Introduction to Accounting

Multiple Choice Questions

1. By the nature of multiple definitions given for accounting, which of these is a feature
of accounting?
(a) Communicating financial information
(b) Assisting in decision–making
(c) Helping interested users in judgement
(d) All of the above
2. Which of these concepts is a process of give and take with ‘event’ as the end result of
it?
(a) Measurement
(b) Financial information
(c) Transactions
(d) Communication
3. In measurement, what type of transactions are considered (during the process of
accounting)?
(a) Quantitative (b) Qualitative
(c) Both (a) and (b) (d) Can’t say
4. Which of the following is the process of entering business transactions of financial
character in the books of original entry in terms of money?
(a) Classifying (b) Summarising
(c) Interpretation (d) None of these
5. Accounting starts with …… financial transactions and ends with …… accounting
information.
(a) recording, communicating
(b) classifying, analysing
(c) identifying, analysing
(d) identifying, communicating
6. Book keeping is a wider concept than accounting.
(a) True (b) False
(c) Partially true (d) Partially false
7. …… refers to the entire body of the theoretical knowledge of accounting.
(a) Financial management
(b) Accounting
(c) Accountancy
 (d) None of the above
8. Accounting and Accountancy are one and the same thing.
(a) True (b) False
(c) Partially false (d) Can’t say
9. The objectives of accounting are varied. Which of the following are the objectives of
accounting?
(i) Maintain systematic and complete record of business transactions.
(ii) Ascertain financial position of business.
(iii) Provide useful information to various interested parties.
(a) Only (i) (b) Only (iii)
(c) (i) and (ii) (d) All of these
10.Accounting information is used to compare the result of current year with the previous
year to analyse the changes.
(a) True (c) Partially true
(b) False (d) Can’t say
11.Although accounting provides lot of advantages to the business, it suffers from certain
limitations. Which of these is not a limitation of accounting?
(a) It ignores quantitative elements
(b) It is historical in nature
(c) It is not free from personal bias
(d) It is affected by window dressing
12.One of the limitations of accounting is that the figure given in financial statements
ignore the effects of changes in price level.
(a) True (b) False
(c) Partially false (d) Can’t say
13.Which of the following statements is not true?
(i) Accounting depends on book keeping.
(ii) Accountancy depends on book keeping and accounting.
(iii) Accounting includes summarising the classified transactions.
(iv) Accountancy is narrow in scope.
(a) (i), (ii), (iv) (b) (ii), (iv)
 (c) Only (iv) (d) None of these
14.…… function is routine and clerical in nature and is increasingly done by computers
now-a-days.
(a) Accounting (b) Accountancy
(c) Book keeping (d) Both (a) and (c)
15.Accounting function is……… in nature.
(a) clerical (b) routine
(c) analytical (d) Both (b) and (c)
16.Recording, classifying and summarising are also termed as ……… .
(a) Accounting cycle
(b) Process of accounting
(c) Both (a) and (b)
(d) Book keeping
17.……… is the process of grouping the transactions of one nature at one place, in a
separate account.
(a) Recording (b) Classifying
(c) Summarising (d) Interpretation
18.What kind of business are required to perform the ‘recording’ of transaction in terms
of ‘money’?
(a) Small sized (b) Medium sized
(c) Large sized (d) All of these
19.Summarising is the art of presenting the …… in an understandable manner.
(a) business information (b) transactions
(c) classified data (d) All of these
20.Accounting indirectly helps the government agencies.
(a) True (b) False
(c) Partially true (d) Partially false
21.Which of the following is not considered as a main branch of accounting?
(a) Cost accounting
(b) Management accounting
(c) Financial accounting
 (d) Corporate accounting
22.The main purpose of which branch of accounting is to record the business transactions
in a systematic manner and to ascertain the profit or loss of the accounting period?
(a) Cost accounting
(b) Corporate accounting
(c) Financial accounting
(d) Profit and loss accounting
23.Each and every branch has its separate set of objectives. Which of these branches of
accounting directly or indirectly helps in management decisions?
(i) Cost accounting
(ii) Management accounting
(iii) Financial accounting
(a) Only (ii) (b) (i) and (ii)
(c) (i) and (iii) (d) All of these
24.The main purpose of cost accounting is to ascertain …. of …… rendered by business.
(a) total cost, goods
(b) per unit cost, goods
(c) per unit cost, services
(d) total cost and per unit cost, goods and services
25.Cash flow statement is a technique of management accounting.
(a) True (b) False
(c) Partially true (d) Partially false
26.Which of this is not an internal user of accounting?
(a) Owners (b) Employees
(c) Management (d) Potential investors
27.Public is not a user of accounting.
(a) True (b) False
(c) Partially True (d) Partially false
28.…… need information to form policies at the macro level and for providing subsidies.
