Financial Accounting Multiple Choice Questions and Answers

Are you feeling the pressure of an upcoming financial accounting exam? Well, fret not! We’ve got your back. If you’re on the hunt for some stellar multiple choice questions and answers that will sharpen your accounting skills and boost your confidence, then look no further—you’ve stumbled upon just the right place!

In this blog post, we’re offering a treasure trove of engaging financial accounting MCQs that will have you acing your exam in no time. So grab a cup of coffee, buckle up, and let’s dive into the world of numbers together!

Top 75 Financial Accounting Multiple Choice Questions and Answers

1. Keeping a systematic record of business transactions is known as ___.
Answer: Bookkeeping

2. Accounting is the process of identifying, measuring and communicating economic information to permit ___ and ___ by the users of the information.
Answer: Informed judgments and decisions.

3. Accountancy explains ‘why and how to prepare the books of accounts and how to summarize the accounting information and communicate it to the interested parties. (True / False)
Answer: True

4. Identification of transactions, measurement, recording, classification, summarizing, and analysing are done using software packages in the present-day environment. (True / False)
Answer: True

5. ___ deals with explaining the significance of those data in a manner that the end-users of the financial statement can make a meaningful judgement about the profitability and financial position of the business.
(a) Interpreting
(b) Summarizing
(c) Analysing
(d) Communicating
Answer: (a)

6. Accountants need not explain various factors about what has happened, why it happened, and what is likely to happen under specific conditions. (True / False)
Answer: False

7. Interested users of accounting information are broadly classified into ___ and ___.
Answer: Internal and External

8. Expand SEBI ___.
Answer: Securities Exchange Board of India

9. Write against the following statements the terms for which these are made in reference to accounting information.
i. ___ is a common language used to communicate financial information.
ii. Managing Director, Functional Managers, shareholders, etc., using the accounting information are ___.
iii. Ability of the firm to meet all its short term or current obligations as and when they fall due__
Answer: (i) Accounting,
(ii) Users,
(iii) Liquidity

10. The maximum percentage of discount that can be allowed by a company without obtaining permission from Central Government is ___.
Answer: 10%

11. They have evolved over years and are accepted as universal rules.
(a) Concepts
(b) Conventions
(c) Principles
(d) Policy
Answer: (a)

12. Accounting policies are law or rule of conduct. (True / False)
Answer: False

13. Accounting conventions are ___ or ___.
Answer: Customs, traditions

14. Choose the correct answer from the following:
i. Accounting concept helps to explain ___ of accounting.
(a) What (b) Why (c) How

ii. Which concepts form the basis for the distinction between the expenditure of short term and long term?
(a) Going concern (b) Money measurement (c) Business entity
Answer: i. (a) why,
ii. (b) going concerned

15. State true or false
a. The Companies Act 1956 has set a maximum limit of 15 months for the accounting period.
b. An increase in liability (including owner’s equity) and reduction in assets represent uses of funds.
Answer: (a) True,
(b) False

16. Fill in the blanks:
a. Earning revenue leads to ___ in owner’s equity.
b. The alternative of accrual basis of accounting is ___.
Answer: (a) increase,
(b) cash basis of accounting

17. Name the concept for the following applications:
a. Classification of assets as a current asset, fixed assets and fictitious assets
b. Assets –Liabilities = Capital
c. The insurance premium paid in advance
d. Indian Air Force has placed an order for 126 fighter jets to be procured by 2015
Answer: (a)going concern concept,
(b)Dual Aspect concept,
(c)Accrual concept,
(d)Realization concept

18. ‘Relevance’ relates to:
(a) Giving meaningful information
(b) not influenced by personal bias
(c) Implementing without much complexity or cost.
Answer: (a)

19. Expand GAAP ___.
Answer: Generally Accepted Accounting Practices

20. ___ means that the same accounting principles should be used for preparing financial statements year after year.
Answer: Convention of consistency

21. If all units in the same industry follow the same accounting policies it is termed as ___ consistency. Choose the right choice –
(a) Vertical
(b) Horizontal
(c) Three dimensional
Answer: (c)

22. The convention of full disclosure requires that there should be full, ___ and ___ disclosure of accounting information.
Answer: Fair and adequate disclosure

23. Convention of Materiality is an exception to the Convention of ___.
Answer: Full disclosure

Give your decision in the following situations:
24. A business has unsold stock at the end of the year. The cost price is Rs. 200000 and the market price is Rs. 250000. At which price the unsold stock is recorded?
Answer: Cost price

