Quick recall · 196 cards
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What is the purpose of a journal in accounting?
A · To record financial transactions
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Which book of prime entry is a supplier invoice recorded in?
A · Purchase Journal
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Which of the following statements about Trial Balance is correct?
B · The Trial Balance shows the balances of all accounts in the General Ledger.
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State whether the following statement is True or False: An Adjusted Trial Balance is prepared after all Adjusting Entries have been posted.
A · True
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Which of the following statements is not one of the standard financial statements?
A. Income statement
B. Balance sheet
C. Statement of cash flows
D. Statement of owner's equity
D · Trial balance
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Assets of a business are Rs. 21,315 and liabilities Rs. 4,120. What is the amount of owner's equity?
A. Rs. 17,195
B. Rs. 25,435
C. Rs. 4,120
D. Rs. 21,315
A · Rs. 17,195
The fundamental accounting equation is Assets = Liabilities + Owner's Equity. Therefore, Owner's Equity = Assets - Liabilities = Rs. 21,315 - Rs. 4,120 = Rs. 17,195. This matches option A.[1]
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Which of the following is a correct fundamental accounting equation?
A. Assets + Liabilities = Equity
B. Assets + Retained Earnings = Equity
C. Assets = Liabilities + Equity
D. Assets = Liabilities - Equity
C · Assets = Liabilities + Equity
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The best definition of assets is:
A. Cash owned by the company
B. Collections of resources belonging to the company and the claims on these resources
C. Obligations of the company
D. Revenues earned by the company
B · Collections of resources belonging to the company and the claims on these resources
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Which of the following is a correct fundamental accounting equation?
A. Assets + Liabilities = Equity
B. Assets + Retained Earnings = Equity
C. Assets = Liabilities + Equity
D. Assets - Retained Earnings = Liabilities
C · Assets = Liabilities + Equity
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What is the primary purpose of a journal in accounting?
A · To record all business transactions in chronological order
The journal is the book of original entry where all business transactions are recorded in chronological order before being posted to ledger accounts.
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Which of the following best defines a journal in accounting?
B · A book of original entry where transactions are first recorded
A journal is the primary book of entry where each financial transaction is initially recorded before ledger posting.
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Which of the following is NOT a valid purpose of maintaining a journal?
C · To calculate profit or loss of the business
Profit or loss is derived from financial statements, not calculated directly in the journal, whose purpose is recording transactions systematically.
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Which rule governs the format of every journal entry?
A · Debit the receiver, credit the giver
The golden rule applicable to all journal entries is 'Debit the receiver, credit the giver,' ensuring the dual aspect of transactions is maintained.
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Which journal entry is correct when a business purchases goods on credit worth ₹10,000?
B · Debit Purchases ₹10,000; Credit Creditors ₹10,000
When goods are purchased on credit, Purchases account is debited and Creditors account is credited as per accounting rules.
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Which of the following is a compound journal entry?
C · Debit Rent Expense ₹2,000 and Utilities Expense ₹1,000; Credit Cash ₹3,000
A compound journal entry involves more than two accounts, such as multiple debits or credits; here, two debit accounts are involved.
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Which one of the following is a correct rule to record journal entries in cash payments?
B · Debit Expenses; Credit Cash
For cash payments, debit expense or asset accounts and credit cash as per the accounting rules.
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Identify the correct journal entry when the business owner withdrew ₹5,000 cash for personal use.
A · Debit Drawings ₹5,000; Credit Cash ₹5,000
Owner’s drawings decrease business funds; thus, drawings account is debited and cash account credited.
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Which entry correctly records a repair expense paid by cheque?
B · Debit Repairs Expense; Credit Bank
When repair expense is paid by cheque, Repairs Expense is debited and Bank account credited.
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What is a ledger in accounting?
C · A book where transactions are classified and posted from journals
Ledger is the book of secondary entry where classified transactions posted from journal are recorded account-wise.
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Which of the following best describes posting in ledger accounts?
B · Classifying journal transactions into respective ledger accounts
Posting means transferring the individual transaction amounts from journals to the respective ledger accounts for classification.
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Which of the following is NOT part of ledger posting process?
C · Recording transactions chronologically
Chronological recording relates to the journal; ledger involves classification, posting, and balancing.
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Which account balance is derived after ledger posting and balancing?
B · Trial balance
Trial balance is prepared after posting and balancing ledger accounts to verify that total debits equal total credits.
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Identify the correct ledger account format for a personal account.
A · "Debit" on the left side and "Credit" on the right side
Ledger format follows debit entries on the left and credit entries on the right side of the account.
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What is the relationship between a journal and a ledger in accounting?
C · Journal acts as the book of original entry, ledger is for classification
Journal is the book of original entry; ledger classifies and posts journal entries account-wise.
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Which process occurs first in the accounting cycle?
B · Recording transactions in the journal
Transactions are first recorded in the journal before posting them to ledger accounts.
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If a transaction is recorded in the journal but not posted to the ledger, which error occurs?
A · Error of omission
Error of omission occurs when a transaction is completely or partially omitted from posting in the ledger.
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Which is the correct format of a typical journal entry?
A · Debit account title and amount; Credit account title and amount below
A journal entry records debit first, followed by credit indented below it with date and narration.
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What is placed in the narration part of a journal entry?
C · A brief explanation or description of the transaction
The narration contains a brief explanation describing the nature and purpose of the transaction.
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In ledger accounts, which information is recorded in the heading?
