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 accountancy provisions and reserves reserves provisions provision and reserves

When depreciation provision method is used, asset is shown at ____________.

  1. cost price

  2. cost less depreciation

  3. replacement value

  4. scrap value
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation
When provision for depreciation account is maintained: Every year, depreciation charged is credited to the Provision for Depreciation Account. At the year-end, in the Balance Sheet, the asset will continue to appear at the original cost and the total amount of depreciation provided will be shown in the Provision for Depreciation Account. Thus, the original cost of the asset and the total amount of depreciation charged is known from Balance sheet. For purposes of depreciation in the Balance Sheet, provision for depreciation may be deducted from the original cost of asset and the balance be shown in the outer column. Alternatively, assets may be shown at the original cost on the asset side and Provision for Depreciation may be shown on the liabilities side.
Multiple choice accountancy provisions and reserves reserves provisions provision and reserves

As per law which enterprise is required to make provisions for depreciation?

  1. Joint stock company

  2. Sole proprietor

  3. Partnership

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

Joint stock companies are legally required by the Companies Act to provide for depreciation on their fixed assets before declaring dividends.

Multiple choice accountancy provisions and reserves reserves provisions provision and reserves

If an accumulated provision for depreciation account is in use then the entries for the year's depreciation would be ________.

  1. debit Asset Account, credit Profit and Loss Account

  2. credit Profit and Loss Account, debit Provision for Depreciation Account

  3. credit Asset Account, debit Provision for Depreciation Account

  4. credit Provision for Depreciation Account, debit Profit and Loss Account
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

When using an accumulated provision for depreciation account, the depreciation expense is debited to the Profit and Loss account and credited to the Provision for Depreciation account.

Multiple choice accountancy provisions and reserves reserves provisions provision and reserves

Making Provision for depreciation is an example of __________.

  1. Increase in Asset & Owner's Liability

  2. Decrease in Asset & Owner's Liability

  3. Increase in Liability & Owner's Liability

  4. Decrease in Liability & Increase in Owner's Liability

  5. Increase in Liability & Decrease in Owner's Liability
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Provision for depreciation means wherein the depreciation of an asset is accumulated in a different account called provision for depreciation. 

Making a provision would decrease the asset and owner's equity.

Multiple choice accountancy provisions and reserves reserves provisions provision and reserves

Which of the following is created by debiting the Profit and Loss Account ?

  1. Provision.

  2. Sinking fund for redemption of debentures.

  3. Dividend equalization fund.

  4. All of these.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Provisions are created for anticipated or estimated future losses or against the expenses which are due but not paid. 

Provisions are always created from the profit & loss account. 

Multiple choice accountancy provisions and reserves reserves provisions provision and reserves

Provision can be created for __________.

  1. Current assets

  2. Liabilities & assets

  3. Valuation adjustment for fixed asset

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

A provision is an amount that you put in aside in your accounts to cover a future liability.
The purpose of a provision is to make a current year’s balance more accurate, as there may be costs which could, to some extent, be accounted for in either the current or previous financial year. These costs that distinctly belong to a specific year could be misleading if accounted for in the future.
A provision is not a form of saving, even though it is an amount that is put aside for a future plausible cost or obligation. Provisions resulting impact is a reduction in the company's equity.
When accounting, provisions are recognized on the balance sheet and then expensed on the income statement.

Provision can be created for any of the foloowing:

1. Current assets

2. Liabilities and assets

3. Valuation adjustment for fixed asset


Multiple choice elements of accounts company final accounts reserves provisions provisions and reserves

 Reserve is created after the calculation of_______.

  1. Net loss

  2. Net profit

  3. Gross profit

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

Reserves & surplus fund is created out of profits that are to be shared between the partners or share holders. Therefore fund created out of profit is a liability to the company and can be created only after the calculation of profit. Reserves & Surplus fund is created to meet future contingencies. If the contingency does not arise as expected this fund can be distributed among partners or distributed as dividends among shareholders. It can be used for issuing bonus shares. The decision how to make use of the funds will be done by the partners or in the case of a company in the AGM. 

Multiple choice elements of accounts company final accounts reserves provisions provisions and reserves

Creation of reserve reduces taxable profits of the business.

