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
In a business context, which of the following is typically categorized as capital?
Answer:
Financial assets
Capital represents the financial resources, including cash, equipment, and other assets, that a business utilizes to facilitate operations and generate future economic benefits. While liabilities represent obligations and expenses represent costs of doing business, capital specifically refers to the assets invested to sustain and grow the enterprise.
12
What is the accounting term for assets or cash withdrawn by a business owner for personal use?
Answer:
Drawings
Drawings represent the reduction of the owner's equity in the business. When a proprietor removes cash or inventory for personal use, it is recorded as drawings, which effectively decreases the total capital invested in the business entity.
13
What is the accounting term for when a business owner withdraws cash for personal use?
Answer:
Drawing
Drawings represent the withdrawal of cash or other assets from a business by the owner for personal, non-business purposes. This transaction reduces the owner's equity in the business. It is distinct from business expenses, which are costs incurred to generate revenue for the entity, and it is not considered a distribution of profit in the same way as dividends for a corporation.
14
What is the accounting term for cash or assets withdrawn from the business by the owner for personal use?
Answer:
Drawings
Drawings represent any withdrawal of cash, goods, or other assets from the business by the owner for personal consumption. This reduces the owner's equity in the business and is recorded as a debit to the drawings account, effectively reversing a portion of the initial capital investment.
15
What is the standard or normal balance type associated with a capital account?
Answer:
Credit balance
In double-entry bookkeeping, the normal balance of an account is the side where increases are recorded. Capital accounts represent the owner's equity in the business and typically carry a credit balance, as they increase with credits and decrease with debits.
16
When a sole trader withdraws cash and goods from the business for personal use, how does this affect their capital?
Answer:
both the cash and the goods
Drawings represent any assets (cash or inventory) taken by the owner for personal use. Both cash withdrawals and the cost of goods taken reduce the owner's equity (capital) in the business.
17
What is the accounting term for the initial funds or assets contributed by an owner to establish a business?
Answer:
Capital
Capital represents the owner's equity or the total investment made by the proprietor into the business. It serves as the foundation for business operations and is recorded as a liability to the owner from the business's perspective. This initial investment is crucial for acquiring assets and starting commercial activities, reflecting the owner's financial stake in the entity's success and growth.
18
What term describes the withdrawal of cash or goods by a business owner for personal use?
Answer:
Drawings
Drawings represent the reduction of the owner's equity in the business. When an owner takes cash, inventory, or other assets for personal use, it is recorded as 'Drawings'. This transaction decreases the capital account balance, reflecting the owner's withdrawal of business resources for non-business purposes.
19
How should a sole trader record the withdrawal of a business computer for personal use in the accounting records?
Answer:
Debit and Credit = Drawings and Computer
When an asset is withdrawn for personal use, the 'Drawings' account is debited to reflect the reduction in owner's equity, and the asset account (Computer) is credited to reduce the business's fixed assets. This follows the principle that drawings decrease capital.
20
What is the accounting term for cash or assets withdrawn by the owner for personal use?
Answer:
Drawings
Drawings represent any withdrawal of cash, goods, or other assets from the business by the proprietor for personal consumption. This reduces the owner's total capital investment in the business and is recorded to track the owner's personal utilization of business resources.