Institute of Banking & Professional Advancement
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6th BPE | Basic Accounting | True False
1. The matching principle requires that revenues be recognized only when cash is received.
False – Correction: Revenues should be recognized when earned, not necessarily when cash is
received.
2. The business entity concept states that business and personal transactions of the owner should be
recorded together.
False – Correction: Business and personal transactions must be recorded separately.
3. The cost principle dictates that assets should be recorded at their historical cost.
True
4. The going concern assumption means a business will continue to operate indefinitely unless there is
evidence to the contrary.
True
5. According to the monetary unit assumption, transactions that cannot be measured in money terms
should still be recorded in the books.
False – Correction: Only transactions measurable in monetary terms should be recorded.
6. Under the periodicity assumption, financial statements are prepared for indefinite periods.
False – Correction: Financial statements are prepared for specific, regular periods (e.g., monthly,
quarterly, annually).
7. The full disclosure principle requires only favorable financial information to be disclosed.
False – Correction: All relevant financial information, whether favorable or unfavorable, must be
disclosed.
8. Ethics in accounting require that accountants avoid conflicts of interest and maintain objectivity.
True
9. The golden rule for real accounts is: Debit what comes in, credit what goes out.
True
10. The golden rule for nominal accounts is: Debit the giver, credit the receiver.
False – Correction: That is for personal accounts. The correct rule for nominal accounts is: Debit
all expenses and losses, credit all incomes and gains.
11. The accrual basis of accounting recognizes income when it is received and expenses when they are
paid.
False – Correction: Income is recognized when earned and expenses when incurred, not when cash
is exchanged.
12. Accounting principles are legally enforceable laws.
False – Correction: Accounting principles are generally accepted guidelines, not laws.
13. Conservatism principle advises accountants to anticipate future profits but not losses.
False – Correction: Accountants should anticipate losses, but not profits.
14. A personal account is related to individuals, firms, or institutions.
True
15. The consistency principle requires that the same accounting methods be used from period to period.
True
16. Materiality means that insignificant transactions should still be reported in detail.
False – Correction: Insignificant transactions may be ignored if they do not affect users' decisions.
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01690043162
Institute of Banking & Professional Advancement
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6th BPE | Basic Accounting | True False
17. The accounting equation is: Assets + Liabilities = Owner’s Equity.
False – Correction: The correct equation is: Assets = Liabilities + Owner’s Equity.
18. A business can record revenue before delivering goods or services.
False – Correction: Revenue should be recognized when it is earned, typically after delivery of goods
or services.
19. Objectivity principle ensures that accounting information is supported by independent, verifiable
evidence.
True
20. The dual aspect concept means that every transaction affects at least two accounts.
True
21. The time period assumption allows a business to report financial results for specific intervals of time.
True
22. Ethical accounting practices may sometimes be ignored to meet profit goals.
False – Correction: Ethical standards should never be compromised, regardless of profit targets.
23. Double-entry bookkeeping means that for every debit, there must be an equal credit.
True
24. Accounting policies can be changed frequently for the convenience of management.
False – Correction: Changes in accounting policies should only occur when required by law or for
better presentation.
25. Accounting standards ensure comparability, reliability, and transparency in financial reporting.
True
26. The identification of a transaction in accounting requires that it must affect at least two accounts and
be measurable in monetary terms.
True
27. Journal entries for routine cash payments and receipts are always recorded in the general journal.
False – Correction: Routine cash transactions are recorded in the cash book; the general journal is
used for non-routine entries.
28. In the ledger, accounts are arranged in the same order as they appear in the journal.
False – Correction: Ledger accounts are classified and arranged typically by account type (assets,
liabilities, equity, etc.), not journal sequence.
29. A trial balance will always reveal fraud or errors in transaction classification or omission.
False – Correction: A trial balance only ensures arithmetical accuracy; it cannot detect
classification errors, omissions, or compensating errors.
30. The purchase book should include all purchases, including credit purchases of fixed assets.
False – Correction: The purchase book includes only credit purchases of inventory or trading goods,
not assets.
31. The sales book records only credit sales of goods which are part of the firm’s regular trading activity.
True
32. A contra entry in a triple-column cash book affects both cash and bank columns but does not require
posting to the ledger.
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01690043162
Institute of Banking & Professional Advancement
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6th BPE | Basic Accounting | True False
True
33. Adjusting entries are passed to ensure that revenues earned and expenses incurred in a particular
period are properly recognized, regardless of cash flow.
True
34. Prepaid expenses and accrued revenues are ignored in the adjusted trial balance.
False – Correction: These are included in the adjusted trial balance after necessary adjustments are
made.
