Banking Financial Awareness · Commerce Accountancy

Credit, Debt, and Finance

1,435 Questions

This topic covers essential concepts of credit, debt, and finance including bankruptcy, debt recovery, and financial acts. These questions are frequently asked in banking and IBPS exams. Test your knowledge of financial terminology and loan classifications.

Debt recovery actsBankruptcy filing proceduresFinancial classificationsMedium term financeCredit loss management

Credit, Debt, and Finance Questions

Multiple choice business organisation capital market money markets participants in money market types of markets

_______ is a short-term, negotiable, self-liquidating instrument which is used to finance the credit sales of firms.

  1. Commercial Bill

  2. Treasury Bill

  3. Call money

  4. None of the above
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

A commercial bill is a short-term, negotiable, self-liquidating instrument which is used to finance the credit sales of firms. Commercial bills are known as trade bills or accommodation bills. These are common instruments used in credit purchase and sale. These have short term maturity period generally 90 days and can be discounted with bank even before the maturity period.

Multiple choice business organisation capital market money markets participants in money market types of markets

_______ are issued at a price which is lower than their face value and repaid at par.

  1. Commercial Paper

  2. Certificate of Deposit

  3. Commercial Bill

  4. Treasury Bill
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Treasury bill are issued at a price which is lower than their face value and repaid at par. A treasury bill is basically an instrument of short-term borrowing by the Government of India maturing in less than one year.  Treasury bills enable government to get short term borrowings as these bills are sold to banks and general public. Maturity of Treasury bills varies from 14 to 364 days.

Multiple choice business organisation capital market money markets participants in money market types of markets

Treasury bills are also known as Zero Coupon Bonds that are available for a minimum of ______  and in multiples thereof.

  1. 20000

  2. 25000

  3. 30000

  4. 35000
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Treasury bills are also known as Zero Coupon Bonds that are available for a minimum of and in multiples thereof. A treasury bill is basically an instrument of short-term borrowing by the Government of India maturing in less than one year.  Treasury bills enable government to get short term borrowings as these bills are sold to banks and general public. Maturity of Treasury bills varies from 14 to 364 days.

Multiple choice business organisation capital market money markets participants in money market types of markets

A commercial bill is used to _____________.

  1. Pay the interest

  2. Meet the short term debt

  3. Finance the working capital requirements

  4. Meet the long term debt
Reveal answer Fill a bubble to check yourself
A,C Correct answer
Explanation

Working capital financing is done by various modes such as trade credit, cash and discount of bills, bank guarantee, letter of credit, factoring, commercial paper, working capital financing extensively used by all small and big businesses.

Multiple choice business organisation capital market money markets participants in money market types of markets

A __________ is a short-term, negotiable, self-liquidating instrument which is used to finance the credit sales of firms.

  1. money market

  2. treasury bill

  3. certificate of deposit

  4. commercial bill
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

A commercial bill is a short-term, negotiable, self-liquidating instrument which is used to finance the credit sales of firms. Commercial bills are known as trade bills or accommodation bills. These are common instruments used in credit purchase and sale. These have short term maturity period generally 90 days and can be discounted with bank even before the maturity period.

Multiple choice commercial studies accounting procedures - rules of debit and credit modern approach of rules of accounts meaning and classification of accounts classification of accounts

Loan account is personal account.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Personal accounts are related to individuals, firms, companies, etc. A few examples of personal accounts are debtors, creditors, banks, outstanding/prepaid accounts, accounts of credit customers, accounts of goods suppliers, capital, drawings, etc.

Personal accounts are classified into three subcategories: Artificial, Natural, and Representative.
Representative accounts represent a certain person or group directly or indirectly.
Loan account is a representative personal account, as it represents the person from whom the loan is obtained or to whom the loan is given. Hence, it is classified as a personal account.

Multiple choice commercial studies accounting procedures - rules of debit and credit modern approach of rules of accounts meaning and classification of accounts classification of accounts

Interest receivable from Mohan, a Borrower Account is ______________.

  1. Natural Personal Account

  2. Artificial Personal Account

  3. Representative Personal Account

  4. None of these
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Interest receivable is an asset representing money owed by a person. It is a representative personal account because it stands for the interest due from Mohan.

Multiple choice commercial studies accounting procedures - rules of debit and credit modern approach of rules of accounts meaning and classification of accounts classification of accounts

Interest received in advance from Mohan, a borrower Account is ________________.

  1. Natural Personal Account

  2. Artificial Personal Account

  3. Representative Personal Account

  4. None of these
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Interest received in advance is a liability representing an obligation to provide a service or refund. It is a representative personal account representing the borrower's claim.

Multiple choice civics rural livelihoods village of katik and kekti tanks and fisheries fishing in coastal regions

Often farmers borrow money from __________.

  1. Moneylenders

  2. Mutual Funds

  3. Corporate houses

  4. None of these
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Farmers rely on the informal sources of credit as it is the easiest way to borrow funds, even though the rate of interest is high. So they often borrow money from the moneylenders in the form of loans to purchase the basic things for their farms like pesticides, seeds, cattle, fertilizers, etc.

Multiple choice book keeping and accountancy adjustments drawing account of partners interest on drawings interest on partner's drawings and capital

Interest on Drawings is:

  1. Debited to P/L A/C

  2. Credited to P/L A/C

  3. Debited to capital A/C

  4. None
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Interest on Drawings will be debited to capital account. Interest on drawing is an income for the firm and is payable by the partners to the firm hence, is deducted/debited. Interest is charge on the money/goods taken by the partners for their personal use during the year. 

Multiple choice elements of accounts journal proper balancing of accounts balancing the accounts introduction to journal proper

Select the most appropriate alternative from those given below:
Reserve for discount on debtor has a _______ balance.

  1. credit

  2. debit

  3. nil

  4. positive
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

All the reserves and provisions are made out of profit. Profit being a nominal account has a credit balance. Therefore, all the reserves and provisions also have a credit balance. 

Reserve for discount on debtors is made in order to make a provision to allow discount to the debtors on payment. Discount on debtors is an expense and thus the business provides for it in advance. 
The entry is:
Profit and Loss A/c............Dr.
To Reserve for discount on debtors A/c.
Thus, the correct option is A.

Multiple choice elements of accounts journal proper balancing of accounts balancing the accounts introduction to journal proper

Bad debts reserve account always shows ________ balance.

  1. credit

  2. debit

  3. zero

  4. positive
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The bad debt reserve is a provision for the estimated amount of bad debt that is likely to arise from existing account receivable. A bad debt reserve is a contra account, which is designed to offset the receivables account with which it is prepared. The receivables account has a natural debit balance, while the bad debt reserve has a natural credit balance.

Multiple choice book keeping and accountancy adjustments in preparation of financial statements outstanding and prepaid expenses outstanding expenses need for adjustment, closing stock and outstanding expenses

Which of the following items will have a debit balance?

  1. Income received in advance

  2. Bank loan

  3. Prepaid insurance premium

  4. Reserve for doubtful debts
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Prepaid insurance is an asset because it represents a payment made for a future service. Assets have a debit balance in accounting.

Multiple choice book keeping and accountancy reserve and fund meaning and characteristics of reserves reserves provisions and reserves

Reserve is created for__________.

  1. known liabilities

  2. unknown liabilities

  3. for legal compliance

  4. none of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

They are the portion of profits set aside to strengthen the financial position of a business. Generally, reserves are created to meet unknown future obligations which may arise due to miscellaneous business reasons.