Q.1 What is the primary objective of preparing final accounts of a sole proprietorship?
To calculate profit or loss
To pay income tax only
To check cash balance
To prepare budgets
Explanation - Final accounts are prepared to determine the net profit or loss and the financial position of the sole proprietorship.
Correct answer is: To calculate profit or loss
Q.2 Which of the following is NOT a component of final accounts of a sole proprietor?
Trading Account
Profit and Loss Account
Balance Sheet
Cash Flow Statement
Explanation - In traditional accounting, the final accounts of a sole proprietor include Trading Account, Profit and Loss Account, and Balance Sheet. Cash flow is not mandatory.
Correct answer is: Cash Flow Statement
Q.3 The balance sheet of a sole proprietor shows:
Expenses and incomes
Assets and liabilities
Sales and purchases
Cash inflows and outflows
Explanation - A balance sheet presents the financial position by showing the business’s assets and liabilities as of a particular date.
Correct answer is: Assets and liabilities
Q.4 Which account is prepared first while making final accounts?
Profit and Loss Account
Trading Account
Balance Sheet
Capital Account
Explanation - The Trading Account is prepared first to calculate the gross profit or gross loss, which is then transferred to the Profit and Loss Account.
Correct answer is: Trading Account
Q.5 Gross Profit is transferred to:
Capital Account
Trading Account
Profit and Loss Account
Balance Sheet
Explanation - Gross profit or loss from the Trading Account is transferred to the Profit and Loss Account.
Correct answer is: Profit and Loss Account
Q.6 Closing stock is shown in the:
Only in Profit and Loss Account
Only in Trading Account
Trading Account and Balance Sheet
Capital Account
Explanation - Closing stock is shown on the credit side of the Trading Account and as an asset in the Balance Sheet.
Correct answer is: Trading Account and Balance Sheet
Q.7 Which of the following is a direct expense?
Carriage Inwards
Salaries
Office Rent
Advertisement
Explanation - Direct expenses relate to the cost of goods purchased or produced, like carriage inwards, wages, and power used in production.
Correct answer is: Carriage Inwards
Q.8 Net profit is calculated in:
Trading Account
Profit and Loss Account
Balance Sheet
Trial Balance
Explanation - Net profit or loss is determined in the Profit and Loss Account after accounting for indirect incomes and expenses.
Correct answer is: Profit and Loss Account
Q.9 Depreciation on fixed assets is recorded in:
Trading Account
Profit and Loss Account
Balance Sheet only
Capital Account
Explanation - Depreciation is an indirect expense and is recorded in the Profit and Loss Account.
Correct answer is: Profit and Loss Account
Q.10 Drawings made by the owner are deducted from:
Assets
Liabilities
Capital
Profit
Explanation - Drawings reduce the owner’s capital balance in the Balance Sheet.
Correct answer is: Capital
Q.11 Which of the following appears on the debit side of a Trading Account?
Sales
Closing Stock
Opening Stock
Capital
Explanation - Opening stock and direct expenses are shown on the debit side of a Trading Account.
Correct answer is: Opening Stock
Q.12 Wages paid for factory workers is classified as:
Indirect Expense
Direct Expense
Indirect Income
Capital Expenditure
Explanation - Wages for production staff are direct expenses as they are directly linked to manufacturing goods.
Correct answer is: Direct Expense
Q.13 Which of the following is an example of an indirect expense?
Wages
Power used in production
Carriage Inwards
Office Salaries
Explanation - Indirect expenses are not directly related to production but are incurred in running the business, like office salaries.
Correct answer is: Office Salaries
Q.14 Where are outstanding expenses shown in the Balance Sheet?
Assets side
Liabilities side
Capital side
Not shown
Explanation - Outstanding expenses are obligations and hence shown under liabilities in the Balance Sheet.
Correct answer is: Liabilities side
Q.15 Accrued income is recorded on which side of the Balance Sheet?
Liabilities side
Assets side
Capital side
Not recorded
Explanation - Accrued income is an asset as it represents income earned but not yet received.
Correct answer is: Assets side
Q.16 Interest on drawings is treated as:
Expense
Income
Liability
Asset
Explanation - Interest on drawings is charged from the proprietor and treated as income for the business.
Correct answer is: Income
Q.17 Salaries outstanding is shown in:
Trading Account
Profit and Loss Account
Balance Sheet
Trial Balance
Explanation - Outstanding salaries are a liability and appear in the Balance Sheet under current liabilities.
Correct answer is: Balance Sheet
Q.18 Which side of the Balance Sheet shows the capital of the proprietor?
Assets side
Liabilities side
Debit side
Credit side
Explanation - Capital is treated as a liability of the business towards the owner, hence shown on the liabilities side.
Correct answer is: Liabilities side
Q.19 Bad debts are recorded in:
Trading Account
Profit and Loss Account
Capital Account
Balance Sheet only
Explanation - Bad debts are losses due to non-recovery from debtors and are shown in the Profit and Loss Account.
Correct answer is: Profit and Loss Account
Q.20 Prepaid expenses appear in the Balance Sheet as:
Current Liability
Current Asset
Fixed Asset
Long-term Liability
Explanation - Prepaid expenses are benefits receivable in the future and hence treated as current assets.
Correct answer is: Current Asset
Q.21 Where does carriage outwards appear?
Trading Account
Profit and Loss Account
Balance Sheet
Capital Account
Explanation - Carriage outwards is a selling expense and appears in the Profit and Loss Account.
Correct answer is: Profit and Loss Account
Q.22 Which of the following reduces the proprietor’s capital?
Net Profit
Additional Capital Introduced
Drawings
Commission Received
Explanation - Drawings reduce the proprietor’s capital as it represents withdrawals from the business.
Correct answer is: Drawings
Q.23 What is shown on the credit side of a Trading Account?
Opening Stock
Purchases
Sales
Carriage Inwards
Explanation - Sales and closing stock are shown on the credit side of the Trading Account.
Correct answer is: Sales
Q.24 Reserve for doubtful debts is shown in the Balance Sheet as:
Liability
Deduction from Debtors
Current Asset
Capital
Explanation - Provision for doubtful debts is deducted from sundry debtors in the Balance Sheet.
Correct answer is: Deduction from Debtors
Q.25 Goodwill purchased by a sole proprietor is shown under:
Current Assets
Fixed Assets
Liabilities
Capital
Explanation - Goodwill is an intangible asset and shown under fixed assets in the Balance Sheet.
Correct answer is: Fixed Assets