B · Name of the account and ledger folio number
The heading shows the name of the account and ledger folio number for identification and referencing.
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When a journal entry is recorded as: Debit Equipment ₹20,000; Credit Cash ₹20,000, how will it appear in the ledger format for Equipment account?
B · ₹20,000 recorded on debit side
The debit amount from the journal entry is posted on the debit side of the Equipment ledger account.
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How should a transaction involving purchase of furniture for ₹50,000 cash be recorded in the journal?
A · Debit Furniture ₹50,000; Credit Cash ₹50,000
Cash payment for furniture requires debit to Furniture account and credit to Cash account.
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A company sold goods worth ₹30,000 that cost ₹20,000 to a debtor. The debtor paid ₹28,000 immediately receiving a trade discount of ₹2,000. What is the correct journal entry for the sale?
B · Debit Debtors ₹30,000; Credit Sales ₹30,000
Sale is recorded at invoice price ₹30,000 debit to debtors and credit to sales; trade discount is deducted from invoice price (not recorded separately).
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How is cash discount recorded in journal entries when a debtor pays within the discount period?
A · Debit Cash, Debit Discount Allowed, Credit Debtors
When a debtor pays within discount period, cash received is debited to cash, discount allowed is debited as expense, and debtor credited.
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A firm purchased goods worth ₹50,000 less 10% trade discount and paid ₹42,750 immediately allowing 5% cash discount. What is the correct journal entry for the payment?
A · Debit Creditors ₹45,000; Credit Cash ₹42,750; Credit Discount Received ₹2,250
Goods cost after 10% trade discount = ₹45,000; payment ₹42,750 after 5% cash discount (₹2,250). Creditors debited ₹45,000, cash credited ₹42,750, Discount Received credited ₹2,250.
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Which of the following is a correct journal entry for goods sold worth ₹20,000 less 10% trade discount and ₹500 cash discount allowed?
A · Debit Debtors ₹18,000; Debit Discount Allowed ₹500; Credit Sales ₹18,500
Trade discount deducted from invoice gives ₹18,000 debit to debtors; cash discount ₹500 debit to Discount Allowed; credit Sales ₹18,500.
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A debit balance of ₹5,000 in the Sales Account indicates which type of error?
D · Error of reversal of entries
Sales account normally has credit balance. A debit balance may occur due to reversal of debit and credit entries.
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If an amount is posted twice on the debit side of a ledger account, the error is classified as:
D · Error of duplication
Posting the same amount twice to the same side is an error of duplication.
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Which entry corrects the error when ₹1,000 paid for rent has been recorded as payment to a creditor?
A · Debit Rent Expense ₹1,000; Credit Creditors ₹1,000
The expense should be recorded as Rent Expense; debit Rent Expense and credit Creditors to rectify the error.
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Which of the following steps can detect errors in journal and ledger accounts most effectively?
A · Preparation of Trial Balance
Trial balance helps detect errors where total debits don’t equal total credits after ledger posting.
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A business started with cash ₹1,00,000 and furniture ₹50,000. Which journal entry is correct?
A · Debit Cash ₹1,00,000; Debit Furniture ₹50,000; Credit Capital ₹1,50,000
Business start-up: debit assets (cash and furniture), credit capital for total amount invested.
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After posting from journal to ledger, which of the following is prepared to check the accuracy of ledger posting?
B · Trial Balance
Trial balance lists ledger balances to verify that total debits equal total credits.
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Which of the following best describes a trade discount?
B · A reduction in price offered by the seller on list price
Trade discount is a reduction in the list price by the seller, not usually recorded in books.
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If trade discount is 15% on ₹20,000 purchase, what is the amount recorded in the journal for purchases?
B · ₹17,000
Trade discount deducted from list price: ₹20,000 - 15% = ₹17,000 recorded as purchase.
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Which accounts are affected when a business receives cash payment from a debtor within the discount period?
A · Debit Cash, Debit Discount Allowed, Credit Debtor
Cash received and discount allowed are debited, and debtor credited to show settlement.
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What action should be taken if an error is found where ₹500 was debited to purchases instead of expenses?
A · Pass a journal entry debiting expenses and crediting purchases by ₹500
To rectify the error, transfer the amount from incorrect purchases to correct expenses account.
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Which of the following will indicate a compensating error?
B · Wrong debit and credit entries cancel out each other
Compensating errors are two or more errors that cancel each other's effect in the accounts.
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A business paid ₹6,000 for office rent but the amount was wrongly posted as ₹60,000 in the rent ledger. This is an example of:
D · Error of original entry
Error of original entry occurs when the amount recorded initially is incorrect in journal and ledger.
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Which entry properly recognizes cash discount received on payment of creditor ₹10,000 with 2% discount?
B · Debit Creditors ₹10,000; Credit Cash ₹9,800; Credit Discount Received ₹200
Creditors are debited for full amount, cash credited for payment net of discount, and discount received recorded as credit.
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Which of the following best defines a journal in accounting?
B · A book that records transactions in the order they occur
A journal is the chronological record where all business transactions are first recorded in the order they occur.
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What is the main purpose of maintaining a journal in accounting?
B · To provide a chronological record of all business transactions
The journal acts as the book of original entry providing a complete chronological record of all business transactions.
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Which statement about a journal is correct?
C · Each transaction is first analyzed and then entered into the journal
Each transaction is analyzed to identify the accounts involved before making journal entries.
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Which of the following is not a type of journal entry?
D · Closing entry
Closing entry is not typically classified as a type of journal entry in basic accounting; main types include simple, compound, opening, and adjustment entries.
