Practice objective questions for Accounting-1 For Mid Term Fall 2024

1. Accounting is primarily concerned with the preparation of financial statements.

(True, because Accounting involves preparing financial statements to communicate
financial information to stakeholders).
2. The primary purpose of accounting is to record personal transactions.
(False because Accounting focuses on business transactions, not personal ones).
3. Accounting includes the process of identifying, measuring, and communicating
economic information.
(True because this is a fundamental part of accounting as defined by various
accounting bodies).
4. Accounting is only necessary for large organizations.
(False because Accounting is essential for all types of entities, including small
businesses and individuals).
5. Accounting is the language of business.
(True because Accounting provides a standardized method to communicate financial
information).
6. The primary goal of accounting is profit maximization.
(False. The goal of accounting is to provide accurate financial information, not to
maximize profit).
7. Accounting involves both quantitative and qualitative data.
(False. Accounting primarily focuses on quantitative (numerical) data).
8. The definition of accounting includes future financial predictions.
(False. Accounting deals with recording past and current financial events, although it
can provide a basis for future planning).
9. Accounting provides information for decision-making.
(True. One of the key purposes of accounting is to aid stakeholders in making
informed decisions).
10. Accounting is only about bookkeeping.
(False. Bookkeeping is a part of accounting, but accounting also involves analysis,
reporting, and interpreting financial data)
11. The accounting equation is expressed as Assets = Liabilities + Equity. (True)
12. If liabilities increase, equity must always decrease to maintain the accounting
equation. (False)
13. The accounting equation ensures that every financial transaction affects at least two
accounts. (True)
14. In the accounting equation, revenues increase equity, while expenses decrease it.
(True)
15. The accounting equation applies only to large corporations, not small businesses.
(False)
16. Drawings reduce equity in the accounting equation. (True)
17. If a business takes a loan, its assets and liabilities increase by the same amount. (True)
18. The accounting equation can be prepared if there is one transaction only (True)
19. Purchasing equipment with cash has no effect on liabilities or equity. (True)
20. The accounting equation forms the foundation of the double-entry bookkeeping
system. (True)
21. A general journal is used to record all types of transactions, regardless of their nature.
(TrueThe general journal records any transaction that doesn't fit into specialized
journals).
22. In a general journal, entries are always recorded chronologically.
(True, The general journal maintains a chronological order (date-wise) of transactions.
23. The general journal is also known as the subsidiary book.
(False, The general journal is considered a primary book of accounting, not a
subsidiary book).
24. Each journal entry must have at least one debit and one credit entry.
(True, This follows the double-entry accounting principle).
25. The general journal does not require a narration or explanation for each entry.
(False, A brief explanation (narration) is required for clarity).
26. Journal entries can be recorded without knowing the corresponding accounts.
(False, Identifying both debit and credit accounts is necessary for journal entries).
27. A trial balance is prepared directly from the general journal.
(False, A trial balance is prepared from the ledger, not directly from the journal).
28. Posting is the process of transferring journal entries to the respective ledger accounts.
True
29. Every journal entry must be posted twice to the ledger: once for debit and once for
credit.True
30. A ledger contains only the summary of journal entries, not the detailed transactions.
True
31. While posting, the ledger account balance should always increase. False
32. The date of the journal entry is not required while posting in the ledger. False
33. The debit side of a journal entry is posted to the debit side of the ledger. True
34. Ledger accounts are arranged in the same chronological order as the journal entries.
(False, Ledger accounts are arranged based on their type, such as assets, liabilities,
etc.)
35. Posting journal entries to the ledger is the last step in the accounting cycle. (False, It is
an intermediate step before preparing trial balances and financial statements.)
36. A cross-reference or folio number is used in the ledger to trace back to the journal
entry.True
