1. Profit and loss account starts with
A. Net profit
B. Net loss
C. Gross profit
D. None
Correct answer: C. Gross profit
2. All revenue incomes are credited to
A. Manufacturing account
B. Trading account
C. Profit and loss account
D. None of the above
Correct answer: C. Profit and loss account
3. In profit and loss account, if debit is more than the credit, the difference is
A. Net profit
B. Net loss
C. Gross profit
D. None
Correct answer: B. Net loss
4. Assets which are acquired and held permanently and used in the business with the objective of making profits is known as
A. Fixed assets
B. Current assets
C. Intangible assets
D. None
Correct answer: A. Fixed assets
5. Which of the following assets have definite physical share or identity and existence?
A. Fictitious assets
B. Current assets
C. Tangible assets
D. Intangible assets
Correct answer: C. Tangible assets
6. Outstanding expenses is a
A. Liability
B. Income
C. Asset
D. None
Correct answer: A. Liability
7. Interest on capital is treated by the business as an:
A. Expense
B. Income
C. Liability
D. Asset
Correct answer: A. Expense
8. The ratios which reflect managerial efficiency in handling the assets is
A. Turnover ratios
B. Profitability ratios
C. Short term solvency ratio
D. None of the above
Correct answer: A. Turnover ratios
9. Interest on capital is added with
A. Capital
B. Profit
C. Loss
D. Donation
Correct answer: A. Capital
10. The ratios which reveal the final result of the managerial policies and performance is
A. Turnover ratios
B. Profitability ratios
C. Long term solvency ratio
D. None of the above
Correct answer: B. Profitability ratios
11. What is the main objective of financial accounting?
A. Profit and loss account only
B. Balance sheet only
C. Both profit and loss account and balance sheet
D. Trial balance only
Correct answer: C. Both profit and loss account and balance sheet
12. According to which concept the owners are considered to be different from the business
A. Business entity concept
B. Going concern concept
C. Money measurement concept
D. Accounting period concept
Correct answer: A. Business entity concept
13. Under which concept are only transactions measurable in monetary terms recorded in the accounts?
A. Business entity concept
B. Going concern concept
C. Money measurement concept
D. Accounting period concept
Correct answer: C. Money measurement concept
14. While putting the value or price of an entity in financial records the lowest price is recorded not the current price or current market value. This is known as
