FPSC SENIOR AUDITOR MCQS - TOP FINANCIAL ACCOUNTING QUESTIONS

FINANCIAL ACCOUNTING
MCQS - 2019
FPSC - SENIOR AUDITOR
(BS-16)
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Prepared By: Faizan Ch
MBA, MS-FINANCE – THE SUPERIOR UNIVERSITY, LAHORE
Mob: 0333-6973219

MCQs FOR SENIOR AUDITOR TEST
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Prepared by: Faizan Ch – MBA,MS-FINANCE 0333-6973219
MCQs
Ch-1 Introduction to Accounting and its Terminology
1) The accounting process involves in recording:
A) Quantifiable economic event B) Non quantifiable economic event
C) All of them D) None of them
2) In accounting an Economic event is referred to as:
A) Cash B) Bank statement C) Transaction D) Exchange of money
3) Identify the correct sequence of accounting process
A) Communicating→Recording→Identifying B) Recording→Communicating→Identifying
C) Identifying→communicating→recording D) Identifying→recording→communicating
4) Bookkeeping mainly concerns with which part of accounting process?
A) Analyzing B) Preparing financial statements
C) Recording financial information D) Auditing the books of accounts
5) Financial accounting provides financial information to all of the following external users except:
A) Government agencies B) investors C) Creditors D) Managers
6) For which step of accounting process the accountants of business entity prepare financial statements?
A) Identification of economic event B) Communication of financial information
C) Recording financial information D) Making decisions about business
7) Keeping the log of financial information in books of original entries is called
A) Recording B) summarizing C) Grouping D) Processing
8) Auditing is what?
A) Reporting the financial information B) Examination of financial statements
C) Preparation financial statements D) maintaining the ledger records
9) Which of the following is the external user of financial statements?
A) Manager of the business B) CEO of the business
C) Creditor of the business D) Controller of the business
10) Which of the following is the internal user of financial statements?
A) Creditor of the business B) Government agency
C) Shareholder of the business D) Manager of the business
11) _________ is the first phase of accounting cycle
A) Identifying an economic event or transaction B) Preparing journals
C) Posting entries to ledger accounts D) Making decisions about business
12) Financial statements differ from management account because
A) They are mainly prepared for external users of financial information
B) They are more complex and hard to prepare
C) The are the summary of accounting data
D) The are prepared on basis of actual concept

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13) ________ is a separate legal entity that Total capital can be divided in many shares
A) Partnership B) Sole proprietorship C) Company D) Non-profit organization
14) An asset possess which of the following?
A) Future economic benefits for the business B) All kind of benefits for the business
C) Expenses for the business D) Merits and Demerits for the business
15) Liabilities are which of the following?
A) Resources B) Obligations C) Future benefits D) Expenses
16) ________ is the gross inflow of economic benefits
A) Assets B) Liabilities C) Income D) Expenses
17) The gross decrease in economic benefits for the business are what?
A) Expenses B) Obligations C) Creditors D) Income or gain
18) An asset must be _______ by the business to be shown as an asset in its "balance sheet"
A) Possessed B) Owned C) Controlled D) Used
19) Liability are arisen from which of the following events?
A) Present event B) Future event C) Past event D) None of them
20) Which of the following can be considered as the most important phase of accounting cycle and it
is the primarily objective of financial accounting?
A) Identifying transactions B) Preparing "T Accounts"
C) Preparing financial statements D) Preparing trial balances
21) Which is the most important characteristic that all assets of a business have?
A) Long life of assets B) Value of assets
C) Intangible nature of assets D) Future economic benefits
22) What is the basic accounting equation?
A) Capital+Liabilities=Assets B) Assets+ liabilities =Capital
C) Capital+assets=liabilities D) Liabilities+Capital
23) Which of the following is a liability?
A) Cash B) Equipment C) Debtors D) Creditors
24) What is equity?
A) Cash from the business B) liability of a business
C) Owner's claim on total assets D) Owner's claim on total liabilities
25) Identify the asset from the following
A) Cash and cash equivalent B) Creditors C) Notes payable D) Bank loan
26) _______ the withdrawal of cash and goods by the owner of the business for his/her personal use
A) Depreciation B) Drawings C) Outflow of cash D) Appreciation

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27) Net loss occurs when
A) Expenses are greater than Income B) Expenses are less than Income
C) Expenses=Income D) Liabilities are greater than income
28) Double entry implies that
A) Recording entries in journal B) Recoding entries in Ledger account
C) Recording two aspects of every transaction D) Recording every transaction in books
29) Identify the nominal account
A) Machinery account B) Building account
C) Creditors account D) Rent expenses account
30) Which of the following accounts can be classified as a real account?
A) Rent expenses account B) Rent income account
C) insurance expenses account D) Cash account
Ch-2 Accounting equation
1) The Basic accounting equation is
A) Asset=Expense +Income B) Assets=Cash+Capital
C) Assets=Capital+Liabilities D) Assets=Expenses+Capital
2) Find out the value of assets if: Liabilities=RS.5000 and Capital=Rs.1000
A) RS.4000 B) RS.6000 C) RS.7000 D) RS.3000
3) Calculate the amount of cash if: Total assets=$10,000 Total liabilities=$10,000 Total Capital=$5000
A) RS.6000 B) RS.10,000 C) RS.5000 D) RS.1000
4) Capital increases if ______ increases
A) Expenses B) Drawings C) Interest on capital D) Revenue
5) Capital of a business decreases if there is an increase in
A) Drawings B) Income C) Gains D) Fresh capital
6) If the total liabilities of a business decrease by $5000 what will be the effect on total asset?
(assuming the amount of capital remain same)
A) Remain constant B) Decrease by $5000 C) Increase by $5000 D) Increase by $10,000
7) If the business's owner withdraws cash for his/her personal use what will be the effect on capital?
A) Increase in capital B) Remain the same C) Decrease in capital D) No effect on capital
8) Net income equal to Revenues minus
A) Gains B) Depreciation C) Expenses D) Capital expenditures
9) Collection of account receivable will
A) Increase assets and decrease assets B) Increase assets and decrease liabilities
C) Increase assets and increase capital D) Increase assets and increase cash

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10) Payment of expenses will ______ the assets
A) Increase B) Reduce C) apportion D) Overstate
11) Which of the following is the practical implementation of the accounting equation?
A) Cash flow statement B) Income statement
C) Statement of changes in equity D) Statement of financial position
12) Which of the following accounting equation is correct?
A) Cash+Other assets=Capital-Liabilities B) Capital+ Liabilities=Assets+Income
C) Assets-Liabilities=Capital D) Assets+Capital=Liabilities
13) Fresh capital introduction will increase
A) Assets and liabilities B) Assets and equity
C) Liabilities and equity and bank balance D) Capital and liabilities
14) Cash received for services rendered will
A) Increase cash and liability B) Increase equity and liability
C) Increase fixed assets and cash D) Increase cash and equity
15) Which of following best describes the increase in equity expands_______
A) Business operations B) cash outflows
C) Inflows of cash D) Appropriation expenses
16) If Cash=$1000 inventories=$4000 Debtors=$5000 fixed assets=? Capital+Liabilities=$15000
What is the Amount of total assets?
A) $5000 B) $10,000 C) $15,000 D) $20,000
17) Depreciation decreases
A) Liabilities B) Cash C) Bank D) Capital
18) An increase in provision for bad debt will
A) Decrease net income B) Decrease liabilities
C) Increase net income D) Increase liabilities
19) Current assets - Current liabilities=?
A) Capital B) Absorbed capital C) Net assets D) Net working capital
20) Assets-Liabilities=?
A) Cash B) Equity C) Net income D) Net expenses

