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1. Under the golden rules of accounting, what is the rule for a personal account?
- A. Debit what comes in, credit what goes out
- B. Debit the receiver, credit the giver
- C. Debit all expenses and losses, credit all incomes and gains
- D. Debit the giver, credit the receiver
Answer: B. Debit the receiver, credit the giver
Personal accounts (people, firms, banks) follow the rule "debit the receiver, credit the giver". The person who receives value from the business is debited and the person who gives value to the business is credited.
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2. Which golden rule applies to a real account such as Machinery or Cash?
- A. Debit the receiver, credit the giver
- B. Debit all expenses and losses, credit all incomes and gains
- C. Credit what comes in, debit what goes out
- D. Debit what comes in, credit what goes out
Answer: D. Debit what comes in, credit what goes out
Real accounts record assets. When an asset comes into the business its account is debited, and when an asset goes out its account is credited. So buying machinery debits Machinery, and paying cash credits Cash.
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3. Salary paid, rent received and loss by fire are all nominal accounts. Which rule applies to them?
- A. Debit what comes in, credit what goes out
- B. Debit all expenses and losses, credit all incomes and gains
- C. Debit the receiver, credit the giver
- D. Credit all expenses and losses, debit all incomes and gains
Answer: B. Debit all expenses and losses, credit all incomes and gains
Nominal accounts record expenses, losses, incomes and gains. Expenses and losses are debited (salary, loss by fire) and incomes and gains are credited (rent received).
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4. A business buys goods for resale for ₹20,000 and pays in cash. What is the journal entry?
- A. Cash A/c Dr ₹20,000; To Purchases A/c ₹20,000
- B. Goods A/c Dr ₹20,000; To Capital A/c ₹20,000
- C. Purchases A/c Dr ₹20,000; To Sales A/c ₹20,000
- D. Purchases A/c Dr ₹20,000; To Cash A/c ₹20,000
Answer: D. Purchases A/c Dr ₹20,000; To Cash A/c ₹20,000
Goods bought for resale are recorded in the Purchases account, which is debited. Cash goes out of the business, so the Cash account (a real account) is credited.
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5. Goods worth ₹15,000 are sold on credit to Ravi. What is the journal entry?
- A. Sales A/c Dr ₹15,000; To Ravi A/c ₹15,000
- B. Cash A/c Dr ₹15,000; To Sales A/c ₹15,000
- C. Ravi A/c Dr ₹15,000; To Purchases A/c ₹15,000
- D. Ravi A/c Dr ₹15,000; To Sales A/c ₹15,000
Answer: D. Ravi A/c Dr ₹15,000; To Sales A/c ₹15,000
Ravi receives the goods, so as a personal account he is debited (he now owes the business). The sale is credited to the Sales account. No cash moves because the sale is on credit.
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6. The owner withdraws ₹5,000 cash from the business for personal use. What is the journal entry?
- A. Drawings A/c Dr ₹5,000; To Cash A/c ₹5,000
- B. Cash A/c Dr ₹5,000; To Drawings A/c ₹5,000
- C. Capital A/c Dr ₹5,000; To Drawings A/c ₹5,000
- D. Salary A/c Dr ₹5,000; To Cash A/c ₹5,000
Answer: A. Drawings A/c Dr ₹5,000; To Cash A/c ₹5,000
Money taken out by the owner for personal use is recorded in the Drawings account, which is debited because it reduces the owner’s claim. Cash leaves the business, so Cash is credited.
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7. A business starts with capital of ₹5,00,000, takes a bank loan of ₹2,00,000, and then buys equipment for ₹1,50,000 in cash. What are its total assets now?
- A. ₹7,00,000
- B. ₹5,50,000
- C. ₹8,50,000
- D. ₹5,00,000
Answer: A. ₹7,00,000
Assets = Liabilities + Capital. Capital ₹5,00,000 plus loan ₹2,00,000 gives assets of ₹7,00,000 (all cash). Buying equipment for cash only swaps one asset for another (cash down, equipment up), so total assets stay ₹7,00,000.
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8. A machine costs ₹5,00,000 and installation costs ₹20,000. Its residual value is ₹40,000 and its useful life is 8 years. What is the annual depreciation under the straight line method?
- A. ₹62,500
- B. ₹65,000
- C. ₹57,500
- D. ₹60,000
Answer: D. ₹60,000
Installation is part of the cost of the asset, so the depreciable cost is ₹5,00,000 + ₹20,000 − ₹40,000 = ₹4,80,000. Spread over 8 years this is ₹4,80,000 ÷ 8 = ₹60,000 a year.
