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

In a general, the accounts in the income statement are known as ___________.

  1. permanent accounts

  2. temporary accounts

  3. unearned revenue accounts

  4. contra-asset accounts
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Income statement accounts (revenue and expenses) are temporary accounts because their balances are closed to the capital account at the end of each period, resetting them to zero for the next period.

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

In a Trading and Profit and Loss Account the excess of net sales over the cost of goods sold is called _________________.

  1. Operating income

  2. Income from operations

  3. Gross profit

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

Gross profit is defined as the difference between net sales and the cost of goods sold.

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

Which of the following accounts would be closed by transfer to the trading and Profit and Loss account at the end of a period?

  1. Sales

  2. Salary expenses

  3. Both sales and salary expense

  4. Neither sales nor salary expense
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Both revenue accounts (like Sales) and expense accounts (like Salary) are temporary accounts that must be closed to the Trading and Profit and Loss account at the end of the period.

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

Which one of the following statements is correct?

  1. Gross profit on trading is entered on the right side of the trading account and carried down to the left side of the profit and loss account

  2. Gross profit on trading is entered on the left side of the trading account and carried down to the right side of the profit and loss account.

  3. Net profit on trading is entered on the right side of the trading account and carried down to the right side of the profit and loss account.

  4. Net profit on trading is entered on the left side of the trading account and carried down to the left side of the profit and loss account.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Gross profit is calculated on the debit (left) side of the Trading Account (as a balancing figure) and then transferred to the credit (right) side of the 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

Adjusting entries are essential to _______________.

  1. Matching rule

  2. Accrual accounting

  3. A proper determination of net income

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

Adjusting entries are necessary to apply the matching principle, implement accrual accounting, and ensure that net income is accurately determined for a specific period.

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

Outstanding salaries are shown as ________________.

  1. An asset in the balance sheet

  2. A liabilty

  3. By adjusting it in the P&L A/c

  4. Both (a) and (b)

  5. Both (b) and (c)
Reveal answer Fill a bubble to check yourself
E Correct answer
Explanation

Outstanding salaries are a liability (shown on the balance sheet) and are also an expense that must be added to the salary expense in the P&L account to correctly reflect the period's costs.

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

____________ are those entries which are passed at the end of each accounting period for the purpose of adjusting various nominal and other accounts so that true net profit or loss is indicated in profit and loss account and the balance sheet represents a true and fair view of the financial position of an enterprise.

  1. Opening entries

  2. Adjustment entries

  3. Closing entries

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

Adjustment entries are made at the end of an accounting period to ensure that revenues and expenses are matched correctly, reflecting the true profit or loss and the accurate financial position.

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

In case of final accounts of manufacturing concerns closing stock of finished goods appears in __________ & ____________.

  1. Manufacturing Account, Balance Sheet

  2. Trading Account, Balance Sheet

  3. Profit & Loss Account, Balance Sheet

  4. Manufacturing Account, Trading Account
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Closing stock of finished goods is an asset at the end of the period, so it appears in the Balance Sheet. It is also credited to the Trading Account to determine the cost of goods sold.

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

While preparing final account, to record closing stock which of the following adjustment entry will be passed?

Purchases A/cTo Stock A/c Dr.
Trading A/cTo Stock A/c Dr.
Stock A/cTo Trading A/c Dr.
Stock A/cTo Capital A/c Dr.

  1. A

  2. B

  3. C

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

To record closing stock, the stock account is debited (as an asset) and the Trading Account is credited (to reduce the cost of goods sold).

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

In the case of continuing business we are required to pass an entry in the journal to brought forward all assets and liabilities as appearing in the books on the last day of the previous year. This entry is known as.

  1. Opening entries

  2. Adjustment entries

  3. Closing entries

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

Opening entries are passed at the beginning of a new financial year to bring forward the balances of assets and liabilities from the previous year's closing balance sheet.

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

If goods are sold to customers on approval basis and consent is not received during the accounting periods which of the following adjustment entries are passed?

Debtors A/c Dr.To Sales A/c & Trading A/c Dr.To Stock A/c
Sales A/c Dr.To Debtors A/c & Stock A/c Dr.To Trading A/c
Sales A/c Dr.To Stock A/c & Debtors A/c Dr.To Stock A/c
Debtors A/c Dr.To Trading A/c & Trading A/c Dr.To Stock A/c

  1. A

  2. B

  3. C

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

When goods are sent on approval and not yet accepted, the sale must be reversed (Sales Dr. to Debtors) and the goods must be included in closing stock (Stock Dr. to Trading).

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

While preparing final account, to record goods are distributed as free samples- which of the following adjustment entry will be passed?

Advertisement A/cTo Capital A/c Dr.
Advertisement A/cTo Purchase A/c Dr.
Advertisement A/cTo Trading A/c Dr.
(B) or (C)

  1. A

  2. B

  3. C

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

Free samples are an advertisement expense. The entry is Advertisement A/c Dr. to Purchases A/c (to reduce cost of goods) or Trading A/c (to reduce stock). Both are valid representations.

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

While preparing final account, to record outstanding expenses which of the following adjustment entry will be passes?

Expenses A/cTo Outstanding Expenses A/c Dr.
Outstanding Expenses A/cTo Expenses A/c Dr.
Profit & Loss A/cTo Outstanding Expenses A/c Dr.
Outstanding Expenses A/cTo Profit & Loss A/c Dr.

  1. A

  2. B

  3. C

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

Outstanding expenses are liabilities. The entry is to debit the expense account (to increase the expense) and credit the Outstanding Expenses account (to create the liability).

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

When the opening and closing stocks are adjusted through purchases, the trial balance does not show any __________. 

  1. Opening stock

  2. Closing stock

  3. Purchases

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

The closing stock represents the cost of unsold goods lying in the stores at the end of the accounting period. 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. Sometimes, the opening and closing stock are adjusted through purchases account. In this regard, the entry recorded is as follows: 

Closing Stock A/c Dr. 
          To Purchases A/c
This entry reduces the amount in the purchases account and is also known as adjusted purchases which is shown on the debit side of the trading and profit and loss account. Another important point is when the opening and closing stocks are adjusted through purchases, the trial balance does not show any opening stock. Instead, the closing stock appears in the trial balance and so also the adjusted purchases.

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

The unadjusted and unrecorded items relating to a period are recorded in the journal by passing __________.

  1. transfer entry

  2. adjustment entry

  3. rectification entry

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

The matching principle states expenses must be matched with the revenue generated during the period. The purpose of adjusting entries is to ensure that all revenue and expenses from the period are recorded. Many adjusting entries deal with balances from the balance sheet, typically assets and liabilities, which must be adjusted. In addition to ensuring that all revenue and expenses are recorded, we are also making sure that all asset and liability accounts have the proper balances. Adjusting entries are dated for the last day of the period.