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Ch-3 Books of original entries - Journals
1) The process of recording is done
A) Two times a year B) once a year
C) Frequently during the accounting period D) At the end of an accounting period
2) General journal is a book of _______ entries
A) First B) Original C) Secondary D) Generic
3) The process of recording transactions in different journals is called
A) Posting B) Entry making C) Adjusting D) Journalizing
4) Every business transaction affects at least ________ accounts
A) One B) Two C) Three D) Infinite
5) Discount allowed is a kind of deduction from
A) Account payable B) Account receivable C) Cash account D) Discount account
6) The other name of journal is
A) Ledger B) T account C) Day book D) Cash book
7) A journal entry in which two or more account is debited or credited is referred as
A) Journal entry B) Multi entry C) Additional entry D) Compound entry
8) The term 2/10-n/30 implies that ______ % discount will be given if the payment is made within
_____ days or full amount is receivable within 30 days
A) 2,10 B) 10,2 C) 10,30 D) 3,15
9) Goods returned by customer should be debited to which of the following accounts?
A) Sales income account B) Sales account C) Return inward account D) Expenses account
10) Discount allowed is
A) Expense of business B) Income of business
C) Loss of business D) Abnormal loss of business
11)_________ is the evidence that a transaction took place
A) Source documents B) Ledger C) Bonds D) Journals
12) Which of the following will be debited if a business purchases goods on credit?
A) Cash B) Debtor C) Creditor D) Purchases
13) Which of the following accounts will be debited if the business's owner withdraws cash from
business for his personal use?
A) Drawings B) Cash C) Business D) Stock
14) Journals are also referred as
A) Book of entries B) Book of original entries C) T account D) Books of economic event

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15) The standard format of journal does not include which of the following?
A) Assets column B) Date column C) Description column D) Amount column
16) In which of the following orders data is entered in journal?
A) Alphabetical order B) Numeric order C) Bullets order D) Chronological order
17) Which of the following accounts will be credited if a company purchases building for cash?
A) Capital account B) Fixed assets account C) Building account D) Cash account
18) Discount for quick repayment of debt is normally referred as
A) Trade discount B) Prompt payment discount C) Cash discount D) Bulk discount
19) The first step in accounting process is
A) Recording the transaction B) Identifying the transaction
C) Posting the transaction D) Preparing the source documents
20) A chart of accounts generally start with which of the following types of accounts?
A) Assets accounts B) liability accounts C) Cash accounts D) Revenue accounts
Ch-4 Special Journal
1) Which of the following specialized journals records "goods returned by customers"?
A) Purchase journal B) Sales journal C) Purchases return journal D) Sales return journal
2) Sales on credit is recorded in which of the following journal?
3) Transactions that a business doesn't record in any specialized journal are recorded in which of
the following journals or day books?
A) Cash payments journal B) Cash receipts journal
C) Purchases return journal D) General journal
4) Another name of journal is
A) Specialized journal B) Day book C) Cash book D) Record book
5) Which of the following specialized journals will record "goods returned by the business"?
6) Sales and purchase journal don't record
A) Credit sales B) Credit purchases
C) Credit sales and purchases D) Cash sales and purchases
7) Cash received from debtor is recorded in which of the following specialized journals?
A) Purchase journal B) Sales journal C) Cash receipts D) Cash payments journal
8) Which of the following is a type of cash receipt journal + cash payment journal?
A) Bank statement B) Statement of cash flow C) Cash book D) Cash documents

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9) Cash purchases is recorded in which of the following specialized journals?
A) Purchase journal B) Sales journal
C) Purchases return journal D) Cash payments journal
10) A brief explanation recorded below every entry in general journal is commonly known as
A) Narration B) Explanation C) Summary D) Other information
11) Credit purchase of plant and machinery is recorded in which of the following specialized journals?
A) General journal B) Cash journal C) Purchase journal D) Purchase return journal
12) Debit note is the basis for recoding a transaction in which of the following journals?
A) General journal B) Cash journal C) Purchase journal D) Purchase return journal
13) "Sale of old furniture" will be recorded in which of the following specialized journals?
A) Purchase journal B) Sales journal C) General journal D) Cash receipt journal
14) Credit note is the basis for recording a transaction in which of the following specialized journals?
A) Purchase journal B) Sales return journal C) General journal D) Cash receipt journal
15) Specialized journals are more adequate for which type of businesses?
A) Small businesses B) Big businesses C) Sole proprietorship D) Partnership
16) Which of the following is known as an evidence that a transaction took place?
A) Cash receipts journal B) General journal C) Source document D) Cash book
17) "Business paid rent amounting to Rs.100" which of the following specialized journals records
this transaction?
A) Cash receipts journal B) Cash payments journal
C) Sales journal D) Purchase journal
18) Credit memo or credit note No. is entered in which of the following journal?
A) General journal B) Cash journal C) Purchase journal D) Sales return day book
Ch-5 Ledger or T accounts
1) Transferring entries from journal to ledger account is commonly known as
A) Recording B) Transferring C) Posting D) Entry making
2) An account records the ___________ in the balance of an item
A) Increase B) Decrease C) Increase or decrease D) Appreciation
3) If credit side of a bank account is greater than the debit side, it indicates which of the following?
A) Bank overdraft B) Cash at bank C) Bank balance D) Current Asset
4) If debit side of a bank account is greater than credit side it indicates which of the following?
A) Cash at bank B) Bank understatement
C) Bank overdraft D) Balance overstatement

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5) _________ will be credited if goods are given as charity
A) Cash B) Charity C) Purchases D) Sales
6) Which of the following is known as the base for preparing trial balance?
A) Journal B) Cash account C) Ledger account D) Balance sheet
7) If debit balance is greater than credit balance then the account balance will be:
A) Credit balance B) Debit and credit C) Cash balance D) Debit balance
8) The normal balance of capital account is
A) Credit balance B) Debit balance
C) Cash balance D) Neither debit nor credit balance
9) The normal balance of asset account is
A) Credit balance B) Debit balance
10) The normal balance of liability account is
A) Debit balance B) Credit balance
11) Which of the following statements is incorrect regarding capital account?
A) Debit increases the capital account balance
B) Credit increases the capital account balance
C) Fresh capital increases the capital account balance
D) Net income increases the capital account balance
12) Which of the following is the normal balance of a rent expense account?
A) Credit balance B) Cash balance C) Overdraft D) Debit balance
13) Revenue and expense accounts are referred as
A) Nominal accounts B) Real account C) Cash accounts D) Banks account
14) The real accounts are accounts of Assets, liabilities and ________
A) Expenses B) Revenues C) Capital D) Drawing
15) Building account is classified as _________ account
A) Nominal B) Real C) Cash D) Capital
16) Office equipment’s account is classified as _________ account
A) Nominal B) Real C) Cash D) Capital
17) ___________ helps business to classify transactions according to their nature
A) General journal B) Real accounts C) Ledger accounts D) Cash accounts
18) Which of the following is a real account?
A) Office equipment B) Rent expenses C) Rent income D) Insurance expense

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19) Which of the following accounts are closed at the end of an accounting period?
A) Nominal accounts B) Balance sheet accounts C) Real accounts D) None of them
20) Which of the following is the closing balance of a ledger account?
A) Balance c/d B) Balance b/d C) Balance e/d D) Balance f/c
Ch-6 Trial balance
1) Trial balance is prepared to check accuracy of
A) Ledger accounts balances B) Balance sheet balances
C) Income statement balances D) Cash flow statement balances
2) If a transaction is completely omitted from the books of accounts, will it affect the agreement of a
trial balance?
A) Yes B) No C) Transactions can't be omitted
3)________ is the common base for preparing a trial balance
A) Ledger accounts B) General Journal C) Specialized journals D) Balance sheet
4) Which of the following is true about a trial balance?
A) It lists down the balances of accounts B) It lists down the balances of a balance sheet
C) It is a kind of financial statement D) It is not a part of accounting cycle
5) Debit balance = Credit balance in a trial balance indicates that
A) No error in recording transactions B) No error in posting entries to ledger accounts
C) Account balances are correct D) Mathematically Capital Liabilities=Assets
6) Trial balance is commonly prepared
A) Frequently during the year B) At the end of an accounting period
C) At the end of a month D) At the end of a year
7) Which of the following will affect the agreement of a trial balance?
A) Complete omission of a transaction B) Partial omission of a transaction
C) Error of principle D) Compensating errors
8) If debit balances = credit balances, trial balance only shows or check the ____________ and it
does not indicate that no errors were made during recording and posting
A) Arithmetic accuracy B) Errors of commission
C) Omissions of economic events D) Understatements of balances
9) Which of the following account with normal balance is shown at the debit side of a trial balance?
A) Rent income account B) Creditors account C) Unearned income account D) Cash account
10) Which of the following account with normal balance is shown at the credit side of a trial balance?
A) Cash account B) Bank account C) Equipment account D) Accrued expenses account

