FINANCIAL ACCOUNTING
BASIC ACCOUNTING TERMS
Multiple Choice Questions (MCQs):-
1. Select the correct alternative:
(i) Capital is
(a) internal liability.
(b) external liability.
(c) internal as well as external liability.
(d) None of these.
(ii) Goods taken by the proprietor for personal use is
(a) Sale.
(b) Drawings.
(c) Purchases.
(d) None of these.
(iii) Amount received or receivable against sale of goods is
(a) revenue receipt.
(b) capital receipt.
(c) sometimes revenue receipt and sometimes capital receipt.
(d) None of these.
(iv) Amount paid or payable against purchase of goods is
(a) revenue expenditure.
(b) capital expenditure.
(c) Both (a) and (b).
(d) None of these.
(v) Goodwill is a/an
(a) Tangible Asset.
(b) Intangible Asset.
(c) Current Asset.
(d) Fictitious Asset.
(vi) Expenditure of revenue nature that fives benefit for more than one accounting period is categorized as
(a) Capital Expenditure.
(b) Revenue Expenditure.
(c) Deferred Revenue Expenditure.
(d) None of these.
(vii) A person who owes money to a firm against goods sold is called a
(a) creditor.
(b) debtor.
(c) Both (a) and (b)
(d) None of these.
(viii) A person to whom money is owed by a firm for purchase of goods is called a
(a) creditor.
(b) debtor.
(c) Both (a) and (b)
(d) None of these.
(ix) Purchase refers to the purchase of
(a) goods for resale.
(b) stationery for office use.
(b) stationery for office use.
(c) assets for the factory.
(d) None of the above.
(x) A liability arises because of
(a) cash transactions.
(b) credit transactions.
(c) cash as well as credit transactions.
(d) None of these.
(xi) The amount invested by the proprietor in a business is called
(a) capital.
(b) cash.
(c) revenues.
(d) loan.
(xii) Stock is valued at
(a) Cost or Net Realizable Value (Market Value), whichever is lower.
(b) Cost or Net Realizable Value (Market Value), whichever is higher.
(c) Cost.
(d) Net Realizable Value (Market Value).
(xiii) Bank overdraft is
(a) short-term liability.
(b) long-term liability.
(c) contingent liability.
(d) None of these.
(xiv) Which of the following is not a business transaction?
(a) Bought furniture of Rs. 25,000 for business.
(b) Paid for salaries of employees, Rs. 20,000.
(c) Cash withdrawn from personal bank account,Rs. 10,000 for domestic use.
(d) All of the above.
(xv) Which of the following is not a fixed asset?
(a) Building
(b) Plant and Machinery
(c) Balance with bank
(d) Goodwill
(xvi) Which of the following is not a long-term liability?
(a) Creditors
(b) Term-loan
(c) Debentures
(d) Capital
(xvii) Which of the following are goods?
(a) Machines manufactured for sale.
(b) Furniture purchased for sale.
(c) Books and stationery purchased by a book seller.
(d) All of the above.
(xviii) Which of the following is an asset?
(a) Machinery
(b) Purchases
(c) Sales Return
(d) Interest Received
(xix) Which of the following is a liability?
(a) Furniture
(b) Rent Payable
(c) Interest Received
(d) Stock
(xx) Which of the following is revenue?
(a) Purchases
(b) Purchases Return
(c) Sales
(d) Salary Payable
(xxi) Which of the following is not an expense?
(a) Furniture
(b) Salary
(c) Rent
(d) Electricity Expenses
(xxii) Which of the following is a business transaction?
(a) Goods purchased on credit.
(b) An employee being dismissed.
(c) Proprietor purchasing a car for own use.
(d) Sale of personal asset by the proprietor.
(xxiii) The nature of capital is
(a) an asset.
(b) a liability.
(c) an income.
(d) an expense.
(xxiv) Sale is recognized as revenue
(a) when the contract for sale is entered into.
(b) at the point of sale or performance of service.
(c) after the expiry of credit period allowed to debtors.
(d) after the money collected from the customers.
(xxv) The nature of accrued income is
(a) revenue.
(b) liability.
(c) expenses.
(d) asset.
(xxvi)Trade Discount allowed
(a) is shown separately in the books of account.
(b) is not shown separately in the books of account.
(c) can be shown either separately or deducted from purchase cost.
(d) None of the above.
(xxvii) Which of the following transaction is not of financial character?
