Source: B. Parvithiswara Rao, “Accounting for Management”, Duvvuri Publications, Pg.22.

OBJECTIVE TYPE QUESTIONS

1. State whether each of the following statement is ‘True’ or ‘False’ True / False
a. Accounting is the language of the business
b. Accounting can be useful only for recording business transactions
c. Accounting records only transactions which are of a financial character.
d. Book-Keeping and Accounting are synonymous terms
e. Accounting is as old as money itself.

Ans. (a)True, (b)False, (c) True, (d) False (e)True

2. Point out whether the following statements are true or false True / False
i. The balance sheet represents an expansion of the equation “Assets =Liabilities +
Capital”
ii. Assets – Original Capital = Liabilities
iii. Ram has assets of Rs.16,000 and liabilities of Rs.6,000. His capital, therefore,
would be Rs.22,000.
iv. Assets will be equal to capital if there are no liabilities of the business.
v. If a firm borrows a sum of money, its capital will be reduced.
vi. Withdrawals by owners would reduce both assets and owner’s equity.
viii. Both assets and owner’s equity would increase by purchase of furniture on
credit.

Notes: Assets = Liabilities + Capital (or) Assets – Liabilities = Capital

Ans. (ii), (iii), (v) and (vii) are wrong

3. Which of the following statements are correct True / False

a. Nominal accounts are the accounts of assets.
b. For nominal accounts, the rule of the double entry system is: debit all expenses
and losses and credit all incomes and gains
c. The basic rule of book-keeping “debit what comes in and credit what goes out”
is applicable to personal accounts.
d. Bank account is a nominal account.
e. Machinery account is related to real account.
f. Wages account is nominal account.
g. Capital = Net Assets.

Ans. (b), (e), (f) and (g)