Q1. In double‑entry bookkeeping, every transaction affects at least how many accounts?
(a) One
(b) Two
(c) Three
(d) Four
Answer: (b)
Explanation: The principle of double entry states that each transaction has equal and opposite effects on at least two accounts, maintaining the accounting equation.
Q2. Which of the following represents the basic accounting equation?
(a) Assets = Liabilities – Capital
(b) Assets + Liabilities = Capital
(c) Assets = Liabilities + Capital
(d) Capital = Assets – Liabilities – Revenue
Answer: (c)
Explanation: The fundamental equation of double‑entry accounting is Assets = Liabilities + Owner’s Equity (Capital).
Q3. When a business purchases furniture for cash, which accounts are debited and credited?
(a) Debit Furniture, Credit Cash
(b) Debit Cash, Credit Furniture
(c) Debit Furniture, Credit Capital
(d) Debit Cash, Credit Capital
Answer: (a)
Explanation: Furniture (an asset) increases → debit; Cash (an asset) decreases → credit.
Q4. In double‑entry system, an increase in a liability is recorded as:
(a) Debit
(b) Credit
(c) Either debit or credit depending on the transaction
(d) No entry is made
Answer: (b)
Explanation: Liabilities increase on the credit side and decrease on the debit side.
Q5. Which of the following accounts normally has a debit balance?
(a) Sales Revenue
(b) Accounts Payable
(c) Capital
(d) Equipment
Answer: (d)
Explanation: Asset accounts like Equipment normally carry debit balances.
Q6. The left side of a T‑account is used for:
(a) Credits only
(b) Debits only
(c) Both debits and credits
(d) Neither debit nor credit
Answer: (b)
Explanation: By convention, the left (debit) side records increases in assets and expenses, and decreases in liabilities, equity, and revenue.
Q7. Which principle ensures that total debits equal total credits in the ledger?
(a) Matching principle
(b) Consistency principle
(c) Dual aspect concept
(d) Going concern concept
Answer: (c)
Explanation: The dual aspect concept (every transaction has two aspects) guarantees that debits equal credits.
Q8. Recording a transaction first in a chronological record is done in the:
(a) Ledger
(b) Trial balance
(c) Journal
(d) Balance sheet
Answer: (c)
Explanation: The journal (book of original entry) records transactions in date order before posting to ledger accounts.
Q9. After posting all journal entries, the statement that lists all ledger balances to check equality of debits and credits is called:
(a) Income statement
(b) Trial balance
(c) Cash flow statement
(d) Bank reconciliation statement
Answer: (b)
Explanation: A trial balance summarizes debit and credit balances; equality indicates proper posting.
Q10. Which of the following is a nominal account?
(a) Machinery
(b) Creditors
(c) Salaries Expense
(d) Capital
Answer: (c)
Explanation: Nominal accounts record revenues, expenses, gains, and losses; Salaries Expense is an expense account.
Q11. A personal account relates to:
(a) Assets and liabilities
(b) Expenses and revenues
(c) Individuals, firms, and institutions
(d) Fixed assets only
Answer: (c)
Explanation: Personal accounts deal with natural persons, artificial persons (companies), and representative persons.
Q12. When revenue is earned but cash is not yet received, which account is debited?
(a) Cash
(b) Unearned Revenue
(c) Accounts Receivable
(d) Revenue
Answer: (c)
Explanation: Accounts Receivable (an asset) increases → debit; Revenue increases → credit.
Q13. Payment of an outstanding expense is recorded by:
(a) Debit Expense, Credit Cash
(b) Debit Cash, Credit Expense
(c) Debit Expense, Credit Accounts Payable
(d) Debit Accounts Payable, Credit Cash
Answer: (d)
Explanation: Paying off a liability (Accounts Payable) decreases it → debit; Cash decreases → credit.
Q14. The rule “Debit the receiver, Credit the giver” applies to which type of account?
(a) Real account
(b) Nominal account
(c) Personal account
(d) Capital account
Answer: (c)
Explanation: This golden rule is for personal accounts.
Q15. Which of the following transactions will increase both an asset and a liability?
(a) Purchase of equipment for cash
(b) Payment of salaries
(c) Purchase of inventory on credit
(d) Owner withdraws cash for personal use
Answer: (c)
Explanation: Buying inventory on credit raises Inventory (asset) and Accounts Payable (liability).
Q16. Depreciation expense is recorded by debiting:
(a) Accumulated Depreciation
(b) Cash
(c) Depreciation Expense
(d) Equipment
Answer: (c)
Explanation: Depreciation Expense (nominal) increases → debit; Accumulated Depreciation (contra‑asset) increases → credit.
Q17. Which account is credited when a business receives cash from a customer for services rendered?
(a) Accounts Receivable
(b) Service Revenue
(c) Cash
(d) Unearned Revenue
Answer: (b)
Explanation: Cash (asset) increases → debit; Service Revenue (income) increases → credit.
Q18. In the accounting cycle, the step that follows journalizing is:
(a) Preparing financial statements
(b) Posting to ledger
(c) Preparing trial balance
(d) Closing entries
Answer: (b)
Explanation: After recording in the journal, entries are posted to the respective ledger accounts.
Q19. Which of the following is NOT a characteristic of double‑entry bookkeeping?
(a) Every transaction affects at least two accounts
(b) Total debits must equal total credits
(c) Only cash transactions are recorded
(d) Provides a complete record of financial effects
Answer: (c)
Explanation: Double entry records all transactions, cash and non‑cash, not just cash.
Q20. When a proprietor invests cash into the business, the capital account is:
(a) Debited
(b) Credited
(c) Not affected
(d) Debited and credited equally
Answer: (b)
Explanation: Owner’s equity (capital) increases → credit; Cash (asset) increases → debit.
Q21. The account “Prepaid Insurance” is classified as:
(a) Liability
(b) Expense
(c) Asset
(d) Revenue
Answer: (c)
Explanation: Prepaid Insurance is a current asset representing future benefit.
Q22. Which of the following statements is true about a contra‑asset account?
(a) It has a normal credit balance
(b) It increases the related asset
(c) It is reported on the income statement
(d) It is never used in trial balance
Answer: (a)
Explanation: Contra‑asset accounts (e.g., Accumulated Depreciation) have credit balances and reduce the asset’s value.
Q23. If a trial balance shows total debits of ₹5,00,000 and total credits of ₹4,80,000, the difference indicates:
(a) An error of omission
(b) An error of principle
(c) A missing credit of ₹20,000
(d) The books are balanced
Answer: (c)
Explanation: Debits exceed credits by ₹20,000, suggesting a credit entry of that amount is missing or understated.
Q24. Closing entries are made to:
(a) Adjust asset values
(b) Transfer balances of nominal accounts to capital account
(c) Record rectifying entries
(d) Prepare the cash flow statement
Answer: (b)
Explanation: Closing entries transfer revenues, expenses, and dividends (or drawings) to the retained earnings/capital account to start the next period with zero balances for nominal accounts.
Q25. Which principle requires that expenses be recorded in the same period as the revenues they help generate?
(a) Consistency principle
(b) Prudence principle
(c) Matching principle
(d) Entity principle
Answer: (c)
Explanation: The matching principle dictates that expenses are recognized when the related revenues are earned, ensuring proper profit measurement.
