Q.1 What is the primary objective of financial accounting?
To calculate taxes
To provide financial information to external users
To manage internal operations
To prepare budgets
Explanation - Financial accounting focuses on recording and reporting financial transactions to stakeholders such as investors, creditors, and regulators.
Correct answer is: To provide financial information to external users
Q.2 Which of the following is considered an asset?
Bank Loan
Accounts Payable
Building
Capital
Explanation - Assets are resources owned by the business, such as cash, buildings, and machinery. A building provides future economic benefit.
Correct answer is: Building
Q.3 Which statement shows the financial position of a business at a particular date?
Cash Flow Statement
Profit & Loss Statement
Balance Sheet
Ledger
Explanation - The Balance Sheet reflects the assets, liabilities, and equity of a business on a specific date.
Correct answer is: Balance Sheet
Q.4 Which accounting assumption assumes that a business will continue to operate indefinitely?
Matching Concept
Consistency
Going Concern
Accrual
Explanation - The going concern assumption presumes that a business will continue to operate for the foreseeable future without liquidation.
Correct answer is: Going Concern
Q.5 Which of the following is a liability?
Machinery
Accounts Receivable
Accounts Payable
Goodwill
Explanation - Accounts Payable represent obligations to pay creditors, which is a liability.
Correct answer is: Accounts Payable
Q.6 Which of these is NOT a financial statement?
Trial Balance
Balance Sheet
Income Statement
Cash Flow Statement
Explanation - Trial Balance is a statement prepared to check the accuracy of accounts, but it is not a formal financial statement.
Correct answer is: Trial Balance
Q.7 The process of recording financial transactions is called:
Summarizing
Posting
Bookkeeping
Auditing
Explanation - Bookkeeping refers to the systematic recording of financial transactions in books of accounts.
Correct answer is: Bookkeeping
Q.8 Revenue is generally recognized when:
Cash is received
Sale is made
Invoice is prepared
Payment is due
Explanation - According to the revenue recognition principle, revenue is recognized when earned, typically at the point of sale, not necessarily when cash is received.
Correct answer is: Sale is made
Q.9 Which principle requires consistency in accounting methods?
Prudence
Consistency
Accrual
Materiality
Explanation - The consistency principle ensures comparability across accounting periods by using the same methods.
Correct answer is: Consistency
Q.10 Which of these is an intangible asset?
Furniture
Patent
Inventory
Cash
Explanation - Patents are intangible assets as they do not have a physical form but provide future economic benefits.
Correct answer is: Patent
Q.11 Financial accounting information is mainly useful for:
Managers
Employees
Investors and creditors
Customers
Explanation - Financial accounting primarily serves external stakeholders such as investors and creditors for decision-making.
Correct answer is: Investors and creditors
Q.12 Which accounting equation is always true?
Assets = Liabilities + Equity
Assets = Income + Expenses
Liabilities = Assets + Equity
Equity = Assets - Revenue
Explanation - This is the basic accounting equation forming the foundation of the double-entry system.
Correct answer is: Assets = Liabilities + Equity
Q.13 Depreciation is charged on:
Current Assets
Intangible Assets
Fixed Tangible Assets
Liabilities
Explanation - Depreciation applies to fixed tangible assets like buildings and machinery due to wear and tear.
Correct answer is: Fixed Tangible Assets
Q.14 Which of the following is an expense?
Rent Paid
Cash in Hand
Loan Taken
Capital Introduced
Explanation - Rent paid represents a cost incurred to earn revenue and is classified as an expense.
Correct answer is: Rent Paid
Q.15 In double-entry accounting, every debit has a corresponding:
Ledger
Expense
Credit
Journal
Explanation - The double-entry system records each transaction with equal debits and credits to maintain balance.
Correct answer is: Credit
Q.16 Which account is affected when goods are sold on credit?
Cash Account
Accounts Receivable
Accounts Payable
Capital Account
Explanation - When sales are made on credit, the business expects payment in future, increasing Accounts Receivable.
Correct answer is: Accounts Receivable
Q.17 What does GAAP stand for?
Generally Accepted Auditing Practices
General Accounting and Audit Procedures
Generally Accepted Accounting Principles
Government Accounting and Auditing Policies
Explanation - GAAP stands for Generally Accepted Accounting Principles, which are standardized accounting guidelines.
Correct answer is: Generally Accepted Accounting Principles
Q.18 Which document is prepared first in the accounting cycle?
Ledger
Trial Balance
Journal
Balance Sheet
Explanation - Transactions are first recorded in the journal, also known as the book of original entry.
Correct answer is: Journal
Q.19 Which concept requires recording expenses in the same period as related revenues?
Matching Concept
Consistency
Going Concern
Entity Concept
Explanation - The matching principle ensures that expenses are matched with the revenues they help generate.
Correct answer is: Matching Concept
Q.20 What is the purpose of a Trial Balance?
To calculate net profit
To check arithmetical accuracy of books
To prepare tax returns
To determine cash balance
Explanation - Trial Balance ensures total debits equal total credits, verifying accuracy of ledger postings.
Correct answer is: To check arithmetical accuracy of books
Q.21 Which of the following is a real account?
Wages Account
Rent Account
Cash Account
Commission Account
Explanation - Real accounts relate to assets and liabilities, such as Cash, Buildings, and Furniture.
Correct answer is: Cash Account
Q.22 The accounting period assumption divides the life of a business into:
Months
Quarters
Equal time intervals
Years or periods
Explanation - The accounting period concept assumes business life is divided into fixed intervals (e.g., annually) for reporting.
Correct answer is: Years or periods
Q.23 Which is NOT an example of current liability?
Accounts Payable
Bank Overdraft
Outstanding Rent
Debentures (10 years)
Explanation - Debentures payable in 10 years are long-term liabilities, not current liabilities.
Correct answer is: Debentures (10 years)
Q.24 Which type of account is Capital Account?
Personal Account
Real Account
Nominal Account
None
Explanation - Capital Account is a personal account as it represents the owner’s equity in the business.
Correct answer is: Personal Account
Q.25 If total assets = Rs. 50,000 and liabilities = Rs. 20,000, what is owner’s equity?
Rs. 20,000
Rs. 30,000
Rs. 50,000
Rs. 70,000
Explanation - By the accounting equation: Equity = Assets - Liabilities = 50,000 - 20,000 = 30,000.
Correct answer is: Rs. 30,000