Commerce Accountancy

Accounting Principles and Practice

1,241 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 elements of accounts ancient indian accounting meaning of accounting introduction to book-keeping and accounting book-keeping - ledger

Valuation is _______________.

  1. Sophisticated guess work

  2. An exact science

  3. Not related to the future

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

Valuation involves estimating the worth of assets or businesses. Because it relies on assumptions, forecasts, and market conditions, it is considered sophisticated guesswork rather than an exact science.

Multiple choice elements of accounts ancient indian accounting meaning of accounting introduction to book-keeping and accounting book-keeping - ledger

In annuity method interest is calculated ______________.

  1. on the value of the asset at the time of purchase

  2. on the value of the asset at the beginning of each year

  3. on the value of asset as expected at the end value of asset

  4. Both a & b
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Concept of Annuity Method of Depreciation:
The interest at this fixed rate on the opening balance of asset is debited to asset account each year and then the cost of asset together with interest thereon is written off equally over the life of the asset.

Multiple choice business studies sources of business finance internal & external stakeholders and distinction between shareholders, stakeholders and customers stakeholders in commercial organisation stakeholders

________ contributes asset in a form of capital or equity.

  1. An investor

  2. A Creditor

  3. Employees

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

 An investor contributes asset in a form of capital or equity. Investors invests capital or wealth in any company or financial market to receive some financial gain in return.

Multiple choice business studies sources of business finance internal & external stakeholders and distinction between shareholders, stakeholders and customers stakeholders in commercial organisation stakeholders

_____ contributes asset in the form of debt or liability.

  1. A debtor

  2. An investor

  3. Customer

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

 A creditor contributes asset in the form of debt or liability. Company or business organization owes money to creditors, thus, creditor contributes money in the debt or liability form.

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

Nominal A/c is debited when business incurs expenses.

  1. True

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

Accounts which are related to expenses, losses, incomes or gains are called Nominal accounts. The dictionary meaning of the word "nominal" is "existing in name only" and the meaning remains absolutely true in accounting sense too, because nominal accounts do not really exist in physical form, but behind every nominal accounts money is involved. E.g. Purchase A/c, Salary A/c, Sales A/C. Commission Received A/c, etc.

The final result of all nominal accounts is either profit or loss which is then transferred to the capital account. 
The golden rule for nominal account is : Debit all expenses and losses; Credit all incomes and gains.

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

Which one of the following statements is correct?

  1. Capital of the firm is reduced by borrowing

  2. Nominal accounts refer to false transactions

  3. When there is no change In proprietors capital, it is an indication of loss in business.

  4. Real accounts relate to the assets of a business
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Real account is an record of an asset. An asset can be current asset such as cash, a fixed asset such as building and intangible asset such as goodwill. Real account relate to the assets & liabilities of a business.

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

Cash flow per share is _________________.

  1. Required to be reported on balance sheet.

  2. Required to be reported on Income statement.

  3. Required to be reported on the statement of cash flows.

  4. Not required to be reported on any statement.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Cash flow per share can be calculated by dividing cash flow earned in a given reporting period by the total number of shares outstanding during the same term. Because the number of shares outstanding can fluctuate, a weighted average is typically used. Hence, it is not required to be reported on any statement.

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

Under indirect method, which of the following items must be deducted from reported net income to determine net cash flow from operating activities?

  1. Depreciation of fixed assets

  2. Decreases in current assets

  3. Decreases in current liabilities

  4. Loss on sale of equipment
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Indirect method of ascertaining cash flow from operating activities begins with the amount of net profit/loss. Some important adjustments related to changes in working capital which is necessary to convert net profit/loss which is based on accrual basis into cash flows from operating activities i.e. increase in current assets, decrease in current liabilities should be deducted, and decrease in current assets, increases in current liabilities should be added to net profit/loss.

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 does not represent an outflow of cash and therefore would not be reported on the statement of cash flows as a use of cash?

  1. Purchase of non-current assets

  2. Purchase of treasury stock

  3. Discarding an asset that had been fully depreciated

  4. Payment of cash dividends
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The total outgoing funds from a company in a given period of time. Cash outflows include expenses such as salaries, supplies, and maintenance as well as paying dividends or servicing any debt held by the company.  

A company may be required to seek additional financing if cash outflows exceed cash inflows. 

Examples of cash outflow are -  Cash payments to suppliers for goods and services, cash payments to acquire fixed assets including intangibles, cash payments to acquire share warrants or debt instruments of other enterprises, Dividends paid on equity and preference capital, interest paid on loans, debentures and advances.

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.