities of the business Credited as revenue to Trading and Profit & Loss Account of the organisation Examples: receipts from sales of goods and services, rent etc. Revenue receipts are considered as business income and it is arises because of business transactions. While calculating net income only the expenses in revenue nature are allowed to deducted

→ Capital Receipts – Receipts which are non-recurring (not received again and again) by nature and whose benefit is enjoyed over a long period are called “Capital Receipts”. Capital receipts are non-business income and it arises independently, that are not considered as business income and is treated as capital gain.

→ Distinction between Capital Receipt and Revenue Receipt:

Revenue Receipt	Capital Receipt
1. It has short-term effect. The benefit is enjoyed within one accounting period.	1. It has long-term effect. The benefit is enjoyed for many years in future.
2. It occurs repeatedly. It is recurring and regular.	2. It does not occur again and again. It is nonrecurring and irregular.
3. It is shown in profit and loss account on the credit side.	3. It is shown in the Balance Sheet on the liability side.
4. It does not produce capital receipt.	4. Capital receipt, when invested, produces revenue receipt e.g. When capital is invested by the owner, business gets revenue receipt (i. E. Sale proceeds of goods etc.).
5. This does not increase or decrease the value of asset or liability.	5. The capital receipt decreases the value of asset or increases the value of liability e.g. Sale of a fixed asset, loan from bank etc.
6. Sometimes, expenses of capital nature are to be incurred for revenue receipt, e.g. purchase of shares of a company is capital expenditure but dividend received on shares is a revenue receipt.	6. Sometimes expenses of revenue nature are to be incurred for such receipt e.g. On obtaining loan (a capital receipt) interest is paid until its repayment.

→ Capital Profit
It is the profit which is earned on the sale of fixed assets, or issuing shares at premium etc. This profit generated is either transferred to capital account or is transferred to capital Reserve Account. Capital Loss is also not shown in Profit & Loss account but shown only in balance sheet. If the loss is negligible then it is debited to profit and loss account of the year in which it occur but if the loss is huge then they are distributed over the years and a portion of loss is debited to profit and loss account of every year. Generally capital losses are set off against capital profit.

→ Revenue Profit
It is the profit which is earned during the ordinary course of business. Revenue Profit is shown in Profit & Loss account which can be used for creating reserves or for distribution or being used in the business. Revenue loses are the loss that occur in the ordinary course of business and is show in Profit & Loss account.

→ Capital losses
Capital loss occurs due to the sale of assets, share and debentures at a price less than their face value or book value. Capital losses are not shown in profit and loss account but are shown in balance sheet on the assets side. A capital loss cannot be offset against income from other sources but must be offset against capital gains and may be carried forward to offset against future capital gains

→ Revenue Losses
Revenue loss occurs due to heavy amount of operating expenses and low turnover or sales. Revenue loss is shown on the debit side of the trading and profit and loss account and asset side of balance sheet as accumulated loss.

→ Contingent Liabilities: Contingent liabilities are costs that the organization will have to face if a particular event occurs, or present liabilities that are unable to be measured with sufficient reliability to be recorded in the financial statements. Typically, contingent liabilities consist of guarantees and indemnities, uncalled capital and legal disputes and claims.

→ Contingent Assets: a contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity. The amount of the asset, or whether it will eventuate, will not be confirmed until a particular event occurs. An example is a claim that an entity is pursuing through legal processes, where the outcome is uncertain.

Accounting Process – III MCQ Questions – CS Foundation Fundamentals of Accounting and Auditing

Question 1.
Which of the following should be the first action
when making a prime entry for a transaction?
a. Study the voucher to identify the nature of the transaction
b. Post the transactions to the appropriate Ledger accounts
c. Decide on the Ledger account to be debited and the one to be credited
d. Enter the transaction in the appropriate book of prime entry
Answer:
a. Study the voucher to identify the nature of the transaction

Question 2.
Journalizing is
a. Process of having the source of transactions
b. Process of recording transactions in the journal
c. Process of having the sources of transactions for journal
d. None of the above
Answer:
b. Process of recording transactions in the journal

Question 3.
Generally journal is kept in a
a. Mathematical method
b. Columnar method
c. Straight method
d. None of the above
Answer:
b. Columnar method

Question 4.
Which of the following will disturb the balancing of the trial balance?
a. Error in adding up a book of prime entry
b. Entering an acquisition of an asset, on credit terms, in the Purchases Day Book
c. Posting to an asset account instead of an expenditure account
d. Entering a wrong amount in a book of prime entry.
Answer:
a. Error in adding up a book of prime entry

Question 5.
The data and month of the first entry are written
a. On the next line of the data column
b. On the same line of the data column
c. On a line above the data column
d. At the left of the data column
Answer:
a. On the next line of the data column

Question 6.
In the particulars account the name of the account to be credited is entered at ___________ place with a prefix ‘To’
a. In confirmation of the name of the account to be debited
b. Next line to the account name that is to debited
c. Any where in the journal
d. None of the above
Answer:
a. In confirmation of the name of the account to be debited

Question 7.
Location of the debit column is
a. In contravention with particulars
b. In front of the particulars column where the amount is debited
c. In front of the particulars column where the amount is credited
d. Not present anywhere in the journal
Answer:
b. In front of the particulars column where the amount is debited

Question 8.
For every entry in journal the transaction can be
a. Personal
b. Real
c. Nominal
d. All of the above
Answer:
d. All of the above