35. Closing entries are passed to carry temporary account balances into the next accounting period.
False – Correction: Closing entries reset temporary account balances (revenues, expenses,
drawings) to zero; they are not carried forward.
36. Reversing entries simplify bookkeeping by eliminating certain accruals or deferrals made in the prior
period.
True
37. The worksheet helps identify errors and ensures that adjusting and closing entries are mathematically
accurate before preparing financial statements.
True
38. Depreciation of an asset is recorded through adjusting entries that impact both the income statement
and balance sheet.
True
39. If total debits equal total credits in a trial balance, the accounting records are completely error-free.
False – Correction: Equal balances only indicate arithmetic accuracy, not correctness of
classification or omission errors.
40. The income statement reflects the financial condition of a business at a single point in time.
False – Correction: The income statement shows performance over a period, not a single date
(that’s the balance sheet).
41. Cash flow from operations may differ from net income due to non-cash items like depreciation and
changes in working capital.
True
42. Under the indirect method of preparing the cash flow statement, non-cash items such as depreciation
and amortization are subtracted from net income.
False – Correction: Non-cash items are added back to net income under the indirect method.
43. Financial statement analysis helps in assessing the past performance of a company but cannot be
used to predict future trends.
False – Correction: While based on historical data, analysis helps forecast trends and guide decision-
making.
44. Vertical analysis expresses each item in the financial statement as a percentage of a base figure
within the same statement and period.
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01690043162
Institute of Banking & Professional Advancement
a gateway to banking excellence & carrier growth
6th BPE | Basic Accounting | True False
True
45. The account balance in the general ledger is the cumulative effect of all journal entries related to that
account.
True
46. A debit balance in a revenue account indicates that revenue was earned.
False – Correction: Revenue accounts normally have a credit balance; a debit balance may indicate
a correction or return.
47. Credit purchases of office equipment are recorded in the purchase book.
False – Correction: Purchase book records credit purchases of goods meant for resale, not equipment
or assets.
48. The adjusted trial balance includes all balances after incorporating adjusting entries and forms the
basis for preparing financial statements.
True
49. Closing stock is usually recorded through an adjusting entry that affects both the income statement
and balance sheet.
True
50. The post-closing trial balance includes only temporary accounts to verify balances are properly
closed. False – Correction: The post-closing trial balance includes only permanent accounts (assets,
liabilities, capital); temporary accounts are closed.
51. The historical cost principle dictates that companies record assets at their cost. In the later periods,
however, the fair value of the assets must be used, if fair value is higher than its' cost.
False -Correction: Under the historical cost principle, assets are recorded and reported at their
original cost, not adjusted to fair value, even if the fair value increases later.
52. Relevance means that financial information matches what happened; the information is factual.
False- Correction: Relevance means that the information is capable of influencing users' economic
decisions. Factual accuracy is part of faithful representation, not relevance.
53. The revenue recognition principle states that expenses should be matched with revenues.
False- Correction: The revenue recognition principle dictates when revenue should be recognized
(when earned). The statement describes the matching principle, which requires expenses to be
recorded in the same period as the revenues they help generate.
54. Cash flows from operating activities is always less than or equal to the net income of an
organization. False- Correction: Cash flows from operating activities can be higher, lower, or equal
to net income depending on non-cash items and changes in working capital.
55. In horizontal analysis, each item is expressed as a percentage of the base year's amount.
True
56. The historical cost principle dictates that companies record assets at their cost. In the later periods,
however, the fair value of the assets must be used, if fair value is higher than its cost.
an initiative by Sukdeb Bala CDCS, CSAA, AIBB for query !
01690043162
Institute of Banking & Professional Advancement
a gateway to banking excellence & carrier growth
6th BPE | Basic Accounting | True False
False- Correct: Under the historical cost principle, assets are recorded at their original purchase price
(cost) and not adjusted to fair value even if market value increases. Exceptions exist (like financial
instruments under fair value accounting), but the principle itself uses original cost.
57. Relevance means that financial information matches what happened; the information is factual.
False- Correct: Relevance means that financial information is useful for decision-making and
capable of making a difference to users’ decisions.
58. The revenue recognition principle states that expenses should be matched with revenues.
False- Correct: The revenue recognition principle states that revenue should be recognized when it is
earned and realizable, regardless of when cash is received.
59. Cash flows from operating activities is always less than or equal to the net income of an
organization. False- Correct: Cash flows from operating activities can be greater than, equal to, or
less than net income, depending on non-cash expenses (like depreciation) and changes in working
capital.
60. In horizontal analysis, each item is expressed as a percentage of the base year's amount.
True
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01690043162
