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 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 Assets refers to things which have future economic value and bank overdraft is the amount withdrawn in excess of the amount deposited in bank.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.

Multiple choice elements of accounts ratio analysis liquidity ratios accounting ratio's accounting ratios

The excess of current assets over current liabilities is called as ___________.

  1. Net tangible worth

  2. Net worth

  3. Gross working capital

  4. Net working capital
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The formula for calculation of "Net working capital" is as follows:

Net working capital = Total current assets - Total current liabilities
Net working capital is the aggregate amount of all current assets minus current liabilities. It is used to measure the short-term liquidity of a business, and can also be used to obtain a general impression of the ability of a company management to utilize assets in an efficient manner.

Multiple choice elements of accounts ratio analysis liquidity ratios accounting ratio's accounting ratios

What is the meaning of current ratio of less than one?

  1. Current liabilities < Current assets

  2. Fixed assets > Current assets

  3. Current assets < Current liabilities

  4. Share capital > Current assets
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Current ratio is the measure of liquidity of a company at the certain date. A high current ratio can be signs of problems in managing working capital. When current ratio is low and Current liabilities exceeds current assets, the company may have problems in meeting its short term obligations.

Multiple choice elements of accounts ratio analysis liquidity ratios accounting ratio's accounting ratios

Quick ratio is calculated by using the following formula ___________________.

  1. $\cfrac { Cash+near cash+debtors - Inventories }{ Current\quad liabilities } $
  2. $\cfrac { Cash+debtors }{ Current\quad liabilities } $
  3. $\cfrac { Cash }{ Current\quad liabilities } $
  4. $\cfrac { Cash+near\quad cash+debtors }{ Current\quad assets } $
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Quick ratio is calculated by dividing liquid current assets by total current liabilities. Liquid current assets include cash, marketable securities and receivables. Cash includes cash in hand and cash at bank.

Multiple choice elements of accounts ratio analysis liquidity ratios accounting ratio's accounting ratios

Which of the following is correct?
i.Liquidity ratios measure long term solvency of a concern.
ii.Inventory is a part of current assets.
iii.Rule of thumb for acid test ratio is 1 : 1.
iv.The amount of gross assets is equal to net capital employed.

  1. (i), (ii) and (iv)

  2. (ii), (iii) and (iv)

  3. (i), (ii), (iii) and (iv)

  4. None of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation
  1. The liquidity ratios measure the ability of a concern to pay off its short term obligations.
  2. Inventory is a part of current assets and not liquid assets.
  3. Rule of thumb for acid test ratio is $1:1$
  4. The amount of gross assets minus the current liabilities is equal to net capital employed. 
Multiple choice elements of accounts ratio analysis liquidity ratios accounting ratio's accounting ratios

Which of the following transaction change the current ratio?

  1. Purchase of goods for cash

  2. Plant acquire on account

  3. Sold goods on credit

  4. Debentures converted into equity capital
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

When plant is acquired on account the fixed asset would increase and there would be increase in the creditors amount, hence the current ratio would decrease. When goods are sold on credit the stock would decrease and the debtors would increase and hence there would be no effect on current ratio.

Multiple choice elements of accounts ratio analysis liquidity ratios accounting ratio's accounting ratios

Formula for current ratio is                   .

  1. Current liabilities/current assets

  2. Current assets/current liabilities

  3. Fixed asset/ fixed liabilities

  4. Fixed liabilities/fixed assets
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Current ratio = Current Assets/Current liabilities

                       = [Inventories + Sundry Debtors + Cash and Bank balances + Receivables +
                          Loans and advances + Disposable Investments etc] /
                          [Creditors + Short term loans + Bank Overdraft + Cash credit+ 
                          Outstanding Expenses+ Provisions etc}

Multiple choice elements of accounts ratio analysis liquidity ratios accounting ratio's accounting ratios

 The ability of the business to pay the amount due to stakeholders is calculated by ___________.

  1. Solvency ratios

  2. Activity ratios

  3. Liquidity ratios

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

Liquidity ratios calculate the ability of the business to pay its due to the stakeholders. Examples of liquidity ratios are Current asset ratio, Quick ratio, Cash ratio and Net working capital ratio

Multiple choice elements of accounts ratio analysis liquidity ratios accounting ratio's accounting ratios

Which of the following is normally treated as a satisfactory ratio of current assets to current liabilities?

  1. $1 : 1$
  2. $2 : 1$
  3. $3 : 1$
  4. $1 : 2$
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The rule of thumb for a satisfactory current ratio is $2 : 1$. Let Current assets be $Rs. 100000$ and the Current liabilities be $Rs. 40000$

Now, Current ratio = Current assets/ Current liabilities
                                = $100000/40000$
                                = $2.5 : 1$ . 
This current ratio is satisfactory as it shows that the current assets available are $2.5$ times the amount of current liabilities.

Multiple choice elements of accounts ratio analysis liquidity ratios accounting ratio's accounting ratios

Cash in hand is the __________asset.

  1. Least liquid

  2. Most liquid

  3. Fixed assets

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

Quick ratio is the ratio of quick (or liquid) asset to current liabilties. It is expressed as:

                       Quick ratio = Quick Asset/Current Liabilities
The quick assets are defined as those assets which are quickly convertible into cash. While calculating quick assets we exclude the closing stock and prepaid expenses from the current assets. Because of exclusion liquid current asset, it is considered better than current ratio as a measure of liquidity position of the business. Cash on hand is the most liquid asset. It is also known as "Acid-Test Ratio".