Financial Accounting for Competitive Exam Success

Financial Accounting

Accounting for Partnership Firms Accounting for Partnership Firms - Advanced Concepts Accounting for Partnership Firms - Applications Accounting for Partnership Firms - Case Studies Accounting for Partnership Firms - Competitive Exam Level Accounting for Partnership Firms - Higher Difficulty Problems Accounting for Partnership Firms - Numerical Applications Accounting for Partnership Firms - Problem Set Accounting for Partnership Firms - Real World Applications Accounting Ratios and Interpretation Accounting Ratios and Interpretation - Advanced Concepts Accounting Ratios and Interpretation - Applications Accounting Ratios and Interpretation - Case Studies Accounting Ratios and Interpretation - Competitive Exam Level Accounting Ratios and Interpretation - Higher Difficulty Problems Accounting Ratios and Interpretation - Numerical Applications Accounting Ratios and Interpretation - Problem Set Accounting Ratios and Interpretation - Real World Applications Auditing Principles Capital Budgeting Techniques Corporate Accounting - Amalgamation Cost Sheet Preparation Depreciation Methods Depreciation Methods - Advanced Concepts Depreciation Methods - Applications Depreciation Methods - Case Studies Depreciation Methods - Competitive Exam Level Depreciation Methods - Higher Difficulty Problems Depreciation Methods - Numerical Applications Depreciation Methods - Problem Set Depreciation Methods - Real World Applications Final Accounts of Sole Traders Final Accounts of Sole Traders - Advanced Concepts Final Accounts of Sole Traders - Applications Final Accounts of Sole Traders - Case Studies Final Accounts of Sole Traders - Competitive Exam Level Final Accounts of Sole Traders - Higher Difficulty Problems Final Accounts of Sole Traders - Numerical Applications Final Accounts of Sole Traders - Problem Set Final Accounts of Sole Traders - Real World Applications Financial Statement Analysis Fundamentals of Bookkeeping Fundamentals of Bookkeeping - Advanced Concepts Fundamentals of Bookkeeping - Applications Fundamentals of Bookkeeping - Case Studies Fundamentals of Bookkeeping - Competitive Exam Level Fundamentals of Bookkeeping - Higher Difficulty Problems Fundamentals of Bookkeeping - Numerical Applications Fundamentals of Bookkeeping - Problem Set Fundamentals of Bookkeeping - Real World Applications Inventory Valuation Methods (FIFO, LIFO) Inventory Valuation Methods (FIFO, LIFO) - Advanced Concepts Inventory Valuation Methods (FIFO, LIFO) - Applications Inventory Valuation Methods (FIFO, LIFO) - Case Studies Inventory Valuation Methods (FIFO, LIFO) - Competitive Exam Level Inventory Valuation Methods (FIFO, LIFO) - Higher Difficulty Problems Inventory Valuation Methods (FIFO, LIFO) - Numerical Applications Inventory Valuation Methods (FIFO, LIFO) - Problem Set Inventory Valuation Methods (FIFO, LIFO) - Real World Applications Preparation of Trial Balance Preparation of Trial Balance - Advanced Concepts Preparation of Trial Balance - Applications Preparation of Trial Balance - Case Studies Preparation of Trial Balance - Competitive Exam Level Preparation of Trial Balance - Higher Difficulty Problems Preparation of Trial Balance - Numerical Applications Preparation of Trial Balance - Problem Set Preparation of Trial Balance - Real World Applications Working Capital Management

Q. What is the impact of using different depreciation methods on financial ratios?

A. No impact on financial ratios
B. It can affect profitability ratios
C. It only affects liquidity ratios
D. It only affects solvency ratios

Solution

Different depreciation methods can affect profitability ratios, as they influence net income and asset values.

Correct Answer: B — It can affect profitability ratios

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Q. What is the impact of using FIFO on the balance sheet during inflation?

A. Higher assets
B. Lower assets
C. No impact
D. Higher liabilities

Solution

Using FIFO during inflation results in higher assets on the balance sheet due to higher ending inventory valuation.

Correct Answer: A — Higher assets

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Q. What is the impact of using LIFO on the balance sheet during a period of rising prices?

A. Higher current assets.
B. Lower current assets.
C. No impact on current assets.
D. Higher liabilities.

Solution

LIFO results in lower ending inventory values, leading to lower current assets on the balance sheet.

