Balance sheet knowledge is very important as far as commerce or finance students are concerned because one has to face balance sheet related questions in both exams as well as during interviews, given below are some true and false questions on balance sheet
Q1. Prepaid Expenses is a current liability
Answer – False, prepaid expenses is a current asset and it comes under asset side of the balance sheet.
Q2. The balance sheet is prepared once every year.
Answer – True, a balance sheet is prepared once every financial year and it shows the balance of assets and liabilities of the company as on particular date.
Q3. Contingent liabilities appear on the balance sheet of the company
Answer – False, contingent liabilities do not appear on the balance sheet rather they are shown as a footnote to the balance sheet.
Q4. Sundry creditors, outstanding expenses, bills payable and bank loan all fall under current liabilities
Answer – False, as bank loan is a long term liability as it is payable after more than 1 year whereas under current liability only those liabilities come which are payable within a year.
Q5. Provision for bad debts can come under both asset or liability side of the balance sheet
Answer – True, provision for bad debts can be shown as a deduction from debtors on the asset side or it can be shown as current liabilities in the balance sheet while sundry debtors will be shown at full value on the asset side.
Q6. Land and building, machinery, furniture, investments all come under Fixed assets
Answer – False, except investments all above items come under fixed assets, because fixed assets are those tangible things which firm uses for generating income for the company and investments do not fulfill the criteria.
Q7. Goodwill and trademarks do not appear on the balance sheet
Answer – False, both goodwill and trademarks appear on the asset side of the balance sheet. They are shown under the heading intangible assets in the balance sheet of the company.
Q8. Accumulated depreciation is shown as separate item on the asset side of the balance sheet
Answer – False, Accumulated depreciation is not shown as a separate item on the asset side of the balance sheet rather it is shown as a deduction from the concerned asset account. So for example, if plant and machinery are worth $100000 and accumulated depreciation on it is $20000 than in the balance sheet the value of plant and machinery will be shown as $80000 and not $100000.