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7-Book of original entries - Cash book
1) The closing balance of petty cash book is considered as
A) Liability B) Asset C) Expenses D) Income
2) Payment of rent expenses is recorded on which side of cash book?
A) Receipts B) Payments C) Income D) Expense
3) An entry which is made on both sides of a cash book is called
A) Cash entry B) Contra entry C) Payment entry D) Compound entry
4) A cash book with cash, bank and discount column is commonly referred as
A) Cash book B) Two columns cash book C) Three columns cash book D) Petty cash book
5) Cash book records
A) Cash payments B) Cash receipts
C) Cash payments and cash receipts D) Neither cash payments nor cash receipts
6) Cash discount is allowed on _______ repayment of debt
A) Lump sum B) Prompt C) Actual D) None of them
7) Cash book is prepared by
A) Bank B) Accountant of business C) Manager of a company D) Bank's cashier
8) The most common imprest system is the ________ system
A) petty cash B) Cash book C) Cash receipt D) Discount
9) Discount received is recorded on which of the following side of a cash book?
A) Receipts B) Payments C) Incomes D) Expenditures
10) Drawings by owner of business are generally recorded on which of the following side of a cash book?
11) Introduction capital by owner of business is recorded on which side of a cash book?
12) Cash book with cash and discount column is mostly referred as
A) Simple cash book B) Two column cash book C) Three column cash book D) Petty cash book
13) A cash book that is used to record the small payments of cash is generally referred as
A) Simple cash book B) Two column cash book C) Three column cash book D) Petty cash book
14) A simple or one column cash book usually has which of the following main columns?
A) Bank B) Payments C) Discount D) Cash
15) Purchase of office equipment for cash will be recorded on which of the following sides of a cash
book?

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16) Postdated checks are considered as
A) Cash B) Bank balance C) Accounts receivable D) Cash reserve
17) Postage stamps on hand are considered as
A) Bank B) Prepaid expenses C) Accounts receivable D) Creditor
18) Petty cash fund is supposed to be replenished
A) Every day B) Every half year C) Every year D) At the end of every accounting period
19) Which of the following is generally not the party to a check?
A) Payee B) Payer C) Bank D) Seller
20) A credit balance in cash book indicates
A) Bank balance B) Cash at bank C) Bank overdraft D) Bank under draft
8-Bank reconciliation statement
1) Favourable balance of cash book implies that
A) Credit balance of cash book B) Debit balance of cash book
C) Bank overdraft D) Adjusted balance of cash book
2) A cash deposit made by business appears on the bank statement as _______ balance
A) Debit B) Credit C) Expenses D) Liability
3) Bank reconciliation statement is the comparison of a bank statement (sent by bank) with the
_________ (prepared by business).
A) Cash receipt journal B) Cash payment journal C) Cash book D) Financial statements
4) A check returned by bank marked "NSF" means that
A) Bank can't verify your identity B) There are not sufficient funds in your account
C) Check has been forged D) Check can't be cashed being illegal
5) In the Bank reconciliation statement "Deposit in transit" is usually
A) Subtracted from bank balance B) Added to bank balance
C) Added to Cash book balance D) Subtracted from cash book balance
6) Bank reconciliation statement is prepared by
A) Accountant of the business B) Manager of the business
C) Controller of the bank D) Accountant of the bank
7) Which of the following error results in unadjusted cash book balance?
A) Outstanding checks
B) Unpresented checks
C) Deposit in transit
D) Omission of Bank charges

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8) Bank charges amounting to $5000 was not entered in the cash book. Identify the correct
adjustment in cash book
A) Bank charges will be debited in cash book B) Bank charges will be added to cash book balance
C) Bank charges will be credited in cash book D) Bank charges need no adjustment in cash book
9) Unpresented checks also referred as
A) Uncollected checks B) Uncredited checks C) Outstanding checks D) Bounced checks
10) ________ are checks that are issued by the business but not yet presented to bank
A) Uncollected checks B) Uncredited checks C) Outstanding checks D) Bounced checks
11)_________ Checks that are presented to bank but not yet credited by the bank
A) Unpresented checks B) Uncredited checks C) Outstanding checks D) Bounced checks
12) Uncollected checks also referred as
A) Unpresented checks B) Uncredited checks C) Outstanding checks D) Bounced checks
13) Favourable balance of bank statement implies that
A) Credit balance B) Debit balance C) Bank overdraft D) Adjusted balance
14) Standing orders are ________
A) Credited in the cash book B) Debited in the cash book
C) Entered in the bank statement D) Entered in the petty cash balance
15) A company was entered in hire purchase agreement and had to pay $1000 per month. Three
payments were made via bank account but no entry was found in cash book. Identify the correct
A) $1000 will be added to cash book balance B) $2000 will be deducted from cash book balance
C) $3000 will be added to cash book balance D) $3000 will be subtracted from cash book balance
16) $5000 deposited in bank account was entered twice in the cash book. Identify the correct
A) $5000 will be credited B) $5000 will be debited
C) $10,000 will be credited D) $10,000 will be debited
17) Bank sent debit advice of $500 to company being interest on overdraft. It wasn't entered in cash
book. Identify the correct adjustment in cash book
A) $500 will be debited B) $500 will be credited
C) Non-adjustable D) $1000 will be subtracted
18) In bank reconciliation statement the amount of outstanding checks is added to ________
balance of cash book
A) Adjusted B) Unadjusted C) Understated D) Overstated
19) Balance as per cash book(adjusted)=$1000, Unpresented checks=$2000, Uncredited
checks=$500, Deposit in transit=$500. Compute the balance as per bank statement
A) $2000 B) Zero C) $3000 D) $2500

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20) A discount of $2000 was given to a supplier on his prompt repayment of debt but the cashier
entered the gross amount in cash book. What should be the adjustment in cash to work out the
correct balance of cash book?
A) $2000 will be debited in cash book B) $2000 will be credited in cash book
C) $4000 will be debited in cash book D) $4000 will be credited in the cash book
9-Adjusting Entries
1) Accrued expenses are considered as
A) Asset B) Liability C) Gain D) Income
2) Prepaid expenses are regarded as
A) Asset B) Liability C) Loss D) Capital
3) Which of the following adjusting double entries is correct for Unearned income?
A) DEBIT= Income, CREDIT= Unearned income B) DEBIT= Unearned income, CREDIT= Income
C) DEBIT= Cash, CREDIT= Unearned income D) DEBIT= Income, CREDIT= Cash
4) Earned but not yet received income is treated as
5) Which of the following adjusting double entries is correct for accrued expenses?
A) DEBIT= Expenses, CREDIT= Accrued expenses
B) DEBIT= Accrued expenses, CREDIT= Expenses
C) DEBIT= Cash, CREDIT= Accrued expenses
D) DEBIT= Expenses, CREDIT= Cash
6) Which of the following adjusting double entries is correct for Prepaid expenses?
A) DEBIT= Expenses, CREDIT= Prepaid expenses
B) DEBIT= Prepaid expenses, CREDIT= Expenses
C) DEBIT= Cash, CREDIT= Prepaid expenses
D) DEBIT= Expenses, CREDIT= Cash
7) Unearned income is classified as
8) Which of the following adjusting double entries is correct for earned income?
A) DEBIT= Income, CREDIT= Earned income
B) DEBIT= Earned income, CREDIT= Income
C) DEBIT= Cash, CREDIT= Earned income
D) DEBIT= Income, CREDIT= Cash
9) Failure to make adjusting entries for accrued income results in
A) Overstatement of expenses B) Understatement of expenses
C) Understatement of capital D) Overstatement of income

