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
How is the recovery of a previously written-off bad debt classified in accounting?
Answer:
Revenue receipt
The recovery of bad debt is classified as a revenue receipt. Since the debt was previously written off as a loss, its subsequent recovery is treated as an inflow of cash related to normal business operations or the reversal of a prior expense. It is credited to the Profit and Loss account because it represents an unexpected gain that improves the net income of the business for the current accounting period.
2
How should rent received by a business for leasing its premises be classified?
Answer:
revenue income
Rent received is a recurring inflow of cash resulting from the normal business activity of leasing out property. Since it is earned in the ordinary course of business and does not involve the sale of a capital asset, it is classified as revenue income and credited to the Profit and Loss account.
3
In which financial statement are revenue receipts typically recorded?
Answer:
Trading and Profit and Loss A/c
Revenue receipts are the recurring income generated from the primary business activities of an entity. These receipts are recorded in the Trading and Profit and Loss Account to determine the net profit or loss for the period. The Trading account captures direct revenue from sales, while the Profit and Loss account captures other operational and non-operational revenues, providing a comprehensive view of the company's financial performance.
4
Which item is generally treated as a reduction of revenue receipts under the relevant major head?
Answer:
Refund of Revenues
A refund of revenue occurs when money previously collected as income is returned to the payer. In accounting, such refunds are treated as a reduction of the original revenue receipt rather than an expense. This ensures that the net revenue reported for a specific category accurately reflects the actual income retained by the entity after accounting for reversals or adjustments.