Basic Accounting Revision MCQs

BASIS ACCOUNTING – REVISION MCQS

1. The financial position of the business on a given date is reported on the
a. Income Statement
b. Balance Sheet
c. Statement of Changes In Owner's Equity
d. Statement of Cash Flows

2. The net profit or loss for a particular period of time is reported on the
a. Income Statement
b. Balance Sheet
c. Trial Balance
d. Statement of Changes In Owner's Equity

3. The investment of cash into the business results in a/an

a. increase in cash and a decrease in capital
b. increase in cash and an increase in capital
c. decrease in cash and an increase in capital
d. increase in fees earned and an increase in capital

4. The purchase of supplies for cash will result in a/an

a. increase in cash and a decrease in capital
b. increase in cash and an increase in supplies
c. increase in supplies and a decrease in cash
d. increase in equipment and an increase in capital

5. Services rendered for cash will result in a/an

a. increase in cash and a decrease in capital
b. increase in cash and an increase in fees earned
c. decrease in cash and an increase in fees earned
d. increase in fees earned and an decrease in capital

6. Cash is received from a client for office rental space.

a. cash increases and rental fees earned decreases
b. cash increases and rental fees earned increases
c. cash decreases and capital increases
d. cash decreases and withdrawals increases

7. Keeping the records of the business separate from the personal records of the owner of
the business is said to be adherence to which accounting principle or concept?
a. Continuing-concern concept
b. Business entity principle
c. Realization principle
d. Objectivity principle

8. Which of the following is a formal written promise to pay a definite sum of money on
demand or at a fixed or determinable future date?
a. Account payable
b. Account receivable
c. Note payable
d. Prepaid insurance policy

9. Peter Atli decided to pay himself a salary of Rs.3,000 per month for the work he performs
for his business, a single proprietorship. Each time a cheque is recorded for Rs.3,000,
which account should be increased?
a. Salaries Expense
b. Capital
c. Peter Atli, Withdrawals
d. Owner Salary Expense

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 Basic Accounting Revision MCQs

10. The personal telephone bill of Junior Sample was paid by issuing a cheque from the
business chequing account. No business calls had been made from Junior's personal
phone. What account must be charged for this transaction?
a. Junior, Capital
b. Cash
c. Junior, Withdrawals
d. Telephone Expense

11. Which of the following accounts is NOT a liability?

a. Accounts Payable
b. Accounts Receivable
c. Salaries Payable
d. Notes Payable

12. Assets total Rs.50,000 and Liabilities total Rs.10,000. The equity of the business must total
a. Rs.4,000
b. Rs.40,000
c. Rs.400
d. Rs.40

13. The resulting amount when total liabilities are subtracted from total assets is known as
a. owner's equity or net assets
b. net income or net loss
c. total expenses
d. total revenue

14. A broad rule adopted by the accounting profession as a guide in measuring, recording,
and reporting the financial affairs and activities of a business is known as
a. an accounting concept
b. an accounting principle
c. the basic accounting equation
d. objectivity principle

15. Using a sales invoice as the basis for recording a sale of merchandise is an example of
using which accounting principle or concept for recording transactions?
a. Recognition principle
b. Objectivity principle
c. Realization principle
d. Continuing-concern concept

16. Which of the following statements is true?

a. a salary paid to a partner is an expense to the partnership
b. a salary paid to a proprietor is an expense to the proprietorship
c. a salary paid to a shareholder is an expense of the corporation
d. the business entity principle does not apply to corporations

17. Keith Manich deposited Rs.5,000 in a bank account he established for a pet store that he is
going to own and operate as KM's Pets. Recording the deposit will
a. increase an asset, increase a liability
b. decrease an asset, decrease a liability
c. increase an asset, increase owner's equity
d. decrease an asset, decrease owner's equity

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 Basic Accounting Revision MCQs

