Final Accounts and Financial Statements Questions and Answers

Q: Which of the financial statement gets prepared first ?

The statement prepared first is the income statement.The income statement (profit and loss account) works out the net profit or loss for the period. That figure is needed for everything that follows:Income statement: gives net profit.Statement of retained earnings: adds net profit to opening retained earnings and deducts dividends.Balance sheet: carries the closing retained earnings into equity.Cash flow statement: uses profit and the balance sheet changes.So the balance sheet and the cash flow statement cannot be completed before the income statement.

Q: Which is not the example of current liabilities ?

The item that is not a current liability is contingent liabilities.A contingent liability is a possible obligation that depends on an uncertain future event, such as a guarantee given for a loan or a claim being disputed in court. Because it is not yet an actual liability, it is not included among the liabilities in the balance sheet and is disclosed by a note instead.The others are actual obligations payable within a year. Advances from customers must be met by supplying goods or refunding, a bank overdraft is repayable on demand, and provident fund dues owed to the authorities must be paid shortly.

Q: Which one of the following is not a contingent liability ?

The one that is not a contingent liability is underwriting commission payable.A contingent liability depends on a future event that may or may not happen. Underwriting commission payable is an amount the company already owes for a service received, so it is an actual liability.A discounted bill becomes a liability only if the drawee fails to pay at maturity (A); arrears of cumulative preference dividend become payable only when dividend is declared (C); and uncalled capital on partly paid investments is payable only if the company calls it (D). All three are contingent.

Which of the following item will appear in credit side of trading account

A.Opening stock
B.Gross loss
C.Direct expenses
D.Carriage inward

Exam Year(s)

DSSSB - 2023,

Answer: B

Gross loss appears on the credit side of the trading account. The credit side takes sales (less returns) and closing stock, and when the debit side is larger, the balancing figure is shown on the credit side as gross loss and carried to the profit and loss account. Opening stock, direct expenses and carriage inward are all costs of getting goods ready for sale, so they are debited to the trading account, not credited. Hence only the gross loss is a credit-side item among the options.

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Which of the following is not recorded in profit and loss account

A.Carriage outward
B.Direct expenses
C.Profit on sale of assets
D.Audit fees

Exam Year(s)

DSSSB - 2023,

Answer: B

Direct expenses are not recorded in the profit and loss account; they are charged in the trading account because they are incurred in bringing goods to a saleable condition or in making them (wages, freight, carriage inward and the like). Carriage outward is a selling and distribution expense, audit fees are an administrative expense and profit on sale of assets is a non-trading gain, so these three are items of the profit and loss account. That leaves direct expenses as the item that belongs to the trading account.

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What will be the amount of purchase if, cost of goods is Rs. 80,000, opening inventory Rs. 5,000 and closing inventory Rs. 6,000

A.Rs. 79,000
B.Rs. 81,000
C.Rs. 69,000
D.Rs. 91,000

Exam Year(s)

DSSSB - 2023,

Answer: B

The purchases are Rs. 81,000. The cost of goods sold is found as opening inventory plus purchases less closing inventory. \[80{,}000 = 5{,}000 + P - 6{,}000\] \[P = 80{,}000 + 6{,}000 - 5{,}000 = 81{,}000\] The figure Rs. 79,000 would result from adding the closing stock and subtracting the opening stock the wrong way round, and Rs. 69,000 and Rs. 91,000 come from other slips in the adjustment for opening and closing inventory.

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______________ is the financial statement that is prepared to show the financial position of the organisation on a specific date

A.Trading account
B.Profit and loss account
C.Profit and loss appropriation account
D.Balance Sheet

Exam Year(s)

DSSSB - 2023,

Answer: D

The Balance Sheet is the statement prepared to show the financial position of an organisation on a specific date, listing its assets, liabilities and capital at that date. The trading account and the profit and loss account show results for a period, that is gross profit and net profit or loss, not a position at a date. The profit and loss appropriation account only shows how the profit is divided, for example into reserves and dividends. So only the balance sheet answers the question.

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An asset is classified as current asset when:
(i) it is expected to be realised or intends to be sold or consumed in normal operating cycle of the organisation.
(ii) the asset is held primarily for the purpose of trading.
(iii) it is expected to be realised within twelve months after the reporting period.
(iv) it is non- restricted cash or cash equivalent.

