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 accounts is capable of maintaining a credit balance?
Answer:
bank
A bank account can have a credit balance if the business has an overdraft, meaning the bank has allowed the business to withdraw more money than it has deposited. Cash accounts, by nature, cannot have a credit balance as you cannot spend more physical cash than you possess.
2
What does a credit balance in the bank column of a business's cash book signify?
Answer:
Over draft
In a cash book, a debit balance in the bank column represents money held in the bank (an asset). Conversely, a credit balance indicates that the business has withdrawn more money than it deposited, resulting in a bank overdraft, which is a liability.
3
A bank issued a debit advice for $500 regarding interest on an overdraft, which remains unrecorded in the company's cash book. How should this be adjusted?
Answer:
$500 will be credited
An interest charge on an overdraft reduces the company's bank balance. In the company's cash book, the bank column represents an asset account. Since the bank balance is decreasing, the cash book must be credited to reflect the reduction in the asset, consistent with the double-entry principle for bank charges.
4
If the bank account in the cash book shows a credit balance of $1,200, how should this be presented in the Balance Sheet?
Answer:
as a current liability
A credit balance in the cash book bank column indicates that the business has withdrawn more money than it has deposited, resulting in a bank overdraft. An overdraft is a short-term obligation, thus classified as a current liability on the balance sheet.
5
If the bank sends a debit advice for $500 regarding overdraft interest that has not been recorded in the cash book, what entry is required?
Answer:
$500 will be credited
Interest charged by the bank on an overdraft is an expense for the business. Since the bank has already deducted this amount from the account, the company must record this in the cash book by crediting the bank column to reflect the reduction in the cash balance.
6
What does an unfavorable balance in the cash book signify in the context of bank reconciliation?
Answer:
Bank overdraft
An unfavorable balance in the bank column of the cash book indicates that the business has withdrawn more money than it has deposited, resulting in a bank overdraft. In the cash book, this is represented by a credit balance, which is the opposite of a normal asset account balance.
7
What does it signify when the credit side of a bank account exceeds the debit side?
Answer:
Bank overdraft
In the context of a company's cash book (bank column), a credit balance indicates that the entity has withdrawn more money than it deposited, resulting in a bank overdraft. This represents a liability to the bank rather than an asset.
8
What does a credit balance in the bank column of a cash book signify?
Answer:
Bank overdraft
In a cash book, a debit balance represents an asset (money in the bank). Conversely, a credit balance indicates that the business has withdrawn more money than it deposited, resulting in a liability known as a bank overdraft.
9
What does it signify if the credit side of a bank account in the cash book exceeds the debit side?
Answer:
Bank overdraft
In a bank account, the debit side records deposits (assets), while the credit side records withdrawals. If the credit side is greater than the debit side, it means the business has withdrawn more money than it deposited, resulting in a negative balance. This liability to the bank is known as a bank overdraft.
10
What does a credit balance in the bank column of a cash book represent?
Answer:
Overdraft
In the cash book, the bank column acts as an asset account. A debit balance indicates money held in the bank, while a credit balance indicates that the business has withdrawn more money than it deposited, resulting in a bank overdraft, which is a liability.