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
Which of the following items is typically not recorded in a partner's current account?
Answer:
Drawings
While drawings are often recorded in the current account in fixed capital systems, the question implies a context where drawings might be handled differently or the source answer considers them separate. Note: In many standard accounting practices, drawings are indeed recorded in the current account; this answer is flagged for potential conflict with standard practice.
2
When a partner receives a salary, how is this transaction recorded in their current account?
Answer:
Credited
In partnership accounting, a partner's salary is an appropriation of profit. Since the current account represents the partner's claim against the firm, crediting the account increases the partner's balance, reflecting the amount owed to them by the partnership for their services.
3
How is a new capital contribution by a partner recorded in the partnership's books of account?
Answer:
Credited
According to the rules of double-entry bookkeeping, capital represents an equity interest in the business. When a partner invests additional capital, the business receives an asset (usually cash or bank), which is debited, and the partner's capital account is credited to reflect the increase in the partner's equity stake in the firm.
4
How should a credit balance on a partner's current account be classified in the business's financial records?
Answer:
part of the capital
A partner's current account records the partner's share of profits, interest on capital, and drawings. A credit balance indicates that the business owes the partner these accumulated amounts. In partnership accounting, this balance is considered part of the partner's total equity or capital investment in the firm.
5
Which of the following items is typically excluded from a partner's current account?
Answer:
Drawings
In partnership accounting, the current account records transactions between the partner and the firm, such as salary, interest on capital, and share of profits. While drawings are often recorded in the current account in fixed capital systems, the provided answer suggests they are excluded. This may be based on a specific accounting convention where drawings are treated as a reduction of capital or handled in a separate account.
6
Under the fluctuating capital method, how is interest on capital treated in the partner's accounts?
Answer:
Credited to capital account
In the fluctuating capital method, all adjustments related to a partner—such as interest on capital, share of profit, and drawings—are recorded directly in the partner's capital account. Consequently, interest on capital is credited to the capital account, as it represents an increase in the partner's equity in the business.