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10) Identify the consequences of not making adjustment entry for accrued expense
A) Overstatement of liabilities B) Understatement of liabilities
C) Overstatement of expenses D) Understatement of capital
11) An adjusting entry for prepaid expenses affects
A) Assets and expenses B) Assets and income
C) Liabilities and expenses D) Liabilities and assets
12) Adjusting entries convert cash based account into _________ based accounting
A) Capital B) Asset C) Accrual D) Prepaid
13) An unearned income adjusting entry affects
A) Asset and liabilities B) Cash and income
C) Income and liabilities D) Cash and liabilities
14) A business paid 3 month rent amounting to $3000 out of this amount one month rent pertains to
the next accounting period. Identify the correct amount prepaid expense
A) $3000 B) $1000 C) $2000 D) $4000
15) Adjusting entries help allocating incomes and expenses to their ________
A) Cash balances B) Appropriate accounting periods
C) Credit balances D) Received or paid cash balances
16) A customer paid you $100,000 for some construction work. However, at the end of your accounting
period only 1/4 of work was completed. What amount of income should be shown in income statement?
A) 100,000 B) 50,000 C) 10,000 D) 25,000
17) A business paid $5000 for technical services but used up the services for only $2000 until the
end of its accounting period. The remaining $3000 would be referred as
A) Accrued expenses B) Accrued income C) Prepaid income D) Prepaid expenses
18) Revenue earned but not yet received by the business is known as
A) Contra asset revenue B) Accrued expenses C) Accrued revenue D) Unearned revenue
19) Another name of accrued revenue is
A) Outstanding asset B) Earned asset C) Unearned revenue D) Earned revenue
20) If Rent expenses=$5000, Insurance expenses=$4000, Prepaid rent expenses=$3000. What
amount of total expenses will be shown in income statement?
A) $9000 B) $12000 C) $8000 D) $6000
10-Accounting concepts
1) Which of the following is not regarded as the fundamental concept that is identified by IAS-1
A) The going concern concept
B) The septate entity concept
C) The prudence concept
D) Correction concept

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2) Using "lower of cost and net realisable value" for the purpose of inventory valuation is the
implementation of which of the following concepts?
A) The going concern concept B) The septate entity concept
C) The prudence concept D) Matching concept
3) The concept of separate entity is applicable to which of following types of businesses?
A) Sole proprietorship B) Corporation C) Partnership D) All of them
4) Does Prudence concept allow a business to build substantially higher reserves or provisions than
that are actually required?
A) Yes B) No C) To some extent D) It depends on the type of business
5) The revenue recognition principal dictates that all types of incomes should be recorded or
recognized when
A) Cash is received B) At the end of accounting period
C) When they are earned D) When interest is paid
6) The matching concept matches which of the following?
A) Asset with liabilities B) Capital with income
C) Revenues with expenses D) Expenses with capital
7) The allocation of owner's private expenses to his/her business violates which of the following?
A) Accrual concept B) Matching concept
C) Separate business entity concept D) Consistency concept
8) The going concern concept assumes that
A) The entity continue running for foreseeable future
B) The entity continue running until the end of accounting period
C) The entity will close its operating in 10 years
D) The entity can't be liquidated
9) American companies prepare their financial statement in dollars whereas Japanese companies
produce financial statements in yens. This is an example of:
A) Stable monetary unit Concept B) Unit of measurement Concept
C) Money value concept D) Current swap concept
10) Which of the following is time span into which the total life of a business is divided for the
purpose of preparing financial statements?
A) Fiscal year B) Calendar year C) Accounting period D) Accrual period
11) Showing purchased office equipment in financial statements is the application of which
accounting concept?
A) Historical cost convention B) Materiality C) Prudence D) Matching concept
12) Assets can't be offset against liabilities. This the dictation of which of the following accounting
concepts?
A) Matching concept B) Accrual concept C) Prudence concept D) Offsetting concept

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13) Information about an item is ________ if its omission or misstatement might influence the
financial decision of the users taken on the basis of that information
A) Concrete B) Complete C) Immaterial D) Material
14) Exercising a degree of caution in the case of judgments needed under the condition of
uncertainty is assumption of which of the following accounting concepts?
A) Matching concept B) Timeliness concept C) Accrual concept D) Prudence concept
15) Which one of the following concepts states that the publication or presentation financial
statements should not be delayed?
A) Objectivity Concept B) Timing concept C) Timeliness Concept D) Reliability Concept
16) land on lease should be shown in balance sheet contrary to fact that company doesn't own this
piece of land. This is the statement of what accounting concepts?
A) Matching concept B) Accrual concept C) Prudence concept D) Substance over form
Concept
17) "Financial information should be neutral and bias free" is the dictation of which one of the
following?
A) Completeness concept B) Faithful representation Concept
C) Objectivity Concept D) Duality Concept
18) A business was commenced on 1st January and it purchased 5 vehicles, each costing $5000.
During the year the business managed to sell 2 vehicles at the price of $12000. How should the
remaining 3 vehicles be valued if the business is going to continue its operations in the next year?
A) At the breakup value B) On the basis of going concern
C) Liquidation value D) More than market value
19) A company received cash $1000 in advance for auditing service. However, the company neither
earned this revenue nor made any adjusting entry in its books. Identify the effect of this omission?
A) Total liabilities to be understated B) Total expenses to be overstated
C) Total income to be overstated D) Total assets to be understated
20) Depreciation is charged on fixed asset to comply with which of the following accounting
principles or concepts?
A) Matching concept B) Prudence concept C) Timeliness concept D) Reliability concept
11-Financial statements MCQs
1) Financial statements are prepared mainly for
A) Internal users of financial information B) External users of financial information
C) Creditors of the business D) Managers of the business
2) Net profit is computed in which of the following?
A) Balance sheet B) Income statement C) Cash flow statement D) Statement of changes in equity

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3) Which of the following should be the most appropriate order of current asset in a balance sheet?
A) cash, debtor, bank, stock
B) Bank, cash, stock, debtor
C) Stock, bank, cash, debtor
D) Cash, bank, debtor, stock
4) In income statement, gross profit is always equal to
A) Sales-expenses B) Incomes-expenses C) Sales-cost of goods sold D) Sales-selling costs
5) Office equipment is a ________ asset for a computer manufacturer and the same office
equipment is a _________ asset for a company that deals in these equipment’s
A) Current, Fixed B) Fixed, intangible C) Tangible, intangible D) Fixed, current
6) Identify the external user of financial information or financial statements
A) Management of the business B) CFO of the business
C) Employees of the business D) Investors of the business
7) A statement or report that records the fluctuation in business's capital is referred as
A) Balance sheet B) Income statement
C) Cash flow statement D) Statement of changes in equity
8) Financial statements mainly help in
A) Assumption of economic events B) Anticipation of economic events
C) Recording of economic events D) Communication of economic events
9) Purchases+opening stock-closing stock=?
A) Amount of sales B) Gross profit C) Cost of goods sold D) Net income
10) Which of the following financial statements shows the financial position of a business at a
specific date?
A) Balance sheet B) Income statement
11) Which of the following financial reports shows the profitable of a business?
A) Income statement B) Balance sheet
12) Assets minus liabilities equal to
A) Goodwill B) Working capital C) Net income D) Capital
13) Which of the following financial statements shows the movement of cash and cash equivalents in
during an accounting period?
14) Goodwill is classified as which one of the following assets?
A) Fixed B) Long term C) Current D) Intangible