18. Better-Cars Selection, a used car dealer, has total assets and liabilities of Rs.50,000 and
Rs.18,000, respectively. The firm constructed a shelter for its automobiles by promising to
pay the building contractor, upon completion of the building, Rs.500 per month for twenty-
four months. Upon completion, owner's equity will:
a. increase by Rs.12,000
b. remain unchanged
c. decrease by Rs.12,000
d. increase by Rs.500, each month

19. The owner of a computer services business was able to acquire a new computer, valued at
Rs.5,000, by establishing an account with the computer vendor, Com Pewters Unlimited.
There was no down payment. Recording the transaction will
a. increase an asset, increase a liability
b. decrease an asset, decrease a liability
c. increase an asset, increase owner's equity
d. decrease an asset, decrease owner's equity

20. A sole proprietor recorded the payment of an account payable to an office supplies store.
Recording the transaction will
a. increase an asset, increase a liability
b. decrease an asset, decrease a liability
c. increase an asset, increase owner's equity
d. decrease an asset, decrease owner's equity

21. If during the accounting period the assets increased by Rs.5,000, and the owner's equity
increased by Rs.1,000, then the liabilities must have
a. increased by Rs.6,000
b. increased by Rs.4,000
c. decreased by Rs.4,000
d. decreased by Rs.6,000

22. If during the accounting period the assets increased by Rs.7,000, and the owner's equity
decreased by Rs.3,000, then the liabilities must have
a. increased by Rs.10,000
b. increased by Rs.4,000
c. decreased by Rs.4,000
d. decreased by Rs.10,000

23. One of the local fast-food outlets hired a first-year accounting student to oversee the cash-
collection procedures. When the firm pays the student her weekly wage, the transaction
will
a. increase an asset, increase a liability
b. decrease an asset, decrease a liability
c. increase an asset, increase owner's equity
d. decrease an asset, decrease owner's equity

24. The proprietor of a restaurant purchased a three-year insurance policy. Recording the
purchase of the policy requires
a. an asset to be debited, a liability to be credited
b. a liability to be debited, an asset to be credited
c. one asset to be debited, another asset to be credited
d. withdrawals to be debited, an asset to be credited

25. A business purchased equipment by issuing a one-year note payable. The entire amount
of the note is due at the end of one year. Recording the transaction requires
a. an asset to be debited, a liability to be credited
b. a liability to be debited, an asset to be credited
c. an asset to be debited, capital to be credited
d. withdrawals to be debited, an asset to be credited

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 Basic Accounting Revision MCQs

26. Olivia, the proprietor, deposited Rs.40,000 in the company's bank account. She got the
money from selling all of her General Motors common stock. Recording the transaction on
the company books will require
a. an asset to be debited, a liability to be credited
b. a liability to be debited, an asset to be credited
c. an asset to be debited, capital to be credited
d. withdrawals to be debited, an asset to be credited

27. Solar Mow, makers and sellers of solar powered lawn mowers, paid the rent for the month
of January on January 1. Recording the transaction requires
a. an asset to be debited, a liability to be credited
b. a liability to be debited, an asset to be credited
c. an expense to be debited, an asset to be credited
d. an asset to be debited, a revenue to be credited

28. Solar Mow, makers and sellers of solar powered lawn mowers, determined that its chief
executive officer should attend a workshop on solar energy to be held on the beach at
Waikiki, Honolulu. The workshop cost Rs.2,000, including air fare, meals, and lodging. The
firm charged the cost of the trip with a local travel agency. Recording the transaction
requires
a. an asset to be debited, a liability to be credited
b. a liability to be debited, an asset to be credited
c. an expense to be debited, a liability to be credited
d. an asset to be debited, revenue to be credited

29. Peter Atli received Rs.5,000 for some excavation work to be done when the weather
permits. Peter figures it will be at least three weeks before he can start the job. Recording
the transaction requires
a. an asset to be debited, a liability to be credited
b. a liability to be debited, an asset to be credited
c. withdrawal to be debited, an asset to be credited
d. an asset to be debited, revenue to be credited

