Accountancy MCQs
Topic Notes: Accountancy
General Description
Plato
- Biography: Ancient Greek philosopher (427–347 BCE), student of Socrates and teacher of Aristotle, founder of the Academy in Athens.
- Important Ideas:
- Theory of Forms
- Philosopher-King
- Ideal State
11
What is the term for the failure of an acceptor to pay a bill of exchange upon its maturity date?
Answer:
Dishonour of the bill
Dishonour of a bill occurs when the drawee or acceptor refuses to make payment on the due date. This action necessitates specific accounting entries to reverse the previous recognition of the bill and potentially record noting charges or legal costs associated with the default.
12
When a bill of exchange is dishonored upon presentation by a third party (endorsee), which account should the drawer debit in their books?
Answer:
Acceptor’s account
When a bill is dishonored, the drawer is no longer relieved of the liability to the endorsee and must pay them. Consequently, the drawer re-establishes the acceptor as a debtor by debiting the acceptor's account, as the acceptor is now liable to the drawer for the original amount plus any noting charges.
13
What is the formal legal document issued by a notary public to certify the dishonor of a bill of exchange?
Answer:
Protest
A protest is a formal certificate issued by a notary public that provides legal evidence that a bill of exchange was presented for payment or acceptance and was dishonored. This document is crucial for legal proceedings if the holder needs to enforce the claim against the drawer or endorsers. It serves as official proof of the dishonor in a court of law.
14
When a bill of exchange is dishonored, which party's account is debited in the books of the drawer?
Answer:
Drawer
When a bill is dishonored, the drawer reverses the previous entry. The drawee (acceptor) becomes a debtor again because the payment was not received. Therefore, the drawee's account is debited in the drawer's books. Note: The provided answer 'B' (Drawer) appears to be a conflict with standard accounting practice, as the drawee should be debited.
15
When a bank pays noting charges upon the dishonor of a bill, which account does the drawee credit?
Answer:
Drawer’s account
When a bill is dishonored, the drawee is liable to pay the bill amount plus the noting charges. Since the drawee owes this total amount to the drawer, the drawer's account is credited to reflect the increased liability. The noting charges are an expense for the drawee, but the obligation to pay them is owed to the drawer, who initially settled the charges with the bank.
16
In the context of accommodation bills, to which account is the short remittance credited if one party becomes insolvent?
Answer:
Deficiency account
When a party involved in an accommodation bill arrangement becomes insolvent, the inability to recover the full amount due results in a shortfall. This difference between the amount expected and the amount actually received is recorded in the Deficiency Account, which summarizes the total loss arising from the insolvency.
17
In whose books of account is the 'Bills Payable' account debited when a bill is dishonoured?
Answer:
Drawee
When a bill is dishonoured, the drawee (the person who accepted the bill) must reverse the liability. Since the drawee originally credited the Bills Payable account upon acceptance, they must debit it upon dishonour to cancel the liability and restore the creditor's account.
18
What term describes the situation where the acceptor of a bill of exchange fails to pay the amount due on the date of maturity?
Answer:
Dishonor of the bill
When a bill of exchange is presented for payment on its due date and the acceptor fails to make the payment, the bill is said to be dishonored. This triggers specific accounting procedures, such as noting charges and reversing the entry.
19
In whose accounting records is the acceptor's account debited when a bill of exchange is dishonored?
Answer:
Drawer
When a bill of exchange is dishonored, the drawer must reverse the previous entry. Since the drawer originally credited the acceptor (drawee) when the bill was drawn, they must now debit the acceptor's account to reinstate the debt owed to them. This reflects that the original payment expectation via the bill has failed and the debtor remains liable for the original amount plus any associated noting charges.
20
When a bill of exchange is dishonoured after being endorsed to a third party, which account should the drawer debit in their books?
Answer:
Acceptor’s account
Upon dishonour of an endorsed bill, the drawer must reinstate the acceptor as a debtor. Therefore, the drawer debits the acceptor's account and credits the endorsee's account to reverse the previous endorsement entry, effectively restoring the liability of the acceptor to the drawer.