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15) Which of the following does not appear in Balance sheet?
A) Building B) Cash C) Goodwill D) Rent expenses
16) Which of the following lists down the balances to asset accounts, liability accounts and capital
account balances?
17) Current assets are also known as
A) Working capital B) Invested capital C) Assets D) Cash
18) The expenses related to the main operations of business are referred as
A) Administration expense B) Non-administration expense
C) Selling expenses D) Operating expenses
19) Cash receipt from the sales fixed assets is recorded under the heading of
A) Operating activities B) Financing activities
C) Investing activities D) Other activities
20) A current asset that is convertible to cash within 3 months can be referred to as
A) Cash asset B) Operating asset C) Intangible asset D) Cash equivalent
12-Partnership accounts MCQs
1) What is the minimum number of partners required to commence a partnership business?
A) 20 B) 10 C) 2 D) 4
2) Partnership type of business is formed by the mutual agreement of partners. What kind of
agreement is it?
A) Oral agreement B) Written agreement C) Oral or written agreement D) None of them
3) In the general form of partnership, liabilities of partners are:
A) limited B) unlimited C) limited to the business capital D) None of these
4) Interest on drawings is:
A) Debited to partner’s current a/c B) Credited to partner’s current a/c
C) Not shown in current account D) None of these
5) The written agreement of partnership is most commonly referred to as:
A) Agreement B) Partnership deed C) Partnership contract D) Partnership Act
6) Where there is no partnership agreement exists between partners, what will be the profit sharing
ratio between the partners?
A) Equal B) Unequal
C) It will depend on a partner’s capital D) It will depend on the experience of a partner

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7) Under fluctuation method of capital, what is the treatment of “interest on capital”?
A) Credited to capital account B) Debited to capital account
C) No treatment or adjustment needed D) Credited to current account
8) Which of the following is NOT generally the characteristic of a partnership business?
A) Limited life B) Ease of formation C) Mutual agency D) Limited liability
9) In which of the following types of partnership the liability of at least one partner is unlimited
whereas the liability of other partners is limited?
A) General partnership B) Particular partnership C) Partnership-at-will D) Limited partnership
10) In which of the following types of partnership there is no agreement regarding the duration of
partnership?
A) General partnership B) Partnership-at-will C) Limited partnership D) Registered partnership
11) A&B are partners sharing profit or loss equally. A new partner enters in the partnership and
invests a piece of land that had historical cost of $50,000, book value = $25000 and current market
value = $30,000. By what amount the new partner’s account should be increased?
A) $25000 B) $50,000 C) $30,000 D) $75000
12) X and Y are partners sharing profit and loss at the ratio of 1/3 and 2/3 respectively. The net
income for this accounting period is $10 while salary of X = $2, interest on Y’s drawings = $3 and
interest on X’s capital = $2. What is the X’s share of profit or loss after the adjustment for
partner’s salary, interest on capital and interest on drawings?
A) $3 B) $6 C) $9 D) $11
13) Which of the following is known as the value addition to a business because of business
reputation, customers’ loyalty, brand name etc
A) Assets B) Market capitalization C) Goodwill D) Market penetration
14) Which of following is the correct double entry for revaluation surplus
A) Revaluation = Debit and Partners capital accounts = Credit
B) Partners capital accounts = Debit and Revaluation surplus = Credit
15) A and B share profit and loss in the ratio of 3/5 and 2/5 respectively and having capital account
balances of $100,000 each. At the time of revaluation, the firm’s total asset book value was $60,000
while they can only be sold for $40,000. Which of the following is the balance of A’s capital account
after revaluation of firm’s assets?
A) $100,000 B) $112,000 C) $88,000 D) $72,000
16) Which one of the following double entries is correct regarding the cost of firm or partnership
dissolution?
A) Credit realization a/c and Debit partners capital a/c
B) Credit realization a/c and Debit bank a/c
C) Debit realization a/c and Credit bank/cash
D) None of these

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17) Identify the correct double entry for realization profit at time dissolution of partnership
A) Debit realization a/c and Credit bank a/c
B) Debit bank a/c and Credit realization account
C) Debit realization account and Credit partners’ capital accounts
D) None of these
18) Partner ‘A’ took firm’s vehicle worth $5000 without payment at the time of firm’s disbanding.
Identify the correct adjustment in the capital account of partner ‘A’
A) $5000 will be debited B) $5000 will be credited
C) No adjusted needed in capital a/c D) None of these
19) During the process of dissolution of partnership, the carrying value of machinery=$5000 and building =
$20,000 while both fixed assets were disposed at the cumulative price of $10,000 and realization cost was up to
$2000. Identify what total amount needed to credit or debit in the partners’ capital accounts
A) $12000 Debit B) $13000 Credit
C) $13000 Debit D) $10,000 Debit
20) A and B are the partners in a small firm, their profit or loss sharing ratio is 6:4. A new partner C
admitted in the firm that will share profit or loss at the ratio of 1/4. Which of the following is the new
profit or loss sharing ratio among the partners A, B and C
A) 6:4:1 B) 18:12:10 C) 10:12:18 D) 6:4:4
21) Which one of the following is the method of goodwill valuation?
A) Average capital method B) Super capital method
C) Capital intensity method D) Super profit method
22) Under capitalization method of goodwill valuation, which of the following formulas is used to
calculate the “value of whole business”?
A) Value of whole business=Profit / Reasonable rate of return X 100
B) Value of whole business= Total assets / Reasonable rate of return X 100
C) Value of whole business= Equity-Net assets
D) None of these
23) Which of the following is not recorded in the partners current accounts?
A) Drawings B) Interest on Drawings C) Partners salaries D) Administrative expenses
24) A partner that doesn’t take part in the management of business, but he/she has made
investment in business and liable to creditors of the business is known as:
A) Active partner B) Nominal partner C) Junior partner D) Dormant partner
13-Rectification of error
1) Which of the following is another term for debtor control account?
A) Sales account B) Receivable account
C) Creditor control account D) Sales ledger control account

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2) Control accounts are most commonly used for which of the following purposes?
A) Preparing cash flow statement B) Making entries in other accounts
C) Accumulating the total balances of related accounts D) Detecting errors in accounting records
3) Bad debts written off during a period of accounting are entered in which side of a control account?
A) Debit side of creditor control a/c B) Credit side of creditor control a/c
C) Debit side of debtor control a/c D) Credit side of debtor control a/c
4) Which of the following accounts is used to record the cash sales
A) Sales account B) Sales ledger control account
C) Debtor control account D) Revised debtor control account
5) An account receivable was charged with the interest of $500, but no entry was made in the
debtor control account. What would be the adjustment in the debtor control account?
A) $500 will be credited in the debtor control a/c
B) $500 will be debited in the debtor control a/c
C) $1000 will be credited in the debtor control a/c
D) $1000 will be debited in the debtor control a/c
6) A check for $200 was received from Mr. Z (a debtor) and was presented to bank but the bank
has dishonored it. Identity the correct treatment of check in a debtor control account?
A) Debit control account with $200 B) Credit control account with $200
C) Credit sales ledger control a/c with $200 D) No treatment in control accounts
7) Sales of $500 were recorded twice in the sales ledger control account. What is the correct
adjustment in a debtor control account?
A) $500 will be credited B) $500 will be debited
C) $1000 will be credited D) $1000 will be debited
8) Sales return was understated by $1000. Which of the following is correct?
A) $1000 will be debited in debtor control a/c B) $1000 will be credited in debtor control a/c
C) NO adjustment required D) $500 will be debited in debtor control a/c
9) $500 debit was entered as $500 credit in sales ledger control account. What’s its adjustment in
the sales ledger control account?
A) $500 should be debited B) $500 should be credited
C) $1000 should be debited D) $1000 should be credited
10) Payment of $500 was received from debtors. Which of the following statements is correct?
1. Debit account receivable control account with $500
2. Credit account receivable control account with $500
3. Debit account payable control account with $500
4. Credit account payable control account with $500
A) 1 is correct B) 2 is correct C) 3 is correct D) 4 is correct
11) Which of the following statements is/are correct?
1. Creditor control account is also known account payable control account