A. Business Entity Concept
B. Conservatism
C. Expenditure Concept
D. Money Measurement Concept
Correct answer: B. Conservatism
15. Which of the following is related to Scientific system of maintaining account?
A. Single entry
B. Double entry
C. Contra entry
D. Book entry
Correct answer: B. Double entry
16. Which of the following defines outstanding salary account?
A. Natural personal account
B. Artificial personal account
C. Representative personal account
D. Real account
Correct answer: C. Representative personal account
17. Debit the receiver, credit the giver is rule for
A. Personal account
B. Tangible real account
C. Nominal account
D. Representative personal account
Correct answer: A. Personal account
18. Interest earned is a
A. Personal account
B. Real account
C. Nominal account
D. Intangible real account
Correct answer: C. Nominal account
19. Investment is a
A. Personal account
B. Real account
C. Nominal account
D. Representative personal account
Correct answer: B. Real account
20. Trading account is a
A. Personal account
B. Real account
C. Nominal account
D. None
Correct answer: C. Nominal account
21. Which of the following matches with fixed assets ratio?
A. Short-term solvency ratio
B. Long-term solvency ratio
C. Profitability ratio
D. Turnover ratio
Correct answer: B. Long-term solvency ratio
22. The ratio which determines the profitability from the shareholders point of view is
A. Return on investment
B. Gross profit ratio
C. Return on shareholders funds
D. Operating profit ratio
Correct answer: C. Return on shareholders funds
23. The ratio which shows the proportion of profits retained in the business out of the current year profits is
A. Retained earnings ratio
B. Pay out ratio
C. Earnings per share
D. None
Correct answer: A. Retained earnings ratio
24. How the dividend is related to the market value of shares?
A. Interest coverage ratio
B. Fixed dividend coverage ratio
C. Debt service coverage ratio
D. Dividend yield ratio
Correct answer: D. Dividend yield ratio
25. Which ratio is calculated to ascertain the efficiency of inventory management in terms of capital investment?
A. Stock velocity ratio
B. Debtors velocity ratio
C. Creditors velocity ratio
D. Working capital turnover ratio
Correct answer: A. Stock velocity ratio
26. Which ratio measures the number of times the receivables are rotated in a year in terms of sales?
A. Stock turnover ratio
B. Debtors turnover ratio
C. Creditors velocity ratio
D. Working capital turnover ratio
Correct answer: B. Debtors turnover ratio
27. Current assets – current liabilities =
A. Fixed capital
B. Working capital
C. Opening capital
D. Closing capital
Correct answer: B. Working capital
28. The ratio establishes the relationship between fixed assets and long-terms funds is
A. Current ratio
B. Fixed assets ratio
C. Fixed assets turnover ratio
D. Debt equity ratio
Correct answer: B. Fixed assets ratio
29. A high capital gearing ratio generally indicates:
A. Under capitalization
B. Over capitalization
C. Borrowed capital
D. Long term funds
Correct answer: A. Under capitalization
30. Low turnover of stock ratio indicates
A. Solvency position
B. Monopoly situation
C. Overinvestment in inventory
D. Liquidity position
Correct answer: C. Overinvestment in inventory
31. The revenues and expenses of a company are displayed in which statement?
A. Balance Sheet
B. Cash Flow Statement
C. Income Statement
D. None of the above
Correct answer: C. Income Statement
32. The main Purpose of Financial Accounting is?
A. To Provide financial information to shareholders
B. To maintain balance sheet
C. To minimize taxes.
D. To keep track of liabilities
Correct answer: A. To Provide financial information to shareholders
33. The expanded accounting equation is used by which statement?
A. Cash Flow Statement
B. Balance Sheet
C. Income Statement
D. None of the above
Correct answer: B. Balance Sheet
34. What type of balance do asset accounts have?
A. Contra
B. Credit
C. Debit
D. All of the above
Correct answer: C. Debit
35. The kind of debts which are needed to be repaid in a short term is known as?
A. Fixed Liabilities
B. Current Liabilities
C. Depreciating Assets
D. Intangible Assets
Correct answer: B. Current Liabilities
36. The account which increases equity is known as?
A. Debit Account
B. Credit Account
C. Revenue
D. Treasury Stock
Correct answer: C. Revenue
37. What are the long-term assets which do not have any physical existence?
A. Intangible Assets
B. Tangible Assets
C. Current Liabilities
D. Current Assets
Correct answer: A. Intangible Assets
38. What is the supporting evidence in a business transaction called?
A. Journal
B. Ledger
C. Voucher
D. Contra Voucher
Correct answer: C. Voucher
39. The Expenses, Profit & Loss of an organization are recorded in which account?
A. Current Account
B. Personal Account
C. Nominal Account
D. None of the above
Correct answer: C. Nominal Account
40. Which person owes an amount to a business organization for buying goods and services on a credit basis?
A. Creditors
B. Debtors
C. Owner
D. None
Correct answer: B. Debtors
41. When are balance sheets prepared?
A. Quarterly
B. Yearly
C. Monthly
D. None
Correct answer: B. Yearly
42. What is an activity ratio?
A. A financial ratio that measures how efficiently a firm converts accounts such as inventory and receivables into sales or cash
B. Ratios that measure a company’s ability to pay debt obligations and its margin of safety
C. Financial measurements that assess the ability of a company to meet its financial obligations
D. The ratio that evaluates the company’s ability to generate income as compared to its expenses
Correct answer: A. A financial ratio that measures how efficiently a firm converts accounts such as inventory and receivables into sales or cash