Question 9.
The information that is not provided in the ledger is
a. Information regarding debtors
b. Every information is provided with narration
c. Information regarding creditors
d. Information regarding purchases
Answer:
b. Every information is provided with narration

Question 10.
The rules of debit and debit are applied to of accounts
a. Personal
b. Nominal
c. Real
d. All of the above
Answer:
d. All of the above

Question 11.
c/f indicates
a. Credit
b. Ledger folio
c. Carry forward
d. Journal name
Answer:
c. Carry forward

Question 12.
The reason for totaling at the end of the page of a journal is
a. It makes whole system more convenient
b. As the calculations are lengthy it is more comfortable
c. It is a general practice
d. All of the above
Answer:
d. All of the above

Question 13.
When does a entry termed as a combined entry
a. If two transactions of one company are involved
b. If there is debit and credit both
c. Transactions are of the same nature and they take place on the same day.
d. All the accounts are debited the very same day
Answer:
c. Transactions are of the same nature and they take place on the same day.

Question 14.
This is NOT the function of ledger
a. To classify all the items
b. To put all the items at application accounts
c. Both a & b
d. None of the above
Answer:
d. None of the above

Question 15.
Pick out the wrong one
a. In ledger account debit is one left hand side and credit on sight hand side
b. Ledger takes care of only real and nominal accounts of an enterprise
c. Name of the account in ledger is written in the top middle of the account
d. Ledger account is divided into two sides
Answer:
b. Ledger takes care of only real and nominal accounts of an enterprise

Question 16.
In ledger J.F. denotes
a. Page number
b. Folio
c. Both a & b
d. None of the above
Answer:
c. Both a & b

Question 17.
Book of analytical record is
a. Balance sheet
b. Journal
c. Ledger
d. All of the above
Answer:
c. Ledger

Question 18.
Posting is
a. The process of displaying results in balance sheet
b. The process of displaying results in profit and loss account
c. The process of recording the transactions in journal
d. The process of recording the transactions in ledger
Answer:
d. The process of recording the transactions in ledger

Question 19.
What is uncommon in ledger?
a. Name of the accounts used in journal are different from ledger
b. Account which is credited in journal is debited in ledger
c. Both a & b
d. None of the above
Answer:
c. Both a & b

Question 20.
What is NOT required for ledger?
a. Data
b. Using ‘To’ and ‘By’
c. In folio column page number of journal
d. None of the above
Answer:
d. None of the above

Question 21.
If there is a debit balance in ledger accounts than
a. debit side of an account exceeds the credit side
b. credit side of an account exceeds the debit side
c. total of the debit side is more
d. both a & c
Answer:
a. debit side of an account exceeds the credit side

Question 22.
Which is NOT a subsidiary book?
a. Sales book
b. Salary book
c. Purchase book
d. Cash book
Answer:
b. Salary book

Question 23.
Pick the odd one
a. Entries for purchases of goods are done
b. Entries for purchases of goods on credit are done
c. Entries for purchase of goods on cash are done
d. All of the above
Answer:
c. Entries for purchase of goods on cash are done

Question 24.
Whether for purchase book or sales book ________________ is required
a. Invoices
b. Credit
c. Cash
d. Both a & b
Answer:
d. Both a & b

Question 25.
The book in which two columns are present one for cash and other for discount is
a. Sales book
b. Purchase book
c. Cash book
d. None of the above
Answer:
c. Cash book

Question 26.
When cash is withdrawn from bank it is recorded
a. On debit side in cash column and on credit side of bank column
b. On debit side in cash column and on the debit side of bank column
c. On the debit side of ash bank column and on cred it side of cash col umn.
d. None of the above
Answer:
a. On debit side in cash column and on credit side of bank column

Question 27.
Which of the following statements is incorrect?
a. In emergency the Petty Cashier may give staff loans of small amounts
b. The Petty Cash Book could be either a subsidiary book or a main book of accounts
c. Every payment made by the Petty Cashier should be supported by evidence
d. Regularly Petty Cashier is reimbursed to make up his cash balance to the imprest
Answer:
a. In emergency the Petty Cashier may give staff loans of small amounts

Question 28.
Float is
a. money given at the beginning of month to cashier
b. Money left at the end of the month with cashier
c. Both a & b
d. None of the also
Answer:
a. money given at the beginning of month to cashier

Question 29.
Petty cash book can be treated as
a. Register
b. Memoranda book
c. Part of double entry system
d. Non of the above
Answer:
c. Part of double entry system

Question 30.
Which of the following statements is incorrect?
a. In the double entry accounting system maintained manually, a journal entry A should always end with a narration explaining the need for it
b. is needed only in the absence of other suitable book of prime entry for the transaction
c. should be substantiated by appropriate voucher and authorized at proper level
d. should always consist of a single debit entry matched by a corresponding credit entry
Answer:
d. should always consist of a single debit entry matched by a corresponding credit entry

Question 31.
Worn out assets on sale are recorded in
a. Soles journal
b. Cash journal
c. Petty cash journal
d. General journal
Answer:
d. General journal

Question 32.
XYZ company purchase an asset that turns out to be defective and was required to be sold as a worn out item. The entry will be made in:
a. Worn out journal
b. Cash journal
c. General journal
d. None of the above
Answer:
c. General journal

Question 33.
Function of the ledger is
a. to calculate the total debit and credit of the company
b. to prepare the summary of each account
c. to record all the transactions in a period.
d. All of the above
Answer:
b. to prepare the summary of each account

Question 34.
A business transaction cannot be recorded unless ____________ is present
a. Sales bill
b. Purchase bill
c. Memo
d. All of the above
Answer:
d. All of the above