25. What will be your decision if the cost price in the above case is Rs. 210000?
Answer: Cost price

26. There are at present ___ accounting standards.
Answer: 32

27. Simplified Schedule VI is for ___ and ___ Schedule VI is for SMCs.
Answer: Non-SMCs and Saral

28. The difference between the issue price and face value or nominal value of a share is called ___.
Answer: Premium

29. Securities premium is a ___ to the company.
Answer: Capital gain

30. A company issues its shares of Rs.100 each at a discount of 10%, money receivable on each share is ___.
Answer: Rs. 90

31. Assets include ___, ___ and ___.
Answer: Tangible assets, intangible assets, debts

32. ___ is the residual interest in the assets after deducting liabilities.
Answer: Capital

33. The liabilities of a firm are Rs.60,000 and the capital is Rs.50,000. The total assets are:
(a) 1,10,000
(b) 60,000
(c) 10,000
(d) 50,000
Answer: (a) 1,10,000

34. The resources (i.e., the assets) are acquired through the finances or funds provided by two sources, viz., owners (i.e., owners’ capital) and ___ (i.e., liabilities).
Answer: Creditors

35. Resources = ___.
Answer: Source of Finance

36. The left side of the ‘T’ account is known as the ___ side.
Answer: Debit

37. Find the value of the following:
a) If the total assets are Rs. 87,000 and the liabilities are Rs. 47,000, find out the amount of capital.
b) If the capital of the proprietor is Rs.4,00,000 and the total assets are Rs.6,00,000, what is the amount of liabilities to outsiders?
c) If creditors are Rs. 56,000, bank overdraft is Rs.1,00,000 and outstanding expenses are Rs.8,000, what is the total amount of assets?
d) Fixed assets are Rs.70,000 and current assets are Rs.1,00,000 and the creditors are Rs.30,000. What is capital?
Answer:
(a) 40,000
(b) 2,00,000
(c) 1,64,000
(d) 1,40,000

38. Classify the following accounts –
a) Insurance premium paid a/c
b) Prepaid rent a/c
c) Furniture and Fixtures a/c
d) Bank overdraft a/c
e) Capital a/c
f) Sales promotion expenses a/c
g) Discount received a/c
h) Trade creditors a/c
Answer:
a) Insurance premium paid a/c – expenses a/c,
b) Prepaid rent a/c – asset a/c,
c) Furniture and Fixtures a/c – asset a/c,
d) Bank overdraft a/c – liability a/c,
e) Capital a/c – capital a/c,
f) Sales promotion expenses a/c – expenses a/c,
g) Discount received a/c – revenue a/c,
h) Trade creditors a/c – liability a/c

39. Fill in the blanks:
a) ___ deals with the financial obligations of the firm on outsiders.
b) Patents, trademarks are ___ assets.
Answer: (a) liability, (b) intangible

40. Debit means:
(a) An increase in the asset
(b) an increase in liability
(c) A decrease in the asset
(d) an increase in owner’s equity
Answer: (a)

41. Choose the right answer from among the following:
A. Purchase book is used to record:
a. Credit purchase of goods
b. Cash purchase of goods
c. Both credit and cash purchase of goods
d. Credit purchase of goods including assets
Answer: (a)

B. When goods are returned to the supplier:
a. An invoice is raised
b. A debit note is raised and sent to the supplier
c. A credit note is raised and sent to the supplier
d. Information is sent through letter/email
Answer: (b)

42. Only credit purchases are entered in the purchase book and credit sales in the cash book (True / False)
Answer: False

43. The bills payable book consists of all promissory notes or bills of exchange accepted by the business in respect of amounts owing to its ___.
Answer: customer

44. In which book of original entry would the following transactions be entered?
a. Goods sold for cash were returned by a customer: ___.
b. Goods sold on credit were returned by a customer and cash was given immediately: ___.
c. Goods bought from Prakash & Co. the payment for which is due after a month: ___.
Answer: (a) cash book
(b) Sales return book and cash book
(c) Purchase book

45. ___ records all receipts and payments in cash.
Answer: Cashbook

46. Choose the right option: ___ encourages prompt payment.
(a) Cash discount
(b) Trade discount
Answer: (a)

47. The amount which the main cashier gives to the petty cashier to meet the petty or small cash expenses for a given period is known as ___ cash book.
Answer: Imprest

48. Under the non-imprest system the chief cashier may hand over cash to the petty cashier the amount ___ spent by the petty cashier.
Answer: equal to or more than or less than the amount

49. ___ ledger will have separate accounts for each customer and it will show the transactions entered into with the customers.
Answer: debtor’s

50. ___ ledger will have a separate account for each supplier and it will show the transactions entered into with the suppliers.
Answer: creditor’s