1-Ch MCQs Accounting Basics
5. How can the owner of a business make use of annual
1. Which is true of a computerised accounting system?
A Anyone with a computer can gain access to the
accounting records.
B Data input can only be used for one specific
purpose.
C Data output can only be understood by
computer programmers.
D Operator error may result in inaccurate
information.
2. How does the information provided by
computerised accounting differ from that provided
by a manual system?
A The balance sheet does not include non-current
asset accounts.
B The general ledger does not include non-
current asset accounts.
C The income statement always shows a profit.
D The trial balance always balances.
3. What are advantages of using ICT (Information and
Communications Technology) in book-keeping and
accounting?
1 Accounts are instantly updated and a new
balance calculated after each entry.
2 Accuracy is increased as entries only need to be
input once.
3 Documents such as invoices can be produced
quickly and accurately.
A 1 and 2 only
B 1 only
C 1, 2 and 3
D 2 and 3 only
4. What is a disadvantage of a computerised book-
keeping system?
A Calculations are performed without errors.
B Information can be processed quickly.
C Reconciliations are performed automatically.
D There is an initial cost of training staff.
financial statements?
A to calculate the cash drawings for the year
B to determine the amount due to creditors
C to measure the change in the bank balance
D to monitor the progress of the business
6. Which increases owner’s capital?
A bank loan extended from five to ten years
B purchase of machinery by cheque
C purchase of stock on credit
D transfer of vehicle to business from private use
7. What is the accounting equation?
A assets – liabilities = capital
B assets + liabilities = capital
C liabilities – assets = capital
D liabilities – capital = assets
8. Which best describes the assets of a business?
A cash and items that should turn into cash in the near
future
B cash invested by the owner of the business
C items bought for long term use by the business
D items owing to or owned by the business
9. What is true of a computerised accounting system?
A The computer will automatically correct
inaccurate input.
B The data can be used for a number of different
uses.
C The design of the system cannot be modified.
D The possibility of financial fraud is eliminated.
10. A trader started business on 1 January 2007. He prepared
accounting statements for the first two years of trading. For
which purpose will these accounting statements not be used?
A to calculate the change in the business’s goodwill
B to evaluate the past performance of the business
C to make decisions about the business’s future
D to measure the progress of the business
11. The balance on a trader’s capital account was $150 000.
He then had the following transactions.
Took $2000 in cash from the shop for personal use.
Paid $4000 for a private motor car from the business
bank account.
Introduced $10 000 new capital into the business.
What was the balance on his capital account after these
14. What is the benefit of using information and
communications technology in book-keeping and
accounting?
A Anyone with a computer can access the
information.
B It is cheap to install.
C Large quantities of information can be stored.
D Staff require special training.

transactions?

A $138 000 B $154 000 15. A trader prepares financial statements (final accounts)

C $158 000 D $160 000 each year.

What do these assist the trader to do?

A calculate the amount owing to creditors

12. What is true of a computerised accounting system?
B calculate the cash drawings
A Data input can be used for several accounting
C check the bank statement balance
processes.
B Installation costs are low. D make decisions about the future
C It is always simple to design and modify a
computer system.
D Staff do not require special training.
16. Which does not reduce the owner’s capital?
A business expenses paid using a personal cheque
13. Javed had the following assets and liabilities.
B cash withdrawn from the business bank account for
personal use
equipment --------------------------- 10 0000
C goods taken from inventory (stock) for personal use
motor vehicle ----------------------- 8 000
D personal expenses paid using business cash
bank balance ----------------------- 2 000 credit
amount owing to suppliers ------ 4 000
17. Businesses make use of both book-keeping and
amount owing by customers ---- 5 000
accounting procedures.
inventory ----------------------------- 6 000
What is the purpose of book-keeping?
loan to Davinder ------------------- 3 000
A to interpret the double entry records
B to prepare financial statements at regular intervals
C to record all the financial transactions of the
What was Javed’s capital?
business
A $20 000 B $24 000
D to summarise the financial position of the business
C $26 000 D $30 000

18. Which would be recorded by a credit entry in an

account?
A a decrease in capital
B a decrease in liabilities
C an increase in assets
D an increase in capital
19. Which is the accounting equation?
A assets − current liabilities = owner’s equity
(capital)
B assets − liabilities = owner’s equity (capital)
C current assets − current liabilities = owner’s
equity (capital)
D non-current assets − liabilities = owner’s equity
(capital)
23. Which statements about book-keeping and
accounting are correct?
1 Accounting is performed periodically rather
than daily.
2 Accounting relies on having accurate book-
keeping records.
3 Book-keeping involves the preparation of
financial statements.
4 Book-keeping is based on the double entry
system of recording.