Question 35.
What is possible if the trail balance of a company agrees?
a. There are two mistakes in the recordings made
b. There may be some mistakes in the recording of books
c. Both a and b
d. None of the above
Answer:
c. Both a and b

Question 36.
Invariably errors in the trial balance are due to
a. Recording in wrong books
b. Omitting the transactions that should be recorded
c. Both a and b
d. None of the above
Answer:
c. Both a and b

Question 37.
An accountant forgot to enter a sales entry in the subsidiary register the impact will be
a. Trial balance will not be affected
b. Trial balance will be affected
c. Debit side enhanced of the trial balance will be
d. Credit side enhanced of the trial balance will be
Answer:
a. Trial balance will not be affected

Question 38.
The mistakes in the total of the subsidiary book will
a. Not affect the personal account of customers
b. Will affect the personal account of customers
c. Both a and b
d. None of the above
Answer:
a. Not affect the personal account of customers

Question 39.
Because of the lack of proper accounting knowledge ______________ type of error is done
a. Partial omission error
b. Compensating error
c. Error of commission
d. All of the above
Answer:
c. Error of commission

Question 40.
If the sum of the debit column equals the sum of credit column in a trial balance, it indicates
a. no errors have been made.
b. no errors can be discovered.
c. The mathematical equality of the accounting equation.
d. That all accounts reflect correct balances.
Answer:
a. no errors have been made.

Question 41.
The feature of errors of principle
a. affect trial balance
b. affect profit and loss account
c. Both a and b
d. None of the above
Answer:
b. affect profit and loss account

Question 42.
Commission is paid for a purchase of land. It will be
a. Disclosed in trial balance
b. Not disclosed in trial balance
c. Will be disclosed in profit and loss account
d. Will be disclosed in balance sheet
Answer:
b. Not disclosed in trial balance

Question 43.
Office was renovated and renovation charges were 5000. They were put in purchase book account. It is
a. Error of complete omission
b. Error of principle
c. Error of commission
d. All of the above
Answer:
b. Error of principle

Question 44.
A new accountant did credit Rs500 instead of Rs50,000. It is an error of
a. Error of commission
b. Error of complete omission
c. Error principle
d. Error of duplication
Answer:
a. Error of commission

Question 45.
The following comments all relate to the recording process. Which of these statements is correct?
a. The general journal is a chronological record of transactions.
b. The general ledger is posted from transactions recorded in the general journal.
c. The trial balance provides the primary source document for recording transactions into the general journal.
d. Transposition is the transfer of information from the general journal to the general ledger.
Answer:
a. The general journal is a chronological record of transactions.

Question 46.
It is irrelevant to check below mentioned to trace the error in trial balance
a. Check the total of debit and credit column
b. Totals of subsidiary books
c. No mistakes in the balancing of various accounts
d. None of the above
Answer:
d. None of the above

Question 47.
One sided errors are
a. Errors affecting purchase account only
b. Errors affecting only balance sheet
c. Errors affecting any one account
d. Errors affecting only balance sheet
Answer:
c. Errors affecting any one account

Question 48.
For rectification of one sided error
a. Journal entry is to be corrected
b. Relevant account entry in the ledger to be corrected
c. Both a and b
d. None of the above
Answer:
b. Relevant account entry in the ledger to be corrected

Question 49.
Accidently Shyam’s account was credited by Rs. 2000 instead of Amit. What corrections should be done.
a. Debit the account of Shyam
b. Credit the account of Amit
c. Both a and b
d. None of the above
Answer:
c. Both a and b

Question 50.
Company purchased furniture worth Rs. 1 Lakh but it was wrongly recorded remedy to this problem will affect
a. One account
b. Two account
c. It is an independent account
d. It can not be rectified
Answer:
c. It is an independent account

Question 51.
Suspense account is a special account as it records
a. All the uncertain items entry
b. After correction in trial balance it shows no balance
c. If trial balance shows debit than debit is shown in debit side of suspense account
d. All of the above
Answer:
d. All of the above

Question 52.
When an error is found in the trial balance of last year which affects the profit of the company then
a. suspense’s account is prepared
b. profit and loss adjustment account is prepared
c. it is left undisturbed
d. Balance sheet adjustment account is prepared
Answer:
b. profit and loss adjustment account is prepared

Question 53.
A correction in the profit & loss adjustment account of the company was detected at later stage the correct treatment of this will be
a. Ignore accounts have already been prepared and nothing can be done
b. Show it as an additional balance sheet
c. Both a & b
d. None of the above
Answer:
d. None of the above

Question 54.
In case the accountant is unable to differentiate between capital expenditure and revenue expenditure it is type of error
a. Accounting error
b. Errors of principle
c. Errors of omission
d. Errors of commission
Answer:
b. Errors of principle

Question 55.
Purchase of goodwill is
a. Revenue expenditure
b. Capital expenditure
c. Deferred revenue expenditure
d. revenue receipts
Answer:
b. Capital expenditure

Question 56.
Expenses were made to keep the machine in running condition such expenses are
a. Capital expenditure
b. Revenue expenditure
c. Both a & b
d. None of the above
Answer:
b. Revenue expenditure

Question 57.
Transactions that a business doesn’t record in any specialized journal are recorded in which journal or book?
a. Cash payments journal
b. Cash receipts journal
c. Purchases return journal
d. General journal
Answer:
d. General journal