30. Which of the following statements is not true?

a. Journalizing errors should be erased and a correct entry made
b. Asset accounts are increased by debit entries
c. Debit entries are entries involving the left-hand side of an account
d. Journalizing precedes posting

31. The personal telephone bill of Junior Sample was paid by issuing a cheque from the
business chequing account. No business calls had been made from Junior's personal
phone. What account must be debited for this transaction?
a. Junior, Capital
b. Cash
c. Junior, Withdrawals
d. Telephone Expense

32. An account entitled Unearned Fees would be classified as a/an

a. asset account
b. liability account
c. revenue account
d. expense account

33. At the end of the fiscal year, an adjusting entry was made for accrued salaries of Rs.500.
The salaries for one week, Rs.1,250, were paid on the first Friday of the new fiscal period.
The entry to record paying the salaries expense for the week would be a
a. Sal. Exp., dr., Rs.750; Salaries Payable, dr., Rs.500; Cash, cr., Rs.1,250
b. Sal. Exp., dr., Rs.500; Salaries Payable, dr., Rs.750; Cash, cr., Rs.1,250
c. Salaries Exp., dr., Rs.1,250; Cash, cr., Rs.1,250
d. Salaries Exp., dr., Rs.1,250; Salaries Payable, cr., Rs.1,250

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 Basic Accounting Revision MCQs

34. The ________________ is the length of time into which the life of a business is divided for
the purpose of preparing periodic financial statements.
a. natural business year
b. calendar year
c. accounting period
d. interim period

35. The notion that the life of a business is divisible into equal time periods of equal length is
known as the
a. continuing concern principle
b. time-period principle
c. business entity principle
d. recognition principle

36. The adjusting process is based on two accounting principles. The two accounting
principles are
a. realization and recognition
b. revenue recognition and matching
c. cost and business entity
d. continuing-concern and realization

37. At the beginning of the year, a business had a two-year, Rs.1,200 insurance policy on its
office equipment. On July 1, it purchased a three-year, Rs.1,800 policy on a newly
constructed building. The December 31, year-end, adjusting entry would be
a. Insurance Expense, debit, Rs.3,000; Prepaid Insurance, credit, Rs.3,000
b. Insurance Expense, debit, Rs.1,200; Prepaid Insurance, credit, Rs.1,200
c. Insurance Expense, debit, Rs.1,000; Prepaid Insurance, credit, Rs.1,000
d. Insurance Expense, debit, Rs.900; Prepaid Insurance, credit, Rs.900

38. At the beginning of the year, a business had a two-year, Rs.1,200 insurance policy on its
office equipment. On July 1 it purchased a three-year, Rs.1,800 policy on a newly
constructed building. A December 31, year-end, adjusting entry was made for the policy on
the building but not for the policy on the office equipment. As a consequence of the
oversight
a. expenses are understated and assets are overstated
b. expenses are overstated and assets are understated
c. expenses are understated and assets are understated
d. expenses are overstated and assets are overstated

39. At the end of the accounting period, the business had Rs.450 of office supplies on hand,
which was a 50% increase over the beginning balance. If the business purchased Rs.1,200
of office supplies during the year, then Rs._____ of office supplies were used during the
year.
a. Rs.975
b. Rs.1,050
c. Rs.1,650
d. Rs.1,425

40. A tenant rented space in our companies office building on September 1 at Rs.450 per
month, paying six months' rent in advance. The bookkeeper recognized a current liability
of Rs.2,700. The December 31, year-end adjusting entry would be
a. Unearned Rent, dr., Rs.1,800; Rent Revenue, cr., Rs.1,800
b. Unearned Rent, dr., Rs.1,350; Rent Revenue, cr., Rs.1,350
c. Rent Revenue, dr., Rs.900; Unearned Rent, cr., Rs.900
d. Cash, dr., Rs.2,700; Rent Rev., cr., Rs.1,800; Unearned Rent, cr., Rs.900

