Chapter MCQ Test 2 — Introduction to Accounting
10 Questions • 12 min • Chapter MCQ
12:00
Question 1 of 10
A firm employs a brilliant, highly motivated team, yet its books show nothing about this. Which limitation explains it?
Accounting records only money-measurable items
Accounting is window-dressed
Accounting ignores all assets
Accounting is illegal
Explanation: Staff quality cannot be measured in money, so the money-measurement limitation excludes it from the books.
Question 2 of 10
A shopkeeper says, 'I never write anything down; I remember everything.' The strongest accounting argument against this is that records:
Provide a permanent, reliable evidence that memory cannot
Are illegal to keep
Reduce his profit
Are only for big firms
Explanation: A key advantage of accounting is replacing fallible memory with permanent, verifiable records.
Question 3 of 10
Ramesh sold goods to Suresh on credit. In Ramesh's books, Suresh is a ____; in Suresh's books, Ramesh is a ____.
debtor; creditor
creditor; debtor
debtor; debtor
creditor; creditor
Explanation: Suresh owes Ramesh (debtor to Ramesh); Ramesh is owed by Suresh, so Ramesh is Suresh's creditor.
Question 4 of 10
A bank deciding whether to lend to a firm is mainly interested in the firm's:
Ability to repay (financial soundness)
Office wall colour
Staff lunch menu
Owner's hobbies
Explanation: As an external lender, the bank uses the accounts to judge repayment capacity.
Question 5 of 10
Choosing a depreciation method changes the reported profit. This illustrates which limitation?
Influence of personal judgement / estimates
It records only cash
It is the language of business
It ignores liabilities
Explanation: Accounting figures depend on the accountant's judgement, so they are estimates rather than exact truths.
Question 6 of 10
Which sequence correctly shows the accounting process?
Identify → Record → Classify → Summarise → Communicate
Communicate → Record → Identify
Summarise → Identify → Record
Record → Communicate → Identify
Explanation: Transactions are identified, recorded, classified, summarised and finally communicated to users.
Question 7 of 10
A manager wants a report comparing the cost of two products to decide which to expand. The most relevant branch is:
Cost accounting
Tax accounting
Auditing
Book-keeping
Explanation: Determining and comparing product costs is the work of cost accounting.
Question 8 of 10
Why are 'drawings' never treated the same as a business expense?
They are the owner's personal use, not a cost of earning revenue
They increase profit
They are revenue
They are a liability of outsiders
Explanation: Drawings reduce the owner's capital; they are personal, not incurred to earn business revenue.
Question 9 of 10
Two firms use different methods, making their profits hard to compare. Which quality of useful information is weakened?
Comparability
Colour
Secrecy
Speed
Explanation: Comparability requires consistent methods so figures can be meaningfully compared across firms and years.
Question 10 of 10
A company presents its accounts to hide weak performance before a loan application. This is:
Window dressing
Reliable reporting
Cost accounting
A contra entry
Explanation: Dressing up accounts to mislead users is window dressing — a limitation/abuse of accounting.