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

Which of the following is correct in respect of accounting?

  1. Only those transactions and events which are of financial character will be recorded in terms of money.

  2. All the events and transactions will be recorded in the books of accounts irrespective of the fact whether these are of financial nature.

  3. Transactions to be recorded may be chosen by the Finance Manager or the MD of the Company.

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

A fundamental accounting principle is the monetary measurement concept: only transactions and events with financial character are recorded in monetary terms. Non-financial events (competitor strategy, employee morale, etc.) are not recorded because they cannot be objectively measured in money. Option B is wrong because non-financial events are NOT recorded. Option C is wrong because transaction recording follows objective rules, not managerial discretion.

Multiple choice

What are the two items listed on a balance sheet?

  1. Interest and principle

  2. Assets and liabilities

  3. Interest and assets

  4. Principle and bonds
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

A balance sheet presents the financial position of an entity at a point in time, showing what it owns (assets) and what it owes (liabilities) on a specific date. Assets include cash, inventory, property; liabilities include loans, payables, debt. Option D mentions 'principle' (incorrect spelling, should be 'principal') and bonds are just one type of instrument.

Multiple choice

Which of the following is the main advantage of bookkeeping?

  1. Ascertainment of financial position

  2. Control over assets

  3. Arithmetical accuracy of the account

  4. Issue of Shares

  5. Control over borrowings
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The objective of bookkeeping is the ascertainment of financial position. The users of accounting information work on decisions on the basis of financial stability.

Multiple choice

Accounting equation is based on

  1. going concern concept

  2. dual aspect concept

  3. business or accounting entity concept

  4. none of these

Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

 Accounting equation is based on dual aspect concept. Every transaction has a two sided effect, that is each transaction is debited and credited. For instance, the owner of a business invests capital, to start the business, say,  Rs. 50,000. By this, the cash would come in , which is an asset , and is to be debited. On the other hand, the capital is a liability of Rs. 50,000 and it has to be credited.

Multiple choice

Mr. A purchased a machinery costing Rs. 1,00,000 on 1st October, 2005. Transportation and installation charges were incurred amounting Rs. 10,000 and Rs. 4,000 respectively. Dismantling charges of the old machine, in place of which new machine was purchased amounted to Rs. 10,000. Market value of the machine was estimated at Rs. 1,20,000 on 31st March 2006. While finalising the annual accounts, A valued the machinery at Rs. 1,20,000 in his books.

Which of the following concepts was violated by A?

  1. Cost concept

  2. Matching concept

  3. Realisation concept

  4. Periodicity concept

Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The cost concept requires assets to be recorded at their historical acquisition cost, including all necessary expenses to bring the asset to working condition. Here, total cost = Rs. 1,00,000 (purchase) + Rs. 10,000 (transport) + Rs. 4,000 (installation) + Rs. 10,000 (dismantling) = Rs. 1,24,000. Valuing at market value (Rs. 1,20,000) violates the cost concept, which states that assets should not be revalued upwards unless under specific circumstances.

Multiple choice

A businessman purchased goods for Rs. 25,00,000 and sold 80% of such goods during the accounting year ending on 31st March 2005. The market value of the remaining goods was Rs. 4,00,000. He valued the closing stock at cost. Thus, he violated the concept of

  1. money measurement

  2. conservatism

  3. cost

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

The conservatism principle (prudence concept) requires that inventory should be valued at the lower of cost or market value (net realizable value). Here, remaining stock cost is Rs. 5,00,000 (20% of Rs. 25,00,000) but market value is only Rs. 4,00,000. By valuing at cost, the businessman violated conservatism, which anticipates losses but not profits.