Question 58.
Money is paid to a lawyers ‘X’ for checking the papers of an industrial land purchased but after purchase some legal issues are there for which the lawyer ‘Y’ is appointed. Money paid to
a. ‘X’ is capital expenditure and ‘Y’ is revenue expenditure
b. Both are revenue expenditure
c. Both are capital expenditure
d. ‘X’ is revenue expenditure while ‘Y’ is capital expenditure
Answer:
a. ‘X’ is capital expenditure and ‘Y’ is revenue expenditure

Question 59.
It is not uncommon in deferred revenue expenditure
a. That benefit may last for few years, 3-5 years
b. That it is an accidental expenditure with heavy amount
c. It is recurring expenditure
d. Both a & b
Answer:
d. Both a & b

Question 60.
It is NOT a revenue receipt
a. Lamp sum payment received in installment
b. Amount received by the sale of goods
c. Both a & b
d. All of the above
Answer:
a. Lamp sum payment received in installment

Question 61.
A building purchased for rupees 200,000 was sold for Rs 20,000. The treatment of the capital loss will be in manner.
a. It will be shown in profit and loss account
b. It will be spreader over a number of years and a portion will be shown in profit and loss statement
c. It will be spreaded over a number of years and a portion will be shown in balance sheet
d. It will be shown in balance sheets
Answer:
b. It will be spreader over a number of years and a portion will be shown in profit and loss statement

Question 62.
The nature and extent of the contingent liabilities is
a. Shown as a footnote of balance sheet
b. Shown in the financial statement notes
c. Are not shown at
d. all none of the above
Answer:
a. Shown as a footnote of balance sheet

Question 63.
Shares of an enterprise were given at a premium of rupees 20. This money will be put in
a. capital loss
b. capital account
c. capital reserve account
d. both a & b
Answer:
d. both a & b

Question 64.
Everything except _________________ is capital receipt
a. Loans
b. Money from debenture holders
c. Both a & b
d. None of the above
Answer:
c. Both a & b

Question 65.
Invariably revenue receipts
a. Are set off against revenue expenses
b. Have no effect on profit and loss account
c. Both a & b
d. None of the above
Answer:
a. Are set off against revenue expenses

Question 66.
Company’s paid up capital is rupees 50,000. It will be put in
a. Capital account
b. Capital receipts
c. Revenue receipts
d. Deferred revenue account
Answer:
b. Capital receipts

Question 67.
When closing stock is given in trial balance, there, it will effect:
a. Trading account only
b. Balance sheet only
c. Owner’s equity only
d. Both Trading account and Balance sheet
Answer:
b. Balance sheet only

Question 68.
Which of the following is an item of a debtors control account?
a. Cash sale
b. Credit sales
c. Credit purchase
d. Cash purchases
Answer:
c. Credit purchase

Question 69.
Which of the following is an item of a creditors control account?
a. Cash purchases
b. Cash sales
c. Credit sales
d. Credit purchase
Answer:
a. Cash purchases

Question 70.
The following comments below relate to the recording of journal entries. Which statement is true?
a. For any given journal entry, debits must exceed credits.
b. It is customary to record credits on the left and debits on the right.
c. The chart of accounts reveals the amount to debit and credit to the affected accounts.
d. Journalization is the process of converting transactions and events into debit/credit format.
Answer:
d. Journalization is the process of converting transactions and events into debit/credit format.

Question 71.
The following comments all relate to the recording process. Which of these statements is correct?
a. The general ledger is a chronological record of transactions.
b. The general ledger is posted from transactions recorded in the general journal.
c. The trial balance provides the primary source document for recording transactions into the general journal.
d. Transposition is the transfer of information from the general journal to the general ledger.
Answer:
b. The general ledger is posted from transactions recorded in the general journal.

Question 72.
The basic sequence in the accounting process can best be described as:
a. Transaction, journal entry, source document, ledger account, trial balance.
b. Source document, transaction, ledger account, journal entry, trial balance.
c. Transaction, source document, journal entry, trial balance, ledger account.
d. Transaction, source document, journal entry, ledger account, trial balance.
Answer:
d. Transaction, source document, journal entry, ledger account, trial balance.

Question 73.
The trial balance:
a. Is a formal financial statement.
b. Is used to prove that there are no errors in the journal or ledger.
c. Provides a listing of every account in the chart of accounts.
d. Provides a listing of the balance of each account in active use.
Answer:
d. Provides a listing of the balance of each account in active use.

Question 74.
The journal entry to account for the acquisition on credit of factory machinery from Millet pic should require which of the following:
a. Debit Factory account and credit Millet pic account
b. Debit Machinery account and credit Millet pic account
c. Debit Millet pic account and credit Machinery account
d. Debit Machinery account and credit Cash account
Answer:
b. Debit Machinery account and credit Millet pic account

Question 75.
Amit commenced business introducing as his capital furniture worth Rs. 21,000, a car valued at
Rs. 30,000 and Rs. 48,000 in cash. The journal entry for recording this would require:
a. Debit in the three asset accounts, including cash and a credit in the Capital Account
b. No journal entries
c. Debit in the two asset accounts other than cash and a credit in the Capital Account
d. Debit in the cash Account and credit in the Capital Account
Answer:
c. Debit in the two asset accounts other than cash and a credit in the Capital Account

Question 76.
The prime entry for the acquisition of a cash book, ledgers and a journal for Rs 240 from X Ltd, on credit would be in the:
a. Journal
b. purchases Day Book
c. Cash Book
d. None of the above
Answer:
a. Journal