(a) Purchase of asset on credit
(b) Purchase of asset for cash
(c) Withdrawing of money by proprietor from business
(d) Strike by employees.
(xxviii) Purchase refers to the buying of
(a) Stationery for office use.
(b) Assets for the factory.
(c) Goods for resale.
(d) Strike for resale.
(xxix) Revenue from Operations refers to
(a) Revenue earned from Operating Activities.
(b) Revenue earned from activities that are not Operating Activities.
(c) Both (a) and (b).
(d) None of the above.
(xxx) Out of the following assets, which one is not an intangible asset?
(a) Machinery
(b) Patents
(c) Goodwill
(d) Trade Mark
[(i) (a); (ii) (b); (iii) (a); (iv) (a); (v) (b); (vi) (c); (vii) (b); (viii) (a); (ix) (a); (x) (b); (xi) (a); (xii) (a); (xiii) (a); (xiv) (c); (xv) (c); (xvi) (a); (xvii) (d); (xviii) (a); (xix) (b); (xx) (c); (xxi) (a); (xxii) (a); (xxiii) (b); (xxv) (d); (xxvi) (b); (xxvii) (d); (xxviii) (c); (xxix) (a); (xxx) (a).]
Very Short Answer Type Questions:-
Q.1 What is meant by Cash Transaction?
Ans. Cash transaction is a financial transaction or event that is settled fast in cash.
Q.2 What is meant by Credit Transaction?
Ans. Credit transaction is a financial transaction or event that is not settled immediately,i.e., is agreed to be settled later.
Q.3 Briefly explain Expenditure?
Ans. Expenditure is the amount spent or liability incurred for acquiring assets, goods or services.
Q.4 What are Assets?
Ans. Asset is a property (land, machine, goods, premises, etc.) or legal rights (patents, copyrights,etc.) owned by an individual or business which can be measured in money terms.
Q.5 What are Fixed Assets?
Ans. Fixed Assets in which are acquired not with a purpose to resell but with a purpose to increase the earning capacity of the business.
Q.6 What is meant by Tangible Assets?
Ans. Tangible Assets are the assets which have physical existence, i.e., they can be seen and touched such as Land, Building, Plant and Machinery and Computers.
Q.7 Briefly explain Intangible Assets?
Ans. Intangible Assets are the assets which do not have a physical existence, i.e., they cannot be seen or touched such as Computer Software and Goodwill.
Q.8 Briefly explain Intangible Assets?
Ans. Goods are the physical items of trade.
Q.9 Define the term 'Purchase'?
Ans. The term 'Purchase' is used for purchase of goods for resale or for producing the finished products which are also to be sold. The term 'purchase' includes both credit and cash purchases of goods. Goods purchased for cash are termed as goods purchased and Cash Purchases on credit are termed as Credit Purchases.
Q.10 What are the main classes of Liabilities?
Ans. Non-current Liabilities and Current Liabilities.
Q.11 Give examples of Current Assets?
Ans. Stock-in-Trade (Inventories) and Cash in Hand.
Q.12 Name three Current Liabilities?
Ans. Creditors, Bills Payable and Outstanding Expenses.
Q.13 Name two Long-term Liabilities?
Ans. Long-term loans and Debentures.
Q.14 Explain Capital briefly?
Ans. Capital is the amount invested by the partner or the proprietor in the business.
Q.15. Who is a Debtor?
Ans. Debtor id a person who owes amount to the business on account of credit sales of goods and/or services in the normal course of business.
Q.16 Who is a Credit?
Ans. Creditor is the person to whom an amount is owed on account of credit purchases of goods and/or services in the normal course of business.
Q.17 What is meant by Revenue from Operations?
Ans. Revenue from Operations means revenue earned by the enterprise from its Operating Activities such as Net Sales (Sales-Sales Return), services rendered, sale of scrap, etc.
Q.18 What is an Income?
Ans. Income is profit earned during the accounting period, i.e., revenue minus expenses.
Q.19 Define Drawings with example?
Ans. Drawings is the amount of value or money of goods which the proprietor or partner withdraws for personal use. Example:- Withdrawal of Cash by the proprietor for personal use.
Q.20 Define Voucher?
Ans. Voucher:- The Voucher is an evidence of a business transaction.
Q.21 Define Merchandise?
Ans. Merchandise means goods for resale.
Q.22. A firm has received a big order to supply goods. Will it be recorded in the books of account of the firm? Give reason?
Ans. No. It won't be recorded in the books of account because it is not a transaction.
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