MULTIPLE-CHOICE QUESTIONS WITH ANSWERS RELATED TO ACCOUNTING MECHANICS

Which of the following is not a fundamental accounting equation in India?
a) Assets = Liabilities + Owner’s Equity
b) Assets = Liabilities – Owner’s Equity
c) Assets + Owner’s Equity = Liabilities
d) Liabilities + Owner’s Equity = Assets
Answer: b) Assets = Liabilities – Owner’s Equity

What is the primary purpose of double-entry bookkeeping?
a) To ensure all transactions are recorded only once
b) To detect errors in recording transactions
c) To record transactions in two different currencies
d) To simplify the accounting process
Answer: b) To detect errors in recording transactions

Which financial statement reflects the financial position of a business at a specific point in time?
a) Income Statement
b) Cash Flow Statement
c) Balance Sheet
d) Statement of Retained Earnings
Answer: c) Balance Sheet

What does the term “debit” mean in accounting?
a) An entry on the right side of an account
b) An entry on the left side of an account
c) An increase in revenue
d) An increase in expenses
Answer: b) An entry on the left side of an account

Which of the following is an example of a current asset?
a) Land
b) Machinery
c) Inventory
d) Building
Answer: c) Inventory

Which accounting principle requires that expenses be recorded in the same period as the revenue they help to generate?
a) Matching Principle
b) Revenue Recognition Principle
c) Historical Cost Principle
d) Materiality Principle
Answer: a) Matching Principle

Under the cash basis of accounting, when are revenues recognized?
a) When they are earned
b) When cash is received
c) When an invoice is sent
d) When expenses are recognized
Answer: b) When cash is received

Which of the following is a contra account?
a) Accounts Payable
b) Prepaid Expenses
c) Accumulated Depreciation
d) Inventory
Answer: c) Accumulated Depreciation

What is the purpose of a trial balance?
a) To ensure that total debits equal total credits
b) To prepare financial statements
c) To record adjusting entries
d) To close temporary accounts
Answer: a) To ensure that total debits equal total credits

What is the role of the Securities and Exchange Board of India (SEBI) in accounting regulation?
a) It sets accounting standards for publicly traded companies.
b) It regulates the auditing profession.
c) It oversees the enforcement of accounting standards.
d) It provides accounting training to professionals.
Answer: a) It sets accounting standards for publicly traded companies.

Which of the following is an example of an intangible asset?
a) Land
b) Machinery
c) Goodwill
d) Inventory
Answer: c) Goodwill

In which financial statement would you find information about dividends paid to shareholders?
a) Balance Sheet
b) Income Statement
c) Statement of Cash Flows
d) Statement of Retained Earnings
Answer: d) Statement of Retained Earnings

Which of the following represents the formula for calculating net income?
a) Revenue – Expenses
b) Assets – Liabilities
c) Assets + Liabilities
d) Liabilities – Owner’s Equity
Answer: a) Revenue – Expenses

Which accounting principle dictates that assets should be recorded at their original purchase price?
a) Going Concern Principle
b) Cost Principle
c) Conservatism Principle
d) Consistency Principle
Answer: b) Cost Principle

What does the term “GAAP” stand for?
a) Generally Accepted Accounting Principles
b) Generally Accepted Auditing Practices
c) Generally Authorized Accounting Procedures
d) Generally Acknowledged Accounting Policies
Answer: a) Generally Accepted Accounting Principles

What is the purpose of the statement of cash flows?
a) To show the financial position of a company at a specific point in time
b) To report the revenues and expenses for a specific period
c) To explain the changes in cash and cash equivalents over a period
d) To provide information about the company’s retained earnings
Answer: c) To explain the changes in cash and cash equivalents over a period

Which of the following is a non-current liability?
a) Accounts Payable
b) Short-term Loan Payable
c) Long-term Loan Payable
d) Salaries Payable
Answer: c) Long-term Loan Payable

What is the formula for calculating the debt-to-equity ratio?
a) Total Liabilities / Total Assets
b) Total Liabilities / Owner’s Equity
c) Total Assets / Owner’s Equity
d) Total Assets / Total Liabilities
Answer: b) Total Liabilities / Owner’s Equity

