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 elements of book keeping and accountancy bill of exchange (trade bill) dishonour of a bill dishonour of bills advantages of bill of exchange

Acceptances received and recorded in bills receivable book are transferred to the ledger ______________.

  1. on the debit side of relevant personal accounts

  2. on the credit side of relevant personal account

  3. either (a) or (b)

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

When a bill is accepted and recorded in the bills receivable book, the acceptor is the person who owes money. In the ledger, the acceptor's personal account must be credited because they are the giver of the bill (a liability or reduction in asset).

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

Closing entries are those which are passed______.

  1. at the end of the year

  2. at the beginning of the year

  3. for rectification of errors

  4. for suppressing profit
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Closing entries are journal entries made at the end of an accounting period to transfer balances from temporary accounts (like revenue and expenses) to permanent accounts (like retained earnings).

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

Constant growth rate is 7.2% and an expected rate of return is 12.5% then expected dividend yield will be ___________.

  1. 5.30%

  2. 19.70%

  3. -5.30%

  4. 17.36%
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The expected rate of return is the sum of the dividend yield and the growth rate. Therefore, Dividend Yield = Expected Rate of Return - Growth Rate = 12.5% - 7.2% = 5.30%.

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

After all closing entries have been posted, the balance of the P & L Account will be ________________.

  1. A debit if a net income has been earned

  2. A debit if a net loss has been incurred

  3. A credit if a net loss has been incurred

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

After closing entries, the Profit and Loss account balance is transferred to the Capital account. A net loss results in a debit balance in the P&L account before it is closed to Capital, and if the question implies the state before final transfer, a loss represents a debit balance.

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

Consider the following statements.
A credit purchase during the accounting year which was not recorded in the books of account but included in the closing stock is to be.
I. Added to the credit purchases account
II. Added to the creditors account
III. Subtracted from the closing stock
IV. Added to the opening stock
Which of the statements given is/are correct?

  1. III only

  2. I and II

  3. II and III

  4. II, III and IV
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Credit purchase during the accounting year which was not recorded in the books of account but included in the closing stock is to be added to the credit purchase A/c and Creditors A/c.

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

Outstanding salary is shown as _______________.

  1. An asset in the balance sheet

  2. A liability

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

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

Outstanding expense are those expenses which are due but not paid. These are expenses like salary for the month of March is not paid but the services are already taken.

To find out the correct profitability, all expenses pertaining to the financial year should be debited to profit & loss account. Hence out standing salary to be added in salary expenses in profit & loss account and shown as current liability in the balance sheet.

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

Outstanding Expenses is shown on the _______ side of the balance sheet.

  1. Assets

  2. Liabilities

  3. Both

  4. None of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation
The above entry opens a new account called Outstanding Expenses which is shown on the liabilities side of the balance sheet. The amount of outstanding expenses is added to the total of expenses under a particular head for the purpose of preparing trading and 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

Salaries & wages outstanding will be added to ________ account.

  1. Wages

  2. Assets

  3. Liabilities

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

The entry to bring such expenses into account is:

Concerned Expense A/c 
     To Outstanding Expense A/c
The above entry opens a new account called Outstanding Expenses which is shown on the liabilities side of the balance sheet. The amount of outstanding expenses is added to the total expenses under a particular head for the purpose of preparing trading and profit and loss account. Salaries & wages outstanding will be added to the salaries account.

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

The adjusted purchases shall be debited to the ________.

  1. Profit and loss account

  2. Balance sheet

  3. Trading and profit and loss account

  4. Not recorded
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The closing stock represents the cost of unsold goods lying in the stores at the end of the accounting period. 

The adjustment with regard to the closing stock is done by crediting it to the trading and profit and loss account and by showing it on the asset side of the balance sheet.
 The closing stock of the year becomes the opening stock of the next year and is reflected on the trial balance of the next year. Sometimes, the opening and closing stock are adjusted through purchases account. In that case, the entry recorded 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. Another important point to be noted is that 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. In such a situation, the adjusted purchases should be debited to the trading and 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

Opening and closing stock are adjusted through purchases account. In that case, the entry recorded is ____________________.

  1. Opening Stock A/c Dr.

    To Purchases A/c

  2. Closing Stock A/c Dr.

    To Purchases A/c

  3. Cost of Goods Sold A/c Dr.

    To Closing stock A/c

  4. Purchases A/c Dr.

    To Closing Stock A/c
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The correct entry is:
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.

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

All adjustment  are reflected in final accounts at ____  places to complete double entry.

  1. 2

  2. 3

  3. 4

  4. 5
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

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

When ' Adjusted Purchases' appear in the total balance, it indicates that ______________________.

  1. Opening stock has been adjusted in the purchases.

  2. Closing stock has been adjusted in the purchases.

  3. Both opening and closing stocks have been adjusted in the purchases.

  4. expenses relating to purchases like carriage inward, Octroi duty etc. have been adjusted in the purchases.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Adjustment Entries for Closing Stock in Final Accounts! The closing stock is the unsold goods lying in the concern.

The stock is always valued at cost or market price whichever is lower. Generally, the closing stock will not appear in the Trial Balance and it lies in the adjustment.

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

An entry reduces amount in purchase account and is also known as ________.

  1. Adjusted closing stock

  2. Adjusted purchases

  3. Adjusted sales

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

Adjusted purchases means opening stock plus purchases less closing stock. Closing stock has two effects. When one effect is included in trial balance by way of inclusion in adjusted purchases the other should also form part of trial balance.

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

In case of adjusted purchases closing stock will appear in _________.

  1. Trial balance

  2. Trading account

  3. Profit and loss account

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

Adjusted purchases means opening stock plus purchases less closing stock. Closing stock has two effects. When one effect is included in trial balance by way of inclusion in adjusted purchases the other should also form part of trial balance.