37. Errors in journal entries cannot be corrected during the posting process. (False, Errors
can be identified and corrected during posting.)
38. A trial balance is prepared after posting transactions to the ledger. (True – A trial
balance is prepared after all ledger accounts have been updated).
39. The trial balance ensures that the financial statements are error-free. (False – While
the trial balance checks the arithmetic accuracy of ledger balances, it does not
guarantee error-free financial statements).
40. All accounts, including nominal accounts, appear in the trial balance. (True – The trial
balance includes all ledger accounts, including nominal accounts like expenses and
revenue).
41. The trial balance can be prepared even if the accounting equation is not balanced.
(False – If the accounting equation is not balanced, the trial balance will not balance).
42. The trial balance is the same as a balance sheet. (False – The trial balance is a list of
ledger balances, whereas a balance sheet is a formal financial statement).
43. The debit and credit sides of the trial balance must always match. (True – For the trial
balance to be correct, the debit and credit totals must agree).
44. Errors like omission of a transaction will not affect the trial balance. (True – Errors of
omission do not affect the trial balance because neither side is recorded).
45. A trial balance is only prepared at the end of the financial year. (False – A trial
balance can be prepared at any time during the financial year).
46. A trial balance is prepared to check the accuracy of journal entries. (False – It checks
the accuracy of ledger postings, not journal entries directly).
47. An income statement summarizes a company's revenues and expenses over a specific
period of time. True
48. The income statement shows the company's financial position at a specific point in
time. False
49. The income statement typically begins with sales revenue and deducts costs such as
cost of goods sold and operating expenses. True
50. An income statement includes information about a company's assets and liabilities.
False
51. The net income on an income statement is calculated by subtracting total expenses
from total revenues. True
52. Non-operating items, such as interest and taxes, are included in the income statement.
True
53. Depreciation is not included in the income statement, as it only affects the balance
sheet. False
54. The income statement helps investors and creditors evaluate the profitability of a
company. True
55. An income statement only reports revenues and expenses from core business
operations. False
56. A company may prepare an income statement on a quarterly or annual basis,
depending on its reporting requirements. True
57. A balance sheet provides information about a company's financial position at a
specific point in time. True
58. The balance sheet equation is Assets = Liabilities + Owner's Equity.True
59. Liabilities are always listed before assets on the balance sheet. (False, Assets are
typically listed first, followed by liabilities.)
60. Current liabilities are obligations that must be paid within one year or the company's
operating cycle, whichever is longer. True
61. Intangible assets, such as patents and goodwill, are classified as current assets on the
balance sheet. (False, Intangible assets are non-current assets.)
62. The balance sheet must always balance, meaning total assets should equal the sum of
total liabilities and equity. True
63. Owner’s equity represents the value of the assets that the owners have invested in the
business. True
64. Cash and accounts receivable are examples of non-current assets on the balance sheet.
(False, These are current assets.)
65. The balance sheet is prepared using the historical cost principle, meaning assets are
recorded at their original cost. True
66. Depreciation on fixed assets is not accounted for when preparing the balance sheet.
(False, Depreciation is accounted for and reduces the value of fixed assets.)
67. A balance sheet is prepared at the end of the accounting period to show a company's
profitability. (False. A balance sheet shows a company's financial position, not
profitability. Profitability is shown in the income statement).
68. The total assets in a balance sheet must always equal the total liabilities and equity.
(True. The fundamental accounting equation is: Assets = Liabilities + Equity).
69. Short-term liabilities are always listed after long-term liabilities on the balance sheet.
(False. Short-term liabilities are listed before long-term liabilities).
70. The balance sheet reflects the financial position of a company as of a specific date, not
over a period of time.(True. The balance sheet is a snapshot of a company's financial
position at a specific point in time).