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A compound journal entry is characterized by which of the following?
B · Involves multiple debit or multiple credit accounts
Compound entries involve more than one debit or more than one credit account in a single journal entry.
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Which of the following journal entries will you use when goods are purchased for cash?
A · Debit Purchases Account, Credit Cash Account
When goods are purchased for cash, Purchases is debited and Cash is credited.
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Which of the following transactions requires the use of an opening journal entry?
B · Starting a new business
Opening entries record the initial capital and assets/debts when a business starts.
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What is the correct sequence of steps in passing a journal entry?
A · Identify accounts → Debit accounts → Credit accounts → Write narration
First, accounts involved are identified, then debited and credited appropriately, followed by narration explaining the entry.
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Which part of the journal entry format is optional but recommended for clarity?
D · Ledger folio/reference number
Ledger folio or reference number helps trace entries in ledger but is optional in initial recording.
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When preparing a journal entry, how should a transaction be analyzed before entry?
A · Identify which account is to be debited and which to be credited
Proper analysis requires identification of debit and credit accounts affected by the transaction.
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A business purchased furniture for ₹50,000 on credit. What is the correct journal entry format to be used?
A · Date | Particulars | Debit ₹50,000 | Credit ₹50,000 | Narration: Purchased furniture on credit
The correct journal entry contains date, particulars with narration, debit amount, and credit amount in proper sequence.
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After making journal entries, what is the next step in the accounting process?
A · Posting entries to ledger accounts
The next step is posting the journal entries to respective ledger accounts for classification and summarization.
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What information found in the journal is essential for posting to ledger accounts?
C · Particulars, debit and credit amounts
To post to ledger, details like the affected accounts (particulars) and corresponding debit and credit amounts are necessary.
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In posting from journal to ledger, what is written in the 'Ledger Folio' (LF) column of the journal?
A · Page number of ledger where entry is posted
The ledger folio column contains the page number of the ledger where the journal entry has been posted for cross-reference.
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While posting to the ledger, if the journal entry debited Cash Account and credited Sales Account, what will be the ledger entries?
A · Debit Cash Ledger and Credit Sales Ledger
Debit in journal corresponds to debit in ledger ledger; credit similarly corresponds to credit in ledger.
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A journal entry is partially posted to ledger and the postings are incorrect. What is the best practice to correct the ledger?
B · Make correcting entries in the ledger without disturbing original entries
Errors should be corrected by passing appropriate correcting entries rather than erasing or rewriting the ledger.
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Which of the following is a type of ledger account?
A · Cash Account
Cash Account is an example of a ledger account; Trial Balance is a statement, not an account.
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Which type of ledger account would Rent Expense be classified under?
C · Nominal Account
Rent Expense is a nominal account as it relates to expenses.
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Which of the following is true about a Real Account in ledger classification?
B · Records tangible and intangible assets
Real accounts record all assets both tangible and intangible.
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A business maintains Capital Account as a ledger account. What type of account is this?
A · Personal Account
Capital Account is a personal account representing the owner’s stake in the business.
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Balancing a ledger account means which of the following?
A · Finding the difference between debit and credit sides to show as balance
Balancing a ledger involves calculating the difference between debit and credit sides to get the balance.
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If total debit entries in a ledger account amount to ₹80,000 and total credit entries are ₹60,000, what is the balance and on which side?
A · ₹20,000 debit balance
Balance is debit side total minus credit side total = ₹20,000 debit balance.
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Why is balancing ledger accounts an important step in accounting?
B · It helps in preparing trial balance and final accounts
Balanced ledger accounts provide closing balances needed for trial balance and final financial statements.
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During balancing, if a ledger account has equal debit and credit totals, what will be the balance amount?
A · Zero balance
Equal debit and credit amounts result in zero balance indicating no outstanding amount.
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Which method is used when correcting an error found after posting in ledger accounts?
A · Pass a rectifying entry in journal and post to ledger
Correcting errors require passing rectifying journal entries which are then posted to the ledger.
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Which of the following is an example of a compensating error in accounting?
B · Debit and credit errors that cancel each other out
Compensating errors occur when one error is offset by another error, so total balances still agree.
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Which of the following errors can be detected through trial balance but not rectified there?
B · Error of commission (wrong ledger posted)
Error of commission will cause imbalance, thus detectable in trial balance but needs journal rectification.
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Which journal entry represents a trade discount of 10% given on goods sold for ₹50,000?
D · Debit Accounts Receivable ₹45,000; Credit Sales ₹45,000
Trade discounts are usually not recorded separately; the sales and receivable accounts are recorded net of discount.
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When a 5% cash discount is allowed on an invoice of ₹20,000, what is the correct journal entry?
A · Debit Cash ₹19,000; Debit Discount Allowed ₹1,000; Credit Accounts Receivable ₹20,000
Cash received ₹19,000 and discount allowed ₹1,000 debited, accounts receivable credited by total ₹20,000.
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Which statement about trade discount and cash discount is true?
B · Trade discount reduces the invoice price; cash discount is recorded in accounts
Trade discount is deducted when calculating invoice amount; cash discount is recorded as expense or income in accounting.
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A compound journal entry is needed when:
B · Multiple debits or multiple credits occur in a single transaction
Compound entries involve more than one ledger account on debit or credit side.
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Which is the correct compound journal entry for purchase of goods worth ₹30,000, with ₹10,000 paid by cash and ₹20,000 on credit?
