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
Under what circumstances is a suspense account typically created?
Answer:
Trial balance does not balance
A suspense account is a temporary holding account used when the total debits and credits in a trial balance do not match. It allows the accountant to finalize the trial balance while investigating the underlying errors that caused the discrepancy.
2
Which account is utilized to record discrepancies in a trial balance resulting from exchange rate conversions?
Answer:
Difference on exchange account
When financial statements are prepared involving foreign currencies, exchange rate fluctuations can cause imbalances in the trial balance. A 'Difference on Exchange' account is specifically used to capture these variances. This ensures that the trial balance remains balanced while clearly identifying the impact of currency conversion differences, rather than masking them in a generic suspense account.
3
Is a debit balance remaining in a suspense account at the end of an accounting period reported as an asset on the balance sheet?
Answer:
True
A suspense account is a temporary account used to balance the trial balance when errors exist. If a debit balance remains, it is often presented as an asset or a deferred charge on the balance sheet until the underlying errors are identified and rectified in the subsequent period.
4
If the total of the debit column in a trial balance is less than the credit column, will the suspense account carry a debit balance?
Answer:
True
A trial balance must have equal debits and credits. If the debit column total is lower, a debit entry must be made to the suspense account to equalize the totals. Therefore, the suspense account will reflect a debit balance until the discrepancy is resolved.
5
Where is the discrepancy between the total debit and credit columns of a trial balance temporarily recorded?
Answer:
Suspense A/c
When a trial balance fails to balance, the difference is temporarily placed in a suspense account. This account acts as a placeholder to allow the preparation of financial statements to proceed while the accountant investigates the underlying errors. Once the specific errors are identified and corrected, the balance in the suspense account is cleared.