Commerce Accountancy

Accounting Principles and Practice

1,227 Questions

Accounting principles and practice questions cover core concepts like assets, depreciation, financial statements, and ledger adjustments. These topics are essential for commerce students preparing for academic and competitive exams. Regular practice ensures a strong grasp of standard accounting standards and business operations.

Asset depreciationFinancial statement adjustmentsAccounting standardsSingle entry systemCapital expenditure

Accounting Principles and Practice Questions

Multiple choice commercial studies budgeting distinction between funds flow and cash flow statements preparation of cash flow statement statement of changes in financial position

Conversion of debenture into share capital results in _________.

  1. sources of funds

  2. sources of cash

  3. application of funds

  4. no flow of fund
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Conversion of debenture through share capital does not involve any outflow of funds. 

Its only an accounting transaction where debentures are converted into shares. No funds are utilized in such case. 

Multiple choice commercial studies budgeting distinction between funds flow and cash flow statements preparation of cash flow statement statement of changes in financial position

Which of the following is added to net profit in order to arrive the amount of funds from operation?

  1. Depreciation on machinery.

  2. Profit on sale of fixed assets.

  3. Profit of revaluation of land.

  4. Interest from investments.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Cash flow under Indirect method is calculated by adding non cash expenses like depreciation, amortization. Therefore, among the following options, depreciation is the non cash item which is added to net profit to arrive at the amount of funds from operation.

Multiple choice commercial applications generally accepted accounting principles (gaap) distinction between accounting and book-keeping distinction between book-keeping and accounting meaning and objectives of accounting

Which of the following statement is correct?

  1. Fixed assets must always be shown at market value

  2. Book-keeping and accounting are different terms
  3. Owner's Equity $=$ Assets + Liabilities

  4. Patents is an example of current asset
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Book Keeping and accounting are different terms. Book Keeping and Accountancy are often used interchangeably but these are not identical. Book keeping is an art , accountancy is a science. The work of book keeping is handled by the junior staff  whose primary responsibility is to record all the transactions in various books maintained by the business. The information contain in these books itself doe not provide any financial position until these information is analyse and interpreted in a logical manner. This task is done by the accountants. 

Multiple choice elements of accounts accounting equation explain the concept of accounting equation usefulness of an accounting equation accounting equations and transactions

Which of the following accounting equation is correct?

  1. Assets + Capital = Liabilities

  2. Assets + Liabilities = Capital

  3. Assets + Liabilities + Capital = Nil

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

The fundamental accounting equation is Assets = Liabilities + Capital (or Owner's Equity). Since none of the options A, B, or C correctly state this relationship, 'None of the above' is the correct choice.

Multiple choice elements of accounts accounting equation explain the concept of accounting equation usefulness of an accounting equation accounting equations and transactions

Which of the following, equations properly represents a derivation of the fundamental accounting equation?
(a) Assets + Liabilities = Owner Equity
(b) Asset = Owner Equity
(c) Cash = Assets
(d) Assets - Liabilities = Owner Equity

  1. Only (a)

  2. Both (a) & (b)

  3. All (a), (b), (c), (d)

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

Accounting is based on dual aspect which signifies that for every debit, there will be a credit and vice versa.

Accounting Equation may be defined as:

Owners Equity + Liabilities = Total Assets
i.e.
Capital + Reserves & surplus + Liabilities = Fixed Assets + Current Assets.

Multiple choice elements of accounts accounting equation explain the concept of accounting equation usefulness of an accounting equation accounting equations and transactions

Accounting equation is as follows __________________.

  1. $Capital + Liabilities$
  2. $Assets = Equities$
  3. $Capital = Liabilities$
  4. $Assets = Liabilities$
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Dual aspect is the foundation or basic principle of accounting. This concept states that every transaction has a dual or two-fold effect and should therefore be recorded at two places.

The duality principle is commonly expressed in terms of fundamental Accounting Equation, which is as follows :

Assets = Liabilities + Capital

In other words, the equation states that the assets of a business are always equal to the claims of owners and the outsiders. The claims also called equity of owners is termed as Capital(owners’ equity) and that of outsiders, as Liabilities(creditors equity), which together are called as Equities.

