About this quiz
50 questions covering every section of the note.
This Lok Sewa practice set has 50 multiple-choice questions (Subject: Banking and Finance · For: Kharidar, Nayab Subba, Section Officer · Level: Easy). Take the quiz above first; after that, use the study list below to revise every question with its correct answer and a short explanation.
Study list: all 50 questions with answers and explanations
The accounting equation is:
- A) Assets = Liabilities + Capital ✔
- B) Assets = Capital − Liabilities
- C) Liabilities = Assets + Capital
- D) Capital = Assets + Liabilities
Why: The accounting equation is Assets = Liabilities + Capital: what the business owns equals what it owes plus the owner's investment.
Who is called the father of accounting?
- A) Luca Pacioli ✔
- B) Adam Smith
- C) Keynes
- D) Henri Fayol
Why: Luca Pacioli, an Italian mathematician and friar, is the father of accounting for describing double entry.
Luca Pacioli described double entry in:
- A) 1494 ✔
- B) 1776
- C) 1890
- D) 1911
Why: Pacioli described double-entry bookkeeping in his book 'Summa' in 1494.
In double entry, every debit has an equal:
- A) Credit ✔
- B) Debit
- C) Asset
- D) Expense
Why: In double entry every transaction has two sides: each debit has an equal credit, so totals always match.
The golden rule for personal accounts is:
- A) Debit the receiver, credit the giver ✔
- B) Debit what comes in, credit what goes out
- C) Debit expenses, credit incomes
- D) Debit the giver, credit the receiver
Why: Personal accounts (people, firms, banks): debit the receiver, credit the giver.
The golden rule for real accounts is:
- A) Debit what comes in, credit what goes out ✔
- B) Debit the receiver, credit the giver
- C) Debit incomes, credit expenses
- D) Credit everything
Why: Real accounts (assets like cash, goods, buildings): debit what comes in, credit what goes out.
The golden rule for nominal accounts is:
- A) Debit expenses and losses, credit incomes and gains ✔
- B) Debit incomes, credit expenses
- C) Debit the giver
- D) Credit what comes in
Why: Nominal accounts (expenses, losses, incomes, gains): debit all expenses and losses, credit all incomes and gains.
Rent paid is which type of account?
- A) Nominal ✔
- B) Real
- C) Personal
- D) Capital
Why: Rent paid is an expense, so it is a nominal account and is debited.
A building is which type of account?
- A) Real ✔
- B) Nominal
- C) Personal
- D) Expense
Why: A building is an asset, so it is a real account.
The book of original entry is the:
- A) Journal ✔
- B) Ledger
- C) Balance sheet
- D) Trial balance
Why: The journal is the book of original entry: transactions are first recorded there in date order.
The book of final entry is the:
- A) Ledger ✔
- B) Journal
- C) Cash book only
- D) Invoice
Why: The ledger is the book of final entry, where journal entries are posted to separate accounts.
A list to check that total debits equal total credits is the:
- A) Trial balance ✔
- B) Balance sheet
- C) Profit and loss account
- D) Cash book
Why: A trial balance lists all ledger balances to check that total debits equal total credits.
A statement of assets and liabilities on a date is the:
- A) Balance sheet ✔
- B) Trial balance
- C) Journal
- D) Ledger
Why: A balance sheet shows assets, liabilities and capital on a particular date.
A person who owes money to the business is a:
- A) Debtor ✔
- B) Creditor
- C) Owner
- D) Auditor
Why: A debtor owes money to the business, for example a customer who bought on credit.
A person to whom the business owes money is a:
- A) Creditor ✔
- B) Debtor
- C) Customer only
- D) Employee
Why: A creditor is someone the business owes money to, such as a supplier.
The fall in value of a fixed asset due to use is:
- A) Depreciation ✔
- B) Appreciation
- C) Inflation
- D) Revenue
Why: Depreciation is the fall in value of fixed assets, such as machines and vehicles, due to use and time.
Recording income when it is earned, not when cash is received, is the:
- A) Accrual basis ✔
- B) Cash basis
- C) Barter basis
- D) Tax basis
Why: The accrual basis records income when earned and expenses when incurred, whether or not cash has moved.
A statement explaining differences between the cash book and bank statement is the:
- A) Bank reconciliation statement ✔
- B) Trial balance
- C) Income statement
- D) Budget
Why: A bank reconciliation statement explains why the cash book balance and the bank statement balance differ.
Gross profit equals:
- A) Sales − cost of goods sold ✔
- B) Sales + expenses
- C) Assets − liabilities
- D) Capital + profit
Why: Gross profit = sales − cost of goods sold.
Loans taken by a business are its:
- A) Liabilities ✔
- B) Assets
- C) Capital
- D) Revenue
Why: Loans taken are liabilities, because the business must repay them.
Cash, building and machinery are:
- A) Assets ✔
- B) Liabilities
- C) Expenses
- D) Capital
Why: Cash, buildings and machinery are assets: things the business owns.
Bills payable are:
- A) Liabilities ✔
- B) Assets
- C) Income
- D) Capital
Why: Bills payable are amounts the business must pay, so they are liabilities.
Owner's investment in a business is:
- A) Capital ✔
- B) Liability to creditors
- C) Expense
- D) Revenue
Why: The owner's investment is capital.
Money earned from selling goods is:
- A) Revenue ✔
- B) Expense
- C) Liability
- D) Depreciation
Why: Money earned from sales is revenue (income).
