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 reserve and fund kinds of reserves secret reserve reserves

Over provision of liabilities result into creation of ________.

  1. secret reserves

  2. general reserves

  3. capital reserve

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

Secret reserve is a reserve, the existence and/ or the amount of which is not disclosed in the balance sheet. It is also called as "Hidden Reserves or Internal Reserves."

Secret reserves are created by :
  • Excessive depreciation on the asset.
  • Excessive overvaluation of liability
  • Showing a contingent liability of an actual liability or as provision.
  • Charging capital expenditure to revenue or crediting revenue receipts to an asset.

Multiple choice book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

Withdrawals by proprietor would.

  1. Reduce both Assets and Owner's Equity

  2. Reduce Assets and increase Liabilities

  3. Reduce Owner's Equity and increase Liabilities

  4. Have no affect on the Balance Sheet
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Withdrawals represent the owner taking assets (usually cash) out of the business. This reduces the business's total assets and simultaneously reduces the owner's equity in the business.

Multiple choice book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

Cash purchases _________.

  1. Increases assets

  2. Results in no change in the total assets

  3. Decreases assets

  4. Increases liability
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Every business transaction gives two affects because financial accounting is based on double entry system of accounting. 


Cash purchases will affect two account i.e. purchases and cash. 

Accounting entry will be done as under:

Purchases A/c      Dr.
    To Cash A/c. 

Cash is a current assets which gets reduced. Hence it decreases the assets.

Multiple choice book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

Which one of the following statements is correct?

  1. Increases in liabilities are credits and decreases are debits.

  2. Increases in assets are credits and decreases are debits.

  3. Increases in capital are debits and decreases are credits.

  4. Increases in expenses are credits and decreases are debits.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Business transactions are events that have a monetary impact on the financial statements of an organization. When accounting for these transactions, numbers in two accounts are recorded, where the debit column is on the left side and the credit column id on the right side.

1. A debit is an accounting entry that either increase an asset or expense account, or decreases a liability or equity account. It is positioned on the left in an accounting entry.
2. A credit is an accounting entry that either increases a liability or equity account, or decreases an asset or expense account. It is positioned to the right in an accounting entry.

Multiple choice book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

Purchase of office equipment for cash would cause __________.

  1. Cash in hand to decrease

  2. External liability to decrease

  3. Total liabilities to increase

  4. Total assets to increase
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Cash exists as a company's most liquid asset. Purchasing office equipment for cash will reduce a company's assets (i.e. reduction in cash in hand). Since owner's equity equals assets minus liabilities, owner's equity will be reduced as a result of buying office equipment with cash.

Multiple choice book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

____________ reduces both total assets as well as owner's equity.

  1. Credit purchases

  2. Retained earnings

  3. Bank loans

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

A drawing account is an accounting record maintained to track money withdrawn from a business by its owners. For example if proprietor withdraw cash from business then cash in hand account in decreased i.e. total assets decreased and it is recorded in the proprietor capital account as drawing which will reduce owner's equity. 

Multiple choice book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

Loss of stock by fire would lead to ____________.

  1. No change in total assets

  2. Total assets to decrease

  3. Total assets to increase

  4. Total assets and owners equity to decrease
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Loss of stock by fire will lead to decrease in closing stock on the asset side of balance sheet and decrease in net income of profit and loss account i.e. decrease in owner's equity on the liability side of the balance sheet.

Multiple choice book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

_____________ increases both total assets as well as owner's equity.

  1. Credit purchases

  2. Retained earnings

  3. Bank loans

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

Profits earned by the business are generally considered as retained earning, if not withdrawn by the owners. If firm generate the profits and retained in the business, cash of the firm increases which is part of the total assets. Parallel to this, all profits which are retained in the business are ultimately part of owners capital, hence it increases.

Multiple choice book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

Withdrawals by the proprietor would_______.

  1. Reduce both assets and owner's equity

  2. Reduce assets and increase liabilities

  3. Reduce owner's equity and increase liabiltiy

  4. No change
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Withdrawals by the proprietor reduce the cash or assets of the business and simultaneously reduce the owner's claim (equity) on the business assets.

Multiple choice book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

Payment of a liability results in _________________.

  1. Increase in total assets

  2. Decrease in total assets

  3. No change in total assets

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

Paying a liability involves using cash (an asset) to settle a debt. Therefore, both the liability and the asset (cash) decrease.

Multiple choice book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

Purchase of furniture for cash would ______________________.

  1. Increase the fixed assets and reduce the current assets

  2. Reduce the fixed assets and increase the current assets

  3. Increase total assets

  4. Both (a) and (b)
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Purchasing furniture for cash involves an exchange of assets: cash (a current asset) decreases, and furniture (a fixed asset) increases. Since both are assets, the total asset value remains unchanged, but the composition shifts.

Multiple choice book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

If an individual asset is increased, there will be a corresponding ____________________.

  1. Increase of another asset or increase of capital

  2. Decrease of another asset or increase of liability

  3. Decrease of specific liability or decrease of capital

  4. Increase of drawings and liabiltiy
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

According to the accounting equation (Assets = Liabilities + Equity), if an asset increases, the balance must be maintained by either a decrease in another asset, an increase in a liability, or an increase in equity (capital).

Multiple choice book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

Purchase of office equipment on credit results in ________________.

  1. Decrease in liability

  2. Decrease in Capital

  3. Increase in Capital

  4. Increase in assets
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Purchasing office equipment on credit increases the asset (equipment) and simultaneously increases a liability (accounts payable). The total assets increase.

Multiple choice book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

Purchase of machinery for cash ________________.

  1. Decrease total assets

  2. Increases total assets

  3. No change in the total assets

  4. Decreases total liabilities
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

When machinery is purchased for cash, one asset (cash) decreases while another asset (machinery) increases by the same amount. Therefore, the total value of assets remains unchanged.