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9. An asset costing ₹2,00,000 is depreciated at 20% a year on the written down value method. What is its book value at the end of year 3?
- A. ₹1,02,400
- B. ₹80,000
- C. ₹1,20,000
- D. ₹1,28,000
Answer: A. ₹1,02,400
Each year the book value is multiplied by 0.8. Year 1: ₹1,60,000. Year 2: ₹1,28,000. Year 3: ₹1,02,400. (₹80,000 would be the answer under SLM at 20% of cost, which is a different method.)
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10. A computer costing ₹1,00,000 is depreciated at 10% a year on the written down value method. What is the depreciation charge for year 2?
- A. ₹10,000
- B. ₹8,100
- C. ₹19,000
- D. ₹9,000
Answer: D. ₹9,000
Year 1 depreciation is 10% of ₹1,00,000 = ₹10,000, leaving a book value of ₹90,000. Year 2 depreciation is 10% of ₹90,000 = ₹9,000.
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11. An asset costs ₹80,000, has a scrap value of ₹8,000 and a useful life of 6 years. Under the straight line method, what is the rate of depreciation on original cost?
- A. 12%
- B. 15%
- C. 16.67%
- D. 10%
Answer: B. 15%
Annual depreciation = (₹80,000 − ₹8,000) ÷ 6 = ₹12,000. As a rate on the original cost this is ₹12,000 ÷ ₹80,000 × 100 = 15%.
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12. A machine bought at the start of year 1 for ₹1,00,000 is depreciated at 10% a year on cost (straight line, no residual value). It is sold at the end of year 3 for ₹65,000. What is the result of the sale?
- A. Profit of ₹5,000
- B. Loss of ₹35,000
- C. Loss of ₹5,000
- D. Profit of ₹65,000
Answer: C. Loss of ₹5,000
Depreciation for 3 years is 3 × ₹10,000 = ₹30,000, so the book value at the sale date is ₹70,000. Selling for ₹65,000 gives a loss of ₹70,000 − ₹65,000 = ₹5,000.
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13. Which of these errors will NOT be revealed by a trial balance (the trial balance will still agree)?
- A. A transaction completely omitted from the books
- B. An entry posted to the debit of one account with no credit posted anywhere
- C. The sales book undercast (under-totalled) by ₹1,000
- D. A debit balance of ₹500 written in the credit column of the trial balance
Answer: A. A transaction completely omitted from the books
If a transaction is left out completely, neither the debit nor the credit is recorded, so both totals are equally short and the trial balance still agrees. The other three errors affect only one side, so the totals will differ.
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14. Which of these accounts normally has a credit balance in the trial balance?
- A. Drawings
- B. Bank overdraft
- C. Purchases
- D. Carriage inwards
Answer: B. Bank overdraft
A bank overdraft is money the business owes the bank, so it is a liability with a credit balance. Drawings, purchases and carriage inwards are debit balances.
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15. Rent of ₹30,000 for March is unpaid on 31 March, the last day of the accounting year. What is the adjusting entry?
- A. Outstanding Rent A/c Dr ₹30,000; To Rent A/c ₹30,000
- B. Rent A/c Dr ₹30,000; To Cash A/c ₹30,000
- C. Rent A/c Dr ₹30,000; To Outstanding Rent A/c ₹30,000
- D. Prepaid Rent A/c Dr ₹30,000; To Rent A/c ₹30,000
Answer: C. Rent A/c Dr ₹30,000; To Outstanding Rent A/c ₹30,000
Under the accrual concept the March rent is an expense of this year even though it is unpaid. Rent (expense) is debited and Outstanding Rent, a liability, is credited. No cash has moved yet.
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16. A one-year insurance premium of ₹24,000 is paid on 1 October. The accounting year ends on 31 March. How much insurance expense belongs to the year ending 31 March?
- A. ₹24,000
- B. ₹6,000
- C. ₹18,000
- D. ₹12,000
Answer: D. ₹12,000
The premium covers 1 October to 30 September. Only October to March, 6 months, fall in this year: ₹24,000 × 6/12 = ₹12,000. The other ₹12,000 is shown as prepaid insurance, a current asset.
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17. A business holds investments of ₹1,00,000 earning interest at 9% a year. By the year end it has received interest for only 9 months. How much accrued interest should be recorded?
- A. ₹2,250
- B. ₹6,750
- C. ₹9,000
- D. ₹750
Answer: A. ₹2,250
Annual interest is ₹1,00,000 × 9% = ₹9,000, or ₹750 a month. Interest for the 3 unreceived months is 3 × ₹750 = ₹2,250. It is debited to Accrued Interest (asset) and credited to Interest Income.
