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 commercial studies basic accounting terms basic accounting terminologies introduction to financial accounting and financial accounts basic accounting terminology meaning and features of balance sheet income-expenditure account meaning, importance and specimen of journal objectives, functions, and importance of accounting stages and functions of accounting qualitative characteristics, objectives and roles of accounting

Rs. 500 spent on servicing office type writer should be debited to _________.

  1. Expenses Account

  2. Type writer Account

  3. Repairs Account

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

Amount spend on normal servicing or repair of any asset is a revenue expenditure and should be debited to repairs account in profit & loss account. Any amount spent which improves the life of any asset, should be capitalized.

Multiple choice commercial studies basic accounting terms basic accounting terminologies introduction to financial accounting and financial accounts basic accounting terminology meaning and features of balance sheet income-expenditure account meaning, importance and specimen of journal objectives, functions, and importance of accounting stages and functions of accounting qualitative characteristics, objectives and roles of accounting

The process of recording financial transactions in the journal is called ___________.

  1. Journalizing

  2. Utilizing

  3. Posting

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

All business transactions are to be first recorded in journal in chronological order. Process of recording the transaction is called journalizing.

Multiple choice commercial studies basic accounting terms basic accounting terminologies introduction to financial accounting and financial accounts basic accounting terminology meaning and features of balance sheet income-expenditure account meaning, importance and specimen of journal objectives, functions, and importance of accounting stages and functions of accounting qualitative characteristics, objectives and roles of accounting

Period of time for which accounts of the business are prepared is _____________.

  1. Financial year

  2. Calendar year

  3. Assessment year

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

Every organization surely want to analyse the overall business performance. Normally this is 12 month or a period of a year. This year is called accounting year, also termed as financial year.

Multiple choice commercial studies basic accounting terms basic accounting terminologies introduction to financial accounting and financial accounts basic accounting terminology meaning and features of balance sheet income-expenditure account meaning, importance and specimen of journal objectives, functions, and importance of accounting stages and functions of accounting qualitative characteristics, objectives and roles of accounting

An accountant records a transaction if ________ .

  1. it is substantiated by a documentary evidence

  2. it has tax implication

  3. it is so required by the Management

  4. it is mandatory as per Statutory requirement
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Any business transaction which occur during the course of business must have the documentary evidence. Since the accounts of the business need to be audited in future, all evidence must be available for records.

Multiple choice commercial studies basic accounting terms basic accounting terminologies introduction to financial accounting and financial accounts basic accounting terminology meaning and features of balance sheet income-expenditure account meaning, importance and specimen of journal objectives, functions, and importance of accounting stages and functions of accounting qualitative characteristics, objectives and roles of accounting

______ describes a record of the transaction.

  1. Income statement

  2. Journal

  3. General ledger

  4. Charter of accounts
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The transactions are recorded first of all in the journal and then they are posted to the ledger. Thus the journal is the book of first or original entry while the ledger is the book of second entry. Journal records transactions in a chronological order. Journal is more reliable then ledger. The process of recording transactions is termed as journalising.

Multiple choice commercial studies basic accounting terms basic accounting terminologies introduction to financial accounting and financial accounts basic accounting terminology meaning and features of balance sheet income-expenditure account meaning, importance and specimen of journal objectives, functions, and importance of accounting stages and functions of accounting qualitative characteristics, objectives and roles of accounting

_______ is the first phase of accounting cycle.

  1. Identifying an event or transaction

  2. Taking rational decision

  3. Designing Accounting system

  4. Preparing charter of accounts
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Accounting cycle starts only when there is an event or transaction of monetary value. If a transaction is completed, its considered an event to record the same in business books. Non economic transaction should not be considered as an event. Hence, no recording is done.

Multiple choice commercial studies basic accounting terms basic accounting terminologies introduction to financial accounting and financial accounts basic accounting terminology meaning and features of balance sheet income-expenditure account meaning, importance and specimen of journal objectives, functions, and importance of accounting stages and functions of accounting qualitative characteristics, objectives and roles of accounting

_______ is used to an economic event in accounting.

  1. Event

  2. Transaction

  3. Dealing

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

Every economic activity is performed through transactions and events. A transaction may be a business, performance of an act or an agreement. Transaction is used to an economic event in accounting.

Multiple choice commercial studies basic accounting terms basic accounting terminologies introduction to financial accounting and financial accounts basic accounting terminology meaning and features of balance sheet income-expenditure account meaning, importance and specimen of journal objectives, functions, and importance of accounting stages and functions of accounting qualitative characteristics, objectives and roles of accounting

Choose the wrong statement.

  1. Accounting is the language of business.

  2. Transactions are recorded in qualitative terms only.

  3. Accounting is the art of recording, classifying and summarizing.

  4. Transactions and events of financial character are subject-matter of accounting.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Accounting is a systematic process of identifying, recording, measuring, classifying, verifying, summarizing, interpreting and communicating financial information. transactions and events of financial information. It revels profit or loss for a given period, and the value and nature of firm's assets, liabilities and owner;s  equity. It is the language of business.

Multiple choice commercial studies basic accounting terms basic accounting terminologies introduction to financial accounting and financial accounts basic accounting terminology meaning and features of balance sheet income-expenditure account meaning, importance and specimen of journal objectives, functions, and importance of accounting stages and functions of accounting qualitative characteristics, objectives and roles of accounting

Posting means the recording of a transaction _____________.