MCQs Till Mid Term Exam Fall 2024

1. What is the primary purpose of accounting?

a) To increase profits
b) To provide financial information to stakeholders
c) To calculate taxes only
d) To manage employee performance

Correct Answer: b) To provide financial information to stakeholders

2. Which of the following best defines accounting?

a) The process of recording, classifying, and summarizing financial transactions

b) A method of increasing company revenue
c) A tool for monitoring employee productivity
d) The study of economic policies

Correct Answer: a) The process of recording, classifying, and summarizing financial

transactions

3. Who is referred to as the “Father of Accounting”?

a) Adam Smith
b) Luca Pacioli
c) Charles Babbage
d) Benjamin Graham

Correct Answer: b) Luca Pacioli

4. Accounting is often referred to as the language of ____.

a) Economics
b) Business
c) Finance
d) Management

Correct Answer: b) Business

5. Which aspect is NOT included in the definition of accounting?

a) Recording transactions
b) Classifying data
c) Interpreting economic data
d) Designing marketing strategies

Correct Answer: d) Designing marketing strategies

6. Which statement is true about accounting?

a) It is only for large businesses.

b) It is an art of recording, classifying, and summarizing in a significant manner.
c) It is primarily used to calculate taxes.
d) It is not necessary for non-profit organizations.

Correct Answer: b) It is an art of recording, classifying, and summarizing in a

significant manner.

7. What are the key components of accounting?

a) Reporting and decision-making
b) Investing and spending
c) Marketing and selling
d) Budgeting and fundraising

Correct Answer: a) Reporting and decision-making

8. Which of the following describes accounting information?

a) Qualitative only
b) Quantitative only
c) Both qualitative and quantitative
d) Predictive only

Correct Answer: c) Both qualitative and quantitative

9. What is the main objective of financial accounting?

a) To assist internal management

b) To provide financial statements to external users
c) To calculate future market trends
d) To prepare internal reports

Correct Answer: b) To provide financial statements to external users

10. Accounting is essential for ____.

a) Preparing marketing campaigns

b) Financial decision-making
c) Generating customer leads
d) Conducting employee training

Correct Answer: b) Financial decision-making

11. The accounting equation is:

a) Assets = Liabilities + Expenses
b) Assets = Liabilities + Owner's Equity
c) Revenue = Expenses + Liabilities
d) Assets = Revenue + Expenses

Answer: b) Assets = Liabilities + Owner's Equity

12. If a business borrows Rs. 10,000 from the bank, what will happen to the
accounting equation?
a) Assets increase, Liabilities decrease
b) Assets increase, Liabilities increase
c) Assets decrease, Owner's Equity increases
d) Liabilities increase, Owner's Equity decreases

Answer: b) Assets increase, Liabilities increase

13. When a business adds a new partner who brings capital in business , what happens
in the accounting equation?
a) Assets increase, Liabilities decrease
b) Assets increase, Owner’s Equity increases
c) Assets decrease, Liabilities increase
d) Liabilities increase, Owner’s Equity decreases

Answer: b) Assets increase, Owner’s Equity increases

14. If a business pays off a Rs.5,000 debt, which of the following is correct?
a) Assets increase, Liabilities increase
b) Assets decrease, Liabilities decrease
c) Assets increase, Owner's Equity decreases
d) Liabilities decrease, Owner's Equity increases

Answer: b) Assets decrease, Liabilities decrease

15. Which of the following transactions would NOT affect the accounting equation?
a) The company buys equipment on credit
b) The company pays its utility bill
c) The company issues new shares of stock
d) The company collects cash from customers

Answer: b) The company pays its utility bill

16. A business purchases merchabdize for Rs. 3,000 on account. What is the effect on
the accounting equation?
a) Assets increase, Liabilities increase
b) Assets increase, Owner's Equity increases
c) Assets decrease, Liabilities decrease
d) Liabilities decrease, Assets increase

Answer: a) Assets increase, Liabilities increase

17. A business sells goods for Rs.1,500 on credit. Which part of the accounting
equation is affected?
a) Assets increase, Liabilities decrease
b) Assets increase, Owner’s Equity increases
c) Liabilities increase, Owner's Equity increases
d) Owner’s Equity decreases, Liabilities increase

Answer: b) Assets increase, Owner’s Equity increases

18. If a company buys equipment for Rs.10,000 and pays Rs. 2,000 in cash, what is
the effect on the accounting equation?
a) Assets increase by Rs.2,000
b) Assets increase by Rs.10,000, Liabilities increase by Rs.8,000
c) Assets increase by Rs.10,000, Liabilities decrease by Rs.2,000
d) Assets increase by Rs.10,000, Cash decreases by Rs.2,000