A · Debit Purchases ₹30,000; Credit Cash ₹10,000; Credit Accounts Payable ₹20,000
Purchases are debited fully; credit side split into cash and accounts payable for amounts paid and owed.
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In compound journal entries, how is narration typically written?
A · Briefly describing the entire transaction clearly mentioning all accounts involved
Narration in compound entries should summarize the transaction clearly covering all accounts involved.
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A business sells goods worth ₹40,000 giving 10% trade discount and allows 5% cash discount when payment is made immediately. What is the sale amount recorded in the journal?
A · ₹36,000 (after trade discount, cash discount ignored)
Trade discount reduces invoice to ₹36,000; cash discount is not recorded in sales but in separate cash discount account on payment.
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In a practical business transaction, how is the ledger used after journalizing purchase of machinery for cash ₹2,00,000?
A · Debit Machinery ledger with ₹2,00,000 and credit Cash ledger with ₹2,00,000
The machinery account is debited as asset increases, cash credited as asset decreases.
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Which of the following entries represents posting of a journal entry: Debit Rent Expense ₹5,000 and Credit Cash ₹5,000?
A · Debit Rent Expense ledger ₹5,000; Credit Cash ledger ₹5,000
Ledger accounts reflect debits and credits corresponding exactly to journal entries.
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Which of the following best represents the practical use of journal and ledger for a business?
B · Journal gives chronological details; ledger stores classified financial data by account
Journal records transactions by date; ledger classifies and groups transactions by account types.
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Which ledger account type would be affected when a business pays salaries through cash?
A · Salaries Expense (Nominal account) debited and Cash Account (Real account) credited
Payment of salaries increases expense (debit) and reduces cash (credit).
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Assertion: In journal entries, the narration line is compulsory for all transactions.
Reason: Narration provides explanation and reference for audit trail and helps in error detection.
Choose the correct option:
B · Both Assertion and Reason are true but Reason is NOT the correct explanation of Assertion
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A journal entry states: Debit Bad Debts 2,383; Credit Sundry Debtors 2,383. Considering this, which of the following statements is NOT true?
D · This entry will increase the sundry debtors ledger balance
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In the ledgers, a contra entry affects both cash and bank accounts for 19,332. Which of the following statements best describes the correct ledger impact and balancing treatment of this contra entry?
A · Debit Cash Account 19,332; Credit Bank Account 19,332; No effect on trial balance total
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What is the primary purpose of a trial balance in accounting?
B · To verify the equality of debit and credit balances
The trial balance is prepared to check whether the total of debit balances equals the total of credit balances, helping verify the arithmetical accuracy of ledger postings.
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Which one of the following best defines a trial balance?
A · A list of all ledger balances arranged as debit and credit to check ledger posting accuracy
A trial balance is a statement where all ledger balances are extracted and arranged as debit and credit to test the equality of total debits and credits.
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Why is a trial balance prepared before final accounts?
A · To detect and correct errors before preparing final accounts
A trial balance helps identify mistakes in ledger postings, ensuring that all financial data is accurate before preparing final accounts.
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Which of the following statements regarding the trial balance is TRUE?
C · Trial balance is prepared from ledger balances
Trial balance is prepared from ledger balances to check the arithmetic accuracy of ledger postings. Although agreement is necessary, it doesn’t guarantee the absence of all errors.
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Which of the following is the first step in the preparation of a trial balance?
C · Balancing each ledger account
Balancing each ledger account, i.e., calculating the debit or credit balance, is essential before extracting these balances to prepare the trial balance.
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Which of the following correctly shows the sequence in preparing a trial balance?
A · Journal entries → Posting to ledger → Extract balances → Prepare trial balance
The correct sequence is journalizing transactions, posting to ledger accounts, extracting ledger balances, and then preparing the trial balance.
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In preparing a trial balance, if total debits do not equal total credits, which of the following should be done FIRST?
A · Check each ledger account balance for arithmetical accuracy
When trial balance totals disagree, the first step is to carefully recheck ledger balances for errors or omissions before resorting to a suspense account.
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Which ledger balances are placed on the debit side of a trial balance?
B · Assets and Expenses
Assets and expenses normally have debit balances, so they are listed on the debit side of the trial balance.
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Which of the following trial balance types is prepared before accounting for adjustments like depreciation or accrued expenses?
B · Unadjusted Trial Balance
The unadjusted trial balance is prepared before making adjusting entries for items such as depreciation, accrued expenses, or prepaid expenses.
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Which type of trial balance is used to locate errors when debit and credit totals do not match?
A · Suspense Trial Balance
A suspense account is used temporarily to record the difference when trial balance totals do not match, helping locate and correct errors.
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Which of the following statements about adjusted trial balance is correct?
A · It is prepared after passing adjusting entries in the ledger accounts
An adjusted trial balance includes ledger balances after adjusting entries, reflecting updated balances before preparing final accounts.
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Which of the following errors CAN be detected by preparing a trial balance?
D · A single-sided entry made only on the debit side
Single-sided entries cause the trial balance to be unbalanced and are thus detected. Some other errors like omission or equal wrong postings do not disturb the trial balance totals.
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Which error will NOT be detected through trial balance preparation?
A · Error of omission (both debit and credit entries completely omitted)
Errors where both debit and credit entries are omitted completely (error of omission) do not affect the trial balance totals and hence remain undetected.
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Which of the following errors is identifiable by a trial balance discrepancy?
A · Transposing digits causing wrong amount posted on one side
Transposition errors lead to imbalance in trial balance totals, hence detectable through trial balance.
