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 equation meaning, objectives and need of adjustments need for adjustments accounting equations and transactions

Adjustment entries are those which are passed________.

  1. at the end of the year

  2. at the beginning of the year

  3. for adjustment of prepaid and outstanding expenses/income

  4. for suffering profit
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Adjustment entries are made at the end of an accounting period to ensure that revenues and expenses are recorded in the period they occur, following the accrual basis of accounting. This specifically includes adjusting for items like prepaid expenses, accrued income, and outstanding liabilities.

Multiple choice book keeping and accountancy accounting equation meaning, objectives and need of adjustments need for adjustments accounting equations and transactions

The closing stock of the year becomes the ______ of the next year.

  1. Liabilities

  2. Asset

  3. Opening stock

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

The closing stock represents the cost of unsold goods lying in the stores at the end of the accounting period. The adjustment with regard to the closing stock is done by crediting it to the trading profit and loss account and by showing  it on the asset side of the balance sheet. The closing stock of the year becomes the opening stock of the next year and is reflected in the trial balance of the next year.

Multiple choice book keeping and accountancy accounting equation meaning, objectives and need of adjustments need for adjustments accounting equations and transactions

Financial capital is also referred to ______________.

  1. Money capital

  2. Current assets

  3. Fluid

  4. Long term debt
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Financial capital is the money used to help pay for the acquisition of plants, equipment, and other items needed to build products or offer services. Hence, it can be referred to money capital. 

Multiple choice book keeping and accountancy accounting equation meaning, objectives and need of adjustments need for adjustments accounting equations and transactions

 _________ are adjusted at the time of preparing financial statements. 

  1. Depreciation on fixed assets

  2. Interest on capital

  3. Closing stock

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

According to accrual concept of accounting, the profit or loss for an accounting year is not based on the revenues realised in cash and the expenses paid in cash during the year because there may be some receipts of income and payments of expenses during the current year which may partially relate to the previous year or the next year. There are certain items which are not recorded on day-to-day basis such as depreciation on fixed assets, interest on capital, etc. These are adjusted at the time of preparing financial statements. The purpose of making various adjustments is to ensure that the final accounts reveal the true profit or loss and the true financial position of the business. The items which usually need adjustments are: 

1. Closing stock
2. Outstanding expenses
3. Prepaid/Unprepaid expenses
4. Accrued income
5. Income received in advance
6. Depreciation
7. Bad debts
8. Provision for doubtful debts
9. Provision for discount on debtors
10. Manager's commisssion
11. Interest on capitral

Multiple choice book keeping and accountancy accounting equation meaning, objectives and need of adjustments need for adjustments accounting equations and transactions

The value of closing stock is equal to _______________.

  1. Sales -Opening stock- Purchases

  2. Sales- Opening stock + Purchases

  3. Sales + Opening stock + Purchases

  4. Sales + Opening stock -Purchases
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Sales = Opening stock + Purchase - Closing Stock

Hence , it could be written as
Closing stock = Sales - Opening stock -purchases

Multiple choice book keeping and accountancy accounting equation meaning, objectives and need of adjustments need for adjustments accounting equations and transactions

________ = exp paid + o/s expense - prepaid exp.

  1. Total Expense

  2. Total income

  3. Total assets

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

Total Expenses means for any period for which such Total Expenses are being determined, the sum of the total gross cash expenditures of the Company or any subsidiary during such period, including all operating expenses, incentive fees, interest expense and taxes.

Multiple choice book keeping and accountancy accounting equation meaning, objectives and need of adjustments need for adjustments accounting equations and transactions

Adjustments helps to provide true and fair view of the ____________ of the business.

  1. State of affairs

  2. Position of cash

  3. Capital composition

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

The Companies Act requires that every balance sheet of a company should give a true and fair view of the state of affairs of the company as at the end of the financial year and every profit and loss of a company should give a true and fair view of the profit or loss of the company for the financial year.

Multiple choice book keeping and accountancy accounting equation meaning, objectives and need of adjustments need for adjustments accounting equations and transactions

__________ = income received + o/s income - income received in advance.

  1. Total expense

  2. Total income

  3. Asset

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

It is also known as Unearned Income and is received before the related benefits are provided. This revenue is not related to the current accounting period, for example, Rent received in advance, Commission received in advance, etc. It is a personal account and shown on the liability side of a balance sheet.

Multiple choice book keeping and accountancy accounting equation meaning, objectives and need of adjustments need for adjustments accounting equations and transactions

Outstanding expense is ____________ for business.

  1. Liability

  2. Asset

  3. Expense

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

 Outstanding expenses are recorded in books of finance at the end of an accounting period to show the true numbers of a business. The outstanding expense is a personal account and is treated as a liability for the business. It is also shown on the liability side of a balance sheet.

Multiple choice book keeping and accountancy accounting equation meaning, objectives and need of adjustments need for adjustments accounting equations and transactions

Outstanding expense are _________ to expense.

  1. Added

  2. Deducted

  3. No effect

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

An outstanding expense is a liability and shown in Balance Sheet as a liability. An outstanding expense is added to the respective expense in profit and loss account.

Multiple choice book keeping and accountancy accounting equation meaning, objectives and need of adjustments need for adjustments accounting equations and transactions

Under statement of closing work-in progress in the period will _______________.

  1. Understate cost of goods manufactured in that period

  2. Overstate current assets

  3. Overstate gross profit from sales in that period

  4. Understate net income in that period.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Understating closing inventory increases the Cost of Goods Sold (COGS = Opening + Purchases - Closing). Since Net Income = Revenue - COGS, an increase in COGS leads to a decrease in Net Income.

Multiple choice book keeping and accountancy accounting equation meaning, objectives and need of adjustments need for adjustments accounting equations and transactions

Provision for the outstanding liability/ expenses is _________.

  1. appropriation of profit

  2. siphoning of income

  3. charge to profit

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

A provision for outstanding expenses is an expense that must be recognized in the period it was incurred to match revenues, making it a charge against profit rather than an appropriation of profit (which is a distribution of earned profit).

Multiple choice book keeping and accountancy accounting equation meaning, objectives and need of adjustments need for adjustments accounting equations and transactions

The recording of wages earned but not yet paid is an example of an adjustment that ________________.

  1. apportions revenues between two or more periods

  2. recognises an accrued expense

  3. recognise an unrecorded reveue

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

Accrued expenses are expenses that have occurred, but are not yet recorded in the company's general ledger. This means these expenses will not appear in the financial statements unless an adjusting entry is passed prior to issuing the financial statements.