Question 77.
If an amount paid for servicing vehicles has been posted in error to Motor Vehicles account the journal entry necessary to correct this error should require which of the following:
a. Debit Vehicle maintenance account and credit Motor Vehicles account
b. Debit Cash account and credit Motor vehicles account
c. Debit Vehicle maintenance account and credit Cash account
d. Debit Motor vehicles account and credit Vehicle maintenance account
Answer:
a. Debit Vehicle maintenance account and credit Motor Vehicles account

Question 78.
The invoice relating to the acquisition on credit of an Office Equipment for Rs24,500 from Globe Ltd was entered in the Purchases Journal. To correct this error which of the following needs to be done?
a. A Journal entry: Debit Office Equipment ale and credit Purchases ale with Rs24,500
b. No journal entry is needed
c. Journal entry: Debit Office Equipment ale and credit Globe Ltd ale with Rs24,500
d. Journal entry: Debit Globe Ltd ale and credit Office Equipment ale with Rs24,500
Answer:
a. A Journal entry: Debit Office Equipment ale and credit Purchases ale with Rs24,500

Question 79.
Which of the following should be the first action when making a prime entry for a transaction?
a. Enter the transaction in the appropriate book of prime entry
b. Study the voucher to identify the nature of the transaction
c. Decide on the Ledger account to be debited and the one to be credited
d. Post the transactions to the appropriate Ledger accounts
Answer:
b. Study the voucher to identify the nature of the transaction

Question 80.
Financial statements are prepared directly from the
a. general journal
b. ledger
c. trial balance
d. adjusted trial balance
Answer:
d. adjusted trial balance

Question 81.
Monthly and quarterly time periods are called
a. fiscal period
b. calendar period
c. quarterly period
d. interim period
Answer:
a. fiscal period

Question 82.
Which of the following best describes a trial balance?
a. It is a list of balances on the books
b. Shows the financial position of a business
c. Shows all the entries in the books
d. It is a special account
Answer:
c. Shows all the entries in the books

Question 83.
Which of the following is not a book of prime entry?
a. Cash book
b. Returns Inwards Day Book
c. The Petty Cash Book
d. The Ledger
Answer:
d. The Ledger

Question 84.
Which of the following statements is incorrect in relation to accounting for a Credit Note received from a supplier?
a. Post the amount on the Credit Note to the debit of the supplier’s personal account
b. Enter the particulars in a Purchases Returns Day Book
c. Post periodical total of amounts on Credit Notes to the credit of Returns Outwards a/c
d. Debit the amount of the Credit Note to the Purchases account
Answer:
d. Debit the amount of the Credit Note to the Purchases account

Question 85.
Which of the following statements is not correct when accounting for a credit sale?
a. A Post the amount of the individual invoice to the credit of the Sales account
b. Post the periodical total of the amounts of sale to the credit of Sales account
c. Enter the particulars from the invoice in the Sales Journal
d. Post the amount of the individual invoice to the debit of the relevant Customer’s account
Answer:
a. A Post the amount of the individual invoice to the credit of the Sales account

Question 86.
When using a petty cash system, the replenishment of the fund would normally include a debit to:
a. Cash.
b. Petty Cash.
c. Revenues.
d. None of the above
Answer:
d. None of the above

Question 87.
The correct way of accounting an amount received from a credit customer is:
a. Credit Cash account and debit the individual customer’s account
b. Debit Cash account and credit Capital account
c. Debit Cash account and credit Sales account
d. Debit Cash account and credit the individual customer’s account
Answer:
d. Debit Cash account and credit the individual customer’s account

Question 88.
Which of the following describes the practical framework of bookkeeping?
a. Classifying, recording and summarizing
b. Reporting, analyzing and interpreting
c. Classifying, analyzing and interpreting
d. Recording, summarizing and reporting
Answer:
a. Classifying, recording and summarizing

Question 89.
Which of the following highlights the correct order of the stages in the accounting cycle?
a. Journalizing, final accounts, posting to the ledger and trial balance
b. Journalizing, posting to the ledger, trial balance and final accounts
c. Posting to the ledger, trial balance, final accounts and journalizing
d. Posting to the ledger, journalizing, final accounts and trial balance
Answer:
b. Journalizing, posting to the ledger, trial balance and final accounts

Question 90.
In considering the effectiveness of evidence gathering procedures, it was found that most companies have adjustments. Research also shows that:
a. Both receivables and payables are usually overstated.
b. Receivables are usually overstated and payables are usually understated.
c. Receivables are usually understated and payables are usually overstated.
d. Both receivables and payables are usually understated
Answer:
c. Receivables are usually understated and payables are usually overstated.

Question 91.
Another name of journal is
a. Specialized journal
b. Day book
c. Cash book
d. Record book
Answer:
b. Day book

Question 92.
A subsidiary record is a book
a. of subsidiary entry.
b. containing the final account.
c. of final entry.
d. of original entry.
Answer:
d. of original entry.

Question 93.
Pending the location of errors in the books of accounts that affect the agreement of the Trial Balance, the difference disclosed is normally posted to ______________
a. Adjustment Account.
b. Holding Account.
c. Control Account.
d. Suspense Account.
Answer:
d. Suspense Account.

Question 94.
When a buyer returns damaged goods to the seller, the buyer receives
a. credit note.
b. pro forma invoice.
c. debit note.
d. consignment note.
Answer:
a. credit note.

Question 95.
Which ONE of the following, in a classified form, contains permanent records of all transactions?
a. Cash Book.
b. Sales Day Book.
c. Journal.
d. Ledger.
Answer:
d. Ledger.

