Accounting MCQs / Q&A

Journal proper is meant for recording_____________?

A. Credit purchase of fixed assets
B. Return of goods
C. All such transactions for which no special journal has been kept by the business
D. None of these

Which of the following is true?

A. Error of casting affects personal accounts
B. Omission of a transaction from a subsidiary record affects only one account
C. Error of carry forward affects two accounts
D. Error of principle involves an incorrect allocation of expenditure or receipt between capital and revenue

Errors of casting can appear in any account and not personal accounts alone. Hence statements A. is false. Omission of a transaction from subsidiary affects two accounts are subsidiary books are books of original entry hence posting in two accounts is omitted.
Statement B. is false. Error of carry forward affects only one account i.e., the account in whose an error has been made.
Statement C. is false. Errors of principle involve incorrect allocation of an item between capital and revenue. Hence statement D. is true.

Which of the following statements is /are true?

A. Entering wrong amount in the subsidiary book affects the agreement of the Trial Balance
B. Undercasting or overcastting of a subsidiary book is an example or error of commission
C. Errors of principle do not affect the agreement of Trial Balance
D. Both B. and C. above

Entering wrong amount in the subsidiary book does not affect the agreement of the Trial
Balance as the same amount is posted in both the accounts affected. Undercasting or
overcastting of a subsidiary book is an error of commission. Errors of principle do not affect the
agreement of the Trial Balance. Hence both B. and (c ) options are true.

Which of the following errors is an error of omission?

A. Sale of ` 100 was recorded in the Purchases Journal
B. Wages paid to Mohan have been debited to his account
C. The total of the sales journal has not been posted to the Sales Account
D. Repairs to buildings have been debited to buildings account

Error of omission occurs when a transaction is entirely omitted from record in the original books partially omitted while posting. Therefore, omission of posting of the sales journal to the Sales Account is an error of omission.

During the year 2011-2012, the value of closing inventory was overstated by 25,000. Which of the following is true?

A. The cost of goods sold was overstated during 2011-2012 and income will be understated during 2012-2013
B. The income was overstated during 2011-12 and closing inventory will be overstated during 2012-2013
C. The retained earnings was overstated during 2011-2012 and retained earnings will be understated during 2012-2013
D. The cost of goods sold was understated during 2011-2012 but retained earnings will not be affected during 2012-2013

Closing Stock‘s overstatement increases the profit of the current period and results in the increase of retained earnings relating to the current accounting period. It decreases the profit and thereby retained earnings of the next accounting period since the closing stock of the current accounting period becomes the opening stock of the next accounting period, the overstatement of which has the effect of decreasing the profits and retained earnings.

The concept of conservatism will have the effect of______________?

A. Overstatement of Assets
B. Understatement of Assets
C. Overstatement of Liabilities
D. Understatement of Liabilities

The concept of conservatism will have the effect of understatement of assets since the financial statements are usually drawn up on rather a conservative basis. Window-dressing i.e., showing a position better than what it is, is not permitted.

Buildings account is debited with an amount towards repairs. This is an example of?

A. Error of commission
B. Error of principle
C. Error of omission
D. Compensating error

B. Buildings account debited with an amount towards repairs is an error of principle. Error of principle is a wrong classification of expenditure or receipt.

The amount payable to a person as consideration for the use of rights vested in him is

A. Dividend
B. Royalty
C. Purchase consideration
D. Installment

B. The amount paid to the landlord for use of rights vested in him is the royalty. Dividend is the amount paid for the investment made in an enterprise and is not the correct answer. Purchase consideration is the price paid for receiving a title of a property moveable and immoveable and is not the correct answer. Installment is the payment of amount in stages and is not the amount paid for using the rights vested in the landlord and is not the correct answer.

Which of the following methods is not a practical way of realizing revenue?

A. Delivery method
B. Percentage-of-completion method
C. Production method
D. Moving average method

D. The following methods are the practical ways of realizing revenue applying the conservatism concept and realization concept and the A. Delivery method in case of sale of goods, B. Percentage-of-completion method in case of rendering of services and C. Production method in case of agriculture produce. Thus, these are the various ways of recognizing revenue and the methods adopted to recognize revenue. Moving average method D. is the method of valuing inventory and it is not the method adopted to recognize revenue. Thus, D. is the correct answer.

A few errors committed in Ahhiwalia’s books of account are given below. State which errors would affect the Trial Balance.

(a). Sales of `950 to Ram completely omitted from books of account
(b). Purchases of `720 from Shyam entered in the purchases journal as `700
(c). Purchases Journal is overcast by `1,000
(d). Sales returns journal is undercast by `200
(e) Amount paid to Agarwal wrongly posted to the debit to Mittal’s account
(f) Bank overdraft shown under debit column in the Trial Balance
(g) Sales of `500 to Sadiq entered in sales journal as sales to Mushtaq
(h) Wages paid for installation of machinery debited to wages account
A. a, c and g
B. c, d and f
C. c, d, e and h
D. c, d, f and h