Chapter MCQ Test 2 — Recording of Transactions — Source Documents and the Accounting Equation
10 Questions • 12 min • Chapter MCQ
12:00
Question 1 of 10
A trader merely receives a price quotation from a supplier but places no order. Why is this NOT recorded?
It does not change the firm's financial position
Quotations are illegal
It is too small
There is no supplier
Explanation: Only events that change financial position and are money-measurable are transactions.
Question 2 of 10
We return defective goods to our supplier. The document we send and its effect on his account are:
Debit note; we debit (reduce) his account
Credit note; we credit his account
Invoice; we increase his account
Receipt; no effect
Explanation: Returning goods to a supplier reduces what we owe him, so we debit his account and send a debit note.
Question 3 of 10
Started business with cash 80,000; bought goods on credit 25,000. After these, total assets and the equation are:
Assets 1,05,000 = Creditors 25,000 + Capital 80,000
Assets 80,000 = Capital 80,000
Assets 1,05,000 = Capital 1,05,000
Assets 55,000 = Capital 55,000
Explanation: Cash 80,000 + Stock 25,000 = 1,05,000; financed by creditors 25,000 + capital 80,000.
Question 4 of 10
Goods costing 40,000 are sold for 34,000 cash (a loss). The effect on capital is:
Capital falls by 6,000
Capital rises by 34,000
Capital rises by 6,000
No effect
Explanation: Selling below cost gives a loss of 6,000, which reduces capital (cash +34,000, stock −40,000).
Question 5 of 10
Which pair of transactions both keep TOTAL assets unchanged?
Buy furniture for cash; collect cash from a debtor
Introduce capital; take a loan
Pay rent; earn commission
Buy goods on credit; sell goods at a profit
Explanation: Both just swap one asset for another (cash↔furniture, debtor↔cash), leaving total assets the same.
Question 6 of 10
A firm pays a creditor Rs 10,000 by cheque. The equation effect is:
Bank (asset) −10,000 and creditors (liability) −10,000
Capital −10,000
Cash +10,000
No change
Explanation: Paying a creditor reduces both an asset (bank) and a liability (creditors) by the same amount.
Question 7 of 10
After all transactions, a student finds Assets 1,50,000 but Liabilities + Capital 1,40,000. This means:
An error has been made; the equation must balance
The business made 10,000 profit
It is normal
Capital is 1,50,000
Explanation: The accounting equation must always balance; a difference signals a recording error.
Question 8 of 10
Interest of Rs 2,000 received in cash affects the equation as:
Cash +2,000 and capital +2,000 (income)
Cash +2,000 and capital −2,000
A liability +2,000
No effect on capital
Explanation: Income increases an asset (cash) and increases capital.
Question 9 of 10
Which is the correct chain from event to books?
Transaction → source document → voucher → books of account
Voucher → transaction → books → source document
Books → voucher → transaction
Source document → books → transaction
Explanation: Evidence (source document) leads to a voucher, which is the basis for the book entry.
Question 10 of 10
The owner brings in an additional Rs 20,000 cash and the firm repays a loan of Rs 15,000 cash the same day. Net effect on capital and liabilities:
Capital +20,000; liabilities −15,000
Capital +5,000 only
Capital −15,000
No change anywhere
Explanation: Fresh capital raises capital by 20,000; repaying the loan cuts liabilities by 15,000 (cash net +5,000).