Basic Accounting Question Paper

Duration: 2 hours
Maximum Marks: 100
Instructions:
● Total 6 Sections.
● Section C- Answer any 5 questions
● Section E & F - Practical Questions
● Read the instructions for each section carefully.
Section A: Objective Questions (30 Marks= 2 marks each)
Instructions: Choose the correct option
Which of the following is a current asset?

a) Land
b) Building
c) Accounts Receivable
d) Patent
What is the formula for calculating Net Profit?

a) Total Revenue - Total Expenses
b) Total Assets - Total Liabilities
c) Total Revenue / Total Assets
d) Total Expenses - Total Liabilities
Which of the following is a liability?

a) Accounts Receivable
b) Prepaid Expenses
c) Accounts Payable
d) Inventory
What is the purpose of a trial balance?

a) To record closing entries
b) To check the mathematical accuracy of the ledger
c) To prepare financial statements
d) To calculate depreciation
Which accounting principle states that revenue should be recognized when it is earned,
regardless of when cash is received?
a) Matching Principle
b) Revenue Recognition Principle
c) Conservatism Principle
d) Materiality Principle
Which of the following is considered a liability?

a) Equipment
b) Accounts Receivable
c) Accounts Payable
d) Prepaid Expenses
Which financial statement reports a company's revenues and expenses over a specific
period?
a) Balance Sheet
b) Income Statement
c) Cash Flow Statement
d) Statement of Retained Earnings
Which accounting principle states that revenue should be recognized when it is earned,
not when cash is received?
a) Matching Principle
b) Revenue Recognition Principle
c) Conservatism Principle
d) Materiality Principle
What is the formula for calculating net income?

a) Total Revenue - Total Expenses
b) Total Assets - Total Liabilities
c) Total Revenue / Total Assets
d) Total Expenses - Total Liabilities
Which of the following represents an asset?

a) Accounts Payable
b) Equipment
c) Salaries Expense
d) Interest Revenue
What is the purpose of a trial balance?

a) To calculate net income
b) To record closing entries
c) To check the accuracy of ledger balances
d) To prepare financial statements
Which of the following is NOT a component of the cash flow statement?

a) Operating Activities
b) Investing Activities
c) Financing Activities
d) Adjusting Activities
What is the formula to calculate the current ratio?

a) Current Assets / Current Liabilities
b) Total Assets / Total Liabilities
c) Net Income / Total Revenue
d) Gross Profit / Total Revenue
Which of the following is an example of a current liability?

a) Accounts Receivable
b) Long-term Debt
c) Accounts Payable
d) Equipment
A credit entry increases which of the following accounts?

a) Assets
b) Liabilities
c) Equity
d) Expenses
Section B: Short Answer Questions (15 marks = 3 marks each)
Instructions: Write concise answers to the following questions.
1. Define the term 'depreciation' and explain its importance in accounting.

2. What is the difference between a journal and a ledger?
3.. Briefly describe the purpose of a cash flow statement.
4. Describe the difference between an asset and a liability.
5.What is the difference between a debit and a credit?
Section C: Long Answer Questions (Answer any 5) - 25 marks ( 5 marks each)
Instructions: Write detailed answers to the following questions.
1. Explain the difference between accrual accounting and cash accounting. Provide
examples of each and discuss the advantages and disadvantages of each
method.
2. What are the components of the accounting equation, and how do they relate to
each other? Explain the significance of the accounting equation in understanding
a company's financial position.
3. Describe the process of preparing financial statements. What are the key
components of each financial statement, and how do they interrelate?
4. What is depreciation, and why is it necessary in accounting? Explain the different

methods of depreciation and when each method might be used.
5. Discuss the importance of internal controls in accounting. Provide examples of

internal controls and explain how they help prevent fraud and errors.
6. Explain the concept of double-entry accounting. Why is it considered the

foundation of modern accounting systems? Provide examples to illustrate how
transactions are recorded using double-entry accounting.
7. What is the purpose of a bank reconciliation statement, and how is it prepared?

Discuss the steps involved in reconciling bank statements with a company's cash
records.
8. Define working capital and explain its significance for a business. How is working
capital calculated, and what does a positive or negative working capital indicate
about a company's financial health?
9. Describe the difference between financial accounting and management

accounting. How do these two branches of accounting differ in terms of their
focus, audience, and objectives?
10. Discuss the role of the auditor in the financial reporting process. What are the
key responsibilities of auditors, and how do they ensure the accuracy and
reliability of financial statements?
Section E : Practical Questions (20 marks)
Instructions: Solve the following practical questions.
Prepare an income statement for ABC Company for the year ended December 31,
2023, using the information provided:
● Sales Revenue: $100,000
● Cost of Goods Sold: $40,000
● Operating Expenses: $20,000
● Other Income: $5,000
● Depreciation Expense: $7,000
● Income Tax Expense: $5,000
Using the data from the income statement in question 8, prepare a balance sheet for
ABC Company as of December 31, 2023. Assume the following additional
information:
● Accounts Receivable: $10,000
● Inventory: $15,000
● Equipment: $50,000
● Accumulated Depreciation: $10,000
● Accounts Payable: $8,000
● Common Stock: $20,000
● Retained Earnings: $15,000
Prepare a cash flow statement for XYZ Company for the year ended December 31,
2023, using the following information:
Cash received from customers: $120,000
Cash paid for operating expenses: $50,000
Cash paid for income taxes: $10,000
Cash paid to suppliers: $30,000
Cash received from the sale of equipment: $5,000
Cash dividends paid: $8,000
Section F: Journal Entry and Trial Balance (10 marks)
Instructions: Complete the following transactions for XYZ Company by providing the
necessary journal entries and prepare a trial balance as of December 31, 2023.
Transactions:
January 1: XYZ Company started its business with an initial investment of $50,000 in
cash.
January 5: Purchased inventory on credit from ABC Suppliers for $10,000.
January 10: Sold goods for cash amounting to $8,000.
January 15: Paid $7,000 for rent expense.
January 20: Received $5,000 from customers for services rendered.
January 25: Purchased equipment for $15,000, paying $5,000 in cash and the
remainder on credit.
January 30: Paid $2,000 for utilities expense.
Instructions:
a) Record the journal entries for each transaction.
b) Prepare a trial balance as of December 31, 2023, using the information from the
journal entries.

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Duration: 2 hours

Maximum Marks: 100

Section A: Objective Questions (30 Marks= 2 marks each)

Instructions: Choose the correct option

Which of the following is a current asset?

What is the formula for calculating Net Profit?

Which of the following is a liability?

What is the purpose of a trial balance?

Which of the following is considered a liability?

What is the formula for calculating net income?

Which of the following represents an asset?

What is the purpose of a trial balance?

Which of the following is NOT a component of the cash flow statement?

What is the formula to calculate the current ratio?

Which of the following is an example of a current liability?

A credit entry increases which of the following accounts?

Section B: Short Answer Questions (15 marks = 3 marks each)

Instructions: Write concise answers to the following questions.

1. Define the term 'depreciation' and explain its importance in accounting.

4. What is depreciation, and why is it necessary in accounting? Explain the different

5. Discuss the importance of internal controls in accounting. Provide examples of

6. Explain the concept of double-entry accounting. Why is it considered the

7. What is the purpose of a bank reconciliation statement, and how is it prepared?

9. Describe the difference between financial accounting and management

Section E : Practical Questions (20 marks)

Instructions: Solve the following practical questions.

Section F: Journal Entry and Trial Balance (10 marks)

a) Record the journal entries for each transaction.

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