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Which of the following errors will NOT cause the trial balance to disagree?
D · Both debit and credit posted to wrong accounts but equal amount
When equal amounts are posted on both debit and credit sides but to wrong accounts, the trial balance still totals agree and the error remains undetected.
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Which of the following methods can correct errors detected through trial balance preparation?
A · Passing journal entries for correcting errors
Errors detected through trial balance can be corrected by passing rectifying journal entries which will adjust ledger balances correctly.
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If the trial balance does not tally, the difference is temporarily credited or debited to which account for error location?
A · Suspense Account
A suspense account is used to temporarily record differences when the trial balance does not agree, awaiting error correction.
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Which of the following is NOT a correct step to correct errors using trial balance?
C · Prepare suspense account without correcting the error
Suspense account is a temporary tool; errors must be corrected by journal entries. Simply preparing suspense accounts without rectification is incorrect.
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If a debit entry of Rs. 500 is posted as Rs. 50 in the ledger, which correction method should be applied in trial balance?
A · Pass a rectifying journal entry for Rs. 450 debit
The difference of Rs. 450 (500 - 50) needs to be rectified via a journal entry to bring the ledger balances correct.
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What is the correct presentation order of columns in a traditional trial balance format?
A · Account Name | Debit Balance | Credit Balance
Traditionally, the trial balance lists account names in the first column, followed by debit balances in the second and credit balances in the third.
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Which heading is NOT typically included in the format of a trial balance?
D · Profit or Loss
Trial balance format includes account names and their respective debit or credit balances but does not show profit or loss directly.
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In preparing a trial balance, which of these should be listed on the credit side?
A · Capital
Capital has a normal credit balance and hence appears on the credit side in the trial balance.
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Which of the following is NOT a correct header for the columns of a trial balance format?
D · Adjusted Balance
Standard trial balance columns include particulars and debit or credit amounts, not 'Adjusted Balance', which relates to adjusted trial balances, not the initial format.
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A trial balance prepared after passing all adjusting entries is called:
B · Adjusted Trial Balance
An adjusted trial balance is compiled once all the adjusting entries have been made, showing their effect on account balances.
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A ledger account has a debit balance of Rs. 20,000 and a credit balance of Rs. 25,000 due to an error. How should this be shown in the trial balance?
A · Credit Rs. 5,000
Balances should be netted; here, credit exceeds debit by Rs. 5,000, so the credit balance of Rs. 5,000 is shown in trial balance.
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Which of the following errors will cause the trial balance to be unequal (detectable by trial balance)?
B · Posting incorrect amount on debit side only
If an incorrect amount is posted to only one side, trial balance totals will not match, making the error detectable.
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After preparing trial balance, it is found that debit and credit totals differ by Rs. 1,200. Which of these is NOT a step to correct the error?
D · Proceed to prepare final accounts ignoring the difference
Final accounts should not be prepared until errors causing trial balance imbalance are located and corrected.
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A trial balance shows debit total of Rs. 1,00,000 and credit total of Rs. 95,000. What entry can be passed to balance it temporarily?
B · Credit Suspense Account Rs. 5,000
With debit total exceeding credit by Rs. 5,000, credit suspense account is credited temporarily to balance the trial balance.
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If sales of Rs. 15,000 are not recorded at all, how will this error affect the trial balance?
A · Trial balance totals will still agree
Omission of both debit and credit entries leaves trial balance totals unchanged, so the error remains undetected by trial balance.
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A goods purchase of Rs. 10,000 was recorded twice in the purchase book. How will this error affect trial balance?
A · Trial balance will agree since both debit and credit are equally overstated
Both debit (Purchases) and credit (Creditors) are overstated equally causing trial balance to still agree.
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Refer to the ledger balances:
Cash Rs. 25,000 debit
Bank Rs. 40,000 debit
Sales Rs. 60,000 credit
Capital Rs. 50,000 credit
Expenses Rs. 15,000 debit
Loan Rs. 20,000 credit
Calculate total debit and credit in the trial balance.
A · Debit Rs. 80,000; Credit Rs. 1,30,000
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A trial balance shows equal debit and credit totals of Rs. 90,000. However, it is found that sales of Rs. 10,000 were recorded on debit side by mistake. What effect does this have?
A · Trial balance totals remain equal but account balances are incorrect
The total debit and credit amounts remain equal, but the sales account is misstated, so trial balance fails to detect such an error.
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If the trial balance totals are equal but an error of principle exists, what should be done?
A · Identify and correct the error through journal entries
Errors of principle require correction even if trial balance totals agree; rectification through journal entries is essential for correct reporting.
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Which of the following errors can be corrected by preparing a suspense account?
A · Difference in trial balance totals due to unequal debit and credit entries
Suspense accounts help temporarily correct differences when debit and credit totals do not tally pending error identification and rectification.
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Which type of trial balance is prepared to verify final account results after adjustments and closing entries?
A · Post-Closing Trial Balance
The post-closing trial balance is prepared after all closing entries and adjustments to verify ledger balances for the new accounting period.
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What is the primary purpose of preparing a trial balance in accounting?
B · To check the arithmetical accuracy of ledger accounts
The trial balance is prepared to ensure that total debit balances equal total credit balances, thus checking the arithmetical accuracy of ledger accounts.
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Which of the following best defines a trial balance?
A · A list of debit and credit balances at a point of time
A trial balance lists all the debit and credit balances extracted from ledger accounts to verify that total debits equal total credits.