Answer: d) Assets increase by Rs.10,000, Cash decreases by Rs.2,000

19. A company receives Rs.500 for services to be provided in the future. How does
this affect the accounting equation?
a) Assets increase, Liabilities decrease
b) Assets increase, Owner's Equity increases
c) Liabilities increase, Assets increase
d) Liabilities decrease, Assets increase

Answer: c) Liabilities increase, Assets increase

20. If a company incurs an expense of Rs.200 that is paid in cash, how does this affect
the accounting equation?
a) Assets increase, Liabilities decrease
b) Assets decrease, Owner's Equity decreases
c) Liabilities decrease, Owner's Equity increases
d) Owner’s Equity increases, Assets increase

Answer: b) Assets decrease, Owner's Equity decreases

21. Which of the following is the correct order for recording a journal entry?

a) Debit entry, credit entry

b) Credit entry, debit entry
c) Date, debit entry, credit entry
d) Date, credit entry, debit entry

Answer: c) Date, debit entry, credit entry

22. When a company purchases office supplies on credit, the correct journal entry
would be:

a) Debit Office Supplies, Credit Accounts Payable

b) Debit Accounts Payable, Credit Office Supplies
c) Debit Cash, Credit Office Supplies
d) Debit Office Supplies Expense, Credit Accounts Payable

Answer: a) Debit Office Supplies, Credit Accounts Payable

23. Which of the following accounts is increased with a credit entry?

a) Assets
b) Liabilities
c) Expenses
d) Revenues

Answer: b) Liabilities

24. The purchase of equipment for cash would require which of the following journal
entries?

a) Debit Equipment, Credit Cash

b) Debit Cash, Credit Equipment
c) Debit Equipment Expense, Credit Cash
d) Debit Cash, Credit Accounts Payable

Answer: a) Debit Equipment, Credit Cash

25. When a company pays rent for the office, the journal entry would be:

a) Debit Rent Expense, Credit Cash

b) Debit Cash, Credit Rent Expense
c) Debit Rent Payable, Credit Cash
d) Debit Rent Expense, Credit Rent Payable

Answer: a) Debit Rent Expense, Credit Cash

26. Which of the following journal entries is used to record revenue from a sale on
account?

a) Debit Accounts Receivable, Credit Sales Revenue

b) Debit Cash, Credit Sales Revenue
c) Debit Sales Revenue, Credit Accounts Receivable
d) Debit Accounts Payable, Credit Sales Revenue

Answer: a) Debit Accounts Receivable, Credit Sales Revenue

27. If a company receives a customer payment for a prior sale, which of the following
journal entries would be made?

a) Debit Accounts Receivable, Credit Cash

b) Debit Cash, Credit Accounts Receivable
c) Debit Cash, Credit Sales Revenue
d) Debit Sales Revenue, Credit Cash

Answer: b) Debit Cash, Credit Accounts Receivable

28. Which of the following accounts is debited when a company borrows money from
a bank?

a) Bank Loan
b) Cash
c) Accounts Payable
d) Interest Payable

Answer: b) Cash

29. When owner makes investment in cash in business , which of the following journal
entries is correct?

a) Debit capital , Credit Cash

b) Debit Cash, Credit sales
c) Debit Cash, Credit capital
d) Debit cash, Credit purchases

Answer: c) Debit Cash, Credit Capital

30. When a company pays an employee’s salary, which journal entry is correct?
a) Debit Salaries Expense, Credit Cash
b) Debit Cash, Credit Salaries Expense
c) Debit Salaries Payable, Credit Cash
d) Debit Cash, Credit Salaries Payable

