Accounting and Finance MCQs Test 3
Written by True Tamplin, BSc, CEPF®
Updated on March 25, 2022
About This Quiz:
- Chapter: Accounting and Finance
- Quiz Type: Multiple choice questions (MCQs)
- Number of MCQs: 40
- Total Points: 40
- Approximate Time Required: 10 – 15 minutes
Quiz-summary
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Accounting and Finance Multiple Choice Questions
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Question 1 of 40
1. Question
Which account usually has a debit balance?
Correct
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Your answer is incorrect. The Correct answer is (option 2). -
Question 2 of 40
2. Question
X invoices goods to Y They are found to be damaged.
Which document will X then send to Y?Correct
Awesome! your answer is correct.
Explanation
As goods sold by X are found to be damaged so amount receivable from Y by X on account of sales will reduce and X will credit Y’s account by sending him a credit noteIncorrect
Your answer is incorrect. The Correct answer is (option 2).
Explanation
As goods sold by X are found to be damaged so amount receivable from Y by X on account of sales will reduce and X will credit Y’s account by sending him a credit note -
Question 3 of 40
3. Question
What is true about cash discounts received?
Correct
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Explanation
All transactions relating to cash and cash discounts are recorded in cash book. Moreover as discount is being received (income) so it will increase net profit.Incorrect
Your answer is incorrect. The Correct answer is (option 1).
Explanation
All transactions relating to cash and cash discounts are recorded in cash book. Moreover as discount is being received (income) so it will increase net profit. -
Question 4 of 40
4. Question
After the cashbook is updated, a bank reconciliation statement is prepared.
What is shown in the bank reconciliation statement?
Explanation
“B” option is correct as it represents mistake in bank statement. Option “A”, “C” & “D” would have already been recorded in the original bank statement and to be recorded in “Adjusted cash book”.Correct
Awesome! your answer is correct.
Explanation
“B” option is correct as it represents mistake in bank statement. Option “A”, “C” & “D” would have already been recorded in the original bank statement and to be recorded in “Adjusted cash book”.Incorrect
Your answer is incorrect. The Correct answer is (option 2). -
Question 5 of 40
5. Question
On 31 July, X’s bank statement shows a balance at bank of $2 500, but the cashbook shows a balance at bank of $1 750. X finds cheques totaling $750 have not been presented for payment.
Which bank balance figure will appear in X’s balance sheet on 31 July?Correct
Awesome! your answer is correct.
Explanation
The closing balance of cash book after all adjustments and corrections is shown in the balance sheet. This figure is $1 750.Incorrect
Your answer is incorrect. The Correct answer is (option 2).
Explanation
The closing balance of cash book after all adjustments and corrections is shown in the balance sheet. This figure is $1 750. -
Question 6 of 40
6. Question
Which transaction is entered in the general journal?
Correct
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Explanation
“C” option is correct, “A”, “B” and “D” transactions are respectively entered in the sales journal, general journal and in the cash book.Incorrect
Your answer is incorrect. The Correct answer is (option 3).
Explanation
“C” option is correct, “A”, “B” and “D” transactions are respectively entered in the sales journal, general journal and in the cash book. -
Question 7 of 40
7. Question
Which ledger entries record the purchase of a machine bought on credit?
Correct
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Your answer is incorrect. The Correct answer is (option 2). -
Question 8 of 40
8. Question
The month’s total sales of $2 800 have been debited to the Sales account.
What is the effect of this on the sales account balance?Correct
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Explanation
Sales account has a credit nature, so if it is debited by $2 800 instead of being credited it will result in understatement of sales by $5 600 ($2 800 + $2 800)Incorrect
Your answer is incorrect. The Correct answer is (option 4).
Explanation
Sales account has a credit nature, so if it is debited by $2 800 instead of being credited it will result in understatement of sales by $5 600 ($2 800 + $2 800) -
Question 9 of 40
9. Question
After which error will a trial balance still balance?
Correct
Awesome! your answer is correct.
Explanation
Sales invoice is a document, which is source of recording transactions in sales journal and in respective trade receivable’s account. So if error is made in entering an item on a sales invoice it will affect trade receivable’ account (debit side) on the one hand and sales account (credit side)on the other. So as error has the same effects on debit and credit sides so it will not affect agreement of trial balance.Incorrect
Your answer is incorrect. The Correct answer is (option 2).
