Accounting MCQ Questions with Answers

Finance is the study and discipline of money, currency and capital assets. It is related with, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services. Finance activities take place in financial systems at various scopes, thus the field can be roughly divided into personal, corporate, and public finance.^[a] In a financial system, assets are bought, sold, or traded as financial instruments, such as currencies, loans, bonds, shares, stocks, options, futures, etc. Assets can also be banked, invested, and insured to maximize value and minimize loss. In practice, risks are always present in any financial action and entities.

A broad range of subfields within finance exist due to its wide scope. Asset, money, risk and investment management aim to maximize value and minimize volatility. Financial analysis is viability, stability, and profitability assessment of an action or entity. In some cases, theories in finance can be tested using the scientific method, covered by experimental finance. Some fields are multidisciplinary, such as mathematical finance, financial law, financial economics, financial engineering and financial technology. These fields are the foundation of business and accounting.

As above, the financial system consists of the flows of capital that take place between individuals and households (personal finance), governments (public finance), and businesses (corporate finance). "Finance" thus studies the process of channeling money from savers and investors to entities that need it. Savers and investors have money available which could earn interest or dividends if put to productive use. Individuals, companies and governments must obtain money from some external source, such as loans or credit, when they lack sufficient funds to operate.

Accounting MCQ

1.What is the accounting equation?

Assets = Liabilities + Owner's Equity

Assets = Liabilities - Owner's Equity

Assets + Liabilities = Owner's Equity

Assets + Owner's Equity = Liabilities

2.Under the accrual basis of accounting, when is revenue recognised?

When cash is received

When it is earned, regardless of when cash is received

At the end of the financial year

When the invoice is paid in full

3.Which financial statement shows a company's position at a single point in time?

Income statement

Cash flow statement

Balance sheet

Statement of changes in equity

4.What is the difference between the cost of an asset and its accumulated depreciation?

Depreciation expense

Book value

Salvage value

Prepaid asset

5.A contra asset account has which effect on the balance sheet?

It has a debit balance and increases total assets

It has a credit balance and reduces total assets

It increases total liabilities

It has no effect until the asset is sold

6.Which of these is NOT one of the five components of internal control under the COSO framework?

Control environment

Risk mitigation

Monitoring activities

Information and communication

7.An employee who makes a sale, ships the goods and bills the customer violates which control activity?

Assignment of responsibility

Segregation of duties

Review and reconciliation

Physical safeguarding

8.Which statement about current liabilities is true?

They are obligations due within one year or the operating cycle

They are obligations owed after a 12-month period

They are always reported under long-term liabilities

They are obligations owed over five years

9.On 15 March a business receives an invoice for electricity used in February and pays it on 1 April. Using accrual accounting, in which month is the expense recognised?

March

April

February

No entry is required

10.A business buys office equipment by issuing a one-year note payable. How is this recorded?

Debit asset, credit equity

Debit liability, credit asset

Debit asset, credit liability

Debit equity, credit asset

11.Which section of an annual report describes the accounting policies the company has applied?

Notes to the financial statements

The auditor's report

Management discussion and analysis

The listing of shareholders

12.What does independence mean in the context of auditing?

Not depending on any single client's fee

Being an advocate for the client

Holding only indirect financial interests in the auditee

Taking and maintaining an unbiased viewpoint

13.Who does an audit committee report to?

The board of directors

Senior management

The external auditors

The employee representatives

14.What is the purpose of an operational audit?

Evaluating compliance with laws and regulations

Assessing the efficiency and effectiveness of the organisation's operations

Expressing an opinion on the financial statements

Assessing compliance with environmental legislation

15.What would cause a bank to increase a depositor's account balance?

A cheque returned for insufficient funds

Collection of a note receivable on the depositor's behalf

Monthly service charges

A cheque presented for payment

16.Within the relevant range, how do variable and fixed costs behave?

Variable cost per unit stays constant while fixed cost per unit varies

Fixed cost per unit stays constant while variable cost per unit varies

Both total variable and total fixed costs stay constant

Both total variable and total fixed costs vary

17.Which inventory valuation method assumes the earliest goods purchased are sold first?

