MCQs / Q&A

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.

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.