Explanation
Sales invoice is a document, which is source of recording transactions in sales journal and in respective trade receivable’s account. So if error is made in entering an item on a sales invoice it will affect trade receivable’ account (debit side) on the one hand and sales account (credit side)on the other. So as error has the same effects on debit and credit sides so it will not affect agreement of trial balance. -
Question 10 of 40
10. Question
Purchases returns of $150 are wrongly posted to the debit of Sales Returns account.
How does this affect the Trial Balance totals?Correct
Awesome! your answer is correct.
Explanation
As credit item is recorded on the debit side, so it will result in overstatement of debit side by 900 + $150)Incorrect
Your answer is incorrect. The Correct answer is (option 4).
Explanation
As credit item is recorded on the debit side, so it will result in overstatement of debit side by 900 + $150) -
Question 11 of 40
11. Question
A business receives rent for letting premises.
How is this rent classified?Correct
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Explanation
Business will receive rent for letting premises and this will be shown in income statement as rental income. So this will be treated as a revenue income (“D” option).Incorrect
Your answer is incorrect. The Correct answer is (option 4).
Explanation
Business will receive rent for letting premises and this will be shown in income statement as rental income. So this will be treated as a revenue income (“D” option). -
Question 12 of 40
12. Question
A company buys new machinery for its workshop. The cost of the machinery is debited to the Purchases account and is included in the closing inventory.
What is the effect on net profit and on non-current assets?
Correct
Awesome! your answer is correct.
Explanation
Effects of the error are
So effects of purchases and closing inventory on net profit will be counterbalanced and there will be no effect on net profit.Incorrect
Your answer is incorrect. The Correct answer is (option 2).
Explanation
Effects of the error are
So effects of purchases and closing inventory on net profit will be counterbalanced and there will be no effect on net profit. -
Question 13 of 40
13. Question
Motor vehicles are depreciated at 20% per annum using the diminishing (reducing) balance method.
A motor vehicle, which cost $20 000, is sold after two years. The sale resulted in neither a profit nor a loss.
What was the sale price of the motor vehicle?Correct
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Explanation
* As there is no profit (loss) on sale of vehicle so it’s selling price will be equal to the book value.Incorrect
Your answer is incorrect. The Correct answer is (option 3).
Explanation
* As there is no profit (loss) on sale of vehicle so it’s selling price will be equal to the book value. -
Question 14 of 40
14. Question
A computer network costing $100 000 is depreciated by the straight-line method at 25% per annum with no residual value.
What will be the net book value at the end of year 3?Correct
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Explanation
Incorrect
Your answer is incorrect. The Correct answer is (option 2).
Explanation
-
Question 15 of 40
15. Question
A non-current asset cost $8 000. It is’sold for $4 800. At the date of its disposal its net book value is $3 000.
What is the profit or loss on disposal?Correct
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Explanation
Incorrect
Your answer is incorrect. The Correct answer is (option 4).
Explanation
-
Question 16 of 40
16. Question
A business has a provision for doubtful debts of $30 and trade receivables of $360. The provision is to be made equal to 5% of trade receivables.
What is the entry in the Income statement?Correct
Awesome! your answer is correct.
Explanation
Because of decrease in provision, profit will increase and be credited by $12.Incorrect
Your answer is incorrect. The Correct answer is (option 1).
Explanation
Because of decrease in provision, profit will increase and be credited by $12. -
Question 17 of 40
17. Question
An electricity accrual of $450 is treated as a prepayment when preparing a trader’s Profit and Loss account.
What effect does this have on the trade/’s net profit?Correct
Awesome! your answer is correct.
Explanation
Effects of this error are
So net profit will be overstated by $900 ($450 + $450)Incorrect
Your answer is incorrect. The Correct answer is (option 3).
Explanation
Effects of this error are
So net profit will be overstated by $900 ($450 + $450) -
Question 18 of 40
18. Question
The difference on a trial balance is entered in a suspense account. It is then found that a page of the sale journal is overcast by $600.
What is required to correct the error?
Correct
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Your answer is incorrect. The Correct answer is (option 1). -
Question 19 of 40
19. Question
What is the effect of making contra entries in the Sales and Purchase Ledger Control accounts?
Correct
Awesome! your answer is correct.