LIFO

FIFO

Weighted average cost

Specific identification

18.What is the going concern assumption?

The business will be sold within twelve months

The business will continue operating for the foreseeable future

All assets are recorded at market value

Profits will grow every year

19.Which of the following is an example of a deferred (prepaid) expense?

Wages owed but not yet paid

Insurance premium paid in advance for the next year

Interest earned but not received

Revenue billed but not collected

20.In the cash flow statement, purchasing new machinery is classified under which activity?

Operating activities

Investing activities

Financing activities

Non-cash disclosures

21.What is working capital?

Total assets minus total liabilities

Current assets minus current liabilities

Fixed assets minus depreciation

Revenue minus operating expenses

22.Under the matching principle, expenses should be recognised:

When cash is paid

In the same period as the revenues they help generate

At the start of the financial year

Only when the supplier issues an invoice

23.Which of these accounts would normally have a credit balance?

Equipment

Sales revenue

Prepaid rent

Accounts receivable

24.What is the primary purpose of a bank reconciliation?

To calculate interest earned

To agree the cash book balance with the bank statement and identify differences

To prepare the income statement

To value closing inventory

25.Which depreciation method charges a higher expense in the early years of an asset's life?

Straight line

Written down value (reducing balance)

Units of production

Revaluation method

26.What does a debit entry do to an asset account?

Increases it

Decreases it

Has no effect

Converts it to a liability

27.Goodwill arising on the acquisition of a business is:

Amortised over ten years in all cases

Tested annually for impairment under Ind AS and IFRS

Written off immediately against revenue

Recorded as a current asset

28.What is the current ratio?

Current assets divided by current liabilities

Current liabilities divided by current assets

Cash divided by current liabilities

Current assets minus inventory divided by current liabilities

29.A trial balance that balances proves that:

No errors have been made

Total debits equal total credits

All transactions were recorded in the correct accounts

The financial statements are accurate

30.What is the purpose of the allowance for doubtful debts?

To write off a specific customer's balance

To estimate receivables unlikely to be collected and match the cost to the period of sale

To increase reported profit

To record cash discounts given

31.Which of these is a non-cash expense?

Rent paid

Depreciation

Wages paid

Purchase of raw materials

32.Under the conservatism (prudence) principle, inventory is valued at:

Cost

Net realisable value

The lower of cost and net realisable value

Selling price

33.What is the break-even point?

The level of sales where total revenue equals total costs

The point where variable costs equal fixed costs

The maximum production capacity

The point where profit is maximised

34.In India, which body issues Accounting Standards for companies?

SEBI

The Institute of Chartered Accountants of India, notified by the Ministry of Corporate Affairs

The Reserve Bank of India

The Income Tax Department

35.What is deferred tax?

Tax paid late with a penalty

Tax arising from temporary differences between accounting profit and taxable profit

Tax withheld at source

Advance tax paid in instalments

36.Which statement best describes the accrual for outstanding salaries at year end?

Debit salary expense, credit salaries payable

Debit salaries payable, credit cash

Debit cash, credit salary expense

No entry is required until payment

37.What does EBITDA measure?

Net profit after all costs

Earnings before interest, tax, depreciation and amortisation

Cash generated from operations

Gross profit margin

38.Which of the following would be classified as a financing activity in the cash flow statement?

Payment of dividends to shareholders

Purchase of inventory

Collection from trade receivables

Sale of an old delivery van

39.What is the purpose of a suspense account?

To hold profits before distribution

To temporarily record a difference or unidentified item until it is investigated and corrected

To record depreciation

To hold cash reserves

40.Materiality in accounting means:

All items must be recorded at exact value

Information is material if omitting or misstating it could influence users' decisions

Only large companies must prepare accounts

Assets must exceed liabilities

41.Under the dual aspect concept, every transaction:

Affects only one account

Has an equal and opposite effect on at least two accounts

Must involve cash

Increases total assets

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