1. If "Closing Stock" appears inside the Trial Balance, it is shown in:
Balance Sheet (Asset side) only.
Trading Account (Credit side) and Balance Sheet (Asset side).
Profit & Loss Account (Credit side).
Trading Account (Credit side) only.
Explanation:
If Closing Stock appears inside the Trial Balance, it means it has already been adjusted against Purchases (Cost of Goods Sold). Therefore, it is not shown in the Trading Account but only appears as an Asset in the Balance Sheet.
2. If "Provision for Bad Debts" is given in the adjustment (outside Trial Balance), it involves:
Debiting P&L A/c and Crediting Debtors.
Only Debiting P&L A/c.
Only Deducting from Debtors.
Debiting P&L A/c and Deducting from Debtors in Balance Sheet.
Explanation:
Adjustments have a dual effect. 1. Create the expense (Debit P&L). 2. Reduce the asset value (Deduct from Sundry Debtors in Balance Sheet).
3. If "Wages Outstanding" is given inside the Trial Balance, how is it treated in Final Accounts?
Added to Wages in Trading A/c and shown in Liabilities.
Shown only in Liabilities side of Balance Sheet.
Shown only in Trading Account.
Ignored.
Explanation:
Items inside the Trial Balance have already been journalized. Wages Outstanding in TB means the entry (Wages A/c Dr to Wages Outstanding A/c) is already passed. So, it only needs to go to the Balance Sheet as a Liability.
4. Arranging assets and liabilities in a specific order in the Balance Sheet is called:
Grouping
Balancing
Posting
Marshalling
Explanation:
Marshalling is the arrangement of assets and liabilities either in the order of Liquidity (most liquid first) or Permanence (most permanent first).
5. "Accrued Income" appearing in adjustments is shown in the Balance Sheet as:
An Asset.
A Liability.
A deduction from Capital.
It is not shown in Balance Sheet.
Explanation:
Accrued Income is income earned but not yet received. It is a receivable, hence a Current Asset.
6. Income Tax paid by a sole proprietor is treated as:
Liability.
Business Expense (Debited to P&L).
Drawings (Deducted from Capital).
Asset.
Explanation:
Income Tax of the proprietor is a personal expense, not a business expense. Hence, it is treated as Drawings and deducted from Capital in the Balance Sheet.
7. For a Partnership Firm, Income Tax paid is treated as:
An expense of the firm (Debited to P&L).
An appropriation of profit (Debited to P&L Appropriation).
Drawings of partners (Debited to Partners' Capital).
Asset.
Explanation:
This is distinct from companies. For partnerships, tax is a personal liability of the firm/partners, often treated as Drawings in accounting questions, or appropriation. However, technically, tax on firm's profit is an appropriation, but tax paid on behalf of partners is Drawings.
8. Interest on Partners' Capital is:
Credited to P&L Account.
Debited to P&L Appropriation Account.
Debited to P&L Account.
Credited to Trading Account.
Explanation:
Interest on Capital is an appropriation of profit among partners, not a charge against profit. Hence, it appears in the P&L Appropriation A/c, not the main P&L A/c.
9. What is the main difference between a "Provision" and a "Reserve"?
Provision is a charge against profit (to meet a liability); Reserve is an appropriation of profit (to strengthen financial position).
Provision is created out of profits; Reserve is a charge against profits.
Reserve is for known liability; Provision is for unknown liability.
Both are same.
Explanation:
A Provision (e.g., for Tax) must be made even if there is a loss. A Reserve (e.g., General Reserve) is created only if there is profit.
10. "Capital Work in Progress" (CWIP) refers to:
Working capital loans.
Fixed assets that are under construction and not yet ready for use.
Investments in shares.
Inventory of raw materials.
Explanation:
Assets like a building under construction or machinery being installed are shown as CWIP in the Balance Sheet until they are capitalized (ready for use). Depreciation is NOT charged on CWIP.
11. Recovery of Bad Debts previously written off is credited to:
Capital Account.
Provision for Bad Debts.
Debtors Account.
Bad Debts Recovered Account (Income).
Explanation:
Once written off, the debtor's account is closed. Any subsequent recovery is a gain/income and is credited to "Bad Debts Recovered A/c", which goes to the Credit side of P&L.
12. Claims against the company not acknowledged as debts are shown as:
Provisions
Contingent Liabilities
Current Liabilities
Reserves
Explanation:
These are potential obligations that may arise depending on the outcome of a future event (e.g., a court case). They are disclosed in the footnotes.
13. Provision for Discount on Debtors is calculated on:
Credit Sales.
Total Debtors.
Debtors after deducting Bad Debts.
Debtors after deducting Bad Debts and Provision for Bad Debts.
Explanation:
Discount is offered only to good debtors. Therefore, we first remove bad debts and doubtful debts (Provision) before calculating the provision for discount.