Explanation
When a same person is our trade receivable as well as trade payable then contra entry is passed to find out net amount owed to him or owed by him. So this entry reduces both trade receivables and trade payables but it does not affect profits as expenses and incomes do not change due to contra entry.Incorrect
Your answer is incorrect. The Correct answer is (option 4).
Explanation
When a same person is our trade receivable as well as trade payable then contra entry is passed to find out net amount owed to him or owed by him. So this entry reduces both trade receivables and trade payables but it does not affect profits as expenses and incomes do not change due to contra entry. -
Question 20 of 40
20. Question
A company’s trial balance includes the following balances
What is the figure for trade receivables in the balance sheet?Correct
Awesome! your answer is correct.
Explanation
Note: Sale ledger control account (cr.) balances will be shown as liability in the balance sheet.Incorrect
Your answer is incorrect. The Correct answer is (option 3).
Explanation
Note: Sale ledger control account (cr.) balances will be shown as liability in the balance sheet. -
Question 21 of 40
21. Question
X has total assets of $17 000 and current liabilities of’$3 000.
Y pays $20 000 for X’s assets, which Y values at $19 500.
Y also takes over X’s current liabilities.
How much does Y pay for goodwill?Correct
Awesome! your answer is correct.Incorrect
Your answer is incorrect. The Correct answer is (option 4). -
Question 22 of 40
22. Question
In a trading section of income statement, closing inventory of $4 000 has been added to opening inventory and purchases.
What is the effect of this on gross profit?Correct
Awesome! your answer is correct.
Explanation
If closing inventory is added to opening inventory and purchases instead of being deducted then cost of sales is overstated and as a consequence gross profit is understated by $8 000 ($4 000 + $4 000)Incorrect
Your answer is incorrect. The Correct answer is (option 4).
Explanation
If closing inventory is added to opening inventory and purchases instead of being deducted then cost of sales is overstated and as a consequence gross profit is understated by $8 000 ($4 000 + $4 000) -
Question 23 of 40
23. Question
A sole trader writes off a bad debt.
What will be the effect of this on the balance sheet?Correct
Awesome! your answer is correct.
Explanation
Bad Debt is an expense so will reduce profits and capital. Moreover it is subtracted from trade receivables’ balances, so also reduces assets.Incorrect
Your answer is incorrect. The Correct answer is (option 1).
Explanation
Bad Debt is an expense so will reduce profits and capital. Moreover it is subtracted from trade receivables’ balances, so also reduces assets. -
Question 24 of 40
24. Question
What is the purpose of preparing a balance sheet?
Correct
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Your answer is incorrect. The Correct answer is (option 4). -
Question 25 of 40
25. Question
What is the correct method of valuing inventory?
Correct
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Your answer is incorrect. The Correct answer is (option 2). -
Question 26 of 40
26. Question
What is shown in a balance sheet as an asset?
Correct
Awesome! your answer is correct.
Explanation
“B” option is correct; the other three options are current liabilities.Incorrect
Your answer is incorrect. The Correct answer is (option 2).
Explanation
“B” option is correct; the other three options are current liabilities. -
Question 27 of 40
27. Question
What does current assets less current liabilities equal?
Correct
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Your answer is incorrect. The Correct answer is (option 4). -
Question 28 of 40
28. Question
The businesses of sole traders X and Y are valued as follows:
X and Y will enter into partnership and will share profits and losses in the ratio 3:2 respectively. A goodwill account will not be included in the partnership books.
What will be the adjusted balances of the capital accounts of X and Y?
Correct
Awesome! your answer is correct.
Explanation
Once the partners enter into the partnership, then the goodwill of their respective businesses become the goodwill of the partnership as a whole so it will be written off from the books by debiting the partners’ capital accounts in their profit and loss sharing ratio i.e.
Incorrect
Your answer is incorrect. The Correct answer is (option 3).
Explanation
Once the partners enter into the partnership, then the goodwill of their respective businesses become the goodwill of the partnership as a whole so it will be written off from the books by debiting the partners’ capital accounts in their profit and loss sharing ratio i.e.
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Question 29 of 40
29. Question
The table gives information for a company’s financial year.
Insurance is prepaid by $60 and wages outstanding are $1 560.
What is the net profit for the year?Correct
Awesome! your answer is correct.
Explanation
Incorrect
Your answer is incorrect. The Correct answer is (option 2).