A 1, 2 and 4
20. Businesses make use of both book-keeping and B 1 and 3
accounting procedures. C 2, 3 and 4
What is the purpose of book-keeping? D 2 and 4
A to interpret the double entry records
B to prepare financial statements at regular
intervals
C to record all the financial transactions of the
business 24. Padma started a business on 1 April 2011 with
D to summarise the financial position of the $30,000 of her own money. On 31 March 2012 her
business assets and liabilities were:

21. Which task would not be carried out by an accountant?

A comparing one year’s results with those of previous years
B interpreting the accounting records
C preparing financial statements
D recording the financial transactions

A $30 000
B $36 500
22. Melanie provided the following information at the
C $46 500
end of her financial year.
D $53 000

25. Jane made a payment to a supplier for goods bought on

credit. Jane does not have a bank overdraft.
What is the effect on the accounting equation?

A decrease capital and decrease assets

B decrease liabilities and decrease assets
C increase assets and decrease liabilities
D increase liabilities and decrease capital

What was Melanie’s capital?

A $12 160
B $15 110
C $15 910
D $16 640
26. On 1 October Winston’s assets totalled $10 000 and
his liabilities totalled $3000.
On 2 October he paid $190 to a creditor after
deducting $10 cash discount.
What was Winston’s capital after the transaction on
2 October?
A $6800
B $6810
C $6990
D $7010
27. What is the purpose of the double entry book-
keeping system?
A to calculate the owner’s capital
B to ensure no transaction is omitted from the
books
C to prepare a bank reconciliation statement
D to record both aspects of every transaction
28. For which purpose does a sole trader not use the
information provided in his financial statements?
A to assist with decision-making
B to compare performance with previous years
C to determine the amount of his bank overdraft
D to plan for the future
29. Sara had the following assets and liabilities on
1 August 2012.
A $34 800
B $36 200
C $44 800
D $46 200
30. How is owner’s equity calculated?
A money invested in the business by the owner,
plus the net current assets
B money invested in the business by the owner,
plus the non-current liabilities
C total of non-current assets and working capital,
less the non-current liabilities
D total of non-current assets, long term liabilities
and net current assets
31. Why does a trader prepare a statement of financial
position?
A to calculate the profit for the year
B to check if assets equal capital plus liabilities
C to show the transactions which took place
during the year
D to summarise what the business owns and what
it owes
32. Which is a liability of a business?
A amount owing by credit customers
B amount owing to credit suppliers
C long term loan to employee
D property tax paid in advance
33. Which are reasons for a trader measuring his profit
or loss?
1 to calculate the expenses of running the business
2 to calculate the return on his investment
3 to decide whether to continue in business or close
down
4 to see how much can be withdrawn without
reducing capital
A 1, 2 and 3
B 1 and 2 only
C 2, 3 and 4
D 3 and 4 only
34. Karen borrowed $80 000 from her father and
obtained a bank loan, $6000 in order to start a
business. She bought premises, $120 000,
equipment, $22 000, and inventory, $600.
What was Karen’s capital?
A $56 600
B $136 600
C $142 600
D $216 600
35. A business had the following assets and liabilities. 38. What is prepared by a book-keeper?
A appropriation account
B cash book
C income statement
D statement of financial position

39. A trader provided the following information.

A $17 000
B $19 000
C $21 000
D $23 000

36. Gail’s statement of financial position included the

following.
A $ 35 000
Non-Current Assets --------- 100,000 B $ 61 000
Current Assets ---------------- 50,000 C $ 76 000
D $ 91 000
Current Liabilities ------------ 2,000

40. Which task is undertaken by an accountant?

What was Gail’s Capital A extracting a trial balance
A $ 100,000 B maintaining a petty cash book
B $ 148,000 C preparing an income statement
C $ 150,000 D writing up a cash book
D $ 152,000

41. Which does not reduce the owner’s capital?

37. A business provided the following information.
A business expenses paid using a personal cheque
B cash withdrawn from the business bank account
for personal use
C goods taken from inventory for personal use
D personal expenses paid using business cash

42. What is the main function of book-keeping?

A communicating information
B interpreting information
C recording information
D summarising information