  1. In any two accounts.

  2. On the debit side of an account related to that transaction.

  3. On the credit side of an account related to that transaction.

  4. On the proper side of two accounts related to that transaction.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Posting is the transfer of journal entries to a general ledger, which usually contains a separate form for each account. Journals record transactions in chronological order, while ledgers summarize transactions by account. Posting in accounting consists of a few simple steps.

Multiple choice commercial studies basic accounting terms basic accounting terminologies introduction to financial accounting and financial accounts basic accounting terminology meaning and features of balance sheet income-expenditure account meaning, importance and specimen of journal objectives, functions, and importance of accounting stages and functions of accounting qualitative characteristics, objectives and roles of accounting

Adjusting entries are essential to the ___________.

  1. matching rule

  2. accrual accounting

  3. proper determination of net income

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

Before financial statements are prepared, additional journal entries, called adjusting entries, are made to ensure that the company's financial records adhere to the revenue recognition and matching principles. Adjusting entries are necessary because a single transaction may affect revenues or expenses in more than one accounting period and also because all transactions have not necessarily been documented during the period. Each adjusting entry usually affects one income statement account (a revenue or expense account) and one balance sheet account (an asset or liability account)


Multiple choice commercial studies basic accounting terms basic accounting terminologies introduction to financial accounting and financial accounts basic accounting terminology meaning and features of balance sheet income-expenditure account meaning, importance and specimen of journal objectives, functions, and importance of accounting stages and functions of accounting qualitative characteristics, objectives and roles of accounting

The basic concepts related to P&L Account are _______________.

  1. Realization concept

  2. Matching concept

  3. Cost concept

  4. Both (a) and (b)
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The matching concept is an accounting practice whereby firms recognize revenues and their related expenses in the same accounting period.

The realization principle is the concept that revenue can only be recognized once the underlying goods or services associated with the revenue have been delivered or rendered, respectively. 

Multiple choice commercial studies basic accounting terms basic accounting terminologies introduction to financial accounting and financial accounts basic accounting terminology meaning and features of balance sheet income-expenditure account meaning, importance and specimen of journal objectives, functions, and importance of accounting stages and functions of accounting qualitative characteristics, objectives and roles of accounting

The manufacturing account is prepared __________________.

  1. To ascertain the profit or loss on the goods produced

  2. To ascertain the cost of the manufactured goods

  3. To show the sale proceeds from the goods produced during the year

  4. Both (B) and (C)
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Manufacturing account does not show the profit & loss. Manufacturing account accumulate the cost of manufacturing of material including raw material, labour and production overheads. 

Below is the format of manufacturing account.

                                             Manufacturing Account


 Particulars  Amount  Particulars  Amount
 To Op Stock of Raw Material    By Closing Stock of Raw Material  
 To Opening Stock of WIP    By Closing WIP  
 To Purchases of Raw Material    By Cost of goods transferred to Trading A/c   
 To Carriage Inwards      
 To Direct Labor      
 To Direct Expenses      
 To Factory Rent      
 To Fuel, Power      
 To Manufacturing overheads    
Multiple choice commercial studies basic accounting terms basic accounting terminologies introduction to financial accounting and financial accounts basic accounting terminology meaning and features of balance sheet income-expenditure account meaning, importance and specimen of journal objectives, functions, and importance of accounting stages and functions of accounting qualitative characteristics, objectives and roles of accounting

Which of the following statements is correct?

  1. Accounting profit is the difference between cash receipts and cash paid in a period.

  2. Accounting profit is the total of cash sales in the year less the expenses for the period.

  3. Accounting profit is the difference between revenue income and expenses for the period.

  4. Accounting profit is the difference between revenue income and cash payments for the period.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Profit & Loss account is prepared for a business for a particular period. Profit & Loss account is having two sides i.e. Income and expenses side or debit or credit side. All incomes/revenues are recorded in credit side and expenses are debited. 

Excess of Income over expenditure is treated as profit and excess of expenditure over income is a loss. 

Multiple choice commercial studies basic accounting terms basic accounting terminologies introduction to financial accounting and financial accounts basic accounting terminology meaning and features of balance sheet income-expenditure account meaning, importance and specimen of journal objectives, functions, and importance of accounting stages and functions of accounting qualitative characteristics, objectives and roles of accounting

Which of the following statements is correct in relation to a trial balance?

  1. It shows the financial position of a business.

  2. All the balances in the trial balance will be summarized on the business balance sheet.

  3. It is a list of balances and forms the starting point for the preparation of the business accounts.

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

A trial balance is a statement showing the debit and credit balances of all ledger accounts. It is not a financial statement itself, but rather a tool used to check the arithmetic accuracy of the ledger before preparing final accounts.

Multiple choice commercial studies basic accounting terms basic accounting terminologies introduction to financial accounting and financial accounts basic accounting terminology meaning and features of balance sheet income-expenditure account meaning, importance and specimen of journal objectives, functions, and importance of accounting stages and functions of accounting qualitative characteristics, objectives and roles of accounting

When a consistency is found between financial statements of one entity from period to period it is _____________.

  1. conventions of conservatism

  2. conventions of materiality

  3. conventions of disclosure

  4. conventions of horizontal consistency
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Consistency is the basic assumption and it is assumed that the various Policies/Methods adopted by the concern while preparing the accounts are consistent from one period to another. This convention plays its role particularly when there are some different methods available. However, consistency does not implies that there is no way for the introduction of new policies. 

If there is a change in the policy which results in inflating or deflating the figures of profits as compared to the previous year, a note to that should be given with the financial statements.