Correct Answer: B — Lower current assets.

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Q. What is the impact of using straight-line depreciation on financial statements?

A. It increases net income in the early years
B. It decreases net income evenly over the asset's life
C. It has no impact on cash flow
D. It increases asset value over time

Solution

Straight-line depreciation decreases net income evenly over the asset's life, reflecting a consistent expense recognition.

Correct Answer: B — It decreases net income evenly over the asset's life

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Q. What is the impact on the trial balance if a $500 payment to a supplier is recorded as a $500 increase in Accounts Receivable?

A. No impact
B. Assets increase
C. Liabilities increase
D. Assets decrease

Solution

This incorrect entry would increase Accounts Receivable instead of decreasing Cash, leading to an imbalance in the trial balance.

Correct Answer: C — Liabilities increase

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Q. What is the Internal Rate of Return (IRR)?

A. The discount rate that makes NPV zero
B. The rate of return on equity
C. The average return on investment
D. The cost of capital

Solution

The Internal Rate of Return (IRR) is the discount rate that makes the Net Present Value (NPV) of a project equal to zero.

Correct Answer: A — The discount rate that makes NPV zero

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Q. What is the journal entry for a partner withdrawing cash from the partnership?

A. Debit Cash, Credit Capital Account
B. Debit Drawings Account, Credit Cash
C. Debit Capital Account, Credit Drawings Account
D. Debit Cash, Credit Drawings Account

Solution

The correct entry is to debit the Drawings Account and credit Cash to record the withdrawal.

Correct Answer: B — Debit Drawings Account, Credit Cash

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Q. What is the journal entry for a partner's share of profit in a partnership?

A. Debit Partner's Capital Account, Credit Profit and Loss Account
B. Debit Profit and Loss Account, Credit Partner's Capital Account
C. Debit Cash, Credit Partner's Capital Account
D. Debit Partner's Capital Account, Credit Cash

Solution

The correct entry is to debit Profit and Loss Account and credit Partner's Capital Account to reflect the share of profit.

Correct Answer: B — Debit Profit and Loss Account, Credit Partner's Capital Account

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Q. What is the journal entry for depreciation on a partnership asset?

A. Debit Depreciation Expense, Credit Accumulated Depreciation
B. Debit Accumulated Depreciation, Credit Depreciation Expense
C. Debit Asset, Credit Depreciation Expense
D. Debit Depreciation Expense, Credit Asset

Solution

The correct entry is to debit depreciation expense and credit accumulated depreciation to reflect the reduction in asset value.

Correct Answer: A — Debit Depreciation Expense, Credit Accumulated Depreciation

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Q. What is the journal entry for purchasing inventory on credit for $500?

A. Debit Inventory $500, Credit Cash $500
B. Debit Inventory $500, Credit Accounts Payable $500
C. Debit Accounts Payable $500, Credit Inventory $500
D. Debit Cash $500, Credit Inventory $500

Solution

The correct entry is to debit Inventory and credit Accounts Payable, reflecting the increase in inventory and the obligation to pay.

Correct Answer: B — Debit Inventory $500, Credit Accounts Payable $500

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Q. What is the journal entry for purchasing inventory on credit?

A. Debit Inventory, Credit Cash
B. Debit Inventory, Credit Accounts Payable
C. Debit Accounts Payable, Credit Inventory
D. Debit Cash, Credit Inventory

Solution

When inventory is purchased on credit, the inventory account is debited to increase it, and accounts payable is credited to reflect the liability.

Correct Answer: B — Debit Inventory, Credit Accounts Payable

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Q. What is the journal entry for recording a cash sale of $1,000?

A. Debit Cash $1,000, Credit Sales $1,000
B. Debit Sales $1,000, Credit Cash $1,000
C. Debit Cash $1,000, Credit Accounts Receivable $1,000
D. Debit Accounts Receivable $1,000, Credit Cash $1,000

Solution

The correct journal entry for a cash sale is to debit Cash and credit Sales.

Correct Answer: A — Debit Cash $1,000, Credit Sales $1,000

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Q. What is the journal entry for recording a credit sale of $2,000?

