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 depreciation accounting asset disposal account disposal of asset disposal of asset and any addition or extension to the existing asset

If a concern proposes to discontinue its business from March 2015 and decides to dispose of all its assets within a period of $4$ months, the Balance Sheet as on March 31, 2015 should indicate the assets at their ______.

  1. Historical cost

  2. Net realizable value

  3. Cost less depreciation

  4. Cost price or market value, whichever is lower
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

When a business is discontinuing and liquidating assets within a short period, the going concern assumption is no longer valid. Assets are valued at their net realizable value, which is the expected selling price minus disposal costs.

Multiple choice elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

Which of the following is true with respect to sources and uses of funds?

  1. Depreciation and decrease in NWC are sources of funds

  2. Depreciation and decrease in NWC are uses of funds

  3. Depreciation is a source of fund but decrease in NWC is use of fund

  4. Depreciation in a use of fund but decrease in NWC is source of fund.

  5. Depreciation and increase in NWC are uses of funds.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

As per the accounting principles to ascertain the profits of the firm, depreciation on fixed assets should be charged against the revenue of the fir by debiting to the profit and loss account. This reduces the profits of the firm. But charging depreciation does not involves any fund. Therefore, the amount of depreciation charged against the revenue of the firm should be  added back to the net profit to estimate the funds from operations, which is a source of fund. Decrease in net working capital is a source of fund.

Multiple choice elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

The Principal sources of capital at the earliest stages of the firm ______________.

  1. Equity capital

  2. Short term debts

  3. Long term debts

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

Early-stage firms often rely on a mix of equity capital (from founders or investors) and short-term debt (like trade credit or bank loans) to manage initial operations.

Multiple choice elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

Working capital of an enterprise is used for holding current assets such as ________.

  1. Stock of material

  2. Bills receivables

  3. Only A

  4. Both A and B
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Working capital of an enterprise is used for holding current assets such as stock of material and bills receivables. Working capital refers to the capital which are needed to run day-to-day activities.

Multiple choice elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

A trading concern for example, may require ____ amount of fixed capital as compared to a manufacturing concern.

  1. Large

  2. Small

  3. Fixed

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

A trading concern for example, may require small amount of fixed capital as compared to a manufacturing concern since trading does not involve physical assets for production purpose. Whereas, manufacturing sector requires huge amount of investment.

Multiple choice elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

The increase in profit return resulting from borrowing capital at a low rate and employing it in a business yielding at a higher rate ____________.

  1. Operating leverage

  2. Trading on equity

  3. Asset leverage

  4. Return on investment leverage
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Trading on equity refers to the strategy of using debt (borrowed capital) to increase the return on equity for shareholders, provided the return on assets exceeds the cost of debt.

Multiple choice elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

State the following statement is True or False:
A minimum amount of capital to be collected by company at initial stages is minimum subscription.

  1. True

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

A minimum amount of capital to be collected by company at initial stages is minimum subscription- this is a true statement. The minimum shares the company needs to get from the public out of the total issue by the date of closure is known as minimum subscription.

Multiple choice elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

Long-term financing is generally required for the acquisition of _________.

  1. Current assets

  2. Fixed assets

  3. Fictitious asset

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

Long-term finance is that which is required for a long period of time, i.e. no less than 5 years . These long-term sources are generally required for the acquisition of fixed assets as these fixed assets are purchased for a long period and are also very expensive than current assets. 

Multiple choice business economics and quantitative methods introduction to managerial economics theories of employment and income concept of international trade macro economic analysis

Operating Leverage is the response of changes in ____________.

  1. EBIT to the changes in sales

  2. EPS to the changes in EBIT

  3. Production to the changes in sales

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

Operating Leverage is also known as “Degree of Operating Leverage or "DOL”. The fact is that  the greater use of fixed costs, greater will be  the impact of a change in sales on the operating income of a company. Degree of Operating Leverage Formula = % change in EBIT / % change in Sales.

Multiple choice commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

Which of the following is not valuation principle?

  1. Historical cost

  2. Present value

  3. Gross value

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

In economics, gross value added is the measure of the value of goods and services produced in an area, industry or sector of an economy. In national accounts GVA is output minus intermediate consumption; it is a balancing item of the national accounts' production account.

Multiple choice commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

Which one of the following is not a generally accepted accounting principle?

  1. Sales, revenues and incomes should not be anticipated or materially overstated.

  2. There must be proper cut off accounting for inventories and liabilities for cost and expenses.

  3. Non-recurring and extraordinary gains and losses should be recognized in the period they accrue, but should be shown separately from the usual operations.

  4. Long-term investments in securities should ordinarily be carried at inflated market values.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Accounting principles require assets to be recorded at cost or lower of cost/market value, not inflated market values. Inflating values would violate the principle of conservatism and historical cost.

Multiple choice commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

Accounting policy for inventories of X ltd. states that inventories are valued at the lower of cost or net realizable value. Which accounting principle in followed in adopting the above policy?

  1. Materiality

  2. Prudence

  3. Substance over form

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

The principle of prudence (or conservatism) dictates that you should anticipate no profit but provide for all possible losses, which is why inventory is valued at the lower of cost or net realizable value.

Multiple choice commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

Goodwill should be tested for value impairment at which of the following levels?

  1. Each identifiable long-term asset.

  2. Each reporting unit.

  3. Each acquisition unit.

  4. Entire business as a whole
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Under accounting standards like ASC 350, goodwill is tested for impairment at the reporting unit level, which is an operating segment or one level below an operating segment.

Multiple choice elements of book keeping and accountancy recording and posting of cash transactions understand the concept of imprest system petty cash book bank book and petty cash book

Petty cash fund is supposed to be replenished at ________________. 

  1. Every day

  2. Every half year

  3. Every Year

  4. At the end of every accounting period
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Petty cash fund is supposed to be replenished at the end of every accounting period.

This is done whenever the amount of actual cash in the petty cash box is low and at the end of each accounting period.

Multiple choice elements of book keeping and accountancy recording and posting of cash transactions understand the concept of imprest system petty cash book bank book and petty cash book

Fixed assets are __________________.

  1. Kept in the business for use over a long time of earning income

  2. Meant for resale

  3. Meant for conversion into cash as quickly as possible

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

 A fixed asset is a long-term tangible piece of property or equipment that a firm owns and uses in its operations to generate income. Fixed assets are not expected to be consumed or converted into cash within a year. Fixed assets most commonly appear on the balance sheet as property, plant, and equipment (PP&E).