61. Retained Earnings is classified as which type of account?
(A) Asset
(B) Liability
(C) Expense
(D) Stockholders’ equity
Answer: (D) Stockholders’ equity
- Explanation: Retained Earnings represent the accumulated profits of a company that have been retained in the business and not distributed as dividends. This amount belongs to the owners (stockholders) and is therefore classified as part of Stockholders’ (or Owners’) Equity.
62. Due to which of the following concepts, the capital contribution by an owner is a liability for business enterprise?
(A) Going concern concept
(B) Separate entity concept
(C) Accrual concept
(D) None of these
Answer: (B) Separate entity concept
- Explanation: The Separate Entity Concept (or Business Entity Concept) states that the business and its owner are to be treated as two separate entities for accounting purposes. Under this concept, the capital contributed by the owner is treated as an amount owed by the business to the owner, hence it is shown as a Liability on the Balance Sheet.
63. Identify the accounting concept applied when advance received from a customer is not recorded as sales:
(A) Revenue recognition
(B) Cost
(C) Consistency
(D) Matching
Answer: (A) Revenue recognition
- Explanation: The Revenue Recognition Concept dictates that revenue should only be recorded when it is earned (i.e., when the goods have been delivered or services rendered). An advance from a customer is merely a receipt of cash; the earning process is not complete. Therefore, it is recorded as an unearned liability and not as sales until the goods or services are provided.
64. NACAS stands for:
(A) National Advisory Committee on Accounting Standards
(B) National Accounting Council on Accounting Standards
(C) National Accounting Committee on Accounting Standards
(D) None of the above
Answer: (A) National Advisory Committee on Accounting Standards
- Explanation: NACAS is the abbreviation for the National Advisory Committee on Accounting Standards.
65. Real Accounts always show:
(A) Debit balance
(B) Credit balance
(C) Nil balance
(D) Cannot be balanced
Answer: (D) Cannot be balanced
- Explanation: The statement that Real Accounts “always show” a Debit, Credit, or Nil balance is incorrect. Real Accounts (like Asset accounts) usually show a Debit Balance (e.g., Cash, Machinery), but they can show a Nil Balance (if the asset is completely disposed of). The most accurate statement among the provided choices, although slightly ambiguous in its phrasing, is that they cannot always be balanced to zero in the ledger during the period, as their balance (representing the remaining asset) is carried forward. However, in the context of typical accounting questions, Real Accounts usually show a Debit Balance. Given the options, and recognizing that assets are often carried forward, the typical balance is debit. Since a zero balance is possible and the question asks what they always show, the intended answer might be the most common balance, but since ‘Cannot be balanced’ is present, and Real Accounts usually have a debit balance unless fully disposed of, the options are weak. Sticking to the most common balance type for assets: Debit balance (Option A) is often considered the implied answer. Let’s select the technically correct one in a single entry accounting context: Assets (Real Accounts) typically have a debit balance. (A) Debit balance.
66. If a cheque issued by us is dishonoured the credit is given to :
(A) Bank account
(B) Supplier’s account
(C) Customer’s account
(D) None of the above
Answer: (A) Bank account
- Explanation: When a cheque issued by the firm is dishonoured (bounced), the entry initially made to credit the Bank Account (on issue) must be reversed.
- The Supplier’s Account (Payee) is Debited (since the liability, which was initially deemed settled, is re-established).
- The Bank Account is Credited (to reduce the bank balance back to its original position, as the payment was not made).
67. Errors which are not disclosed by Trial Balance are :
(A) Errors of partial omission
(B) Errors of complete omission
(C) Errors of carrying forward
(D) Wrong totalling to ledger
Answer: (B) Errors of complete omission
- Explanation: The Trial Balance helps in detecting errors that affect the equality of the debit and credit totals (like partial omission, wrong totalling, or wrong carrying forward). Errors of Complete Omission (where a transaction is not recorded at all in the journal and ledger) do not affect the equality of the Trial Balance totals because both the debit and credit sides are equally understated.
68. Transfer items of revenues and expenses to Trading and Profit and Loss Account are made by means of Journal entries which are technically called
(A) Closing entries
(B) Opening entries
(C) Double entries
(D) None of these
Answer: (A) Closing entries
- Explanation: Journal entries passed at the end of the accounting period to transfer the balances of nominal accounts (revenues and expenses) to the Trading and Profit and Loss Account and ultimately to the Capital Account are known as Closing Entries.
69. The unfavourable balance of Profit and Loss account should be :
(A) Subtracted from liabilities
(B) Subtracted from capital
(C) Subtracted from current assets
(D) Added in liabilities
Answer: (B) Subtracted from capital
- Explanation: An unfavorable balance in the Profit and Loss Account signifies a Net Loss. Since Net Profit increases the owner’s capital and Net Loss decreases it, the Net Loss must be Subtracted from Capital on the Liabilities side of the Balance Sheet.
70. Given the following, what is the amount of Capital?
Assets: Premises ₹20,000, Stock ₹8,500, Cash ₹100.
Liabilities: Creditors ₹3,000, Loan from Mr. A ₹4,000.
(A) 21,100
(B) 21,400
(C) 21,600
(D) 32,400
Answer: (B) 21,400
71. Liability of a shareholder is limited to _______ of the shares allotted to him.
(A) Paid up Value
(B) Called up value
(C) Face value
(D) Reserve Price
Answer: (C) Face value
- Explanation: In a limited company, the liability of a shareholder is restricted to the unpaid amount of the Face Value (or Nominal Value) of the shares held by them. Once the full face value is paid, their liability ceases.