Accounting MCQs / Q&A

The beginnings inventory of the current year is overstated by 5,000 and closing inventory is overstated by 12,000. These errors will cause the net income for the current year by

A. 17,000 (overstated.
B. 12,000 (understated.
C. 7,000 (overstated.
D. 7,000 (understated.

C. Overstatement of closing stock results in overstatement of profit and overstatement of
opening stock results in understatement of profit. In the instant case, there will be overstatement of
profit by 12,000 – 5,000 = 7,000.

Purchase journal is kept to record_____________?

A. All purchases of goods
B. All credit purchases of goods
C. All credit purchases
D. None of these

For the past 3 years, DK Ltd. has failed to accrue unpaid wages earned by workers during the last week of the year. The amounts omitted, which were considered material, were as follows:

March 31,2010 – ` 56,000
March 31, 2011 – ` 51,000
March 31, 2012 – ` 64,000
The entry on March 31, 2012 to rectify these omissions would include a
A. Credit to wage expense for ` 64,000
B. Debit to wage expense for ` 64,000
C. Debit to wage expense for ` 51,000
D. Debit to wage expense for ` 13,000

If goods worth 1,750 returned to a supplier is wrongly entered in sales return book as 1,570, then

A. Net Profit will decrease by 3,140
B. Gross Profit will increase by 3,320
C. Gross Profit will decrease by 3,500
D. Gross Profit will decrease by 3,320

Which of the following is not correct about Errors?

A. Errors which affect one account can be errors of posting
B. Errors of omission arise when any transaction is left to be recorded
C. Errors of carry forward from one year to another year affect both Personal and Real A/c
D. Errors of commission arise when any transaction is recorded in a fundamentally incorrect manner

Error of Commission arises because of wrong recording, wrong casting, wrong carry
forward, wrong posting, wrong balancing etc.

While finalizing the current year‘s accounts, the company realized that an error was made in the calculation of closing stock of the previous year. In the previous year, closing stock was valued more by 50,000. As a result

A. Previous year‘s profit is overstated and current year‘s profit is also overstated.
B. Previous year‘s profit is understated and current year‘s profit is overstated.
C. Previous year‘s profit is overstated and current year‘s profit is understated.
D. There will be no impact on the profit of either the previous year or the current year.

C. Closing stock overstatement and opening stock understatement increases the profits
and vice versa is also equally true.

Which of the following statements is correct about Trial Balance?

A. The Trial Balance is prepared after preparing the Profit and Loss Account
B. The Trial Balance shows only balances of Assets and Liabilities
C. The Trial Balance shows only nominal account balances
D. The Trial Balance has no statutory importance from the point of view of law

D. A Trial Balance is a summary of all General Ledger Balances outstanding as on a particular date. All the debit balances from the ledger are shown on one side and all the credit balances are shown on the other side. A Trial Balance is prepared before Final Accounts are prepared. From the point of view of law, a Trial Balance has no statutory importance.

The adjustment to be made for income received in advance is:

A. Add income received in advance to respective income and show it as a liability
B. Deduct income received in advance from respective income and show it as a liability
C. Add income received in advance to respective income and show it as asset
D. Deduct income received in advance from respective income and show it as an asset in the Balance Sheet

B. Income received in advance given as an adjustment requires a deduction of the same
from the income amount and disclosure of the same as a liability in the Balance Sheet.

Which of the following statements is true?

A. If a Trial Balance tallies, it always means that none of the transactions has been completely omitted
B. A Trial Balance will not tally if a transaction is omitted
C. A customer to whom goods have been sold on credit cannot avail himself of a cash discount
D. A credit balance in the Pass Book indicates excess of deposits over withdrawals

D. A credit balance in the Pass Book implies a favourable balance indicates excess of
deposits over withdrawals and a debit balance in the Pass Book implies unfavorable balance i.e., a
overdraft. Hence statement D. is the true statement.

Closing stock in the Trial Balance implies that______________?

A. It is already adjusted in the opening stock
B. It is adjusted in the Purchase A/c
C. It is adjusted in the Cost of Sale A/c
D. It is adjusted in the Profit &Loss A/c

Closing Stock appearing in the Trial Balance implies that it has already been adjusted in the Purchases Account and hence appears as an asset in the Balance Sheet.