Answer: a) Debit Salaries Expense, Credit Cash

31. What is the primary purpose of a ledger in accounting?

a) To record all cash transactions

b) To summarize financial transactions

c) To track inventory purchases

d) To create financial statements

Answer: b) To summarize financial transactions

32. A ledger is also known as:

a) A journal

b) A book of final entry

c) A trial balance

d) A cash book

Answer: b) A book of final entry

33. Which of the following is true about ledger accounts?

a) They only record cash transactions

b) They are classified into two categories: personal and impersonal accounts

c) They are never used for summarizing transactions

d) They contain only the credit side of each transaction

Answer: b) They are classified into two categories: personal and impersonal accounts

34. What is the format of a ledger account called?

a) T-account

b) Journal entry

c) Cash flow statement

d) Trial balance

Answer: a) T-account

35. Which of the following is NOT a type of ledger account?

a) Nominal account

b) Personal account

c) Impersonal account

d) Real account

Answer: c) Impersonal account

36. What type of accounts are recorded in the ledger?

a) Only cash-related accounts

b) Revenue and expense accounts

c) Assets, liabilities, and equity accounts

d) Only liability accounts

Answer: c) Assets, liabilities, and equity accounts

37. In a ledger, the debit side is usually on which side?

a) Left side

b) Right side

c) Top side

d) Bottom side

Answer: a) Left side

38. The balance in a cash ledger account is calculated by:

a) Subtracting the credits from the debits

b) Adding the debits and credits

c) Averaging the debits and credits

d) None of the above

Answer: a) Subtracting the credits from the debits

39. Which of the following is not an example of real account in the ledger?

a) Plant

b) Bank account

c) Drawings

d) Equipment

Answer: c) Drawings

40. Which of the following is a characteristic of a ledger?

a) It is used to record transactions in chronological order

b) It summarizes information from the journal

c) It is updated after every sales transaction

d) It serves as the primary book for recording all financial transactions

Answer: b) It summarizes information from the journal

41. What is the primary purpose of preparing a trial balance?

a) To check the accuracy of transactions
b) To ensure the ledger accounts are in balance
c) To prepare the balance sheet
d) To record transactions

Answer: b) To ensure the ledger accounts are in balance

42. Which of the following accounts will not appear in a trial balance?

a) Assets
b) Liabilities
c) Revenue
d) Adjusting entries

Answer: d) Adjusting entries

43. If the trial balance does not balance, what is the most likely cause?

a) Error in recording transactions

b) Incorrect ledger balances
c) Mathematical error in the trial balance
d) All of the above

Answer: d) All of the above

44. Which of the following is true regarding a trial balance?

a) It includes only revenue accounts

b) It is prepared after the preparation of financial statements
c) It includes both debit and credit balances
d) It is the final statement for a business

Answer: c) It includes both debit and credit balances

45. What does a trial balance help in detecting?

a) Errors in financial statements

b) Mathematical errors in the ledger
c) Fraudulent transactions
d) None of the above

Answer: b) Mathematical errors in the ledger

46. Which of the following errors will not be detected by a trial balance?

a) Error in adding up the debit or credit column

b) Recording a transaction in the wrong account
c) A transaction recorded twice
d) Omitting a transaction entirely

Answer: b) Recording a transaction in the wrong account

47. If a trial balance totals do not agree, what is the first step to investigate?

a) Check for transposition errors

b) Check if all transactions were recorded
c) Recalculate the balances of all accounts
d) All of the above

Answer: d) All of the above

48. What is the outcome when the trial balance does not balance?

a) The financial statements cannot be prepared

b) The company must close its operations
c) An error has been made in the accounting records
d) The accounting system is incorrect
Answer: c) An error has been made in the accounting records

49. Which of the following is an example of a debit entry in a trial balance?

a) Accounts payable
b) Capital
c) Accounts receivable
d) Revenue

Answer: c) Accounts receivable

50. Which statement about the trial balance is true?

a) It is the final report prepared before the financial statements

b) It is used to summarize the results of the company's operations
c) It always ensures that there are no errors in the financial statements
d) It lists all accounts with their balances, both debit and credit

Answer: d) It lists all accounts with their balances, both debit and credit

51. What is the primary purpose of an income statement?

A) To show the company's financial position

B) To show the company's revenues and expenses over a period of time
C) To record all the company's cash flows
D) To calculate the company's total assets

Answer: B) To show the company's revenues and expenses over a period of time

52. Which of the following is considered an operating expense on the income

statement?