43. What is Current Liability?
A. Assets of a company that are expected to be sold or used as a result of standard business operations over the next year
B. A potential liability that may occur in the future
C. Company’s short-term financial obligations that are due within one year or within a normal operating cycle
D. Obligations listed on the balance sheet not due for more than a year
Correct answer: C. Company’s short-term financial obligations that are due within one year or within a normal operating cycle
44. What is an operating cycle?
A. A metric that expresses the time (Measured in days) it takes for a company to convert its investments in inventory and other resources into cash flows from sales
B. The time it takes a company to buy goods, sell them and receive cash from the sale of said goods
C. The process of hiring personnel to conduct the daily operations of the business
D. Collective process of identifying, analysing and recording the accounting events of a company
Correct answer: B. The time it takes a company to buy goods, sell them and receive cash from the sale of said goods
45. What are Outstanding Expenses?
A. Expenses which are not paid off in the current balance sheet
B. The necessary purchases that keep a business going from day-to-day
C. Type of expense that is due but has not been paid
D. None of the above
Correct answer: C. Type of expense that is due but has not been paid
46. What is Bank Overdraft?
A. A document used by a company’s accounts payable department containing the supporting documents for an invoice
B. A negotiable instrument where payment is guaranteed by the issuing bank
C. A negotiable instrument similar to a bill of exchange
D. A line of credit that covers your transactions if your bank account balance drops below zero
Correct answer: D. A line of credit that covers your transactions if your bank account balance drops below zero