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Why is a trial balance not considered a final account despite showing equal debits and credits?
A · Because it does not indicate profit or loss
Trial balance ensures arithmetical accuracy but does not provide information about profit or loss or financial position, which is derived through final accounts.
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Which of the following errors will cause the trial balance to disagree?
C · Wrong totaling of a single ledger account balance
Errors in totaling ledger account balances will cause the trial balance totals to disagree because the balances themselves are incorrect.
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Which type of trial balance is prepared after adjusting journal entries have been posted?
B · Adjusted Trial Balance
Adjusted Trial Balance is prepared after all adjustments are posted to ensure ledger balances are updated before preparing final accounts.
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What differentiates an unadjusted trial balance from an adjusted trial balance?
B · Adjusted trial balance reflects accounts after all adjustments; unadjusted does not
Unadjusted trial balance is prepared before adjusting entries are posted, while adjusted trial balance reflects the updated balances post-adjustments.
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When preparing a trial balance, which of the following is NOT a typical column included in the format?
D · Net Profit or Loss
Net Profit or Loss is not shown in the trial balance; it is determined after preparing final accounts based on adjusted balances.
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Which of the following correctly represents the common order of accounts in a trial balance?
A · Assets, Liabilities, Income, Expenses
The typical order is assets, liabilities, income, and expenses as per accounting conventions.
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A trial balance is prepared as follows: Ledger account titles in the first column, debit balances in the second, and credit balances in the third. What is the next step in this format?
B · Total the debit and credit columns
After listing accounts and their debit and credit balances, the debit and credit columns should be totaled to verify equality.
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In the presentation of the trial balance, if the debit column totals ₹12,50,000 and credit column totals ₹12,45,000, what is likely the reason?
B · Errors in ledger posting or balancing
The trial balance totals must be equal; differences indicate errors in posting or balancing ledger accounts.
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Which of the following errors can be discovered by preparing a trial balance?
C · Errors in totaling ledger balances
Errors in totaling ledger balances will cause the trial balance not to balance, thus can be detected by trial balance preparation.
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A trial balance will NOT disclose which of the following errors?
A · Error of complete omission
Error of omission means a transaction is entirely left out; since both debit and credit are missing, the trial balance still tallies and does not detect such errors.
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If debit and credit totals in trial balance are equal but ledger accounts contain a transaction recorded on debit side twice, this error is called:
A · Error of duplication
Error of duplication arises when an amount is recorded twice; despite the trial balance agreeing, the error exists.
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Which limitation of trial balance explains why it cannot detect errors of principle?
A · Trial balance only verifies equality of debits and credits
Errors of principle involve correct debit and credit but wrong accounting treatment, which wouldn't affect trial balance equality.
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Which one of the following statements accurately describes a limitation of the trial balance?
C · It cannot detect if transactions are completely omitted
Trial balance cannot detect errors of omission, where transactions are completely left out.
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If a trial balance agrees but the financial statement shows a mismatch, which error is most likely present?
B · Error of principle
Error of principle affects financial statements but does not disturb the equality of debits and credits in trial balance.
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Which of the following errors can be rectified through journal entries even if not disclosed by the trial balance?
D · All of the above
Errors not detected by trial balance such as omission, commission, and principle errors can be corrected through appropriate rectification journal entries.
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A purchase of ₹10,000 was wrongly debited to sales account. How will this error be rectified?
A · Credit sales account and debit purchase account with ₹10,000
Since purchase was wrongly debited to sales, rectification requires reversing the wrong entry by crediting sales and debiting purchases with ₹10,000.
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If a transaction for ₹5,000 is completely omitted from recording, what is the rectification method after it is detected?
A · Pass a journal entry to record the transaction now
Since the transaction was omitted, it must be recorded through an appropriate journal entry when detected.
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An asset purchase of ₹25,000 was posted to expense account wrongly. Which rectification entry is appropriate?
B · Debit asset and credit expense ₹25,000
To correct the error, debit asset account and credit expense account, reversing the wrong posting.
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How are errors detected by trial balance usually corrected?
C · By passing rectification journal entries
Errors detected are corrected by passing rectification journal entries to amend ledger balances properly.
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Which practical application of trial balance helps in preparing financial statements?
B · To check the balance of ledger accounts before final accounting
Trial balance helps ensure that ledger accounts are correctly balanced for accurate preparation of financial statements.
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If a trial balance does not tally, what should be the first step in practical application to locate error?
A · Verify the ledger balances and postings
The first step is to verify ledger balances and postings to identify any errors causing the imbalance.
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Which of the following is NOT a practical application of the trial balance?
C · Final profit determination without adjustments
Trial balance does not determine final profit because adjustments are made after its preparation.
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When errors are discovered by comparing trial balance totals over different accounting periods, what practical step is commonly taken?
A · Pass correction entries in current period
Correction entries are passed to rectify errors detected to maintain accuracy over accounting periods.
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Which ledger balances should appear in the debit column of the trial balance?
B · Assets, Expenses
Assets and expenses generally have debit balances and appear in the debit column of the trial balance.
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The total of debit and credit balances in a trial balance are not equal. Which approach will best help in locating the error?
A · Recheck addition of debit and credit columns
The first step is to carefully recheck the additions of debit and credit columns to detect any totaling errors.
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Identify the type of error and its impact on the trial balance: A cash sale of $3,965 was recorded as a debit to cash account and credit to sales account for $3,569.
