Commerce Accountancy

Accounting Principles and Practices

2,324 Questions

Accounting principles and practices involve the preparation of trial balances, ledgers, and bank reconciliation statements. This area tests your knowledge of fundamental accounting concepts and routine business transactions. It is a core section in commerce exams and various competitive tests.

Ledger accountsTrial balance preparationBank reconciliation statementAccounting conceptsPrimary books of accounts

Accounting Principles and Practices Questions

Multiple choice book keeping and accountancy accounting equation and business transactions introduction to final accounts meaning, objectives and importance of final accounts meaning, objectives, importance and preparation of final accounts

Which of the following financial statements shows the financial position of a business?

  1. Balance sheet

  2. Income statement

  3. Cash flow statement

  4. Statement of changes in equity
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The Balance Sheet is the financial statement that provides a snapshot of a company's assets, liabilities, and equity at a specific point in time, representing its financial position.

Multiple choice book keeping and accountancy accounting equation and business transactions introduction to final accounts meaning, objectives and importance of final accounts meaning, objectives, importance and preparation of final accounts

Financial statements are prepared mainly for ____________________.

  1. Internal users of financial information

  2. External users of financial information

  3. Creditors of the business

  4. Managers of the business
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

While internal users use financial statements, they are primarily prepared to provide accountability and transparency to external users like investors, creditors, and regulators.

Multiple choice book keeping and accountancy accounting equation and business transactions introduction to final accounts meaning, objectives and importance of final accounts meaning, objectives, importance and preparation of final accounts

The responsibility for the preparation of the financial statements and the accompanying footnotes belongs to ____________.

  1. both management and the auditor equally

  2. management for the statements and the auditor for the notes

  3. the auditor

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

The responsibility for preparing financial statements, including all accompanying notes and disclosures, lies solely with the management of the entity.

Multiple choice book keeping and accountancy accounting equation and business transactions introduction to final accounts meaning, objectives and importance of final accounts meaning, objectives, importance and preparation of final accounts

For a proprietor following are not included in final accounts.

  1. Trading account

  2. Profit and loss account

  3. Balance sheet

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

This is a duplicate of question 472164. For a proprietor, final accounts include Trading Account, Profit and Loss Account, and Balance Sheet. All three are essential components, so 'None of the above' (meaning all are included) is correct.

Multiple choice book keeping and accountancy accounting equation and business transactions introduction to final accounts meaning, objectives and importance of final accounts meaning, objectives, importance and preparation of final accounts

The responsibility for the preparation of the financial statements and the accompanying footholes belongs to_________.

  1. both management and the auditor equally

  2. management for the statements and the auditor for the notes

  3. the auditor

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

Management is responsible for preparing financial statements and accompanying footnotes (not 'footholes' - appears to be a typo). Auditors examine but don't prepare. Responsibility is solely with management.

Multiple choice book keeping and accountancy accounting equation and business transactions introduction to final accounts meaning, objectives and importance of final accounts meaning, objectives, importance and preparation of final accounts

Primary responsibility for the adequacy of financial statement disclosures rest with the____________.

  1. auditor

  2. management

  3. auditor's staff

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

The primary responsibility for the adequacy of disclosure in the financial statements of a company rests with the management. Management is the one who communicates with the outside world. It acts as a link between business and outside world. So primary responsibility lies with the management.  

Multiple choice book keeping and accountancy accounting equation and business transactions introduction to final accounts meaning, objectives and importance of final accounts meaning, objectives, importance and preparation of final accounts

Which is a part of financial statements?

  1. Balance sheet

  2. Book keeping

  3. Debit & Credit

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

There are four main financial statements. They are: (1) balance sheets; (2) income statements; (3) cash flow statements; and (4) statements of shareholders' equity. Balance sheets show what a company owns and what it owes at a fixed point in time.

Multiple choice book keeping and accountancy accounting equation and business transactions introduction to final accounts meaning, objectives and importance of final accounts meaning, objectives, importance and preparation of final accounts

Which of the following best describes the reason why an independent auditor reports on financial statements?

  1. A management fraud may exist and is more likely to be detected by independent auditors

  2. Different interests may exists between the company preparing the statements and the persons using the statements

  3. A misstatement of account balances may exist and is generally corrected as the result of the independent auditor's work

  4. Poorly designed internal control may exist
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The primary reason for independent audits is the agency problem: the potential conflict of interest between those who prepare the statements (management) and those who rely on them (shareholders/creditors).