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MCQs
2. Creditor control account is also referred to as purchase ledger control account
3. Creditor control account is also called purchase ledger account
A) 1 and 3 are correct B) 3 and 2 are correct C) 1 and 2 are correct
12) A contra entry of $1000 between sales ledger and purchase ledger was omitted from creditor
control account. Which of the following is the correct adjustment in a creditor control account?
A) $1000 should be credited B) $1000 should be debited C) No adjustment required
13) A creditor control account is a kind of _______ since it can be used to prove the arithmetic
correction of accounting record
A) Purchases account B) Creditor account C) Trial balance D) Expense account
14) The total of purchases return is entered on the which side of a creditor control account?
A) Debit side B) Credit side C) No accounting treatment required
15) Discount received is entered on the which side of a creditor control account?
A) Debit side B) Credit side C) No accounting treatment required
16) identify the correct double entry for “bill receivable dishonor”
A) Debit debtor and Credit bill dishonored B) Debit bill dishonored and Credit debtor
C) Debit creditor and Credit bill dishonor D) Debit cash and Credit debtor
17) Generally, the total amount purchases is taken from which book of account for the purpose of
preparing Creditor control account?
A) Cash book B) Bank statement C) Purchase day book D) Purchases ledger accounts
18) A creditor control account contains the following transaction:
» Bank = $100
» Purchases=$200
» Discount received = $100
» Balance c/d = $300
Work out the balance b/d
A) $100 B) $200 C) $300 D) $500
19) Which of the following, generally, doesn’t appear in a debtor control account?
A) Discount allowed B) Bank or cash
C) Dishonored check D) Provision for doubtful debts
20) Which of the following is the correct entry for bill payable acceptance?
A) Bill payable Debit and creditor Credit
B) Creditor Debit and bill payable Credit
C) Cash Debit and bill payable Credit
D) Creditor debit and bill payable debit

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Fixed assets and Depreciation MCQs
1) What is depreciation?
A) Cost of a fixed asset
B) Cost of a fixed asset’s repair
C) The residual value of a fixed asset
D) Portion of a fixed asset’s cost consumed during the current accounting period
2) Under which depreciation method the amount of depreciation expenses remains same
throughout the useful life of a fixed asset
A) Straight line method B) Reducing balance method
C) Number of units produced method D) Machine hours method
3) 1A company purchased a vehicle for $6000. I will be used for 5 years and its residual value is expected
to be $1000. What is the annual amount of deprecation using straight line method of depreciation?
A) $1000 B) $2000 C) $3000 D) $3300
4) What is the accumulated depreciation?
A) Sum of all depreciation expenses of a fixed asset B) Depreciation expenses
C) Cost of depletion of assets D) Future value of fixed asset
5) Which of the following is the normal balance of an accumulated depreciation account?
A) Debit balance B) Credit balance C) Nil balance D) None of these
6) How trial balance shows the accumulated depreciation?
A) as a debit item B) as a credit item C) It doesn’t show D) None of these
7) Which of the following is a double entry for depreciation expenses?
A) Accumulated depreciation debit and depreciation expenses Credit
B) Depreciation expenses Debit and accumulated depreciation Credit
C) Cash Debit and depreciation expenses Credit
D) Depreciation expenses Debit and cash Credit
8) An alternative term used for accumulated depreciation expenses?
A) Provision for depreciation B) Cumulative depreciation
C) Targeted depreciation D) Depletion
9) Which of the following is/are a kind of depreciation expenses?
A) Amortization B) Depletion
C) Both of them D) None of them
10) A fixed asset was bought for $5000. Its accumulated depreciation is $3000 and rate of
depreciation is 20%. Calculate its depreciation expenses for the current accounting period using
reducing balance method?
A) $600 B) $2000 C) $300 D) $400

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11) In depreciation calculation, the useful life of a fixed asset is:
A) a certain figure B) an estimate
C) a predetermined figure for all fixed assets D) None of these
12) Depreciable amount + Residual value of a fixed asset =?
A) Depreciation expenses B) Accumulated depreciation
C) Cost of the fixed asset D) Future economic benefits of a fixed asset
13) Cost of a fixed asset – Accumulated depreciation expenses of the fixed asset=?
A) Book value of a fixed asset B) Market value of a fixed asset
C) Historical cost of a fixed asset D) Recoverable amount of a fixed asset
14) The estimate about useful life of a fixed asset:
A) Can never be changed B) Can be changed C) Both of them D) None of them
15) Which of the following is the correct formula for calculating depreciation using service hours
method?
A) Depreciation=(Cost - Scrape value) / Total hours X Actual hours
B) Depreciation=(Cost - Accumulated depreciation) / Total hours X Actual hours
C) Depreciation=(Cost - Accumulated depreciation) / Total hours X Total hours
D) Depreciation=(Cost - Scrape value) / Actual hours X Total hours
16) The purchase price of a software that will be used for more than 12 months should be regarded as:
A) a revenue expenditure B) a capital expenditure
C) a long term expense D) an accounting period expense
17) XYZ firm has imported a machine from abroad. Which of the following is NOT the element of
machine’s cost?
A) Purchase price of machine B) Import duty C) Demurrage charges D) Refundable tax
18) A company purchased a new machine for $500,000 and machine’s test run was started to make
sure that machine works properly. There was expense of $5000 incurred on test run, however the
sale proceeds of test production were $2000. You are required to find out the total cost of machine?
A) $500,000 B) $505,000 C) 503,000 D) 495,000
19) Which of the following fixed assets is not depreciated in the ordinary circumstances?
A) Plant and machinery B) Building C) Land D) Equipments
20) In the calculation of depreciation, all of the following items are actually estimates except:
A) Useful life B) Residual value C) Historical cost D) Salvage value
21) Which of the following accounting concepts or principles require the calculation of depreciation
of the fixed assets?
A) Prudence concept B) Accrual concept
C) Consistency concept D) Matching concept

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22) A car was purchased for $5500. Its residual value was estimated to be $500 while its monthly
depreciation expenses are $100 using straight line method. Which of the following is the annual rate
of depreciation?
A) 20% B) 24% C) 2% D) 25%
23) Under which method of depreciation the amount of depreciation expenses remains constant
throughout the useful life of a fixed asset
A) Reducing balance method
B) Unit of activity method
C) Straight line method
D) None of these
24) An increase in the value of fixed asset is referred to as:
A) Depreciation B) Appreciation C) Market capitalization D) Reverse depreciation
25) A fixed asset having book value of $2000 was sold for $1500. Which of the following is the gain
or loss on the sale of fixed asset?
A) $500 gain B) $1500 loss C) $500 loss D) $1000 gain
26) Book value of a fixed asset equals to market value or sale proceeds of a fixed asset if:
A) Gain on sale=0 B) Loss on sale=0 C) Gain or loss on sale=0 D) Gain > loss on sale
27) The term ______ is generally used for the depreciation of natural resources
A) Amortization B) Depletion C) Appreciation D) Disposal value
28) Which of the following is a biological asset?
A) Land B) Building C) Environment D) Living plants and animals
29) Items of property, plant and equipment can be recognized as assets when their cost can be
measured reliably and it is likely that the future economic benefits associated with the assets:
A) Will increase gradually B) Will diminish with the passage of time
C) will flow to the entity D) won’t be available
30) Under the revaluation model of fixed assets provided by the international accounting standards,
the revaluation of the fixed assets should be carried out:
A) After 10 years B) on a regular basis C) Once in 5 years D) None of them
Non-profit organizations accounts MCQs
1) Which of the following is generally considered as a nonprofit oriented organization?
A) Charitable organization B) Corporation C) Audit firms D) Insurance companies
2) The receipts and payments account of a non-profit organization is a
A) Nominal account B) Real account
C) Income statement account D) Financial statement