A) Interest expenses
B) Cost of goods sold (COGS)
C) Income tax expenses
D) Gain on sale of asset
Answer: B) Cost of goods sold (COGS)

53. The income statement is also known as the:

A) Cash flow statement

B) Statement of financial position
C) Profit and loss statement
D) Statement of changes in equity
Answer: C) Profit and loss statement

54. Which of the following is not a typical item found on an income statement?

A) Revenue
B) Assets
C) Net income
D) Expenses
Answer: B) Assets

55. What does the bottom line of an income statement represent?

A) Gross profit
B) Operating profit
C) Net income
D) Total revenue
Answer: C) Net income

56. Which of the following is deducted from revenue to calculate gross profit?

A) Operating expenses
B) Cost of goods sold (COGS)
C) Taxes
D) Depreciation
Answer: B) Cost of goods sold (COGS)
57. What is the first section of the income statement typically focused on?

A) Operating income
B) Net income
C) Gross profit
D) Income tax expenses
Answer: C) Gross profit

58. Which of the following is an example of a non-operating item that might appear on
an income statement?

A) Rent expense
B) Sales revenue
C) Interest income
D) Cost of sales
Answer: C) Interest income

59. Which financial statement provides information on the profitability of a company

over a specific period?

A) Balance sheet
B) Income statement
C) Statement of cash flows
D) Statement of stockholders' equity
Answer: B) Income statement

60. Which of the following is true about an income statement?

A) It is prepared at the end of the accounting period only

B) It shows both the financial position and cash flows of the company
C) It includes both operating and non-operating activities
D) It only shows the company's total expenses
Answer: C) It includes both operating and non-operating activities

61. What does a balance sheet represent?

a) Profit and loss of a company

b) The financial position of a company at a specific point in time
c) The company's sales and revenue for a period
d) The company's cash flow for a period

Answer: b) The financial position of a company at a specific point in time

62. Which of the following is considered a current liability on a balance sheet?

a) Bonds payable
b) Accounts payable
c) Mortgage payable
d) Retained earnings

Answer: b) Accounts payable

63. What is the correct formula for calculating equity in a balance sheet?

a) Assets = Liabilities + Equity

b) Liabilities = Assets - Equity
c) Equity = Liabilities - Assets
d) Equity = Assets + Liabilities

Answer: a) Assets = Liabilities + Equity

64. Which of the following is NOT an asset on the balance sheet?

a) Cash
b) Inventory
c) Accounts payable
d) Land

Answer: c) Accounts payable

65. What does the term "current assets" refer to?

a) Assets that are expected to be converted into cash or used up within one year
b) Long-term investments
c) Intangible assets
d) Depreciated assets

Answer: a) Assets that are expected to be converted into cash or used up within one
year

66. Which section of the balance sheet shows the company's obligations?

a) Assets
b) Liabilities
c) Equity
d) Income

Answer: b) Liabilities

67. Which of the following would be classified as a long-term liability?

a) Accounts payable
b) Bank overdraft
c) Mortgage payable
d) Accrued expenses

Answer: c) Mortgage payable

68. What is "retained earnings" on the balance sheet?

a) The total revenue earned during a period

b) Profits that have been reinvested in the company rather than paid as dividends
c) The total amount of debt owed by the company
d) A form of long-term investment

Answer: b) Profits that have been reinvested in the company rather than paid as
dividends

69. What is the order of items listed on a balance sheet?

a) Liabilities, assets, equity

b) Assets, liabilities, equity
c) Equity, assets, liabilities
d) Assets, equity, liabilities

Answer: b) Assets, liabilities, equity

70. Which of the following is an example of an intangible asset on a balance sheet?

a) Buildings
b) Inventory
c) Goodwill
d) Accounts receivable

Answer: c) Goodwill