Question 96.
Pending the location of errors in the books of accounts that affect the agreement of the Trial Balance, the difference disclosed is normally posted to _______________
a. Adjustment Account.
b. Holding Account.
c. Control Account.
d. Suspense Account.
Answer:
d. Suspense Account.

Question 97.
Users of subsidiary books of accounts are;
a. Financial Journalists.
b. Risk Analysts.
c. Cost Accountants.
d. Financial Consultants.
Answer:
d. Financial Consultants.

Question 98.
An office equipment bought on credit would first be entered by the purchaser in the
a. Returns Outward Book .
b. Purchase Day Book.
c. Journal Proper.
d. Sales Day Book returns Inward Book.
Answer:
c. Journal Proper.

Question 99.
Which of the following is type of cash receipt journal + cash payment journal?
a. Bank statement
b. Statement of cash flow
c. Cash book
d. Cash documents
Answer:
c. Cash book

Question 100.
If there is a non agreement of trial balance the possible reasons could be
a. Complete omission of the posting
b. Due to transposition of the posting
c. There has been a wrong posting either on debit side or credit side
d. All of the above
Answer:
d. All of the above

Question 101.
The characteristic feature of imprest system is
a. Fixed amount of cash is allocated to petty cash fund
b. Cash distributed from petty cash fund is documented with receipts
c. Both a&b
d. Petty cash disbursement receipts are everyday replenishments of the petty cash fund
Answer:
c. Both a&b

Question 102.
A company draws cash from United Bank. The entries in the Company’s accounts should be:

Debit	Credit
1. United bank account	Cash account
2. Purchases	Cash Account
3. Income	Bank Account
4. Cash account	United bank account

a. 1
b. 3
c. 2
d. 4
Answer:
d. 4

Question 103.
Discount allowed is
a. Expense of business
b. Income of business
c. Loss of business
d. Abnormal loss of business
Answer:
a. Expense of business

Question 104.
The last month of the fiscal year is 113. A journal entry in which two or more account is
a. March debited or credited is referred as
b. December
c. April
d. None of the above
Answer:
a. March debited or credited is referred as

Question 105.
Which of the following will a supplier send to customer whose invoice was under cast?
a. Notification Note
b. Way Bill
c. Credit Note
d. Debit Note
e. Invoice
Answer:
d. Debit Note

Question 106.
The process of recording is done
a. Two times a year
b. Once a year
c. Frequently during the accounting period
d. At the end of a accounting period
Answer:
c. Frequently during the accounting period

Question 107.
General Journal is a book of _______________ entries
a. First
b. Original
c. Secondary
d. Generic
Answer:
b. Original

Question 108.
The process of recording transaction in different journals is called
a. Posting
b. Entry making
c. Adjusting
d. Journalizing
Answer:
d. Journalizing

Question 109.
A Company makes a purchase on 10th may some office equipment. The correct journal entry will be

Debit	Credit
1. Office equipment	Supplies
2. Purchases	Office equipment
3. Accounts payable	Office equipments
4. Office equipment	Accounts payable

a. 1
b. 2
c. 3
d. 4
Answer:
a. 1

Question 110.
Every business transaction affects at least ___________ accounts
a. One
b. Two
c. Three
d. Infinite
Answer:
b. Two

Question 111.
Discount allowed is a kind of deduction from
a. Account payable
b. Account receivable
c. Cash account
d. Discount account
Answer:
b. Account receivable

Question 112.
The other name of journal fs
a. Ledger
b. T account
c. Day book
d. cash book
Answer:
c. Day book

Question 113.
A journal entry in which two or more account is
debited or credited is referred as
a. Journal entry
b. Multi entry
c. Additional entry
d. Compound entry
Answer:
d. Compound entry

Question 114.
The term 2/10-n/30 implies that _________________ % discount will be given if the payment made within _______________ day is receivable within 30 days
a. 2, 10
b. 10, 2
c. 10, 30
d. 3, 15
Answer:
a. 2, 10

Question 115.
Goods returned by customer should be debited to which of the following accounts?
a. Sales income account
b. Sales account
c. Return inward account
d. Expenses account
Answer:
c. Return inward account

Question 116.
Which of the following is a double column cash book?
a. One column for cash and another for bank
b. One column for cash and another for discount
c. One for bank and another for discount
d. All of the above
Answer:
d. All of the above

Question 117.
Which of the following specialized journals records “’good returned by customers”?
a. Purchase journal
b. Sales journal
c. Purchases return journal
d. Sales return journal
Answer:
d. Sales return journal

Question 118.
Sales on credit is recorded in which of the following journal?
a. Purchases journal
b. Sales journal
c. Purchases return journal
d. Sales return journal
Answer:
b. Sales journal

Question 119.
Which of the following specialized journals will record “goods returned by the business”?
a. Purchase journal
b. Sales journal
c. Purchases return journal
d. Sales return journal
Answer:
c. Purchases return journal

Question 120.
Sales and purchase journal don’t record
a. credit sales
b. credit purchases
c. credit sales and purchases
d. cash sales and purchases
Answer:
d. cash sales and purchases

Question 121.
Cash received from debtor is recorded in which of the following specialized journals?
a. Purchase journal
b. Sales journal
c. Cash receipts
d. Cash payments journal
Answer:
c. Cash receipts

Question 122.
Cash purchases is recorded in which of the following specialized journals?
a. Purchase journal
b. Sales journal
c. Purchases return journal
d. Cash payments journal
Answer:
d. Cash payments journal