  1. True

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

Since reserves are neither expenses nor losses, so these are not charged to profit & loss Account rather these are debited to Profit & Loss Appropriation Account which is prepared after Profit and Loss Account.

Creation of reserve does not reduce the net profit but only reduces the divisible profits.

Multiple choice book keeping and accountancy accounting for not-for-profit organisation accounting record of non-trading organisations features of not-for-profit organisation meaning and characteristics of not-for-profit organisation

Amount received from sale of scraps by a charitable hospital is treated as:

  1. Income

  2. Expense

  3. Assets

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

Sale of scraps is a routine activity which generates indirect income for any entity whose sole objective is not to deal in scraps. Hence, amount received from sale of scraps by a charitable hospital is treated as an income and booked in the income and expenditure account.

Multiple choice book keeping and accountancy accounting for not-for-profit organisation accounting record of non-trading organisations features of not-for-profit organisation meaning and characteristics of not-for-profit organisation

Rent paid to the landlord is debited to _____.

  1. Rent A/c

  2. Drawing A/c

  3. Landlord A/c

  4. Profit and loss a/c
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Rent paid is an expense for the business. Expense is a nominal account. Rule of nominal account says that all the expenses and losses should be debited. hence Rent paid is to be debited to Rent A/c.

Multiple choice book keeping and accountancy accounting for not-for-profit organisation accounting record of non-trading organisations features of not-for-profit organisation meaning and characteristics of not-for-profit organisation

The gross inflow of economic benefits is referred to as ________.

  1. Income

  2. Capital

  3. Asset

  4. Bank overdraft A/c
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Option A is correct. Income includes both revenues and gains. Capital refers to amount invested in the business. It is not inflow of benefits. It is the amount invested by the owner in business. Assets refers to things which have future economic value and bank overdraft is the amount withdrawn in excess of the amount deposited in bank. So, inflow of economic benefits is referred to as Income. 

Multiple choice book keeping and accountancy accounting for not-for-profit organisation accounting record of non-trading organisations features of not-for-profit organisation meaning and characteristics of not-for-profit organisation

Purchase of a fixed asset by a non-profit organization will be shown in _____________.

  1. Income and Expenditure account

  2. Receipts and Payments Account

  3. Both (A) and (B)

  4. Neither (A) nor (B)
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Receipt and payment account records all cash receipts and cash payments during the year whether related to current year, previous year or future year. It records both capital and revenue nature receipts and payments. Purchase of fixed assets includes cash. It is recorded in Receipts and Payments Account. It is not a revenue nature item. It is not recorded in Income and Expenditure Account.

Multiple choice book keeping and accountancy accounting for not-for-profit organisation accounting record of non-trading organisations features of not-for-profit organisation meaning and characteristics of not-for-profit organisation

Preliminary expenses are an example of ________.

  1. Deferred Revenue Expenditure

  2. Revenue Expenditure

  3. Capital Expenditure

  4. Common Expenditure
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation
Where a certain revenue expenditure incurred is of such a nature that its benefit is likely to be spread over a certain number of years, or where it is of non-recurring and special nature and large in amount, in such circumstances, instead of debiting the entire amount to the profit and loss account of the year in which it has been incurred, it may be spread over a number of years, a proportionate amount being charged to each year's profit and loss account. 

The remaining portion of the expenditure is carried forward and is known as capital expenditure or or deferred revenue expenditure and is shown as an asset in the balance sheet. 

Item such as preliminary expenses, cost of issue of debentures are examples of deferred revenue expenditure.



Multiple choice book keeping and accountancy accounting for not-for-profit organisation accounting record of non-trading organisations features of not-for-profit organisation meaning and characteristics of not-for-profit organisation

Excess of expenses over income is a _____________ .

  1. Income

  2. Surplus

  3. Loss

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

Income and Expensiveness account is the summary of income and expenditure for the accounting year. It is just like a profit and loss account prepared on accrual basis in case of the business organisations. It includes only revenue items and the balance at the end represents surplus or deficit. The Income and Expenditure account serves the same purpose as the profit and loss account of a business organisation. All the revenue items relating to the current period are shown in this account, the expenses and losses on the expenditure side and incomes and gains on the income side of the account. It shows the net operating result in the form of surplus (i.e. excess of income over expenditure) or loss (i.e. excess of expenditure over income), which is transferred to the capital fund shown in the balance sheet.