A · Error of amount posted; trial balance disagree by $396 debit excess
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Which of the following best represents the accounting equation?
A · Assets = Liabilities + Capital
The fundamental accounting equation is Assets = Liabilities + Capital, showing the balance between what the business owns and owes, including owner’s equity.
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In the accounting equation, which of the following is not considered an asset?
C · Loan from bank
Loan from bank is a liability, not an asset. Assets are resources owned by the business, while loans represent obligations.
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Which component of the accounting equation represents the owner’s claims on business assets?
C · Capital
Capital (owner's equity) represents the residual interest or owner's claims after deducting liabilities from assets.
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If a business has assets worth \( ₹5,00,000 \) and liabilities worth \( ₹2,00,000 \), what is the owner's equity?
A · ₹3,00,000
Owner's equity (Capital) = Assets - Liabilities = ₹5,00,000 - ₹2,00,000 = ₹3,00,000.
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Which of the following correctly lists the components of the accounting equation?
B · Assets, Liabilities, Capital
The accounting equation components are Assets, Liabilities, and Capital (owner’s equity). Expenses and revenues affect capital but are not main components.
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Refer to the diagram below showing the accounting equation balance.
Assets = ₹750,000, Liabilities = ₹350,000
What is the amount of Capital shown in the diagram?
A · ₹400,000
Capital = Assets - Liabilities = ₹750,000 - ₹350,000 = ₹400,000 as represented in the diagram.
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Which of the following transactions increases both assets and liabilities, keeping the accounting equation balanced?
B · Purchase of goods on credit
Purchasing goods on credit increases inventory (asset) and accounts payable (liability), increasing both sides equally.
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A business borrows ₹50,000 from bank. What effect does this transaction have on the accounting equation?
B · Assets increase by ₹50,000 and Liabilities increase by ₹50,000
Cash (asset) increases ₹50,000 and bank loan (liability) increases ₹50,000 simultaneously.
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Owner invested ₹1,20,000 into the business as capital. How does this transaction affect the accounting equation?
B · Assets and Capital increase by ₹1,20,000
Owner's investment increases business assets (cash) and owner's equity (capital) by ₹1,20,000 each.
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Refer to the diagram below showing transaction flow.
Business purchased furniture ₹30,000 by paying cash ₹10,000 and remaining on credit. What is the effect on assets, liabilities, and capital?
B · Assets increase ₹30,000; Liabilities increase ₹20,000; Capital no change
Furniture (asset) increases ₹30,000; Cash (asset) decreases ₹10,000; Accounts payable (liability) increases ₹20,000; Capital remains unchanged.
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If assets increase by ₹10,000 and liabilities increase by ₹6,000, what is the effect on capital to maintain the accounting equation?
C · Capital increases by ₹4,000
Using \( Assets = Liabilities + Capital \), an increase in assets of ₹10,000 balanced by liabilities increase ₹6,000 means capital must increase ₹4,000.
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Which transaction demonstrates the dual aspect concept in accounting?
C · Purchasing office supplies on credit
Purchasing supplies on credit increases assets and liabilities equally, demonstrating dual aspect: each transaction affects two accounts.
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Refer to the diagram below illustrating the dual aspect principle.
Which pair of accounts is affected when a business takes a loan from the bank?
B · Cash and Loan Payable
Loan increases cash (asset) and creates loan payable (liability), showing dual aspect.
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Which statement correctly explains the dual aspect concept?
C · Every transaction affects at least two accounts to keep the equation balanced.
Dual aspect means a transaction impacts at least two accounts, ensuring accounting equation balance.
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Which transaction breaks the balance of the accounting equation, if incorrectly recorded?
A · Recording cash purchase of equipment as only asset increase
Recording only asset increase neglects recording cash decrease, breaking the dual aspect and equation balance.
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If assets equals ₹2,00,000 and capital equals ₹1,20,000, what must be the liabilities to balance the equation?
B · ₹80,000
Liabilities = Assets - Capital = ₹2,00,000 - ₹1,20,000 = ₹80,000.
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Refer to the diagram below showing a balance sheet snapshot.
Assets = ₹600,000; Liabilities = ₹400,000
What amount should the Capital section show to balance the sheet?
A · ₹200,000
Capital = Assets - Liabilities = ₹600,000 - ₹400,000 = ₹200,000 as per the accounting equation for balanced sheet.
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A transaction increases assets by ₹20,000 and decreases another asset by ₹10,000, what happens to liabilities and capital to balance the accounting equation?
C · No change in liabilities or capital
The net change in assets is +10,000 (₹20,000 increase - ₹10,000 decrease), so for equation balance, liabilities and capital remain unchanged if only asset reallocation.
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Which of the following shows the correct balancing of the accounting equation after purchase of goods for cash ₹15,000?
D · Assets no net change; Liabilities no change; Capital no change
Purchasing goods for cash swaps one asset for another (cash decreases, inventory increases) with no net change on total assets, liabilities or capital.
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If assets decrease by ₹5,000 and liabilities also decrease by ₹5,000, what is the effect on capital?
C · Capital remains unchanged
A simultaneous equal decrease in assets and liabilities leaves capital unchanged to maintain the accounting equation balance.
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A business records: Equipment purchased for ₹40,000 by giving a cheque. How does this transaction affect the accounting equation?
A · Assets increase by ₹40,000 and decrease by ₹40,000; Liabilities no change
Equipment (asset) increases ₹40,000 while bank (asset) decreases ₹40,000; liabilities and capital remain same.