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3) Non-profit organizations prepare all of the following accounts except the
A) Receipts and payment accounts B) Income and Expenditure accounts
C) Balance sheet D) Income statement
4) Expenditures greater than incomes of a non-profit organization give rise to a
A) Loss B) Profit C) Surplus D) Deficit
5) Rent expense of a non-profit organization paid in advance. Which of the following is the correct
classification of rent?
A) Expense B) Liability C) Equity D) Asset
6) An advance receipt of subscription from a member of the non-profit organization is considered
as a/an
A) Expense B) Liability C) Equity D) Asset
7) Income and expenditure account is based on
A) Cash accounting B) Accrual accounting
C) Government accounting D) Management accounting
8) Which of the following is regarded as apt to show the purchase of a fixed asset?
A) Income and Expenditure account B) Profit and loss account
C) Balance sheet D) None of them
9) Which of the following is to be recorded in an income and expenditure account?
A) Purchase of a fixed asset B) Capital expenditure incurred on a fixed asset
C) Profit on the sale of a fixed asset D) Sale of a fixed asset
10) Honorarium is a kind of remuneration paid to a person who is not the employee of a non-profit
organization. Which of the following statements is true about the honorarium payment?
A) It’s a revenue expenditure B) It’s a Capital expenditure
C) It is not recorded in the books of accounts D) None of these
11) The capital of a non-profit organization is generally known as
A) Equity B) Accumulated fund C) Cash fund D) Financial reserve
12) When cash is received for life membership, which one of the following double entries is passed?
A) Cash Debit and capital Credit B) Life membership Debit and cash Credit
C) Investment Debit and cash Credit D) Cash Debit and life membership fund Credit
13) XYZ club has a bar that maintains a separate trading account for its trading activities. Which
of the following is the treatment of profit or loss on bar trading activities?
A) Profit or loss is directly shown in the balance sheet
B) Profit or loss is to be presented in income and expenditure account
C) Profit and loss is credit in income statement
D) Profit or loss is added to accumulated fund

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14) Which of the following is the accounting equation for a non-profit organization?
A) Asset = Capital + Liabilities B) Capital + Liabilities = Assets
C) Accumulated fund + Liabilities = Assets D) Liabilities = Asset + Accumulated fund
15) Subscription received but not yet earned is considered as a/an
A) Asset B) Liability C) Income D) Expenditure
16) A non-profit organization received $10,000 as the entrance fee of a new member. If 20% of the fee
has to be capitalized, what is the amount of fee needs to be shown in the income and expenditure
account?
A) $2000 B) $8000 C) $9000 D) $10,000
17) $10,000 received as the annual membership subscription. Out of this, $2000 is pertaining to the
previous accounting period whereas $1000 is receivable at the end of the current accounting period.
Calculate the amount of subscription that will be shown in the income and expenditure account for
this accounting
A) $10,000 B) $9000 C) $12,000 D) $8000
18) The balance sheet of a non-profit organization such as a charitable hospital doesn’t contain the
A) Assets B) Building C) Debts D) Owner’s equity
19) Income and expenditure accounts show
A) Cash available to an organization B) Closing capital of an organization
C) Cash available in the bank account D) Surplus or deficit for the current accounting period
20) On what basis the receipts and payments account is prepared?
A) Cash basis B) Accrual basis C) Both accrual and cash basis D) None of them
21) The amount or property received by a non- profit organization as stated by the will of a
deceased person is commonly referred to as
A) Donation B) Honorarium C) Legacy D) Endowment
22) Investment in sinking fund by a non-profit organization is a/an
A) Liability B) Accumulated fund C) Asset D) Equity
23) In non-profit accounting, the sale of old newspapers is generally considered as a/an
A) Expenses B) Expenditure C) Income D) Capital receipt
Single entry and incomplete records MCQs
1) In single entry system of accounting
A) Dual aspects of a transaction is recorded B) Single aspect of a transaction is recorded
C) Important transactions are recorded D) All of them
2) Statement of financial position produced from incomplete accounting record is commonly known as
A) Balance sheet B) Cash flow statement
C) Statement of affairs D) Statement of financial operations

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3) Which of the following businesses usually maintain incomplete accounting record of the business
activities?
A) Large businesses B) Companies C) Big partnership firms D) Small businesses
4) In which of the following systems of recording the financial statements reflect true and fair view
of an entity and accounting records are considered to be more accurate?
A) Single entry system B) Double entry system C) Cash based system D) None of them
5) Identify the correct formula used to ascertain the closing balance of capital
A) Opening capital + Net income – Drawing – Assets = Closing capital
B) Closing capital = Opening Capital + Net loss - Drawings
C) Closing Capital = Opening capital + Assets + Incomes – Expenses
D) Closing capital = Opening capital + Net income – Drawings
6) Which of the following formulas is used to calculated the net income for an accounting period?
A) Net income = opening capital + Drawings + Ending capital
B) Net income = - Opening capital + Drawings – Ending capital
C) Net income = - Opening capital + Drawings + Ending capital
D) Net income = Opening capital – Total assets
7) If opening capital = $1000 and closing capital = $2000. Assuming no drawings during the
accounting period, calculated the net income or loss for the period
A) $1000 net income B) $1000 net loss C) $2000 net income D) $2000 net losss
8) Total opening balances of assets and liabilities are $10,000 and $5000 respectively. Find out the
opening capital of the business
A) $10,000 B) $5000 C) $15000 D) $50,000,000
9) Which one of the following accounts is supposed to be used to get the figure of credit purchases
made during the current accounting period?
A) Debtor account B) Revenue account C) Creditors account D) Expenses account
10) To obtain the amount of credit sales made during an accounting period, which account is
generally used in single entry and incomplete records?
A) A/c payable account B) Total revenue account
C) Debtors account D) Stock account
11) Which of the following is used to work out the balance of cash drawings for an accounting
period?
A) Debtor account B) Credit account C) Cash payments journal D) Cash book
12) Closing balance of cash can be obtained by drawing up a
A) Balance sheet B) Statement of affairs C) Income statement D) Cash account
13) A method wherein omitted information is determined in the first place and by using this
information net income or loss is ascertained is known as
A) nominal method B) Cash method C) Conversion method D) Net profit method

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MCQs
14) If creditors balance was $1000 at 1 Jan 2012, ending balance of creditors was $2000 on 31 Dec
2012 and a payment of $500 was made to creditors, which of the following is the amount of
purchases made during the year 2012?
A) $2500 B) $500 C) $1500 D) $2000
15) If debtors balance was $2000 at 1 Jan 2012, credit sales made during the year were $1000 and
the total payments of $1500 were received from debtors, which of the following is the debtors
account balance at 31 Dec 2012 ?
A) $1000 B) $2000 C) $1500 D) $500
16) Net profit + operating expenses = ?
A) Cost of goods sold B) Amount of sales C) Net sales D) Gross profit
17) Calculate the amount of net income or loss if the capital has been increased by $1000 during
this accounting period, drawing = $5000 and $1000 fresh capital was introduced in the business
A) $5000 net loss B) $5000 net profit C) $6000 net loss D) $6000 net profit
Debtors, Bad debts, and Provision for bad debts MCQs
1) Which of the following is the effect on net income if a business decreases provision for doubtful debts?
A) It will increase net income B) It will decrease net income
C) No effect D) It will increase gross profit and net income
2) A firm has not recorded the bad debts by mistake. Which of the following is the effect of bad
debts omission?
A) Net profit would decrease B) Net profit would increase
C) Gross profit would overstate D) Gross profit would understate
3) When it is certain that a debt won’t be recovered. Which of the following is correct?
A) Provision for bad debt is created B) Account receivable is credited
C) Bad debts is credited D) Sales is debited
4) A recovery of bad debt
A) increases net income B) decreases net income
C) increases gross profit D) increases gross profit and net income
5) The opening balance of “provision for doubtful debts account” is $1000 whereas the closing balance
of debtors account is 100,000. What amount of provision for doubtful debts should be charged to income
statement using a 5% provision for doubtful debts for the current accounting period?
A) $5000 B) $4000 C) $2000 D) $1000
6) The opening and closing balances of provision for doubtful debts account are $1000 and $2000
whereas bad debts are totaled $200
A) $1000 is to be deducted from total debtors balance in the balance sheet
B) $2000 is to be subtracted from total debtors balance in the balance sheet
C) $1000 is to be added to total debtors balance in the balance sheet
D) $2000 is to be added to total debtors balance in the balance sheet