Explanation
-
Question 30 of 40
30. Question
A food store’s net profit for a year was calculated at $5 000. Later it was found that closing inventory of $100 had been overlooked and rent receivable of $150 was owing.
What is the correct net profit?Correct
Awesome! your answer is correct.
Explanation
Incorrect
Your answer is incorrect. The Correct answer is (option 4).
Explanation
-
Question 31 of 40
31. Question
A trader wants to increase her provision for doubtful debts by $500 this year.
What is the effect on the final accounts?
Correct
Awesome! your answer is correct.Incorrect
Your answer is incorrect. The Correct answer is (option 4). -
Question 32 of 40
32. Question
The profit of a partnership is $100 000. The partnership agreement provides for interest at 10 percent on partners’ capitals, drawings and loans. The following is extracted from the books of the firm.
What is the residue of profit available for distribution?Correct
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Explanation
Incorrect
Your answer is incorrect. The Correct answer is (option 3).
Explanation
-
Question 33 of 40
33. Question
A partner receives interest on capital. What are the bookkeeping entries?
Correct
Awesome! your answer is correct.
Explanation
Interest on capital. is an appropriation so is debited to profit and loss appropriation account and is credited to current account as is payable to partners.Incorrect
Your answer is incorrect. The Correct answer is (option 4).
Explanation
Interest on capital. is an appropriation so is debited to profit and loss appropriation account and is credited to current account as is payable to partners. -
Question 34 of 40
34. Question
Information about a club is given
What is the amount of subscriptions shown in the Income and Expenditure account?Correct
Awesome! your answer is correct.
Explanation
Incorrect
Your answer is incorrect. The Correct answer is (option 1).
Explanation
-
Question 35 of 40
35. Question
A clerk has not kept double entry records. He calculates purchases using a total trade payables’ account. The account is not correct.
What is the correct purchases amount?Correct
Awesome! your answer is correct.
Explanation
Incorrect
Your answer is incorrect. The Correct answer is (option 2).
Explanation
-
Question 36 of 40
36. Question
A sole trader provides the following information
Drawings for the year were $10 000
What was the net profit?Correct
Awesome! your answer is correct.Incorrect
Your answer is incorrect. The Correct answer is (option 3). -
Question 37 of 40
37. Question
Which formula is used to calculate the rate of inventory turnover?
Correct
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Your answer is incorrect. The Correct answer is (option 3). -
Question 38 of 40
38. Question
The information in the table relates to X for the last financial year.
What were the sales for the year?Correct
Awesome! your answer is correct.Incorrect
Your answer is incorrect. The Correct answer is (option 4). -
Question 39 of 40
39. Question
An analysis of a company’s accounts over two years has produced the following ratios:
There have been no changes in selling prices or volume of sales during the two years.
What happened in year 2?Correct
Awesome! your answer is correct.
Explanation
As there is no change in gross profit and sales so cost of sales will not change so “A” and “B” options are incorrect. Whereas net profit / sales rate has decreased which indicates increase in expenses so “D” option is correct.Incorrect
Your answer is incorrect. The Correct answer is (option 4).
Explanation
As there is no change in gross profit and sales so cost of sales will not change so “A” and “B” options are incorrect. Whereas net profit / sales rate has decreased which indicates increase in expenses so “D” option is correct. -
Question 40 of 40
40. Question
A business decides to record inventories of stationery as an asset only if they are over $100.
Which accounting concept is being applied?Correct
Awesome! your answer is correct.Incorrect
Your answer is incorrect. The Correct answer is (option 3).
Frequently Asked Questions
What does accounting and finance do?
Accounting and finance involves the study of money, business and management. Accounting relates to the analysis of information for different aspects of a business, while finance solely concerns a business’ monetary funds.
Why is accounting better than finance?
According to NACE data, in 2019 the median starting salary for people with a bachelor’s degree in finance was $57,750. In the same year, people with an accounting degree typically had a median starting salary of $57,250.
Why is accounting better than finance?
Why is accounting better than finance?
Are finance and accounting the same?
Finance is a broader term for the management of assets and liabilities and the planning of future growth, whereas accounting focuses on the day-to-day flow of money in and out of a company or institution.
Why is financial accounting important?
Financial accounting is important for businesses because it helps management make sound decisions on how to allocate their resources. In addition, financial accounting helps you communicate your business finances to outside parties such as creditors and investors.
About the Author
True Tamplin, BSc, CEPF®
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.