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Refer to the transaction flowchart below:
A business paid rent ₹15,000 by cash. What changes are observed in the accounting equation?
A · Assets and Capital both decrease by ₹15,000
Payment of rent is an expense causing cash (asset) and capital (owner’s equity) to decrease equally.
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Owner withdrew ₹20,000 cash for personal use. What effect does this have on the accounting equation?
A · Assets decrease ₹20,000; Capital decreases ₹20,000
Withdrawal reduces business cash (asset) and owner's capital, decreasing both accordingly.
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A company purchased stock on credit ₹25,000. What is the effect on accounting equation?
A · Assets increase ₹25,000; Liabilities increase ₹25,000
Stock (asset) and accounts payable (liability) both increase ₹25,000 equally.
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When a business pays off a liability of ₹10,000 in cash, what happens to the accounting equation?
A · Assets and Liabilities both decrease by ₹10,000
Payment of liability reduces cash (asset) and the liability by same amount, keeping equation balanced.
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Refer to the diagram below showing changes in assets and capital after profit earned.
Profit of ₹50,000 earned but not withdrawn, how does it affect the accounting equation?
A · Assets and Capital both increase by ₹50,000
Profit increases assets (cash/accounts receivable) and increases owner's equity (capital).
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Which of the following explains the concept of Capital in the accounting equation?
B · Capital is the owner’s claim on the assets of the business
Capital represents the residual value or owner's equity after deducting liabilities from assets.
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Owner’s equity can be best described as:
A · Assets minus Liabilities
Owner’s equity (capital) equals the total assets minus liabilities according to the accounting equation.
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If the capital of a business increases due to additional investment by the owner, which of the following is true?
A · Assets increase; Capital increases; Liabilities unchanged
Owner's additional investment increases business assets (cash or bank) and capital equally, liabilities remain unchanged.
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Refer to the diagram below showing equity distribution.
If liability is ₹320,000 and assets ₹800,000, what does this indicate about capital?
A · Capital is ₹480,000
Capital = Assets - Liabilities = ₹800,000 - ₹320,000 = ₹480,000 as represented in diagram.
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Which of the following transactions affects the capital account within the accounting equation?
A · Owner withdraws cash for personal use
Owner’s withdrawal reduces capital whereas other transactions affect assets or liabilities only.
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If a business pays salaries ₹12,000 in cash, what is the effect on the accounting equation?
A · Assets and Capital both decrease by ₹12,000
Salary payment reduces cash (assets) and also reduces capital (owner's equity) because expenses reduce profits, affecting capital.
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In the dual aspect concept, which of the following transactions is correctly recorded?
A · Purchased furniture by cash: Debit furniture account, Credit cash account
Purchasing furniture by cash involves asset exchange; furniture is debited (asset increase), cash credited (asset decrease), maintaining dual aspect.
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Which of the following is true regarding the accounting equation after a bank loan repayment of ₹25,000 is made in cash?
A · Assets and Liabilities both decrease by ₹25,000
Repayment reduces bank loan (liability) and also reduces cash (asset) by ₹25,000 each, keeping equation balanced.
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Refer to the diagram below showing an accounting equation model before and after a transaction.
Transaction: Equipment purchased ₹45,000, ₹15,000 paid in cash, balance on credit.
What is the change in liabilities?
A · Liabilities increase ₹30,000
Credit portion of purchase ₹30,000 increases liabilities (accounts payable), while cash reduces assets by ₹15,000.
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Which of the following is an example of a transaction that increases both assets and capital?
A · Owner invests cash in business
Owner's investment increases assets (cash) and owner's equity (capital).
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When business expenses are paid by cheque, which two elements of accounting equation are affected?
A · Assets decrease; Capital decreases
Payment of expenses reduces cash (asset) and reduces capital (owner’s equity) because expenses affect owner’s equity.
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In which of the following scenarios will the accounting equation Asset = Liability + Equity NOT remain balanced immediately after the transaction?
C · Recording depreciation expense without adjusting accumulated depreciation
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If a proprietor injects an additional capital of 1750 into the business by converting a liability into equity, how will this transaction affect the accounting equation in terms of asset, liability, and equity?
B · Assets unchanged; Liabilities decrease by 1750; Equity increases by 1750
Step 1: Conversion of liability into equity means:
- Liability decreases by 1750
- Equity increases by 1750
Step 2: No cash or assets are involved so assets remain unchanged
Hence option B is correct.
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A company’s financial records show that total assets increased by 4600, liabilities increased by 2700, and owner’s equity decreased by 100 over a period. What could explain this discrepancy in the accounting equation?
A · Incorrect recording of owner’s draw leading to equity decrease without asset reduction
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After adjusting opening balances, a firm’s assets and liabilities both increased by 15% due to inflation revaluation, but owner’s equity remained constant. Which of the following statements is true?
A · The increase in assets was fully offset by increase in liabilities, leaving equity unchanged
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A company records an expense of 1000 but delays payment to suppliers by 40 days. How does this transaction affect the accounting equation immediately after recognition and 40 days later on payment?
A · Immediately: Equity decreases and liabilities increase; After 40 days: Assets and liabilities decrease
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A business’s equity is 12000 and liabilities are 8000. If the business purchases machinery for 4000 cash by issuing shares at par valued at 2500, and borrows remaining from loan, what is the total assets after purchase?
C · Assets = 20000
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Which combination of transactions will cause both liabilities and equity to increase simultaneously, without affecting assets?
C · Adjusting accrued expenses and revenue received in advance