A.Only (i) and (ii)
B.Only (ii) and (iii)
C.Only (i), (ii) and (iii)
D.All (i), (ii) , (iii) and (iv)

Exam Year(s)

DSSSB - 2023,

Answer: D

All four conditions classify an asset as current. An asset is current if it is expected to be realised, sold or consumed in the normal operating cycle of the organisation, if it is held primarily for the purpose of trading, if it is expected to be realised within twelve months after the reporting period, or if it is cash or a cash equivalent that is not restricted. Since any one of these conditions is enough and all four are listed, 'All (i), (ii), (iii) and (iv)' is right.

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Which of the financial statement gets prepared first ?

A.Income statement
B.Statement of the retained earnings
C.Statement of the cash flows
D.Balance Sheet

Exam Year(s)

RSMSSB - 2025, NHM Rajasthan Pharmacist - 2025, Rajasthan NHM Pharma Assistant - 2025,

Answer: A

The statement prepared first is the income statement.

The income statement (profit and loss account) works out the net profit or loss for the period. That figure is needed for everything that follows:

Income statement: gives net profit.
Statement of retained earnings: adds net profit to opening retained earnings and deducts dividends.
Balance sheet: carries the closing retained earnings into equity.
Cash flow statement: uses profit and the balance sheet changes.

So the balance sheet and the cash flow statement cannot be completed before the income statement.

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Which is not the example of current liabilities ?

A.Advance from customers
B.Contingent liabilities
C.Bank overdraft
D.Provident fund dues

Exam Year(s)

MH SET - 2018, SET Exam - 2018,

Answer: B

The item that is not a current liability is contingent liabilities.

A contingent liability is a possible obligation that depends on an uncertain future event, such as a guarantee given for a loan or a claim being disputed in court. Because it is not yet an actual liability, it is not included among the liabilities in the balance sheet and is disclosed by a note instead.

The others are actual obligations payable within a year. Advances from customers must be met by supplying goods or refunding, a bank overdraft is repayable on demand, and provident fund dues owed to the authorities must be paid shortly.

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Which one of the following is not a contingent liability ?

A.B/R discounted but not matured
B.Underwriting commission payable
C.Arrears of cumulative dividend on preference shares
D.Uncalled capital on investments

Exam Year(s)

MH SET - 2020, SET Exam - 2020,

Answer: B

The one that is not a contingent liability is underwriting commission payable.

A contingent liability depends on a future event that may or may not happen. Underwriting commission payable is an amount the company already owes for a service received, so it is an actual liability.

A discounted bill becomes a liability only if the drawee fails to pay at maturity (A); arrears of cumulative preference dividend become payable only when dividend is declared (C); and uncalled capital on partly paid investments is payable only if the company calls it (D). All three are contingent.

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Receipts and Payments Account is prepared by

A.Manufacturing concerns
B.Non-Trading concerns
C.Trading concerns
D.Companies registered under Companies Act, 1956

Exam Year(s)

UGC NET - 2012,

Answer: B

A Receipts and Payments Account is prepared by non-trading concerns such as clubs, societies, charitable trusts, hospitals and educational institutions. It is a summary of the cash book: every cash receipt and payment is listed under its head, whether it relates to the current period or not, and the opening and closing cash and bank balances are shown.

Manufacturing and trading concerns keep full books and prepare a Trading and Profit and Loss Account. Companies registered under the Companies Act, 1956 must prepare a Profit and Loss Account and Balance Sheet in the prescribed forms, so none of those three is the right answer.

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10.

The funds available with a company after paying all claims including tax and dividend is called

A.Net Profit
B.Net Operating Profit
C.Capital Profit
D.Retained Earnings

Exam Year(s)

UGC NET - 2012,

Answer: D

The funds available with a company after paying all claims, including tax and dividend, are its retained earnings. Retained earnings are the part of profit after tax that is not distributed as dividend and is ploughed back into the business as an internal source of finance.

Net profit is the figure before the dividend has been deducted, and net operating profit is the profit before interest and tax. Capital profit arises from the sale of fixed assets or the issue of shares at a premium, not from trading, so neither fits the description of what is left after all claims.

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