MULTIPLE-CHOICE QUESTIONS WITH ANSWERS RELATED TO TRADING ACCOUNT; PROFIT AND LOSS ACCOUNT; INCOME AND EXPENDITURE ACCOUNT

What financial statement records the buying and selling activities of a business entity?
a) Trading account
b) Profit and loss account
c) Income and expenditure account
d) Balance sheet
Answer: a) Trading account

Which account summarizes the revenues, expenses, gains, and losses of a business over a specific period?
a) Trading account
b) Profit and loss account
c) Income and expenditure account
d) Cash flow statement
Answer: b) Profit and loss account

Which account is typically prepared by non-profit organizations to show their sources of income and how it is utilized?
a) Trading account
b) Profit and loss account
c) Income and expenditure account
d) Statement of financial position
Answer: c) Income and expenditure account

In India, which financial statement is used to calculate the gross profit or gross loss of a business?
a) Trading account
b) Profit and loss account
c) Income and expenditure account
d) Cash flow statement
Answer: a) Trading account

Which of the following financial statements is mandatory for all companies registered in India, as per the Companies Act?
a) Trading account
b) Profit and loss account
c) Income and expenditure account
d) Balance sheet
Answer: d) Balance sheet

Which account is used by sole proprietorships and partnerships to ascertain their net income or net loss?
a) Trading account
b) Profit and loss account
c) Income and expenditure account
d) Statement of cash flows
Answer: b) Profit and loss account

Which of the following is NOT included in the calculation of gross profit in a trading account?
a) Sales revenue
b) Cost of goods sold
c) Operating expenses
d) Opening stock
Answer: c) Operating expenses

In which account would you find details about the donations received and expenses incurred by a charitable organization in India?
a) Trading account
b) Profit and loss account
c) Income and expenditure account
d) Statement of retained earnings
Answer: c) Income and expenditure account

Which of the following statements accurately describes the purpose of a trading account?
a) It shows the sources and applications of funds for a specific period.
b) It summarizes the revenues and expenses of a business over a period.
c) It calculates the gross profit or gross loss of a business.
d) It details the income and expenditure of a non-profit organization.
Answer: c) It calculates the gross profit or gross loss of a business.

Which of the following items would NOT be found in the profit and loss account of a trading business in India?
a) Rent expenses
b) Cost of goods sold
c) Sales revenue
d) Salaries payable
Answer: d) Salaries payable

In India, which regulatory authority governs the format and presentation of financial statements for companies?
a) Reserve Bank of India (RBI)
b) Securities and Exchange Board of India (SEBI)
c) Institute of Chartered Accountants of India (ICAI)
d) Ministry of Corporate Affairs (MCA)
Answer: d) Ministry of Corporate Affairs (MCA)

A trading account is prepared to determine which of the following?
a) Net profit
b) Gross profit
c) Operating profit
d) Earnings per share
Answer: b) Gross profit

Which financial statement provides information about the cash flows of a business during a specific period?
a) Trading account
b) Profit and loss account
c) Income and expenditure account
d) Cash flow statement
Answer: d) Cash flow statement

Which of the following items would NOT typically be included in the income and expenditure account of a non-profit organization?
a) Donations received
b) Administrative expenses
c) Sales revenue
d) Program expenses
Answer: c) Sales revenue

Which of the following accounts is considered a real account?
a) Trading account
b) Profit and loss account
c) Income and expenditure account
d) None of the above
Answer: a) Trading account

Which account reflects the financial performance of a business for a specific accounting period?
a) Trading account
b) Profit and loss account
c) Income and expenditure account
d) Balance sheet
Answer: b) Profit and loss account

Which of the following is NOT a component of the income and expenditure account?
a) Capital expenditure
b) Revenue expenditure
c) Income
d) Expenses
Answer: a) Capital expenditure

Which of the following accounts is used to calculate the net profit or net loss of a business entity?
a) Trading account
b) Profit and loss account
c) Income and expenditure account
d) Balance sheet
Answer: b) Profit and loss account

Which statement is prepared as per the accrual basis of accounting?
a) Trading account
b) Profit and loss account
c) Income and expenditure account
d) Cash flow statement
Answer: b) Profit and loss account

Which of the following financial statements provides a snapshot of a company’s financial position at a specific point in time?
a) Trading account
b) Profit and loss account
c) Income and expenditure account
d) Balance sheet
Answer: d) Balance sheet

Which of the following is NOT a primary purpose of preparing a trading account?
a) To calculate the gross profit or gross loss
b) To determine the net profit or net loss
c) To ascertain the cost of goods sold
d) To evaluate the efficiency of inventory management
Answer: b) To determine the net profit or net loss

In a trading account, which of the following is subtracted from sales to calculate the gross profit?
a) Opening stock
b) Closing stock
c) Operating expenses
d) Interest expenses
Answer: b) Closing stock

Which account helps in determining the financial sustainability and operational efficiency of a business entity?
a) Trading account
b) Profit and loss account
c) Income and expenditure account
d) Balance sheet
Answer: b) Profit and loss account

Which of the following transactions would be recorded in the income and expenditure account of a non-profit organization?
a) Sale of inventory
b) Donations received
c) Purchase of fixed assets
d) Payment of interest on loans
Answer: b) Donations received

Which financial statement helps in assessing the ability of an organization to generate cash to meet its obligations?
a) Trading account
b) Profit and loss account
c) Income and expenditure account
d) Cash flow statement
Answer: d) Cash flow statement

Which of the following is true regarding the presentation of expenses in the profit and loss account?
a) Expenses are recorded on a cash basis.
b) Expenses are recorded on an accrual basis.
c) Expenses are recorded only if they are paid during the accounting period.
d) Expenses are recorded only if they are invoiced during the accounting period.
Answer: b) Expenses are recorded on an accrual basis.

