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

_________is useful for the purpose of cost control, cost reduction and proper utilization of scarce resources.

  1. Financial Audit

  2. Cost Audit

  3. Secretarial Audit

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

A cost audit is specifically designed to verify the correctness of cost accounts and check adherence to cost accounting principles. It is extremely useful for cost control, cost reduction, and ensuring the proper utilization of scarce business resources.

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

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 usually consists of _____________.

  1. Trading Account

  2. Profit & loss Account

  3. Balance Sheet

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

Financial statements are prepared at the end of the financial year to know the overall financial performance and financial position of the business. 


Following are the financial statements:
Trading Account is prepared to know the gross profit earned by the business. 
Profit & Loss Account is prepared to find out the net profit after deducting the indirect expenses from the gross profit. 
Balance sheet is prepared to know the financial position of the  business on a particular date including the position of assets and liabilities.  

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 are the basic objectives of preparing Financial Statements?

  1. To view financial performance.

  2. To view financial Position.

  3. Both (A) & (B).

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

To know the financial position of the business, financial statements are prepared. Normally the financial statements are prepared at the end of the financial year. 


Financial statements includes the following:

Trading, Profit & Loss A/c - To know the profitability of the business.
Balance Sheet- To know the position of assets and liabilities of the firm.
Fund Flow Analysis- To know the movement of fund during the year.

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 not correct?

  1. Financial statements do adjust themselves for price level changes

  2. Only business transactions are within the ambit of financial records

  3. Financial statements have evidential value in the court of law

  4. Accounting principles have no universal acceptability
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Financial statements are generally prepared on a historical cost basis and do not automatically adjust for price level changes (inflation). The other statements correctly describe the nature and limitations of accounting.

Multiple choice organisation of commerce and management introduction to commerce and business characteristics of vocational activities basis of classification of business activities classification of business

If stock turnover ratio is $4$ times and the collection period is $30$ days, the operating cycle would be _________.

  1. 30 days

  2. 60 days

  3. 90 days

  4. 120 days
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The operating cycle is the sum of the inventory holding period (calculated from the stock turnover ratio as 365/4 or simply using standard approximations) and the collection period. Here, stock turnover is 4 times (meaning 365/4 = about 90 days, or using a 360-day year where 360/4 = 90 days), and the collection period is 30 days, giving a total of 90 + 30 = 120 days.

Multiple choice civics introduction to gst fundamentals of gst tax journal

Journal entry for purchase of goods on credit within same state is follows:
Purchases A/c                     Dr
Input CGST A/c                   Dr
Input SGST A/c                   Dr
            To Creditor's A/c
State whether above entry is true or false.

  1. True

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

When purchasing goods within the same state, the business pays both CGST and SGST. These are recorded as Input CGST and Input SGST, which are debit entries.

Multiple choice business organisation and correspondence partnership 4 - dissolution of a partnership firm meaning of dissolution of partnership firm modes of dissolution of firm dissolution of firm difference between realisation account and revaluation account payment of firm's debts and separate debts, realisation of assets and liabilities

At the time of dissolution of the firm; if goodwill appears in the Balance Sheet, it is transferred to ______________ .

  1. Realisation Account.

  2. Partners' Capital Accounts

  3. Revaluation Account

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

Treatment of goodwill is very easy in case of dissolution of a firm. In case, if goodwill is already appearing in the balance sheet, it is treated like any other asset, and is transferred to the realisation account at the value given in balance sheet. Following entry is passed for it.

         Realisation A/c       Dr.
                  To Goodwill A/c

Multiple choice business organisation and correspondence partnership 4 - dissolution of a partnership firm meaning of dissolution of partnership firm modes of dissolution of firm dissolution of firm difference between realisation account and revaluation account payment of firm's debts and separate debts, realisation of assets and liabilities

Unrecorded liabilities when paid are debited to _________ .

  1. Realistaion Accounts

  2. Partner's Capital Accounts

  3. None of the above

  4. Only option (A)
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Unrecorded liabilities are those liabilities that are not shown in the Balance Sheet but they still exist in the business. Although these liabilities are not shown in the books, they still need to the discharged off at the time of dissolution and hence are debited to the Realisation account. 

Multiple choice business organisation and correspondence partnership 4 - dissolution of a partnership firm meaning of dissolution of partnership firm modes of dissolution of firm dissolution of firm difference between realisation account and revaluation account payment of firm's debts and separate debts, realisation of assets and liabilities

Unrecorded asset when realised is credited to  ____________ .

  1. Realisation Account

  2. partners' Capital Accounts

  3. None of the above

  4. Only option (A)
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Unrecorded assets are those assets that have been completely written off but are still physically present in the business. There is no requirement to show these assets in the books before they are sold off. Hence, these assets are directly credited to the Realisation account at the time of dissolution of the firm.