(a) Tax authorities
(b) Competitors
 (c) Management
(d) Government and its agencies
29.Which of these are example(s) of short-term creditors?
(a) Financial institutions
(b) Suppliers of goods and services on credit
(c) Both (a) and (b)
(d) None of the above
30.Accounting is a means to determine the current worth of a business enterprise on the
basis of its profit earning capacity. The given statement highlights which of the role of
accounting?
(a) As a language
(b) As current economic policy
(c) As a historical record
(d) As an information system
31.Information provided by accounting should be factual and Verifiable. It should be free
from error and bias. It should be such that users can depend upon the information
provided. The given description describes an essential qualitative characteristic of
accounting information. Name it.
(a) Relevance (b) Reliability
(c) Comparability (d) Understandability
32.Which of the following describes ‘Qualitative characteristic understandability’ in the
best manner?
(a) Decision makers must interpret the information in the same sense as it was
described to them
(b) Accounting reports must be of common period
(c) Information must be available in time
(d) None of the above
33.Match the columns.
 (a) (i) (ii) (iii) (iv)
(b) (i) (ii) (iv) (iii)
(c) (ii) (i) (iii) (iv)
(e) (ii) (i) (iv) (iii)
34.A business transaction is an economic activity of the business that changes its
financial position. A business transaction is the consequence of event.
(a) True
(b) False
(c) Partially true
(d) Partially false
35.Accounts are generally divided into different segments. In how many segments, all
accounts are divided based on the nature of transactions?
(a) 2 (b) 3
(c) 4 (d) Can’t say
36.Pick the odd one out.
(a) Owner’s equity
(b) Drawings
(c) Net worth
(d) Net assets
37.The following equations shows the relationship between assets, liabilities and capital.
Which of the following is the correct equation?
(a) Capital = Liabilities − Assets
(b) Liabilities = Capital − Assets
(c) Assets = Liabilities + Capital
(d) Capital = Assets + Liabilities
38.Which of these is not a part of current liabilities?
(a) Bank overdraft (b) Bills payable
(c) Debentures (d) Creditors
39.Intangible assets are those assets which do not have a physical existence and cannot be
seen and felt. Therefore, intangible assets are not valuable assets.
(a) True (b) False
(c) Partially false (d) Can’t say
40.Which of the following assets is/are known as ‘active assets’?
(a) Tangible assets
(b) Intangible assets
(c) Current assets
(d) Both (a) and (b)
41.…… are those assets which cannot be realised in cash or no further benefit can be
derived from these assets.
(a) Realisable assets
(b) Nominal assets
(c) Current assets
(d) Real assets
42.Match the columns.

(a) (i) (ii) (iii) (iv) (b) (ii) (iii) (iv) (i)
(c) (iii) (iv) (i) (ii) (d) (iv) (i) (ii) (iii)
43.In the context of business, profit and gain are the same thing.
(a) True
 (b) False
(c) Partially false
(d) None of the above
44.Which of the following defines loss in the correct manner?
(i) Result of the business for a period when total expenses exceed the total revenues.
(ii) Loss due to fire, theft, accident against which the firm receives no benefit.
(a) Only (i)
(b) Only (ii)
(c) Both (i) and (ii)
(d) Neither (i) nor (ii)
45.When purchased goods are returned to the suppliers, these returns are termed as
……… .
(a) Return inwards (b) Inward returns
(c) Return outwards (d) Outward returns
46.X is a part of inventory of a firm. X needs further processing for converting into
finished products i.e X consists of partly finished goods or semi-finished goods.
Identify X.
(a) Inventory of raw material
(b) Inventory of work-in-progress
(c) Inventory of finished goods
(d) Inventory of stock-in-trade
47.Bills ……… is an accounting term for bills of exchange drawn on ……… received by
way of endorsement from them.
(a) payable, debtors
(b) receivable, creditors
(c) payable, creditors
(d) receivable, debtors
48.Discounts are recorded in books of accounts.
(a) True (b) False
(c) Partially true (d) Can’t say
49.Stores is one of the accounting terms used to describe certain kind of materials in the
production process. Which of the followng is an example of stores?
 (a) Lubricants
(b) Spare parts of machinery
(c) Packing materials
(d) All of the above
50.A person or an enterprise which is not in a position to pay its debts is called ……… .
(a) Solvent
(b) Insolvent
(c) Bad debtor
(d) Both (b) and (c)
Assertion-Reasoning MCQs
Direction (Q. Nos. 51 to 55) There are two statements marked as Assertion (A) and
Reason (R). Read the statements and choose the appropriate option from the options
given below
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct
explanation of Assertion (A)
(c) Assertion (A) is false, but Reason (R) is true
(d) Assertion (A) is true, but Reason (R) is false
51. Assertion (A) Accounting is an art as it involves recording, classifying, summarising
business transactions with a view to ascertain the net profit.