A. Debit Accounts Receivable $2,000, Credit Sales $2,000
B. Debit Sales $2,000, Credit Accounts Receivable $2,000
C. Debit Cash $2,000, Credit Sales $2,000
D. Debit Sales $2,000, Credit Cash $2,000

Solution

The correct journal entry for a credit sale is to debit Accounts Receivable and credit Sales.

Correct Answer: A — Debit Accounts Receivable $2,000, Credit Sales $2,000

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Q. What is the journal entry for recording a purchase of inventory on credit for $3,000?

A. Debit Inventory $3,000, Credit Accounts Payable $3,000
B. Debit Accounts Payable $3,000, Credit Inventory $3,000
C. Debit Purchases $3,000, Credit Cash $3,000
D. Debit Cash $3,000, Credit Purchases $3,000

Solution

The correct journal entry is to debit Inventory and credit Accounts Payable, reflecting the increase in inventory and the obligation to pay.

Correct Answer: A — Debit Inventory $3,000, Credit Accounts Payable $3,000

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Q. What is the journal entry for recording a sale of goods for cash?

A. Debit Cash, Credit Sales Revenue
B. Debit Sales Revenue, Credit Cash
C. Debit Accounts Receivable, Credit Cash
D. Debit Cash, Credit Inventory

Solution

When goods are sold for cash, the cash account is debited to increase it, and sales revenue is credited to recognize the income.

Correct Answer: A — Debit Cash, Credit Sales Revenue

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Q. What is the journal entry for recording a sole trader's capital contribution?

A. Debit Capital Account, Credit Cash
B. Debit Cash, Credit Capital Account
C. Debit Cash, Credit Revenue
D. Debit Revenue, Credit Cash

Solution

The correct entry is to debit Cash and credit the Capital Account to reflect the increase in cash from the owner's contribution.

Correct Answer: B — Debit Cash, Credit Capital Account

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Q. What is the journal entry for recording a sole trader's capital introduced into the business?

A. Debit Capital Account, Credit Cash
B. Debit Cash, Credit Capital Account
C. Debit Cash, Credit Revenue
D. Debit Revenue, Credit Cash

Solution

The correct entry is to debit Cash (increasing assets) and credit Capital Account (increasing owner's equity).

Correct Answer: B — Debit Cash, Credit Capital Account

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Q. What is the journal entry for recording accrued expenses at the end of the accounting period?

A. Debit Expenses, Credit Cash
B. Debit Cash, Credit Expenses
C. Debit Expenses, Credit Accounts Payable
D. Debit Accounts Payable, Credit Expenses

Solution

The correct entry is to debit Expenses (increasing expenses) and credit Accounts Payable (increasing liabilities).

Correct Answer: C — Debit Expenses, Credit Accounts Payable

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Q. What is the journal entry for recording accrued expenses at year-end?

A. Debit Expense, Credit Cash
B. Debit Cash, Credit Expense
C. Debit Expense, Credit Accounts Payable
D. Debit Accounts Payable, Credit Expense

Solution

The correct entry is to debit Expense and credit Accounts Payable to recognize expenses incurred but not yet paid.

Correct Answer: C — Debit Expense, Credit Accounts Payable

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Q. What is the journal entry for recording accrued expenses?

A. Debit Expense, Credit Cash
B. Debit Expense, Credit Accounts Payable
C. Debit Accounts Payable, Credit Expense
D. Debit Cash, Credit Expense

Solution

Accrued expenses are recorded by debiting the expense account and crediting accounts payable.

Correct Answer: B — Debit Expense, Credit Accounts Payable

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Q. What is the journal entry for recording depreciation expense of $500?

A. Debit Depreciation Expense $500, Credit Accumulated Depreciation $500
B. Debit Accumulated Depreciation $500, Credit Depreciation Expense $500
C. Debit Depreciation Expense $500, Credit Cash $500
D. Debit Cash $500, Credit Depreciation Expense $500

Solution

The correct journal entry for recording depreciation expense is to debit Depreciation Expense and credit Accumulated Depreciation.

Correct Answer: A — Debit Depreciation Expense $500, Credit Accumulated Depreciation $500

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Q. What is the journal entry for recording depreciation expense on equipment?

A. Debit Depreciation Expense, Credit Accumulated Depreciation
B. Debit Accumulated Depreciation, Credit Depreciation Expense
C. Debit Equipment, Credit Depreciation Expense
D. Debit Depreciation Expense, Credit Equipment

Solution

The correct entry is to debit Depreciation Expense and credit Accumulated Depreciation, reflecting the expense incurred and the reduction in asset value.