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18. The cash book shows a debit (favourable) balance of ₹50,000. Cheques issued but not yet presented: ₹8,000. Cheques deposited but not yet credited by the bank: ₹5,000. Bank charges of ₹200 are not yet in the cash book. What is the balance as per the passbook?
- A. ₹47,200
- B. ₹52,800
- C. ₹53,200
- D. ₹42,800
Answer: B. ₹52,800
Start from ₹50,000. Add unpresented cheques (the bank has not paid them yet): +₹8,000. Subtract uncleared deposits (the bank has not credited them): −₹5,000. Subtract bank charges already in the passbook: −₹200. Result: ₹52,800.
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19. Both the cash book and the passbook show favourable balances. Which item makes the passbook balance HIGHER than the cash book balance?
- A. Cheques deposited but not yet cleared by the bank
- B. Bank charges debited by the bank
- C. Cheques issued to suppliers but not yet presented for payment
- D. A customer’s cheque dishonoured by the bank
Answer: C. Cheques issued to suppliers but not yet presented for payment
When a cheque is issued, the cash book is reduced at once, but the bank reduces its balance only when the cheque is presented. Until then the passbook shows more. The other three items make the passbook lower.
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20. Current assets are ₹6,00,000 and current liabilities are ₹4,00,000. What is the current ratio?
- A. 0.67 : 1
- B. 2 : 1
- C. 1.5 : 1
- D. 1.25 : 1
Answer: C. 1.5 : 1
Current ratio = current assets ÷ current liabilities = ₹6,00,000 ÷ ₹4,00,000 = 1.5. It is written as 1.5 : 1.
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21. Current assets are ₹6,00,000, including inventory of ₹2,00,000 and prepaid expenses of ₹20,000. Current liabilities are ₹4,00,000. What is the quick (liquid) ratio?
- A. 0.95 : 1
- B. 1.5 : 1
- C. 1 : 1
- D. 1.05 : 1
Answer: A. 0.95 : 1
Quick assets exclude inventory and prepaid expenses: ₹6,00,000 − ₹2,00,000 − ₹20,000 = ₹3,80,000. Quick ratio = ₹3,80,000 ÷ ₹4,00,000 = 0.95 : 1.
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22. Net sales are ₹10,00,000 and the cost of goods sold is ₹7,50,000. What is the gross profit ratio?
- A. 75%
- B. 33.33%
- C. 25%
- D. 20%
Answer: C. 25%
Gross profit = ₹10,00,000 − ₹7,50,000 = ₹2,50,000. Gross profit ratio = ₹2,50,000 ÷ ₹10,00,000 × 100 = 25%. (33.33% would be gross profit as a percentage of cost, not of sales.)
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23. Opening stock ₹50,000, purchases ₹3,00,000, carriage inwards ₹10,000 and closing stock ₹60,000. What is the cost of goods sold?
- A. ₹2,90,000
- B. ₹3,10,000
- C. ₹4,20,000
- D. ₹3,00,000
Answer: D. ₹3,00,000
Cost of goods sold = opening stock + purchases + direct expenses − closing stock = ₹50,000 + ₹3,00,000 + ₹10,000 − ₹60,000 = ₹3,00,000. Carriage inwards is a direct expense, so it is included.
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24. A company has long-term debt of ₹6,00,000, share capital of ₹4,00,000 and reserves of ₹4,00,000. What is its debt-equity ratio?
- A. 1.5 : 1
- B. 0.75 : 1
- C. 0.6 : 1
- D. 1.33 : 1
Answer: B. 0.75 : 1
Equity (shareholders’ funds) includes reserves: ₹4,00,000 + ₹4,00,000 = ₹8,00,000. Debt-equity ratio = ₹6,00,000 ÷ ₹8,00,000 = 0.75 : 1. Using share capital alone would wrongly give 1.5 : 1.
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25. Cost of goods sold is ₹12,00,000. Opening inventory is ₹1,80,000 and closing inventory is ₹2,20,000. What is the inventory turnover ratio?
- A. 5.45 times
- B. 6.67 times
- C. 6 times
- D. 4 times
Answer: C. 6 times
Average inventory = (₹1,80,000 + ₹2,20,000) ÷ 2 = ₹2,00,000. Inventory turnover = cost of goods sold ÷ average inventory = ₹12,00,000 ÷ ₹2,00,000 = 6 times.