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 Basic Accounting Revision MCQs

41. A tenant rented space in an office building on October 1 at Rs.450 per month, paying six
months' rent in advance. The bookkeeper recorded the October entry with a debit to Cash
and a credit to Rent Revenue. The December 31, year-end adjusting entry would be
a. Unearned Rent, dr., Rs.1,800; Rent Revenue, cr., Rs.1,800
b. Unearned Rent, dr., Rs.1,350; Rent Revenue, cr., Rs.1,350
c. Rent Revenue, dr., Rs.1,350; Unearned Rent, cr., Rs.1,350
d. Cash, dr., Rs.2,700; Rent Rev. cr., Rs.1,350; Unearned Rent, cr., Rs.1,350

42. A tenant rented space in an office building on October 1, at Rs.450 per month, paying six
months' rent in advance. The bookkeeper recognized a current liability upon receipt of the
Rs.2,700. No year-end adjustment was recorded. As a consequence of overlooking the
required adjustment,
a. revenue was overstated and liabilities were understated
b. revenue was understated and liabilities were understated
c. revenue was overstated and liabilities were overstated
d. revenue was understated and liabilities were overstated

43. Dee Preciated rented an office space to Core Poration for three months at Rs.500 per
month, payable at the end of the third month, January 31. No year-end adjusting entry was
recorded on December 31. As a consequence of this oversight,
a. assets were overstated and revenue was overstated
b. assets were overstated and revenue was understated
c. assets were understated and revenue was overstated
d. assets were understated and revenue was understated

44. You have agreed to keep the accounting records for a business that has agreed to pay you
Rs.800 per month, beginning December 16. You use the accrual basis of accounting and
recorded adjusting entries on December 31. When you receive the Rs.800 on January 16,
you will record the following entry
a. Cash, dr., Rs.800; Acc. Rec., cr., Rs.400; Fees Earned, credit, Rs.400
b. Cash, dr., Rs.400; Acc. Rec., cr., Rs.400
c. Cash, dr., Rs.800; Fees Earned, cr., Rs.800
d. Acc. Rec., dr., Rs.800; Cash, cr., Rs.400; Fees Earned, cr., Rs.400

45. Which of the following accounts is not a temporary account?

a. Income Summary
b. Rental Revenue
c. Capital
d. Withdrawals

46. The subtotals of the Income Statement columns of the work sheet are Rs.3,500 and
Rs.4,900, respectively. If the subtotal of the Balance Sheet Debit column is Rs.9,600, then
the subtotal of the Balance Sheet Credit column should be
a. Rs.1,400
b. Rs.11,000
c. Rs.8,200
d. Rs.6,800

47. The subtotals of the Income Statement columns of the work sheet are Rs.6,200 and
Rs.4,900, respectively. If the subtotal of the Balance Sheet Debit column is Rs.19,000, then
the subtotal of the Balance Sheet Credit column should be
a. Rs.20,300
b. Rs.1,300
c. Rs.17,700
d. Rs.14,400

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 Basic Accounting Revision MCQs

48. Revenue and expense accounts at the beginning and end of the accounting period should
have
a. a balance of zero
b. balances of cumulative amounts of activity during the period
c. a net balance (credits minus debits) equal to the capital account
d. a net balance equal to assets minus liabilities

49. Which is true about an adjusting entry?

a. only a permanent account is adjusted
b. only a temporary account is adjusted
c. a permanent account and a temporary account is adjusted
d. it is required to satisfy the realization principle only

50. After the closing procedure is complete, which of the documents proves the equality of
debits and credits?
a. Income Statement
b. Account form balance sheet
c. Post-Closing Trial Balance
d. Work Sheet

