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
1
If the debit side of a bank account exceeds the credit side, what does this balance represent?
Answer:
Cash at bank
In a bank account maintained in the company's books, a debit balance indicates an asset, representing cash available at the bank. Conversely, a credit balance would indicate a liability, known as a bank overdraft.
2
How are standing orders typically processed in the business cash book?
Answer:
Credited in the cash book
A standing order is an instruction to a bank to pay a fixed amount at regular intervals. When the bank executes this payment, it reduces the business's bank balance. Consequently, in the business's cash book, this transaction is recorded on the credit side to reflect the outflow of cash.
3
If a cash discount of $2,000 received from a supplier was omitted and the gross amount was recorded in the cash book, what adjustment is required to correct the cash book balance?
Answer:
$2000 will be credited in cash book
When a discount is received, the actual cash paid is less than the gross amount. If the gross amount was recorded as a payment, the cash balance is understated. Crediting the cash book by the discount amount of $2,000 effectively reduces the recorded payment, thereby increasing the cash balance to the correct level. This ensures the ledger reflects the actual cash outflow.
4
What is the primary focus when preparing an adjusted Cash Book?
Answer:
Mistake in Cash Book
When preparing an adjusted Cash Book, the focus is on correcting errors or omissions made within the company's own accounting records, such as missed bank charges or recording mistakes. This ensures the Cash Book reflects the correct balance before reconciling with the bank statement.
5
What does a debit balance in the bank column of a cash book represent?
Answer:
Cash at bank
In the cash book, the bank column functions like a personal account for the bank. A debit balance indicates that the business has money deposited in the bank, representing an asset. Conversely, a credit balance in the bank column would indicate a bank overdraft, which is a liability.
6
How should a postdated cheque received from a customer be classified in the books of account?
Answer:
Accounts receivable
A postdated cheque cannot be immediately deposited or cleared by the bank; therefore, it does not represent current cash or bank balance. Until the date on the cheque arrives, it is treated as a promise to pay, which is recorded as an increase in Accounts Receivable. Once the date is reached, it can be processed as a cash or bank transaction.
7
In the context of a bank account, what does a debit balance signify?
Answer:
Cash at bank
In the books of a business, a bank account is an asset account. According to the rules of debit and credit, asset accounts increase with debits and decrease with credits. Therefore, a debit balance in the bank account indicates that the business has a positive amount of money deposited in the bank, representing an asset known as cash at bank.
8
What type of balance can the bank column of a cash book typically exhibit?
Answer:
Either (a) or (b)
The bank column in a cash book normally shows a debit balance, indicating money deposited in the bank. However, if the business has an authorized bank overdraft, the bank column will show a credit balance. Thus, it can reflect either a debit or a credit balance depending on the account status.
9
What does a debit balance in the bank column of a Cash Book represent at the start of a period?
Answer:
Cash at bank
In accounting, the bank column of a cash book is treated as an asset account. According to the rules of debit and credit, an asset account increases with a debit entry and decreases with a credit entry. Therefore, an opening debit balance in the bank column signifies that the business has a positive balance of funds available in its bank account, representing an asset for the entity.
10
A company made three monthly hire purchase payments of $1,000 each via bank, but these were omitted from the cash book. What is the necessary adjustment?
Answer:
$3000 will be subtracted from cash book balance
Since the payments were made via bank but not recorded in the cash book, the cash book balance is currently overstated. To correct this, the total amount of $3,000 (3 payments of $1,000) must be subtracted from the cash book balance to reflect the actual outflow.