43. What would be recorded by a debit entry in a ledger

account?
A a decrease in an asset
A $ 4420 B an increase in a liability
B $ 4770 C an increase in an asset
C $ 4830 D an increase in capital employed
D $ 4920
44. Which statements about book-keeping and 48. Which group contains only liabilities?
accounting are correct?
A bank loan, trade payables, prepaid rent
B bank overdraft, trade payables, unpaid wages
1 Accounting is performed periodically rather than daily.
2 Accounting relies on having accurate book- C trade payables, cash at bank, unpaid rates
keeping records. D trade payables, inventory, unpaid wages
3 Book-keeping includes the preparation of financial
statements.
4 Book-keeping involves the recording of financial
transactions. 49. Which item is a liability?
A accrued interest on loan to employee
A 1, 2 and 4 B insurance premium paid in advance
B 1 and 3 C rent receivable paid in advance
C 2, 3 and 4 D short-term loan to employee
D 2 and 4

45. A trader invested $4000 into the business. $2000

was used to pay a credit supplier. The rest of the
money was paid into the business bank account.
What changes would take place within the
accounting equation?
C with those of previous years
50. What would be the most useful way of monitoring
the progress of a retail business?
A comparing the financial statements of one year
B comparing the financial statements with those
of a business in another country
C comparing the financial statements with those
of a business of a different size
D comparing the financial statements with those
of a manufacturing business

51. What increases owner’s capital?

A bank loan extended from five to ten years
46. Ava had $4000 in the bank. She paid a supplier B purchase of inventory on credit
$575 by cheque in full settlement of $600
C purchase of machinery by cheque
owing.
D transfer of vehicle to business from private use
Which changes would take place within the
accounting equation?
C
52. Which account always has a credit balance?
A capital account
B cash account
C drawings account
D premises account

47. Which statement is correct?

A Accounting involves measuring profits and losses.
B Accounting is the recording of financial transactions.
C Book-keeping involves communicating financial data.
D Book-keeping requires the use of ratio analysis.
53. A trader provides the following information. 56. Why does the owner of a business calculate profit?

A to find the return on capital

B to find the total expenses
C to know how much he can borrow from the
bank
D to know the loan interest he can afford to pay

57. Which task would not be carried out by a book-

keeper?
A posting cash receipts
B preparing financial statements
A $ 16 600 C recording entries in the purchases ledger
D writing up the sales returns journal
B $ 16 700
C $ 17 600
D $ 18 100
58. What is a disadvantage of a computerised
accounting system?
A Anyone with a computer can gain access to the
54. Melanie provided the following information. accounting records.
B Data input can only be used for one specific
purpose.
C Data output can only be understood by
computer programmers.
D Operator error may result in inaccurate
information.

A $ 12 160
59. Which statement is correct?
B $ 15 110
C $ 15 910 A Accounting involves measuring profits and
losses.
D $ 16 640 B Accounting is the recording of financial
transactions.
C Book-keeping involves communicating financial
data.
55. A company employs a book-keeper and an D Book-keeping requires the use of ratio analysis.
accountant.

Which task would the accountant perform?

A extracting balances from the ledger accounts to

produce a trial balance
B making entries in the journal to adjust a
provision for doubtful debts
C preparing a monthly report that analyses the
profitability of the company
D recording sales and purchase invoices in the
books of prime (original) entry
60. The balances remaining on the books of a business 63. A trader bought new fixtures. He paid half of the
after the preparation of the income statement purchase price in cash and agreed to pay the
included the following. balance in two months’ time.

How does this purchase affect the accounting

equation?
D

A $ 13 920
B $ 14 890
C $ 15 270 64. What is the accounting equation?
D $ 17 270 A assets – liabilities = capital
B assets + liabilities = capital
C liabilities – assets = capital
D liabilities – capital = assets
61. Which are examples of book-keeping?

1 entering details of a cheque received from a

customer in a cash book
2 entering details of goods purchased on credit in a
purchases journal
3 producing an income statement to calculate the
profit for the year
4 recording details of credit sales in the account of a
credit customer

A 1, 2 and 3
B 1, 2 and 4
C 1 and 2 only
D 3 and 4

62. How does a trader use the information provided by

financial statements?

A to calculate the amount of cash drawings taken

B to calculate the amount that is owed by trade
receivables
C to check the balance shown on a bank
statement
D to compare the business performance over a
number of years