Multiple choice book keeping and accountancy accounting equation and business transactions introduction to final accounts meaning, objectives and importance of final accounts meaning, objectives, importance and preparation of final accounts

Procedure for preparation of 'Projected Financial Statements' should start from ______________.

  1. Projection of Fixed Assets

  2. Projection of Capital

  3. Projection of Sales

  4. Projection of Profit
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Projected financial statements take into account past financial trends, market conditions, possible changes and management expectations to arrive at a future financial picture.

It begins with Projection of Sales.

Multiple choice book keeping and accountancy accounting equation and business transactions introduction to final accounts meaning, objectives and importance of final accounts meaning, objectives, importance and preparation of final accounts

Which of the following best describes the reason why an independent auditor reports on financial statements?

  1. A management fraud may exist and is more likely to be detected by independent auditors

  2. Different interests may exist between the company preparing the statements arid the persons using the statements

  3. A misstatement of account balances may exist and [s generally corrected as the result of the independent auditor's work

  4. Poorly designed internal control may exist
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Independent auditors serve as an objective bridge between management who prepare financial statements and external stakeholders who use them. This conflict of interest necessitates an independent third party to provide credibility and assurance to financial information. Options A and C describe what auditors might detect, but not the fundamental reason for independence. Option D is a condition that auditors evaluate, not the rationale for independent reporting. Note: The question has typos (arid instead of are, bracket in option C).

Multiple choice book keeping and accountancy accounting equation and business transactions introduction to final accounts meaning, objectives and importance of final accounts meaning, objectives, importance and preparation of final accounts

Final accounts include preparation of ____________.

  1. Trading A/c

  2. Profit and Loss A/c

  3. Balance Sheet

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

Final Account is the final process of accounting. Final Account is prepared to show the final results of the company in a specified period. Final Account is also known as Financial statement. Final accounts include the preparation of Trading account, Profit and Loss account and Balance Sheet. Trading Account and Profit and Loss account shows the profitability achieved during the year. Balance Sheet shows the financial position of the business at the end of accounting period. 

Multiple choice book keeping and accountancy accounting equation and business transactions introduction to final accounts meaning, objectives and importance of final accounts meaning, objectives, importance and preparation of final accounts

The statements prepared by the summarizing process is known as ______ which will show the profit or loss made by the business over a period of time and the total capital employed in the business. 

  1. Financial statements

  2. Budgeted statements

  3. Standard cost statements

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

Financial statements are summary reports. Summary report shows how a firm has used the funds entrusted to it by its stakeholders and lenders and what is its current financial position. The three basic financial statements are 1. Balance Sheet  2. income statements 3. Cash Flow statement. 
Balance sheet shows firm's assets, liabilities and net worth on a stated date. 
Income Statement shows how the net income has arrived over a certain period. 
Cash flow statement shows the inflows and outflows of cash caused by the firm's activities over a stated period. 

Multiple choice book keeping and accountancy accounting equation and business transactions introduction to final accounts meaning, objectives and importance of final accounts meaning, objectives, importance and preparation of final accounts

Financial statements only consider _________________.

  1. Assets expressed in monetary terms

  2. Liabilities expressed in monetary terms.

  3. Assets expressed in non-monetary terms.

  4. Assets and liabilities expressed in monetary terms
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

'Financial Statements' comprises of Statement of Profit/Loss, Balance Sheet (including Notes to Accounts), Cash flow statement and statement of changes in Equity. 

Financial statements is a record of all the monetary items which includes assets and liabilities. In addition to the assets and liabilities, capital, profits and losses of the entity will also form a part of the financial statements.

Multiple choice book keeping and accountancy accounting equation and business transactions introduction to final accounts meaning, objectives and importance of final accounts meaning, objectives, importance and preparation of final accounts

What is the correct sequence of the following in the preparation of periodical financial statements?
I. Preparation of Balance sheet
II. Preparation of Funds flow statement
III. Preparation of Trial balance
IV. Preparation of Profit/Loss statement
Select the correct answer from the codes given and mark your answer sheet accordingly.

  1. IV, II, I, III

  2. III, IV, I, II

  3. II, IV, III, I

  4. I, III, II, IV
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Once all the transactions are recorded in the books of account then only process of preparing the financial statements starts. The sequence of preparation of financial statement is as under:


III - Preparation of Trial Balance
IV- Preparation of Profit & Loss Account
I - Preparation of Balance Sheet
II - Preparation of Funds Flow Statement