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MCQs
7) Which of the following double entries is used to transfer “bad debts recovered” to income statement?
A) Bad debts recovered Debit and income statement Credit
B) Income statement Debit and bad debts recovered Credit
C) Cash Debit and bad debts recovered Credit
D) Bad debts recovered debit and cash Credit
8) What does aged debtors analysis signify?
A) shows how long debts have been outstanding B) How old the customers are
C) How long does a business take to repay the bank loans D) Minimum number of old debtors
9) Which of the following is the most common cause of bad debt?
A) Debtor refusal to repayment B) Debtor left the country
C) Debtor committed a crime D) Debtor declared to be a bankrupt
10) According to a general rule of accounting, the older a debts is outstanding, the more likelihood
that the debt will turn out to be a
A) provision for bad debt B) profitable debt for the business
C) bad debt D) asset for the business
11) Total debtors=$5000, the closing balance of provision for doubtful debt a/c is $500. Identify
what amount should be shown in balance sheet regarding the debtors?
A) $5000-$500=$4500 B) $5000+$500=$5500 C) $4500-$500=$5000 D) $4500-$500=$4000
12) Which accounting concept dictates the inclusion of “provision for doubtful debts” in the
financial statements?
A) Accrual concept B) Matching concept C) Going concern concept D) Prudence concept
13) Which of the following is an alternative term for “provision for doubtful debts” ?
A) Reserve for doubtful debts B) Stipulation for doubtful debts
C) Allowance for doubtful debts D) Discount for doubtful debts
14) At the end of accounting period, XYZ company finds out that its total debtors are $10,000. On
scrutiny of accounts, it turned out that a bad debt amounting to $1000 was not recorded in the
books of accounts. Furthermore, having considered the current economic situation, management of
the company decided to increase the provision for doubtful debts by $500. Find out what net
amount to be expensed out in the income statement?
A) $10,000 B) $1000 C) $1500 D) 11,000
15) A firm decided to provide for a 4% or $160 allowance for doubtful debts on all outstanding
debts. Which of the following is the value of total outstanding debts of the firm at the time of
creating the provision?
A) $2000 B) $5000 C) $1000 D) 4000$
16) Which of the following is a commonly used base to create the provision for doubtful debts?
A) Total purchases B) Total credit sales
C) Total current assets D) Total current liabilities

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MCQs
17) Which of the following debtors have highest probability to default on trade debts?
A) Over 90 days old debtors B) 30 to 60 days old debtors
C) 60 to 90 days old debtors D) Current month debtors
18) Provision for doubtful debts account is a/an
A) Asset account B) Contra asset account C) Nominal account D) Liability account
19) Suppose that provision for doubtful debts account’s opening balance is $3222, closing
balance=$5222 and bad debts written off during the accounting period amount to $500. Work out
the total amount needed to debit in the profit and loss account?
A) $2500 B) $8444 C) $8944 D) $7944
20) Provision for cash discount on debtors is a percentage of
A) Debtors B) Net debtors C) Net debtors less provision for doubtful debt D) Net sales
Inventory or stock valuation MCQs
1) The value of inventories or stock is figured out at the lower of cost and
A) purchase price B) opportunity cost C) realizable value D) net realizable value
2) An overstatement in the value of closing stock overstates all of the following except
A) Net income B) Current assets C) Capital of the business D) Cost of goods sold
3) Which of the following are generally the inventories of a service business
A) Finished goods inventories B) Purchased goods
C) Raw material inventories D) Work in process inventories
4) All of the following are the methods of inventory costing except
A) FIFO B) LIFO C) AVCO or average cost D) Stock take
5) Which one of the following methods of inventory costing yields highest taxable income?
A) FIFO B) LIFO C) AVCO or average cost D) Standard cost method
6) Which one of the following methods of inventory costing produces ending stock cost close to the
market value of the inventories?
A) FIFO B) LIFO C) AVCO or average method D) None of them
7) Which of the following inventory costing systems is regarded as the most complex one?
A) Periodic inventory system B) Perpetual inventory system
C) Both on them D) None of these
8) Which one of the following double entries is passed when goods are purchased on credit under
perpetual inventory system?
A) Purchases Debit and creditor Credit B) Purchases Debit and a/c payable Credit
C) Purchases Debit and Cash Credit D) Inventory Debit and a/c payable Credit

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MCQs
9) Which of the following journal entries is passed when goods are purchased on credit under the
periodic inventory system?
A) Purchases Debit and cash Credit B) Cash Debit and Purchases Credit
C) Purchases Debit and a/c payable Credit D) Inventory Debit and a/c payable Credit
10) Which one of the following inventory systems ascertains the balance of stock or amount of stock
at the end of an accounting period or at the time of physical inventory count?
11) Which one of the following inventory costing methods is supposed to issue the most recently
purchased goods?
A) FIFO method B) AVCO or average cost method C) LIFO method D) Moving average
12) Which of the following inventory systems is the most appropriate for a business that deals in a
precious metal such as gold?
13) Opening inventory + Net purchases = What?
A) Ending inventory B) Closing stock
C) Cost of goods manufactured D) Cost of goods available for sale
14) Cost of goods available for sale – closing inventory = What?
A) Opening inventory B) Cost of opening finished goods inventory
C) Work in process ending inventory D) Cost of goods sold
15) Gross profit is 25% on total sales and cost of goods sold amounts to $750. Which of the
following is the amount of gross profit?
A) $187.7 B) $200 C) $150 D) $250
16) At the end of XYZ firm’s accounting period, the closing stock was found to be $10,000.
However, it was realized that a fixed asset of cost $1000 was included in the stock count. Which of
the following is the correct amount of ending inventory or stock?
A) $10,000 B) $11,000 C) $9000 D) $8000
17) NRV or net realizable value of inventory is the expected selling price or market value less
A) Carry value of the inventory B) expenses necessary to complete sale
C) Cost of the stock D) replacement cost
18) Cost of an item in the closing inventory is $100 whereas the net realizable value is $85. At which
one of following amounts the item should be shown in the financial statement?
A) $100 B) $115 C) $85 D) $185
19) An item of inventory was purchased for $100. It can be sold for $125 and company can replace the
item with the new one at the cost of $105. Which of the following is the historical cost of that item?
A) $125 B) $105 C) $100 D) None of these

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MCQs
20) Under which method of inventory costing a pre-determined cost is assigned to all items of inventory?
A) Replacement cost method B) Standard cost method
C) AVCO method D) FIFO method
DEDICATION
First and foremost, I would like to thanks my brother “Zulfiqar Ali”
for Standing beside me throughout my career. Now, He was not
with us. But he has been my inspiration and motivation for
continuing to improve my knowledge, Strength and move my career
forward.
I request you all to please pray for my Brother’s soul May ALLAH
Give him place in Jannat!

FPSC SENIOR AUDITOR MCQS - TOP FINANCIAL ACCOUNTING QUESTIONS

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