Correct Answer: A — Debit Depreciation Expense, Credit Accumulated Depreciation

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Q. What is the journal entry for recording depreciation expense?

A. Debit Depreciation Expense, Credit Accumulated Depreciation
B. Debit Accumulated Depreciation, Credit Depreciation Expense
C. Debit Depreciation Expense, Credit Cash
D. Debit Cash, Credit Depreciation Expense

Solution

The correct entry is to debit Depreciation Expense to recognize the expense and credit Accumulated Depreciation to reduce the asset's book value.

Correct Answer: A — Debit Depreciation Expense, Credit Accumulated Depreciation

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Q. What is the journal entry for recording depreciation on a partnership asset?

A. Debit Depreciation Expense, Credit Accumulated Depreciation
B. Debit Accumulated Depreciation, Credit Depreciation Expense
C. Debit Asset Account, Credit Depreciation Expense
D. Debit Depreciation Expense, Credit Asset Account

Solution

The correct entry is to debit Depreciation Expense and credit Accumulated Depreciation to record the depreciation.

Correct Answer: A — Debit Depreciation Expense, Credit Accumulated Depreciation

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Q. What is the journal entry for recording depreciation on a partnership's asset?

A. Debit Depreciation Expense, Credit Accumulated Depreciation
B. Debit Accumulated Depreciation, Credit Depreciation Expense
C. Debit Asset Account, Credit Depreciation Expense
D. Debit Depreciation Expense, Credit Asset Account

Solution

The correct entry is to debit Depreciation Expense and credit Accumulated Depreciation to record the depreciation.

Correct Answer: A — Debit Depreciation Expense, Credit Accumulated Depreciation

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Q. What is the journal entry for recording depreciation on a partnership's fixed asset?

A. Debit Depreciation Expense, Credit Accumulated Depreciation
B. Debit Accumulated Depreciation, Credit Depreciation Expense
C. Debit Fixed Asset, Credit Depreciation Expense
D. Debit Depreciation Expense, Credit Fixed Asset

Solution

The correct entry is to debit Depreciation Expense and credit Accumulated Depreciation.

Correct Answer: A — Debit Depreciation Expense, Credit Accumulated Depreciation

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Q. What is the journal entry for recording sales revenue of $5,000?

A. Debit Cash $5,000, Credit Sales Revenue $5,000
B. Debit Sales Revenue $5,000, Credit Cash $5,000
C. Debit Accounts Receivable $5,000, Credit Sales Revenue $5,000
D. Debit Sales Revenue $5,000, Credit Accounts Receivable $5,000

Solution

The correct journal entry is to debit Cash and credit Sales Revenue, reflecting the increase in cash from sales.

Correct Answer: A — Debit Cash $5,000, Credit Sales Revenue $5,000

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Q. What is the journal entry for recording the purchase of inventory on credit?

A. Debit Inventory, Credit Accounts Payable
B. Debit Accounts Payable, Credit Inventory
C. Debit Cash, Credit Inventory
D. Debit Inventory, Credit Cash

Solution

The correct entry is to debit Inventory and credit Accounts Payable to reflect the purchase of inventory on credit.

Correct Answer: A — Debit Inventory, Credit Accounts Payable

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Q. What is the journal entry for recording the sale of goods for cash?

A. Debit Cash, Credit Sales Revenue
B. Debit Sales Revenue, Credit Cash
C. Debit Accounts Receivable, Credit Cash
D. Debit Cash, Credit Accounts Receivable

Solution

When goods are sold for cash, the cash account is debited to increase it, and sales revenue is credited to recognize the income.

Correct Answer: A — Debit Cash, Credit Sales Revenue

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Q. What is the journal entry for the depreciation of a partnership asset?

A. Debit Depreciation Expense, Credit Accumulated Depreciation
B. Debit Accumulated Depreciation, Credit Depreciation Expense
C. Debit Asset Account, Credit Depreciation Expense
D. Debit Depreciation Expense, Credit Asset Account

Solution

The correct entry for recording depreciation is to debit the depreciation expense and credit accumulated depreciation.

Correct Answer: A — Debit Depreciation Expense, Credit Accumulated Depreciation

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Financial Accounting

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