Hence, option (B) is correct.

Multiple choice elements of accounts accounting equation explain the concept of accounting equation usefulness of an accounting equation accounting equations and transactions

Which of the following is an accounting equation?

  1. Assets = Capital/Liabilities

  2. Capital = Assets - Liabilities

  3. Assets = Liabilities - Capital

  4. Liabilities = Assets + Capital
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Accounting equation may defined as:

Capital+Liabilities= Total assets

This can further be presented as:
Capital=Total assets-Liabilities

Multiple choice elements of accounts accounting equation explain the concept of accounting equation usefulness of an accounting equation accounting equations and transactions

From the following which is according to Dual aspects.

  1. Capital = Liabilities + Assets

  2. Assets = Liabilities + Capital

  3. Assets = Liabilities - Capital

  4. Liabilities = Assets + Capital
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

As per dual concept, every transaction has two effects. One effect must be debit and the other must be credit. Dual aspect concept has been made on the basis of accounting equation. In accounting equation, there are two sides. One side represents total assets and other side represents total liabilities. The total liabilities include capital and external liabilities. Assets always equal to liabilities. 


The accounting equation is as follows:
Capital + Liabilities = Assets.

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. Expenditure for the business

  2. Expense for the business

  3. Gain for the business

  4. Loss for the business
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Business entity concept defines that firm and its owners are having separate legal entity. 

Hence, capital is shown as liability and interest charged on capital is considered as expenses. 
Opposite to this, interest charged on drawing is to be debited to capital account and its a gain for the business.

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

Interest on drawing is ________ for the business.

  1. expenses

  2. gain

  3. neither expenses nor gain

  4. expense or gain depending on the situation
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

When a partner withdraws cash from the firm for domestic use, the withdrawal of cash is termed as drawings. If the partnership deed has a provision of charging interest on drawings, the firm may charge interest on drawings from partners. Interest on drawing is a gain for the firm. It is calculated at the agreed rate. The amount of interest on drawings will be credited to Profit and Loss Appropriation Account and will be debited to partner’s capital account/current account (Individually).

Multiple choice commercial studies sources of business finance - 2 equity shares share and stock equity and preference shares

As equity capital stands last in the list of claims, it provides a cushion for __________.

  1. Debtors

  2. Creditors

  3. Owners

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

Equity capital are permanent source of capital and can be only returned at the time of liquidation of the company. Thus equity capital stands last in the list of claims, it provides a cushion for creditors claims that needs to be settled at the time of liquidation.

Multiple choice commercial studies sources of business finance - 2 equity shares share and stock equity and preference shares

Equity capital serves as ____________ capital as it is to be repaid only at the time of liquidation of a company.

  1. Temporary

  2. Permanent

  3. Fluctuating

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

Equity share capital is the prerequisite before the creation of a company. 

It is a source of finances raised for the formation of the company and it also represents the ownership of the company.
Equity capital serves as a permanent capital as it is to be repaid only at the time of liquidation.

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

Expenses Paid in advance are called ________. 

  1. Prepaid Expense

  2. O/s Expense

  3. Asset

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

Prepaid expenses are future expenses that have been paid in advance. In other words, prepaid expenses are costs that have been paid but are not yet used up or have not yet expired.

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

Income received in advance is _______.

  1. A liability

  2. An asset

  3. An income

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

Under the accrual method of accounting, income that is received in advance is a liability because the company that received the money has not yet earned it and it has an obligation (a liability) to deliver the related goods or services in the future.

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

The adjustment to be made for prepaid expenses is?

  1. Add prepaid expenses to respective expenses and show it as an asset

  2. Deduct prepaid expenses from respective expenses and show it as an asset

  3. Add prepaid expenses to respective expenses and show it is a liability

  4. Deduct prepaid expenses from respective expenses and show it as a liability
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

To adjust for prepaid expenses, you deduct the prepaid portion from the total expense in the Profit and Loss account and show the prepaid amount as an asset on the balance sheet.