51. At the end of the fiscal year, an adjusting entry was made for accrued salaries of Rs.500.
On the first day of the new year the adjusting entry was reversed. The salaries for one
week, Rs.1,250, were paid on the first Friday. The entry to record paying the salaries
expense for the week would be a
a. Sal. Exp., dr., Rs.750; Salaries Payable, dr., Rs.500; Cash, cr., Rs.1,250
b. Sal. Exp., dr., Rs.500; Salaries Payable, dr., Rs.750; Cash, cr., Rs.1,250
c. Salaries Exp., dr., Rs.1,250; Cash, cr., Rs.1,250
d. Salaries Exp., dr., Rs.1,250; Salaries Payable, cr., Rs.1,250

52. Optional entries that transfer the balances in balance sheet accounts which arose as a
result of certain adjusting entries to income statement accounts is the definition for which
term below?
a. adjusting entries
b. reversing entries
c. closing entries
d. declarations of cash dividends

53. The last account listed on the post-closing trial balance for a corporation is the
a. Capital account
b. Withdrawals account
c. Retained Earnings account
d. Common Stock account

54. The last account listed on the post-closing trial balance for a single proprietorship
business is the
a. Capital account
b. Withdrawals account
c. Retained Earnings account
d. Common Stock account

55. Gross profit from sales is the difference between

a. net sales and operating expenses
b. net sales and the cost of goods sold
c. net sales and the cost of goods sold plus all the expenses
d. gross sales less the sales discounts and sales returns and allowances

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 Basic Accounting Revision MCQs

56. The buyer received an invoice from the seller for merchandise with a list price of Rs.400
and credit terms of 2/10, n/60. The number 10 in the credit terms is the
a. credit period
b. cash discount allowed for early payment of the invoice
c. discount period
d. trade discount

57. The records for Uptown Pet Shop showed the following:
Sales Rs.75,000 Beginning merchandise inventory Rs.10,000
Purchases 45,000 Cost of goods sold 50,000
The ending merchandise inventory must have been
a. Rs.5,000
b. Rs.15,000
c. Rs.25,000
d. Rs.40,000

58. Under the periodic inventory system, the Purchases account is used to record
a. only cash purchases of merchandise inventory
b. purchases of any asset on account or note payable
c. only purchases of merchandise inventory on account
d. purchases of merchandise inventory for cash or on account

59. The Sun Set Shade Company purchased three pieces of office equipment for a total price
of Rs.2,100. One piece of equipment costing Rs.800 was damaged on delivery and was
returned to the vendor. The invoice has not been paid. The proper journal entry for the
return is
a. Merchandise Inventory, debit, Rs.800; Accounts Payable, credit, Rs.800
b. Acc. Payable, debit, Rs.800; Merchandise Inventory, credit, Rs.800
c. Accounts Payable, debit Rs.800; Office Equipment, credit, Rs.800
d. Accounts Payable, debit Rs.2,100; Purchases, credit, Rs.2,100

60. Company records disclose the following:

Sales Rs.95,000 Beginning merchandise inventory Rs.10,000
Purchases 45,000 Gross profit from sales 50,000
Transportation-In 500 Purchases discounts 1,000
The ending merchandise inventory (periodic)
a. must be Rs.5,000
b. must be Rs.6,000
c. must be Rs.9,500
d. must be Rs.10,000

61. Which of the following is used to determine the cost of goods available for sale (periodic
inventory)?
a. beginning merchandise inventory + purchases + ending merchandise inventory
b. ending merchandise inventory + purchases - freight charges
c. beginning merchandise inventory + purchases - freight charges
d. beginning merchandise inventory + purchases - purchases discount + freight charges

62. Under a perpetual inventory system merchandise is purchased on account. The correct
journal entry for this purchase will be a
a. debit to Purchases and a credit to Cash
b. debit to Merchandise Inventory and a credit to Accounts Payable
c. debit to Merchandise Inventory and a credit to Cash
d. debit to Purchases Returns and a credit to Cost of Goods Sold