47. Which Ratio protects the Creditors?
A. Lower Debt Equity Ratio
B. Liquidity Assets
C. Higher Inventory Ratio
D. Return on Investment Ratio
Correct answer: A. Lower Debt Equity Ratio
48. Which formula correctly expresses return on investment (ROI)?
A. Net Sales 100
B. Fixed Assets 100
C. Net profit / total assets x 100
D. None of the above
Correct answer: C. Net profit / total assets x 100
49. What does improper utilization of resources and over investment in assets indicate?
A. Low Return on Investment
B. Low Sales
C. High Sales
D. Depreciation of Assets
Correct answer: A. Low Return on Investment
50. Which budget is prepared for Advertising, Salary and Market Analysis?
A. Operating Budget
B. Sales Expenditure Budget
C. Static Budget
D. Labor Budget
Correct answer: B. Sales Expenditure Budget
51. All those assets which are converted into cash in the normal course of business within one year are known as
A. Fixed assets
B. Current assets
C. Fictitious assets
D. Wasting assets
Correct answer: B. Current assets
52. Any transaction between a current account and another current account does not affect
A. Profit
B. Funds
C. Working capital
D. Capital
Correct answer: C. Working capital
53. Decrease in current asset
A. Increases working capital
B. Decreases working capital
C. Decrease fixed capital
D. Increase fixed capital
Correct answer: B. Decreases working capital
54. Decrease in current liability
A. Increases working capital
B. Decreases working capital
C. Decreases fixed capital
D. Increases fixed capital
Correct answer: A. Increases working capital
55. Profit on sale of fixed assets is
A. Non trading income
B. Operating income
C. Non trading gains
D. Long term gain
Correct answer: C. Non trading gains
56. In funds flow statement, funds from operations is
A. Application of fund
B. Source of cash
C. Application of cash
D. Source of fund
Correct answer: D. Source of fund
57. In funds flow statement, outflow of funds on account of operations is
A. Application of fund
B. Source of cash
C. Application of cash
D. Source of fund
Correct answer: A. Application of fund
58. In funds flow statement, repayment of long-term loans is
A. Application of fund
B. Source of cash
C. Application of cash
D. Source of fund
Correct answer: A. Application of fund
59. In adjusted profit and loss account, depreciation on fixed assets will be
A. Debited
B. Credited
C. Ignored
D. Deducted
Correct answer: B. Credited
60. Cash flow analysis is based on the
A. Capital
B. Fixed assets
C. Cash concept of funds
D. Working capital
Correct answer: C. Cash concept of funds
61. What does a master budget include?
A. Material Budget
B. Production Budget
C. Sales Budget
D. All of the above
Correct answer: D. All of the above
62. Transaction is referred as which event in accounting?
A. Political Event
B. Economic Event
C. Dividend
D. Cash Transaction
Correct answer: B. Economic Event
63. Recording financial transaction is part of?
A. Accounting
B. Book Keeping
C. Data Entry
D. Journal
Correct answer: B. Book Keeping
64. Examining of financial information refers to?
A. Analysis
B. Auditing
C. Recording
D. Balance Sheet
Correct answer: B. Auditing
65. Which of the following are external users of financial statements?
A. Shareholders
B. CEO
C. Manager
D. Creditor
Correct answer: A. Shareholders; D. Creditor
66. Identifying an economic transaction is which phase of accounting cycle?
A. First
B. Second
C. Third
D. Last
Correct answer: A. First
67. What is a Company?
A. Legal entity organized and operated for a collective, public or social benefit, in contrast with an entity that operates as a business aiming to generate a profit for its owners
B. Business organization which is owned and carried on jointly by the members of the Hindu Undivided Family
C. Unincorporated business with only one owner who pays personal income tax on profits earned
D. A legal entity formed by a group of individuals to engage in and operate a business
Correct answer: D. A legal entity formed by a group of individuals to engage in and operate a business
68. What are Liabilities?
A. Resources of a Company
B. Expenses of a Company
C. Obligations of a Company
D. None of the above
Correct answer: C. Obligations of a Company
69. What is an Income?
A. A resource with economic value that an individual, corporation, or country owns or controls with the expectation that it will provide a future benefit
B. Obligation between one party and another not yet completed or paid for
C. Earning from investments and other sources unrelated to employment
D. The revenue a business earns from selling its goods and services
Correct answer: D. The revenue a business earns from selling its goods and services
70. An Asset possessed by the business should be shown in which part of balance sheet?
A. Liabilities
B. Assets
C. Revenues
D. Fixed Assets
Correct answer: B. Assets
71. In cash flow statement, increase in current asset
A. Increases cash
B. Decreases cash
C. Increases working capital
D. Decreases working capital
Correct answer: B. Decreases cash
72. In cash flow statement, opening balances of bank balance is posted in which side of the statement
A. Sources of cash
B. Application of cash
C. Sources of funds
D. Application of funds
Correct answer: A. Sources of cash
73. In cash flow statement, closing balances of bank balance is posted in which side of the statement
A. Sources of cash
B. Application of cash
C. Sources of funds
D. Application of funds
Correct answer: B. Application of cash
74. Production cost under marginal costing includes
A. Prime cost only
B. Prime cost and fixed overhead
C. Prime cost and variable overhead
D. Prime cost, variable overhead and fixed overhead
Correct answer: C. Prime cost and variable overhead
75. Contribution margin is equal to
A. Fixed cost – loss (or fixed cost + profit)
B. Profit + Variable cost
C. Sales – Fixed cost – Profit
D. Sales – Profit
Correct answer: A. Fixed cost – loss (or fixed cost + profit)