Reason (R) Accounting is a science since it is based on certain specified principles
and accounting standards.
52. Assertion (A) Environmental protection groups are one of the multiple external users
of accounting information.
Reason (R) Social responsibility groups want to know the impact of business on
environment and steps taken by an enterprise for the protection of environment.
53. Assertion (A) Book keeping involves summarising the classified transactions in the
form of profit and loss account and balance sheet.
Reason (R) Book keeping is an art of recording in books of accounts, the monetary
aspect of commerical or financial transactions. It is concerned with record keeping
maintenance of books of accounts.
54.Assertion (A) If Cash = ₹ 20,000, Machinery = ₹ 30,000, Stock = ₹ 10,000,
 Creditors = ₹ 40,000, then net worth of firm = ₹ 20,000.
Reason (R) Capital = Liabilities − Assets.
55. Assertion (A) Prepaid expenses are a part of current assets.
Reason (R) Current assets involves assets which can be converted into cash within
one year as well as assets for which service or benefit will be available against these
assets without further repayment.
Case Based MCQs
Direction Read the following case study and answer questions 56 to 60 on the basis of
the same.
Sen and Shetty are two friends who both have just attended their first class of
accountancy. The friends were intrigued by the different branches of accounting and their
widespread application. Sen personally liked the branch of accounting in which fund flow
statement and budgetary control is used and that branch helps in planning and controlling of
operations.
As the concept of accounting was further explored, they began discussing the different
users of accounting. Sen said that he finds it interesting that even the employees demand
information relating to business. Shetty said he finds more interesting the fact that even
competitors want information on the relative strengths and weaknesses of the enterprise and
for making comparisons. Shetty further said that even accounting helps owners to compare
one year’s costs, expenses, and sales with those of other years. However, they were quite
shocked by the fact that the management-worker relations was not taken into consideration
in the accounting.
Meanwhile, Sen and Shetty had an argument at the end of the discussion. Sen was
saying that accounting is an art whereas Shetty was saying that accounting is a science. Their
teacher came in and said something to them which made them stop the argument.
56. Which branch of accounting is liked by Sen?
(a) Financial accounting
(b) Cost accounting
(c) Management accounting
(d) Tax accounting
57. Shetty talked about which type of users of accounting?
(a) Internal users
(b) External users
(c) Both (a) and (b)
(d) None of these
 58. Which advantage of accounting is being talked by Shetty in last part of first para?
(a) Provides information regarding profit and loss
(b) Provides completes and systematic record
(c) Enables comparative study
(d) Evidence in legal matters
59. Which limitation of accounting is being talked by them?
(a) Influenced by personal judgement
(b) Omission of qualitative information
(c) Incomplete information
(d) Based on historical costs
60. What might have their teacher said to solve their argument?
(a) Sen, please understand, Shetty is correct in this situation
(b) Shetty, please understand, Sen is correct in this situation
(c) Both are correct
(d) None is correct
Direction Read the following case study and answer questions 61 to 65 on the basis of
the same.
Ben and Jones started with Cash ₹10,000 and Machinery ₹1,00,000. They decided to
set up a production line for PPE kits for the protection from Covid 19 virus. As their demand
expanded, they decided to purchase one more machinery. For the same, they took bank
overdraft and purchased the machinery. The quality of the company’s product was very high
and therefore, it could develop a reputation for itself in the market and business was
flourishing.
After 1.5 years, their old machinery turned obsolete so they decided to sell the same.
They sold it and got some cash proceeds. To further increase the brand presence among the
concerned stakeholders, they decided to run advertisements from the cash proceeds of
machinery sold. As more and more customers demanded their product, they decided to
launch a discount for bulk purchases. The discount was not to be recorded in the books of
accounts. This campaign was successful and they earned lot of profits from the same.
61. What was the capital initially invested?
(a) ₹ 10,000 (b) ₹ 1,00,000
(c) ₹ 1,10,000 (d) Can’t be determined
62.Which type of liability is discussed in the passage?
(a) Non-current (b) Current
 (c) Both (a) and (b) (d) Can’t be determined
63.Which asset is discussed in the line, “The quality of the company’s product was very
high and therefore, it could develop a reputation for itself in the market and business
was flourishing”?
(a) Tangible (b) Intangible
(c) Current (d) Both (a) and (c)
64. The passage involves capital receipts (apart from initial capital invested).
(a) True (b) False
(c) Partially true (d) Can’t say
65. Which type of discount is being discussed in the last part of passage?
(a) Trade discount
(b) Cash discount
(c) Both (a) and (b)
(d) Can’t be determined