Electricity bill paid is an:
- A) Expense ✔
- B) Asset
- C) Capital
- D) Liability
Why: An electricity bill paid is an expense.
If assets are Rs 5,00,000 and liabilities Rs 2,00,000, capital is:
- A) Rs 3,00,000 ✔
- B) Rs 7,00,000
- C) Rs 2,00,000
- D) Rs 5,00,000
Why: Capital = assets − liabilities = 5,00,000 − 2,00,000 = Rs 3,00,000.
If capital is Rs 4,00,000 and liabilities Rs 1,00,000, total assets are:
- A) Rs 5,00,000 ✔
- B) Rs 3,00,000
- C) Rs 4,00,000
- D) Rs 1,00,000
Why: Assets = liabilities + capital = 1,00,000 + 4,00,000 = Rs 5,00,000.
Every transaction keeps the accounting equation:
- A) Balanced ✔
- B) Unbalanced
- C) Doubled
- D) Removed
Why: Every transaction affects both sides equally, so the equation always stays balanced.
Luca Pacioli was from:
- A) Italy ✔
- B) England
- C) India
- D) USA
Why: Luca Pacioli was from Italy.
A bank account is which type of account?
- A) Personal ✔
- B) Real
- C) Nominal
- D) Capital only
Why: A bank is an institution, so a bank account is a personal account.
Salary paid is which type of account?
- A) Nominal ✔
- B) Real
- C) Personal
- D) Capital
Why: Salary paid is an expense, so it is a nominal account.
Goods (stock) is which type of account?
- A) Real ✔
- B) Nominal
- C) Personal
- D) Liability
Why: Goods (stock) are assets, so it is a real account.
Commission received is a nominal account and is:
- A) Credited ✔
- B) Debited
- C) Ignored
- D) Capitalised
Why: Commission received is income, and incomes are credited under the nominal rule.
Cash received in business is:
- A) Debited (what comes in) ✔
- B) Credited
- C) Ignored
- D) Capitalised
Why: Cash is a real account; what comes in is debited.
The cash book records:
- A) All cash and bank receipts and payments ✔
- B) Only sales
- C) Only salary
- D) Only stock
Why: The cash book records all cash and bank receipts and payments.
The trial balance checks:
- A) That total debits equal total credits ✔
- B) Profit only
- C) Tax only
- D) Audit opinion
Why: The trial balance checks that total debits equal total credits in the ledger.
The trading and profit and loss account shows:
- A) Gross profit and net profit or loss ✔
- B) Only assets
- C) Only liabilities
- D) Only capital
Why: The trading account shows gross profit; the profit and loss account then shows net profit or loss.
The correct order of the accounting process is:
- A) Transaction → journal → ledger → trial balance → final accounts ✔
- B) Ledger → journal → transaction
- C) Final accounts → trial balance → journal
- D) Trial balance → transaction → ledger
Why: The usual order is: transaction → journal → ledger → trial balance → final accounts.
The cash basis records income when:
- A) Cash is received ✔
- B) Income is earned
- C) Budget is approved
- D) Audit is done
Why: The cash basis records income only when cash is actually received.
If sales are Rs 10,000 and cost of goods sold Rs 6,000, gross profit is:
- A) Rs 4,000 ✔
- B) Rs 16,000
- C) Rs 6,000
- D) Rs 10,000
Why: Gross profit = 10,000 − 6,000 = Rs 4,000.
Gross profit Rs 4,000, other expenses Rs 1,500 and other income Rs 500 give a net profit of:
- A) Rs 3,000 ✔
- B) Rs 2,500
- C) Rs 5,000
- D) Rs 6,000
Why: Net profit = 4,000 − 1,500 + 500 = Rs 3,000.
An independent check of accounts is called:
- A) Audit ✔
- B) Journal
- C) Ledger
- D) Depreciation
Why: An audit is an independent check of accounts and records to see whether they are correct and follow the rules.
Depreciation applies to:
- A) Fixed assets ✔
- B) Cash
- C) Capital
- D) Creditors
Why: Depreciation applies to fixed assets such as buildings, machines and vehicles, which lose value over years of use.
A supplier who sold goods on credit is a:
- A) Creditor ✔
- B) Debtor
- C) Owner
- D) Auditor
Why: A supplier who sold on credit is owed money by the business, so they are a creditor.
A customer who bought goods on credit is a:
- A) Debtor ✔
- B) Creditor
- C) Owner
- D) Auditor
Why: A customer who bought on credit owes money to the business, so they are a debtor.
Rent received is:
- A) Income, credited ✔
- B) Expense, debited
- C) An asset
- D) A liability
Why: Rent received is income; under the nominal-account rule, incomes are credited.
Loss by fire is:
- A) Debited as a loss ✔
- B) Credited as income
- C) An asset
- D) Capital
Why: Loss by fire is a loss; under the nominal-account rule, losses are debited.
A bank reconciliation statement explains differences between:
- A) Cash book and bank statement ✔
- B) Journal and ledger
- C) Assets and capital
- D) Sales and purchases
Why: It explains differences between the cash book balance and the bank statement balance, such as cheques not yet cleared.
In double entry, total debits always equal:
- A) Total credits ✔
- B) Total assets
- C) Total sales
- D) Zero
Why: In double entry, total debits always equal total credits.
Which statement shows financial position on a given date?
- A) Balance sheet ✔
- B) Trading account
- C) Journal
- D) Cash book
Why: The balance sheet shows the financial position (assets, liabilities and capital) on a given date.