76. P/V Ratio is an indicator of
A. The rate at which goods are sold
B. The volume of sales
C. The volume of profit
D. The rate of profit
Correct answer: D. The rate of profit
77. An increase in variable costs
A. Increases p/v ratio
B. Increases the profit
C. Reduces contribution
D. Increases margin of safety
Correct answer: C. Reduces contribution
78. CVP analysis is most important for the determination of
A. Sales revenue necessary to equal fixed costs
B. Relationship between revenues and costs at various levels of operations
C. Variable revenues necessary to equal fixed costs
D. Volume of operations necessary to Break-even
Correct answer: D. Volume of operations necessary to Break-even
79. Revenue – Expenses =?
A. Net Income
B. Net Loss
C. Depreciation
D. None
Correct answer: A. Net Income
80. What causes the decrease in Assets?
A. Cash Purchases
B. Liabilities
C. Payment of Expenses
D. Retained Earnings
Correct answer: C. Payment of Expenses
81. Assets – Liabilities =?
A. Income
B. Gains
C. Earnings
D. Capital
Correct answer: D. Capital
82. Which of the following can increase both assets and equity?
A. Fresh capital
B. Debts paid off
C. Revenue
D. None
Correct answer: A. Fresh capital; C. Revenue
83. What is the book of original entries?
A. Voucher Book
B. General Journal
C. Day Book
D. Account Statement
Correct answer: B. General Journal
84. How many accounts are affected by a business transaction?
A. One
B. Two
C. Three
D. Several
Correct answer: B. Two
85. Day book is also known as?
A. Journal
B. Voucher
C. Ledger
D. Book Keeping
Correct answer: A. Journal
86. What is a compound entry?
A. An entry involving more than two accounts
B. Accounting entry in which just one account is debited and one is credited
C. An accounting entry in which there is more than one debit, more than one credit, or more than one of both debits and credits
D. Entry that is used to record a business transaction in the accounting records of a business
Correct answer: C. An accounting entry in which there is more than one debit, more than one credit, or more than one of both debits and credits
87. In which of the following cases is the Purchases Account debited?
A. Goods are purchased for cash
B. Goods are sold at a discount
C. Goods are purchased on credit
D. Goods are lost
Correct answer: A. Goods are purchased for cash; C. Goods are purchased on credit
88. When are Drawing Debited?
A. Cash withdrawn for personal use
B. Cash withdrawn for payment of goods
C. Cash withdrawn for salary
D. Octroi
Correct answer: A. Cash withdrawn for personal use
89. In what order data is entered into Journal?
A. Chronological Order
B. Numeric Order
C. Alphabetically
D. Bullets
Correct answer: A. Chronological Order
90. In which of the following cases is the Cash Account credited?
A. Debts are paid off
B. A building is purchased for cash
C. Asset sold for cash
D. None of the above
Correct answer: A. Debts are paid off; B. A building is purchased for cash
91. What is the common characteristic of all the assets owned by a company?
A. Intangible
B. Long Life
C. Future Economic Benefits
D. None of the above
Correct answer: C. Future Economic Benefits
92. Capital + Liabilities =?
A. Revenue
B. Assets
C. Unearned Income
D. Voucher
Correct answer: B. Assets
93. Owner’s claim on total assets is?
A. Liability
B. Assets
C. Equity
D. Cash
Correct answer: C. Equity
94. What are Drawings?
A. Accounting method used to allocate the cost of a tangible or physical asset over its useful life or life expectancy
B. The amount of cash that a business disburses
C. An increase in the value of an asset over time
D. Money that is taken from the business account for personal use
Correct answer: D. Money that is taken from the business account for personal use
95. What occurs when expenses are greater than income?
A. Net Loss
B. Net Profit
C. Debts
D. None of the above
Correct answer: A. Net Loss
96. What is a nominal account?
A. An interest-bearing deposit account held at a bank or other financial institution.
B. The account that represents a country’s imports and exports of goods and services.
C. A temporary account used for one accounting period and closed at year-end
D. None of the above
Correct answer: C. A temporary account used for one accounting period and closed at year-end
97. What is a Real Account?
A. An interest-bearing deposit account held at a bank or other financial institution
B. The account that represents a country’s imports and exports of goods and services
C. The account in which accounting transactions are stored for one fiscal year
D. An account that retains and rolls forward its ending balance at the end of the year
Correct answer: D. An account that retains and rolls forward its ending balance at the end of the year
98. Which of the following increases the capital of a business?
A. Drawings Decrease
B. Liabilities Decrease
C. Revenue Increases
D. Interest on capital increases
Correct answer: C. Revenue Increases