Question 123.
A brief explanation recorded in every entry in general is commonly known as
a. Narration
b. Explanation
c. Summary
d. Other information
Answer:
a. Narration

Question 124.
Which of the following should be entered in the Journal?
(i) Payment for purchases
(ii) Fixtures bought on credit
(iii) Credit sale of goods
(iv) Sale of surplus machinery.
a. (i) and (iii)
b. (i) and (iv)
c. (ii) and (iv)
d. (iii) and (iv)
Answer:
c. (ii) and (iv)

Question 125.
Which of the following are not errors of principle?
(i) Motor expenses entered in Motor Vehicles account
(ii) Purchases of machinery entered in Purchases account
(iii) x Sales of Rs. 250 to Varun completely omitted from books
(iv) Sales to a Varun entered in Amit’s account.
a. (i) and (iv)
b. (ii) and (iii)
c. (i) and (ii)
d. (i) and (iv)
Answer:
a. (i) and (iv)

Question 126.
Errors are corrected via the Journal because:
a. It saves entering them in the ledger
b. It is much easier to do
c. It provides a good record explaining the double entry records
d. It saves the bookkeeper’s time
Answer:
c. It provides a good record explaining the double entry records

Question 127.
Which of these errors would be disclosed by the trial balance?
a. Credit sales of Rs300 entered in both double entry accounts as Rs30
b. A purchase of Rs250 was omitted entirely from the books
c. Selling expenses had been debited to Sales Account
d. Cheque Rs 95 from C Smith entered in Smith’s account as Rs 59
Answer:
d. Cheque Rs 95 from C Smith entered in Smith’s account as Rs 59

Question 128.
What should happen if the balance on a Suspense Account is of a material amount?
a. Should be written off to the balance sheet
b. Write it off to Profit and Loss Account
c. Carry forward the balance to the next period
d. Find the error(s) before publishing the final accounts
Answer:
d. Find the error(s) before publishing the final accounts

Question 129.
What is an analytical petty cash book
a. Petty cash book formed in columnar form
b. Petty cash book formed in tabular form
c. Petty cash book formed in arithmetic form
d. None of the above
Answer:
a. Petty cash book formed in columnar form

Question 130.
Ahmad Industries want to make payment to supplier in the form of a pay order. The bank deducted Rs.160 as service charges without its knowledge. The error is known as:
a. Error of commission
b. Error of omission
c. Error of original entry
d. Error of principle
Answer:
a. Error of commission

Question 131.
Which of the following account(s) will be affected, while rectifying the error of a purchase return of Rs.200 to Mr. “A” entered in sales book instead of purchase return book?
a. A’s account only
b. Sales account only
c. Purchase returns account and sales account
d. Purchases account only
Answer:
a. A’s account only

Question 132.
Which of the following account(s) will be affected, while rectifying the error of an amount Rs.200 received from Mr. “P” wrongly credited to Mr. “Q’s” account?
a. Only Cash Account
b. Only P’s account
c. Only Q’s account
d. Both of Mr. P’s & Mr. Q’s Account
Answer:
d. Both of Mr. P’s & Mr. Q’s Account

Question 133.
Which of the following will disturb the balancing of the trial balance?
a. A Posting to an asset account instead of an expenditure account
b. Entering a wrong amount in a book of prime entry
c. Entering an acquisition of an asset, on credit terms, in the Purchases Day Book
d. Error in adding up a book of prime entry.
Answer:
d. Error in adding up a book of prime entry.

Question 134.
If the totals of two columns of trial balance are equal it means
a. Ledger posting is correct
b. No outstanding debit
c. No outstanding credit
d. All of the above
Answer:
a. Ledger posting is correct

Question 135.
Trial balance proves only the accuracy of ledger posting
a. Debit
b. Accounting
c. Arithmetical
d. Credit
Answer:
c. Arithmetical

Question 136.
One of the objective of preparing Trial Balance is to help locate
a. Accounting errors
b. Financial statements
c. Difference between ledger and journal
d. None of the above
Answer:
a. Accounting errors

Question 137.
Which of the following expenditures is of capital nature?
a. Purchase of goods
b. Cost of repairs
c. Wages paid for installation of machinery
d. Rent of a factory.
Answer:
c. Wages paid for installation of machinery

Question 138.
A liability which arises only on the happening of some event is called:-
a. Current liability
b. Contingent liability
c. Outstanding liability
d. Fixed liability
Answer:
b. Contingent liability

Hint:
Contingent Liabilities – Contingent liabilities are costs that the organization will have to face if a particular event occurs, or present liabilities that are unable to be measured with sufficient reliability to be recorded in the financial statements. Typically, contingent liabilities consist of guarantees and indemnities, uncalled capital and legal disputes and claims.

Question 139.
Heavy amounts were spent by Saroj for addition to machinery in order to increase the production capacity. The amount is-
a. Revenue Expenditure
b. Deferred Revenue Expenditure
C. Capital Expenditure
d. Liability
Answer:
C. Capital Expenditure

Hint:
Capital Expenses or Expenditures
These are payments by a business for fixed assets, like buildings and equipment. Capital expenses are not used for ordinary day-to-day operating expenses of a business. . Another way to consider capital expenses is that they are used to buy assets that have a useful life of more than one year.

