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Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd

Chapter 3: Accounting Cycle

Multiple Choice Questions:

1. Recording of transaction is done by:

a. Journal Entries

b. Ledger posting

c. Balancing

d. Transfer Entries

e. Closing Entries

2. Both sides of Trial Balance are equal due to:

a. Accrual basis of accounting

b. Cash basis of accounting

c. Double entry book keeping system

d. Separate Entity Concept

e. They need not be equal

3. Which of the followings is a personal account

a. Salary Account

b. Rent Account

c. Insurance Account

d. Wages Outstanding Account

e. Both a) and d) above

4. Indentify real account

a. Cash Account

b. Machinery Account

c. Furniture Account

d. Patents Account

e. All of the above

5. Which of the following is not a nominal account:

a. Electricity Charges

b. Discount Earned

c. Claims Receivable

d. Salary

e. Both c) and d) above.

6. Goods amounting to ` 50,000 were sold on credit to Ramesh:

Sanjay Dhamija

Financial Accounting for Managers

Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd

a. Sales will be debited and Ramesh will be credited

b. Ramesh will be debited and Sales will be credited

c. Cash will be debited and Ramesh will be credited

d. Ramesh will be debited and Cash will credited

e. Both Cash and Sales will be credited

7. If the Debit side of a ledger account is greater than the Credit Side:

a. The account is said to have a debit balances

b. The account is said to have a credit balance

c. The account may have a debit balance or credit balance

d. Debit side of a ledger account can never exceed the credit side

8. Which of the following statement is true:

a. Real A/c will always have credit balance

b. Personal A/c may have a debit balance or credit balance

c. Nominal A/c may have a debit balance or credit balance

d. All of the above are true

e. Both b) and c) above are true

9. Pick the wrong statement:

a. Nominal A/c are closed at the year end

b. Balances in the Personal A/c and Real A/c are carried to the next accounting period

c. All accounts are closed at the year end

d. Nominal A/c are transferred to the Profit and Loss A/c

e. Real and Personal A/c are stated in the Balance Sheet

10. Goods sold to XYZ Limited on credit for ` 48,000, received ` 30,000 from them as part payment allowing discount of ` 3,000. The account of XYZ Limited will:

a. Have a credit balance of ` 15,000

b. Have a debit balance of ` 15,000

c. Have a credit balance of ` 18,000

d. Have a debit balance of ` 18,000

e. Have a debit balance of ` 81,000

11. Deposited cash of ` 50,000 in the Bank Account.

a. Cash A/c will be debited and Bank A/c will be credited by ` 50,000

b. Bank A/c will be debited and Cash A/c will be credited by ` 50,000

c. No entry need to be passed as Cash A/c and Bank A/c are the same

d. Both Cash A/c and Bank A/c will be debited by ` 50,000

e. Both Cash A/c and Bank A/c will be credited by ` 50,000

12. At the end of the year rent amounting to ` 100,000 is outstanding to be paid.

Sanjay Dhamija

Financial Accounting for Managers

Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd

a. As the rent has not been paid no entry need to be passed

b. Rent Account will be debited and Bank A/c be credited by ` 100,000

c. Rent Account will be debited and Rent Outstanding A/c be credited by `100,000

d. Rent Outstanding A/c will be debited and Rent A/c be credited by ` 100,000

e. Bank Account will be debited and Rent A/c be credited by ` 100,000

13. It is decided to write off ` 40,000 towards bad debts.

a. Bad Debts A/c will be debited and Debtors A/c will be credited by ` 40,000

b. Bad Debts A/c will be debited and Profit & Loss A/c will be credited by ` 40,000

c. Debtors A/c will be debited and Bad Debt A/c will be credited by ` 40,000

d. Bad Debts A/c will be debited and Creditors A/c will be credited by ` 40,000

e. No Entry need to be passed

14. By passing transfer entries:

a. All the real accounts, nominal accounts and personal accounts are closed

b. Only real accounts are closed

c. Only personal accounts are closed

d. Only nominal accounts are closed

e. Both b) and d) above

15. In case of a loss as disclosed in the Profit & Loss A/c:

a. Profit & Loss A/c is debited and Capital A/c is credited

b. Profit & Loss A/c is credited and Capital A/c is debited

c. Both Profit & Loss A/c and Capital A/c are debited

d. Both Profit & Loss A/c and Capital A/c are credited

e. No entry is required to be passed

Name them:

1. A `T’ shaped statement where all the accounts with debit balance are shown on the left hand side and with credit balances are shown on the right hand side

2. Accounts representing assets

3. All accounts relating to incomes, gains, expenses and losses

4. Financial statement summarizing the assets and liabilities on a particular date

5. Journal entries for transferring nominal accounts to the Profit and Loss A/c

6. Accounts relating to amounts receivables or payables.

True or False:

1. Profit & Loss Account is prepared for a particular period whereas Balance Sheet is on a particular date.

2. It is possible to make accounting entries directly in the ledger accounts

Sanjay Dhamija

Financial Accounting for Managers

Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd

3. Both the sides of Trial Balance must tally before preparation of financial statements

4. A debit balance is posted on the credit side of the ledger

5. Salary account is a personal account

Answers to Multiple Choice Questions:

1. a: Accounting entries are recorded by way of journal entries

2. c: Double entry book keeping system or dual aspect results in matching of the Trial Balance

3. d: Wages Outstanding represent amount payable to workers and hence is a personal account, all others are nominal accounts representing expenses.

4. e: all the accounts listed relates to assets and hence are real accounts.

5. c: Claims Receivable is a personal account, others are nominal accounts.

6. b: Ramesh A/c (receiver) will be debited whereas Sales A/c (nominal) will be credited.

7. a: Excess of debit side over credit side is called Debit Balance.

8. e: Both personal account and nominal accounts may have debit or credit balance.

9. c: Only nominal accounts are closed at the year-end by transferring to Profit and Loss Account. Real and Personal A/c are carried to the next accounting period and are summarized in the Balance Sheet.

10. b: Out of total receivables of ` 48,000 balance ` 15,000 is still outstanding showing as a debit balance.

11. b: Bank is a receiver (debited) and cash has one down (credited)

12. c: Rent A/c being an expense will be debited using accrual principle, rent outstanding is a personal account and will be credited

13. a: Bad debt (expenses) has gone up and is therefore is debited whereas Debtors A/c will be credited as the recoverable has gone down.

14. d: Only nominal accounts are closed by transfer entries. Real and Personal A/cs are carried forward to the next period.

15. b: In case of a loss, the Profit & Loss A/c is closed by crediting the same and debiting Capital A/c. As a result the balance in the Capital A/c goes down.

Answers to Name them:

1.

Trial Balance

2.

Real Accounts

3.

Nominal Accounts

4.

Balance Sheet

5.

Transfer Entries / Closing Entries

6.

Personal A/c

Answers to True or False

Sanjay Dhamija

Financial Accounting for Managers

Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd

1. True: Profit & Loss A/c summarizes the incomes earned and expenses incurred during the accounting period whereas the Balance Sheet depicts the assets and liabilities at the end of the accounting period.

2. False: Any accounting period is first recorded as a journal entry and then posted in the ledger accounts.

3. True: The Trial Balance must tally to indicate the completion of double entry system and arithmetic accuracy of accounting entries.

4. True: A debit balance indicates excess of the total of debit side over credit side. To balance both the sides of a ledger account, debit balance is posted on the credit side.

5. False: Salary account is represent an expense and is a nominal account.

Sanjay Dhamija

Financial Accounting for Managers