63. Under a perpetual inventory system part of the merchandise purchased on account at an
earlier time is now being returned. None of the goods have been paid for. The correct
journal entry for this return will be a

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 Basic Accounting Revision MCQs

a. debit to Cash and a credit to Purchases

b. debit to Merchandise Inventory and a credit to Accounts Payable
c. debit to Accounts Payable and a credit to Merchandise Inventory
d. debit to Purchases Returns and a credit to Cost of Goods Sold

64. Under a perpetual inventory system supplies are purchased for cash. The correct journal
entry for this purchase will be a
a. debit to Purchases and a credit to Cash
b. debit to Merchandise Inventory and a credit to Cash
c. debit to Supplies and credit Cost of Goods Sold
d. debit to Supplies and a credit to Cash

65. An item of merchandise was sold with an invoice price of Rs.400 and credit terms of 2/10,
n/30. The entry to record the sale would include a credit to Sales of
a. Rs.400.00
b. Rs.396.00
c. Rs.408.00
d. Rs.392.00

66. An item of merchandise was sold for Rs.800 cash by a business using the perpetual
inventory system. The product sold cost the business Rs.600. After the sale entry has
been recorded, a second entry will
a. debit Cash and credit Sales for Rs.800
b. debit Sales and credit Merchandise Inventory for Rs.600
c. debit Cost of Goods Sold and credit Merchandise Inventory Rs.600
d. debit Merchandise Inventory and credit Cost of Goods Sold Rs.800

67. Under the periodic inventory system, which of the following is a correct closing entry?
a. Income Summary, debit; Sales, credit
b. Income Summary, credit; Sales Returns and Allowances, debit
c. Income Summary, debit; Merchandise Inventory (beginning), credit
d. Purchases, debit; Income Summary, credit

68. When ____________________________, the cost of goods sold will be the same as the cost
of purchases.
a. there is no beginning merchandise inventory (first year of business)
b. there is no ending merchandise inventory
c. purchases are equal to net sales
d. the beginning and ending merchandise inventory values are the same

69. An item of merchandise with a list price of Rs.100 was purchased with a trade discount of
40% and credit terms of 2/10, n/30. If the vendor is paid within the discount period, the
journal entry to record the payment would be
a. Purchases, dr., Rs.100.00; Purchase Discounts, cr., Rs.42.00; Cash, cr., Rs.58.00
b. Accounts Payable, dr., Rs.60.00; Purchase Discounts, cr., Rs.1.20; Cash, cr., Rs.58.80
c. Accounts Payable, dr., Rs.100.00; Purchase Discounts, cr., Rs.42.00; Cash, cr., Rs.58.00
d. Accounts Payable, dr., Rs.40.00; Purchase Discounts, cr., Rs..80; Cash, cr., Rs.39.20

70. If gross sales is Rs.40,000, sales returns and allowances Rs.1,000, sales discounts Rs.400,
and delivery expenses Rs.100, the net sales of the business will total
a. Rs.38,500
b. Rs.38,600
c. Rs.40,000
d. Rs.39,000

The End

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 Basic Accounting Revision MCQs

ANSWERS:

1 b 21 b 41 c 61 d
2 a 22 a 42 d 62 b
3 b 23 d 43 d 63 c
4 c 24 c 44 a 64 d
5 b 25 a 45 c 65 a
6 b 26 c 46 c 66 c
7 b 27 c 47 a 67 c
8 c 28 c 48 a 68 d
9 c 29 a 49 c 69 b
10 c 30 a 50 c 70 b
11 b 31 c 51 c
12 b 32 b 52 b
13 a 33 a 53 c
14 b 34 c 54 a
15 b 35 b 55 b
16 c 36 b 56 c
17 c 37 d 57 a
18 b 38 a 58 d
19 a 39 b 59 c
20 b 40 a 60 c

Page 10 of 10 Faculty: Muhammad Umar Munir, FCMA, MS