Which account reflects the financial performance of a business entity over multiple accounting periods?
a) Trading account
b) Profit and loss account
c) Income and expenditure account
d) Cash flow statement
Answer: b) Profit and loss account

Which financial statement is prepared to provide information about the sources of funds and their utilization by a non-profit organization?
a) Trading account
b) Profit and loss account
c) Income and expenditure account
d) Balance sheet
Answer: c) Income and expenditure account

In a trading account, which of the following is considered as an indirect expense?
a) Wages
b) Sales commission
c) Purchase of raw materials
d) Rent paid for the office
Answer: d) Rent paid for the office

Which of the following items is included in the calculation of net profit in the profit and loss account?
a) Opening stock
b) Closing stock
c) Depreciation expense
d) Bad debts recovered
Answer: c) Depreciation expense

Which of the following items is typically included in the trading account of a manufacturing company but not in a trading company?
a) Cost of goods sold
b) Sales revenue
c) Administrative expenses
d) Operating expenses
Answer: a) Cost of goods sold

Which account reflects the financial position of a business entity at a specific point in time?
a) Trading account
b) Profit and loss account
c) Income and expenditure account
d) Balance sheet
Answer: d) Balance sheet

Which of the following is deducted from gross profit to calculate net profit in the profit and loss account?
a) Sales revenue
b) Cost of goods sold
c) Operating expenses
d) Opening stock
Answer: c) Operating expenses

Which account is used to determine the surplus or deficit of income over expenditure for a non-profit organization?
a) Trading account
b) Profit and loss account
c) Income and expenditure account
d) Cash flow statement
Answer: c) Income and expenditure account

In the context of a trading account, what does the term “closing stock” refer to?
a) The remaining quantity of goods at the end of the accounting period
b) The quantity of goods purchased during the accounting period
c) The quantity of goods sold during the accounting period
d) The quantity of goods available for sale during the accounting period
Answer: a) The remaining quantity of goods at the end of the accounting period

Which financial statement provides details about the revenue generated and expenses incurred by a business during a specific period?
a) Trading account
b) Profit and loss account
c) Income and expenditure account
d) Statement of financial position
Answer: b) Profit and loss account

In India, which governing body sets the accounting standards for non-profit organizations?
a) Reserve Bank of India (RBI)
b) Securities and Exchange Board of India (SEBI)
c) Institute of Chartered Accountants of India (ICAI)
d) National Stock Exchange (NSE)
Answer: c) Institute of Chartered Accountants of India (ICAI)

Which account provides information about the cash inflows and outflows from operating, investing, and financing activities?
a) Trading account
b) Profit and loss account
c) Income and expenditure account
d) Cash flow statement
Answer: d) Cash flow statement

Which of the following statements is true regarding the presentation of revenue in the profit and loss account?
a) Revenue is recorded when it is received.
b) Revenue is recorded when it is earned.
c) Revenue is recorded when it is invoiced.
d) Revenue is recorded when it is recognized.
Answer: b) Revenue is recorded when it is earned.

Which of the following accounts is used to calculate the net result of income and expenses for a specific period?
a) Trading account
b) Profit and loss account
c) Income and expenditure account
d) Statement of retained earnings
Answer: b) Profit and loss account

Which of the following is a characteristic of a trading account?
a) It includes non-operating income and expenses.
b) It calculates the net profit or loss.
c) It provides information about cash flows.
d) It reflects the buying and selling activities of a business.
Answer: d) It reflects the buying and selling activities of a business.

In a trading account, what does the term “cost of goods sold” represent?
a) The total sales revenue generated by the business.
b) The total expenses incurred by the business.
c) The cost of acquiring goods sold during the accounting period.
d) The cost of goods remaining unsold at the end of the accounting period.
Answer: c) The cost of acquiring goods sold during the accounting period.

Which financial statement provides information about an organization’s revenues, expenses, gains, and losses during a specific period?
a) Trading account
b) Profit and loss account
c) Income and expenditure account
d) Balance sheet
Answer: b) Profit and loss account

Which of the following accounts is used to calculate the surplus or deficit of income over expenditure for a charitable organization?
a) Trading account
b) Profit and loss account
c) Income and expenditure account
d) Cash flow statement
Answer: c) Income and expenditure account

What is the purpose of preparing a profit and loss account?
a) To calculate the gross profit.
b) To determine the net profit or loss.
c) To list all sources of income.
d) To provide details of fixed assets.
Answer: b) To determine the net profit or loss.

Which of the following is a component of the income and expenditure account of a non-profit organization?
a) Sales revenue
b) Administrative expenses
c) Cost of goods sold
d) Dividend income
Answer: b) Administrative expenses

Which financial statement provides information about the liquidity and solvency of a business entity?
a) Trading account
b) Profit and loss account
c) Income and expenditure account
d) Balance sheet
Answer: d) Balance sheet

In the context of a profit and loss account, what does “depreciation” refer to?
a) Increase in the value of assets.
b) Loss due to the sale of assets.
c) Decrease in the value of assets over time.
d) Increase in the value of liabilities.
Answer: c) Decrease in the value of assets over time.

Which of the following statements is true regarding the income and expenditure account of a non-profit organization?
a) It includes capital expenditures.
b) It records all sources of income, including donations and grants.
c) It calculates the net profit or loss.
d) It is prepared using the cash basis of accounting.
Answer: b) It records all sources of income, including donations and grants.

Which financial statement provides a summary of a company’s assets, liabilities, and shareholders’ equity at a specific point in time?
a) Trading account
b) Profit and loss account
c) Income and expenditure account
d) Balance sheet
Answer: d) Balance sheet