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 book keeping and accountancy adjustments in preparation of financial statements accrued income earned or accrued income need for adjustment, closing stock and outstanding expenses

 When income is received but the whole amount of it does not belong to the current period it is called as:

  1. Pre-received income

  2. Outstanding income

  3. Capital income

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

Sometimes, a certain income is received but the whole amount of it does not belong  to the current period. The portion of the income which belongs to the next accounting period is termed as income received in advance. It is also known as Unearned Income or Pre-received Income. Income received in advance is adjusted by recording the following entry:

Concerned Income A/c Dr.
    To Income Received in advance A/c
The effect of this entry will be that the balance in the income account will be equal to the amount of income earned for the current accounting period and the new account of income received in advance will be shown as a liability in the balance sheet.  

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

' Taxes owned but payable in the following period' should be classified as __________________.

  1. Accrued assets

  2. Accrued liability

  3. Prepaid expense

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

Examples of Accrued Liabilities Employees may have performed work but have not yet received wages. Interest on loans may be accrued if interest fees have been incurred since the previous loan payment. Taxes owed to governments may be accrued because they may not be due until the next tax reporting period.

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

'Interest earned but not received' should be classified as _____________.

  1. Accrued asset

  2. Accrued liability

  3. Prepaid expense

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

Interest that is due to the company at the end of the accounting period but not yet received is classified as accrued interest receivable.

To make the adjusting journal entry, debit the current assets account and credit income received on the income statement with the accrued amount due.

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

The portion of income belonging to next accounting year is called _______.

  1. Income received in advance

  2. Asset

  3. Capital

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

Sometimes earned revenue that belongs to a future accounting period is received in the current accounting period, such income is considered as income received in advance. It is also known as Unearned Income and is received before the related benefits are provided.

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

Accrued income is ______ to the expenses in the profit and loss account.

  1. Added

  2. Deducted

  3. Rounded off

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

The Accrued Income A/c appears on the assets side of the Balance Sheet. While preparing the Trading and Profit and Loss A/c we need to add the amount of accrued income to that particular income.

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

Choose the true statement.

  1. Accrued incomes represent income unearned but realized in cash

  2. Accrued incomes represent income earned but not realized in cash

  3. Accrued income A/c is shown on the liability side

  4. No tax is payable on accrued income
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Accrued income is revenue that has been earned by providing goods or services, but for which payment has not yet been received. It is an asset to the business.

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

Unaccrued Interest is an example of __________.

  1. Increase in asset & decrease in owner's liability

  2. Increase in liability & decrease in owner's liability

  3. Decrease in liability & owner's liability

  4. Increase in asset & owner's liability
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Unaccrued interest (interest received in advance) is a liability. Receiving it increases the company's liability and decreases the owner's equity (or represents a future obligation).

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

Accrued Interest is an example of _________.

  1. Increase in asset & decrease in owner's liability

  2. Increase in liability & decrease in owner's liability

  3. Decrease in liability & owner's liability

  4. Increase in asset & owner's liability
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Accrued interest is interest earned but not yet received, which is an asset. Recognizing it increases assets and increases the owner's equity (via income).

Multiple choice book keeping and accountancy company accounts - redemption of debentures debentures redemption methods of redemption of debentures accounting effects for redemption of debentures

Premium on redemption is a/an  ____________ of a company payable in future.

  1. liability

  2. asset

  3. income

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

If a company agrees to pay a premium upon redemption, that premium represents a future obligation or debt that the company must settle, making it a liability.

Multiple choice book keeping and accountancy company accounts - redemption of debentures debentures redemption methods of redemption of debentures accounting effects for redemption of debentures

Debentures premium cannot be used to ____________.

  1. write off the discount on issue of shares or debentures

  2. write off the premium on redemption of shares or debentures

  3. pay dividends

  4. write off capital loss
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Securities Premium (or Debenture Premium) has restricted uses under the Companies Act. It cannot be used to pay dividends to shareholders.

Multiple choice book keeping and accountancy company accounts - redemption of debentures debentures redemption methods of redemption of debentures accounting effects for redemption of debentures

Capital redemption reserve account is prepared when ___________.

  1. redemption is done out of issue of fresh shares

  2. redemption is done out of profits of the company

  3. redemption is done through company's capital fund

  4. All of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The Capital Redemption Reserve (CRR) is created when preference shares are redeemed out of the company's divisible profits, rather than from the proceeds of a fresh issue of shares.

Multiple choice book keeping and accountancy company accounts - redemption of debentures debentures redemption methods of redemption of debentures accounting effects for redemption of debentures

When the owners debentures are cancelled any profit on cancellation is transferred to __________.

  1. General reserve

  2. Capital reserve

  3. P/L Account

  4. None of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation
When own debenture are purchased by the company from the open market, these can be purchased for two reasons, either for cancellation or for investments. Profit on account of cancellation of debenture is a capital profit and should be transferred to capital reserve account.
Multiple choice elements of accounts ratio analysis activity (or turnover) ratios accounting ratio's accounting ratios

State the formula for turnover ratio.

  1. $\dfrac {\text {Current assets}}{\text {Current liabilities}}$
  2. $\dfrac {Sales}{\text {Capital employed}}$
  3. $\dfrac {\text {Fixed assets}}{\text {Long-term funds}}$
  4. $\dfrac {\text {Current assets}}{Sales}$
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Turnover ratio is a measurement of the number of times a company's inventory is replaced during a given period of time. It is calculated by dividing cost of goods sold by capital employed during a given period of time. 

Multiple choice elements of accounts ratio analysis activity (or turnover) ratios accounting ratio's accounting ratios

If the inventory turnover is high, the working capital requirements will be ___________.

  1. High

  2. Low

  3. Equal

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

Inventory Turnover = [Cost of goods sold/Sales] / Average inventory.

A high inventory turnover is good from the point of liquidity position and vice versa. If the inventory turnover is high it means that the inventory is being used or sold in a short time, which means that the funds of the company are not being blocked and so the working capital requirements would be low.