Question 140.
What is the nature of expenses incurred on the issue of shares?
a. Revenue
b. Capital
c. Neither (a) nor (b)
d. Both (a) and (b)
Answer:
b. Capital

Hint:
Capital Expenses or Expenditures
These are payments by a business for fixed assets, like buildings and equipment. Capital expenses are not used for ordinary day-to-day operating expenses of a business. Another way to consider capital expenses is that they are used to buy assets that have a useful life of more than one year.

Expenses incurred on issue of shares is capital in nature as shares are issued for lifetime of company and are not day to day expenses.

Question 141.
Which of the following is not a capital expenditure?
a. Cost of issuing shares and debentures
b. Wages paid for construction of a new office
c. Purchase of a new spark plug for Rs. 10
d. Repair of a second hand vehicle purchased.
Answer:
c. Purchase of a new spark plug for Rs. 10

Hint:
Revenue Expenditure
Revenue expenditure is expenditure concerned with the costs of doing business on a day to day basis. When companies make a revenue expenditure, the expense provides immediate benefits, rather than long term ones.

Question 142.
The cost of supplying uniform to employees is a:
a. Capital expenditure
b. Revenue expenditure
c. Deferred revenue expenditure
d. None of the above.
Answer:
b. Revenue expenditure

The cost of supplying uniform to employees is a revenue expenditure as it is an immediate benefit to employees and there is no long term benefit of this expenditure.

Question 143.
Expenses incurred for obtaining a license for starting a factory are
a. Capital Expenditure
b. Revenue Expenditure
c. Deferred Revenue Expenditure
d. Prepaid Expenses.
Answer:
a. Capital Expenditure

Hint:
Capital Expenses or Expenditures
These are payments by a business for fixed assets, like buildings and equipment. Capital expenses are not used for ordinary day-to-day operating expenses of a business. Another way to consider capital expenses is that they are used to buy assets that have a useful life of more than one year.

Question 144.
Which of the following is not a capital expenditure?
a. Purchase of land & building
b. Amount paid for wages.
c. Improving permanent assets.
d. None of the above.
Answer:
b. Amount paid for wages.

Examples of revenue expenditure are Wages or salaries paid to factory workers,Machine Oil to lubricate

Question 145.
When we get the property registered, then what type of expenditure it is?
a. Capital
b. Revenue
c. Deferred Revenue
d. None.
Answer:
a. Capital

Hint:
Capital Expenses or Expenditures
These are payments by a business for fixed assets, like buildings and equipment. Capital expenses are not used for ordinary day-to-day operating expenses of a business. Another way to consider capital expenses is that they are used to buy assets that have a useful life of more than one year.

Question 146.
Insurance received by the company is what for the company?
a. Capital expenditure
b. Revenue expenditure
c. Capital receipt
d. Revenue receipt.
Answer:
c. Capital receipt

Hint:
Capital Receipts: Receipts which are non-recurring (not received again and again) by nature and whose benefit is enjoyed over a long period are called “Capital Receipts”. Capital receipts are non-business income and it arises independently, that are not considered as business income and is treated as capital gain.

Question 147.
Interest on drawings to be treated IS:
a. Revenue Expenditure
b. Capital Expenditure
c. Revenue Income
d. Capital Income.
Answer:
c. Revenue Income

Hint:
Revenue Receipts: It is related to normal activities of the business Credited as revenue to Trading and Profit & Loss Account of the organisation.
Interest on drawings is the interest charged on day to day routine drawings made.
Since, it is the income of the firm of recurring nature it will be treated as revenue income.

Question 148.
At the time o: commencement of business, preliminary expenses incurred are treated as:
a. Revenue Expenditure
b. Capital Expenditure
c. Deferred Revenue Expenditure.
d. None of the above.
Answer:
c. Deferred Revenue Expenditure.

Hint:
Deferred Revenue Expenditure – Sometimes, some expenditure is of revenue nature but its benefit likely to be derived over a number of years generally 3 to 5 years. Such expenditure is called deferred revenue expenditure. Example of deffered revenue expenditure are:
heavy advertisement expenditure
discount on debentures
insurance premiums
Advertisement Licensing
Preliminary expenses

Question 149.
The expired portion of capital expenditure is shown in the:
a. An expense
b. An income
c. An asset
d. A liability
Answer:
a. An expense

Hint:
An expired cost is a cost that has been recognized as an expense. This happens when a business entity fully consumes or receives benefit from a cost. An expired cost may also be construed as the total loss in value of an asset.

Question 150.
A business entity distributed goods worth Rs. 15,000 as free sample. The, adjustment to be made is:
a. Subtracted from purchases A/c and credited to Profit and Loss A/c
b. Added to Purchase Ne and credited to Profit and Loss A/c r
c. Added to Purchase Ne and debited to Profit and Loss A/c
d. Subtracted from Purchases A/c and debited to Profit and Loss A/c.
Answer:
d. Subtracted from Purchases A/c and debited to Profit and Loss A/c.

Hint:
Journal entries will be

Question 151.
Sriram purchased a furniture for Rs. 6,000, the accounts affected from this transaction will be:
a. Capital account and cash account
b. Furniture account and cash account
c. Furniture account and capital account
d. Capital account and bank account.
Answer:
b. Furniture account and cash account

Question 152.
Rs.25,000 spent on tile overhaul of second hand purchased machines would be (x) Revenue expenditure (y) Capital expenditure (z) Deferred revenue expenditure. The options are:
a. (x) and (y)
b. (x) only
c. (y) only
d. (z) only.
Answer:
c. (y) only

Hint:
The overhauling expenses incurred on second hand machine purchased in order to bring it to use are not day to day expenses. These are one time expense whose useful life is more than 1 year so capital expenditure.