Which of the following is an example of an external user of financial statements?
a) Management
b) Shareholders
c) Employees
d) Internal Auditors
Answer: b) Shareholders

Which of the following financial ratios measures a company’s ability to pay its short-term obligations?
a) Debt-to-Equity Ratio
b) Current Ratio
c) Return on Investment
d) Gross Profit Margin
Answer: b) Current Ratio

What does the term “accrual accounting” mean?
a) Recording transactions only when cash is received or paid
b) Recording transactions when they occur, regardless of when cash is exchanged
c) Recording transactions at the end of each accounting period
d) Recording transactions based on historical costs
Answer: b) Recording transactions when they occur, regardless of when cash is exchanged

Which of the following is a characteristic of a classified balance sheet?
a) It lists assets and liabilities in alphabetical order.
b) It presents assets and liabilities in order of liquidity.
c) It provides detailed information about the company’s shareholders.
d) It lists assets and liabilities based on their historical cost.
Answer: b) It presents assets and liabilities in order of liquidity.

What is the formula for calculating return on assets (ROA)?
a) Net Income / Total Assets
b) Net Income / Owner’s Equity
c) Total Assets / Owner’s Equity
d) Total Assets / Net Income
Answer: a) Net Income / Total Assets

What is the primary purpose of the accounting equation?
a) To calculate the value of a company’s stock
b) To ensure that debits equal credits in the accounting records
c) To provide a framework for understanding the financial position of a business
d) To determine the tax liability of a company
Answer: c) To provide a framework for understanding the financial position of a business

Which of the following is an example of an operating expense?
a) Purchase of equipment
b) Payment of dividends
c) Rent expense
d) Issuance of common stock
Answer: c) Rent expense

What is the role of the Institute of Chartered Accountants of India (ICAI) in accounting regulation?
a) It sets accounting standards for all companies in India.
b) It regulates the accounting profession and sets accounting standards.
c) It oversees the enforcement of accounting standards issued by SEBI.
d) It provides accounting education but does not regulate the profession.
Answer: b) It regulates the accounting profession and sets accounting standards.

Which financial statement reports the revenues and expenses for a specific period?
a) Balance Sheet
b) Income Statement
c) Statement of Cash Flows
d) Statement of Retained Earnings
Answer: b) Income Statement

Which of the following is a characteristic of a cash flow statement?
a) It shows the company’s financial position at a specific point in time.
b) It reports the changes in the company’s equity over a period.
c) It provides information about the sources and uses of cash during a period.
d) It presents details of the company’s long-term investments.
Answer: c) It provides information about the sources and uses of cash during a period.

What is the formula for calculating gross profit?
a) Revenue – Expenses
b) Revenue – Cost of Goods Sold
c) Net Income / Total Assets
d) Net Income / Owner’s Equity
Answer: b) Revenue – Cost of Goods Sold

Which of the following represents an example of a contra asset account?
a) Accumulated Depreciation
b) Accounts Receivable
c) Inventory
d) Prepaid Expenses
Answer: a) Accumulated Depreciation

What is the purpose of the accounting cycle?
a) To summarize financial transactions into financial statements
b) To prepare tax returns for the company
c) To determine the company’s market share
d) To calculate the company’s net income
Answer: a) To summarize financial transactions into financial statements

Which of the following represents an example of an accrued expense?
a) Payment of salaries in advance
b) Purchase of equipment for cash
c) Payment of rent for the current month
d) Utility expenses incurred but not yet paid
Answer: d) Utility expenses incurred but not yet paid

What is the purpose of the accounting standard AS 2 issued by the ICAI?
a) It deals with the valuation of inventories.
b) It provides guidance on the presentation of financial statements.
c) It regulates the accounting treatment of fixed assets.
d) It sets standards for the recognition of revenue.
Answer: a) It deals with the valuation of inventories.

