Commerce Accountancy

Accounting Principles and Practices

2,416 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 statement is false with regard to final accounts of the company?

  1. Balance Sheet is prepared as per Schedule VI (Part - I).

  2. There is no prescribed format for the preparation of financial statements.

  3. Profit and Loss Account is prepared as per prescribed format.

  4. Figures of Previous year are also shown in Profit and Loss Account and Balance Sheet.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Companies are required by law (such as the Companies Act) to prepare financial statements in a prescribed format. Therefore, the statement that there is no prescribed format is false.

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

Manufacturing account is prepared to___________. 

  1. ascertain the profit or loss on the goods produced

  2. ascertain the cost of the goods manufactured

  3. show the sale proceeds from the goods manufactured during the year

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

A manufacturing account is specifically designed to calculate the total cost of producing goods, including raw materials, direct labor, and factory overheads, before they are transferred to the trading account.

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' of a manufacturing company generally include the following types of documents:
1. Balance Sheet
2. Manufacturing Account
3. Profit and Loss Account
4. Trading Account
5. Profit and Loss Appropriation Account
The correct sequence in which these documents are prepared is________. 

  1. $1, 4, 3, 2, 5$
  2. $2, 4, 3, 5, 1$
  3. $1, 2, 4, 3, 5$
  4. $2, 4, 5, 3, 1$
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The logical flow for a manufacturing company is: Manufacturing Account (to find production cost), Trading Account (to find gross profit), Profit and Loss Account (to find net profit), Profit and Loss Appropriation Account (to distribute profit), and finally the Balance Sheet (to show 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

The correct sequence in preparation of periodical financial statement would be.
$1$. Preparation of balance sheet
$2$. Preparation of cash flow statement
$3$. Preparation of trial balance
$4$. Preparation of Profit & Loss A/c
Select the correct answer from the options given.

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

The standard sequence is: Trial Balance (3), Profit & Loss Account (4), Balance Sheet (1), and Cash Flow Statement (2).

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 these items will appear in a Manufacturing A/c?

  1. Power and Steam A/c

  2. Salary and Wages A/c

  3. Carriage Outward

  4. Goodwill written off
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Power and steam are direct factory expenses related to production, making them appropriate for the Manufacturing account. Carriage outward and goodwill are selling/administrative or non-operating items, and salary/wages (if general) usually go to the P&L.

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 finding out all the expenses and losses of a proprietor ______ is prepared.

  1. Position statement

  2. Balance sheet

  3. Income statement

  4. Both a & b
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The Income Statement (or Profit and Loss Account) is specifically prepared to summarize all revenues, expenses, and the resulting profit or loss for a 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

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

Trading account, P&L account, and Balance Sheet are all standard components of final accounts for a proprietor. Therefore, none of the options listed are excluded.

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).