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 accountancy statement of changes in financial position preparation of cash flow statement cash flow statement finance

Operating activities are the principal revenue producing activities of the enterprise and other activities that are not investing or financing activities.

  1. True

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

Operating activities are defined as the principal revenue-producing activities of the entity and other activities that are not investing or financing activities.

Multiple choice elements of accounts ledger and posting meaning of bill of exchange index of ledger, forms of ledger and process of posting posting of entries in ledger

When a bill is discharged, the acceptor debits ________________.

  1. Cash Account.

  2. Creditor's Account.

  3. Debtor's Account.

  4. Bills Payable Account.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

When a bill is discharged (paid), the acceptor settles their liability. This requires debiting the Bills Payable account to reduce the liability and crediting Cash or Bank.

Multiple choice elements of accounts ledger and posting meaning of bill of exchange index of ledger, forms of ledger and process of posting posting of entries in ledger

________________ account representing the liability of the acceptor in respect of bills accepted by him and will always show a credit balance.

  1. creditor

  2. Bill Payable

  3. Loan

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

Bills Payable represents a liability for the acceptor, as they are obligated to pay the amount upon maturity. Liabilities naturally carry a credit balance.

Multiple choice trend analysis tools for financial analysis analysis of financial statements financial statement analysis accountancy

In periods of inflation, accounting depreciation is ______________ relative to replacement cost and real economic income is ______________.

  1. overstated, overstated

  2. overstated, understated

  3. understated, overstated

  4. understated, understated
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

During inflation, historical cost depreciation is understated relative to the current replacement cost of assets. Consequently, because expenses are understated, the reported real economic income is overstated.

Multiple choice trend analysis tools for financial analysis analysis of financial statements financial statement analysis accountancy

On the basis of financial analysis, earning capacity of the enterprise cannot be assessed or computed.

  1. True

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

False. On the basis of financial analysis, earning capacity of the enterprise can be assessed or computed. Financial analysis means analysing the financial statements of the firm to make financial decisions. It helps in assessing the earning capacity, present position, past performance, managerial efficiency and helps in inter-firm comparison. 

Multiple choice trend analysis tools for financial analysis analysis of financial statements financial statement analysis accountancy

Long-term and short-term solvency of the enterprise can be assessed on the basis of ___________ statement analysis.

  1. cash flow

  2. income

  3. financial

  4. all of the above
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Financial statement analysis involves evaluating the balance sheet, income statement, and cash flow statement to assess the long-term and short-term solvency and profitability of an enterprise.

Multiple choice trend analysis tools for financial analysis analysis of financial statements financial statement analysis accountancy

Capital Budgeting Decisions are __________.

  1. Reversible

  2. Irreversible

  3. Unimportant

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

Capital budgeting decisions involve huge funds and are long term decisions. As they involve huge costs one wrong decision would have a big effect on the business. Hence, capital budgeting decisions are irreversible as its difficult to take back the decision. 

Multiple choice trend analysis tools for financial analysis analysis of financial statements financial statement analysis accountancy

Real rate of return is equal to__________.

  1. Nominal Rate x Inflation Rate
  2. Nominal Rate $\div$ Inflation Rate

  3. Nominal Rate - Inflation Rate

  4. Nominal Rate + Inflation Rate
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The real rate of return formula is the sum of one plus the nominal rate divided by the sum of one plus the inflation rate which then is subtracted by one. The formula for the real rate of return can be used to determine the effective return on an investment after adjusting for inflation.

Multiple choice trend analysis tools for financial analysis analysis of financial statements financial statement analysis accountancy

Select the correct statement.

  1. General reserve is created out of divisible profits

  2. General reserve is used for some specified purposes

  3. Revenue reserve include capital reverse also

  4. All the three
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

General reserve is created out of divisible profits. This is the only true statement. General reserve is created to meet any future uncertainties, they are basically the retained earnings of the company.  

Multiple choice book keeping and accountancy dissolution of firm accounting record at the time of dissolution procedure of settlement of accounts partnership account (dissolution of partnership)

On dissolution, all assets are transferred to realization account at ________.

  1. Book value

  2. Market value

  3. Cost or market value, whatever is less

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

All assets are transferred at book value because the main purpose to open realization account is to ascertain the profit or loss due to realization of assets and liabilities. If assets are not recorded at book value actual profit or loss can not be ascertained

Multiple choice book keeping and accountancy dissolution of firm accounting record at the time of dissolution procedure of settlement of accounts partnership account (dissolution of partnership)

Which of these is not a method of accounting treatment of premium on joint life policy?

  1. Treatment as an expense.

  2. Treatments as an asset.

  3. Deferred revenue expense.

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

A Joint Life Policy (JLP) is an insurance policy which is taken out by the partnership firm on the joint lives of all partners. The amount of policy is payable by the insurance company either on the death or maturity of policy, whichever is earlier. The firm pays annual premium to the insurer against the policy.

There are two method of accounting treatment of joint life policy:
1. Treatment as an expense - When premium is treated as an expense then it is closed every year by transferring to profit and loss account.
2. Treatment as an asset - In this case insurance premium paid is first debited to life policy and credited to bank account. At the end of the year the amount in excess of surrender value is treated as a loss and is transferred to profit and loss account.
Premium paid on joint life policy cannot be treated as deferred revenue expense.

Multiple choice commercial studies budgeting meaning, comparison, types, utility and limitations of budgets public finance, budget and fiscal policy public expenditure and public revenue

_________ determines the priorities of functional budget.

  1. Principal Budget Factor

  2. Limiting Factor

  3. Both (A) and (B)

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

The principal budget factor is the factor that limits the activities of functional budgets of the organisation. The early identification of this factor is important in the budgetary planning process because it indicates which budget should be prepared first. In general sales volume is the principal budget factor.

The principle that the factor (such as a particular nutrient, water, or sunlight) that is in shortest supply (the limiting factor) will limit the growth and development of an organism or a community.

Multiple choice commercial studies budgeting meaning, comparison, types, utility and limitations of budgets public finance, budget and fiscal policy public expenditure and public revenue

In capital budgeting, a negative net present value results in _______________.

  1. Zero economic value added

  2. Percent economic value added

  3. Negative economic value added

  4. Positive economic value added
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Economic value added is the incremental difference in the rate of return over a company's cost of capital. In essence, it is the value generated from funds invested in a business. If the economic value added measurement turns out to be negative, this means that management is destroying the value of the funds invested in a business

Multiple choice commercial studies budgeting meaning, comparison, types, utility and limitations of budgets public finance, budget and fiscal policy public expenditure and public revenue

The budget that is prepared first is _______________.

  1. Budget for the key factor

  2. Cash budget

  3. Master budget

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

Firstly, determine the principal budget factor. This is also known as the key budget factor or limiting budget factor and is the factor which will limit the activities of an undertaking. This limits output, e.g. sales, material or labour.