Which of the following financial ratios measures a company’s profitability?
a) Current Ratio
b) Debt-to-Equity Ratio
c) Return on Equity
d) Inventory Turnover Ratio
Answer: c) Return on Equity

What does the term “liquidity” refer to in accounting?
a) The ability of a company to pay its short-term obligations
b) The ability of a company to generate profits
c) The ability of a company to attract investors
d) The ability of a company to maintain its market share
Answer: a) The ability of a company to pay its short-term obligations

Which of the following is an example of a long-term liability?
a) Accounts Payable
b) Short-term Loan Payable
c) Long-term Loan Payable
d) Salaries Payable
Answer: c) Long-term Loan Payable

Which of the following statements is true regarding the accounting equation?
a) It is only applicable to large corporations.
b) It must always balance.
c) It is not affected by business transactions.
d) It only includes assets and liabilities.
Answer: b) It must always balance.

What is the purpose of the adjusting entries in the accounting cycle?
a) To record transactions that were missed during the initial recording process
b) To update account balances to reflect the accrual basis of accounting
c) To prepare financial statements for external users
d) To close temporary accounts at the end of the accounting period
Answer: b) To update account balances to reflect the accrual basis of accounting

Which of the following is a characteristic of a partnership?
a) Limited liability for the owners
b) Separate legal entity from its owners
c) Unlimited liability for the owners
d) Easier transfer of ownership interests
Answer: c) Unlimited liability for the owners

What is the role of the Reserve Bank of India (RBI) in accounting regulation?
a) It sets accounting standards for all companies in India.
b) It regulates the accounting profession and sets accounting standards.
c) It oversees the enforcement of accounting standards issued by SEBI.
d) It does not have a direct role in accounting regulation.
Answer: d) It does not have a direct role in accounting regulation.

Which of the following represents an example of a prepaid expense?
a) Rent paid for the current month
b) Utility expenses incurred but not yet paid
c) Salaries paid in advance
d) Purchase of inventory on credit
Answer: c) Salaries paid in advance

What is the purpose of the International Financial Reporting Standards (IFRS)?
a) To provide guidance on ethical behavior in accounting
b) To ensure consistency and comparability in financial reporting globally
c) To regulate the accounting profession in all countries
d) To set accounting standards for publicly traded companies only
Answer: b) To ensure consistency and comparability in financial reporting globally

Which of the following financial ratios measures a company’s efficiency in managing its inventory?
a) Debt-to-Equity Ratio
b) Current Ratio
c) Inventory Turnover Ratio
d) Return on Assets
Answer: c) Inventory Turnover Ratio

What is the purpose of the statement of retained earnings?
a) To show the cash inflows and outflows for a specific period
b) To report the changes in the company’s equity over a period
c) To provide information about the company’s dividend payments
d) To explain the changes in the company’s retained earnings over a period
Answer: d) To explain the changes in the company’s retained earnings over a period

Which of the following represents an example of an accrued revenue?
a) Payment received in advance for services to be provided in the future
b) Interest earned on investments but not yet received
c) Revenue earned but not yet billed to customers
d) Payment received from customers for goods delivered
Answer: b) Interest earned on investments but not yet received

What is the purpose of financial statement analysis?
a) To prepare financial statements for external users
b) To summarize financial transactions into financial statements
c) To assess the financial health and performance of a company
d) To determine the tax liability of a company
Answer: c) To assess the financial health and performance of a company

Which of the following is an example of an internal user of financial statements?
a) Shareholders
b) Creditors
c) Management
d) Regulatory agencies
Answer: c) Management

Which of the following financial ratios measures a company’s ability to generate profits from its assets?
a) Debt-to-Equity Ratio
b) Return on Assets
c) Current Ratio
d) Gross Profit Margin
Answer: b) Return on Assets

What does the term “going concern” mean in accounting?
a) The assumption that a company will continue to operate indefinitely
b) The requirement to record transactions when they occur, regardless of when cash is exchanged
c) The principle that assets should be recorded at their original purchase price
d) The requirement to disclose all relevant information in the financial statements
Answer: a) The assumption that a company will continue to operate indefinitely

What is the purpose of the Income Statement?
a) To show the financial position of a company at a specific point in time
b) To report the revenues and expenses for a specific period
c) To explain the changes in cash and cash equivalents over a period
d) To provide information about the company’s retained earnings
Answer: b) To report the revenues and expenses for a specific period