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 company final accounts forms of statements of profit and loss operating profit (ebit) meaning, need and format of profit and loss account

The aim of preparing Profit and Loss Account is to find out__________.

  1. gross profit or gross loss

  2. net profit or net loss

  3. financial position of the business

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

The primary purpose of the Profit and Loss account is to determine the net profit or net loss of the business for a specific accounting period. Gross profit is determined in the Trading account.

Multiple choice commercial studies company final accounts forms of statements of profit and loss operating profit (ebit) meaning, need and format of profit and loss account

Which of the following is NOT true with regard to preparation of Profit & Loss Account?

  1. Profit & Loss Account is prepared for a certain period and hence it is an interim statement

  2. Profit & Loss Account does not disclose the effect of non-financial items

  3. Net Profits are ascertained on the basis of current costs

  4. Net Profit as disclosed by Profit & Loss Account is not absolute
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The Profit and Loss account is a final account prepared at the end of the year, not an interim statement. Interim statements are typically prepared for shorter periods like quarters.

Multiple choice commercial studies company final accounts forms of statements of profit and loss operating profit (ebit) meaning, need and format of profit and loss account

While preparing final account, to record loss in stock due to fire or accidents which of the following adjustment entry will passed?

Stock A/cTo Creditors A/c Dr.
Profit & Loss A/cTo Stock A/c Dr.
Stock A/cTo Capital A/c Dr.
Debtors A/cTo Stock A/c Dr.

  1. A

  2. B

  3. C

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

When stock is lost due to fire, the stock account is credited to reduce the inventory, and the Profit and Loss account is debited to record the loss.

Multiple choice commercial studies company final accounts forms of statements of profit and loss operating profit (ebit) meaning, need and format of profit and loss account

Which is the characteristic feature of profit & loss account?

  1. Accounts transferred to profit & loss account do not exist after being transferred to profit & loses account

  2. It is prepared at the last date of the accounting period.

  3. It is a statement

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

Once accounts are transferred to the Profit and Loss account, they are closed and their balances are zeroed out for the next period, which is a fundamental characteristic of the closing process.

Multiple choice commercial studies company final accounts forms of statements of profit and loss operating profit (ebit) meaning, need and format of profit and loss account

Everyday office expenses are charged to _____________.

  1. Selling expenses

  2. Administrative expenses

  3. Marketing expenses

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

Office expenses, such as stationery, salaries of office staff, and utilities, are classified as administrative expenses because they support the general management of the business.

Multiple choice commercial studies company final accounts forms of statements of profit and loss operating profit (ebit) meaning, need and format of profit and loss account

Which of the following would not appear in the profit and loss account?

  1. Rent received

  2. Cash expenses

  3. Carriage outwards

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

Drawings represent personal withdrawals by the owner and are recorded in the capital account or balance sheet, not the profit and loss account. Rent received, cash expenses, and carriage outwards are all operational income or expense items that appear in the profit and loss account.

Multiple choice commercial studies company final accounts forms of statements of profit and loss operating profit (ebit) meaning, need and format of profit and loss account

Basic principle to be followed while preparing trading and profit & loss account is ____________________.

  1. Expenses for the full trading period should be included

  2. Revenue received for the whole period be included

  3. Expenditure which is for other period to be included

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

The accrual basis of accounting requires that all revenues and expenses related to the specific accounting period be included in the financial statements for that period, regardless of when cash is received or paid.

Multiple choice commercial studies company final accounts forms of statements of profit and loss operating profit (ebit) meaning, need and format of profit and loss account

What is transferred to capital account?

  1. Gross profit

  2. Net profit

  3. Gross sales revenue

  4. Net sales revenue
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Net profit represents the final earnings of the business after all expenses and taxes. This amount is transferred to the capital account to increase the owner's equity.

Multiple choice commercial studies company final accounts forms of statements of profit and loss operating profit (ebit) meaning, need and format of profit and loss account

Adjusted profit and loss are used in____________.

  1. budgetary control technique

  2. information technique

  3. financial accounts preparation technique

  4. for bounced cheques
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Adjusted profit and loss accounts are frequently used in budgetary control to compare actual performance against budgeted figures and make necessary adjustments for future planning.

Multiple choice commercial studies company final accounts forms of statements of profit and loss operating profit (ebit) meaning, need and format of profit and loss account

Which is the characteristic feature of profit & loss account?

  1. Account transferred to profit & loss account do not exist after being transferred to profit & loses account

  2. It is prepared at the last date of the accounting period.

  3. It is a statement

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

A key feature of the profit and loss account is that it is a nominal account; once the balances are transferred to the capital account, the nominal accounts themselves are closed for that period.

Multiple choice commercial studies company final accounts forms of statements of profit and loss operating profit (ebit) meaning, need and format of profit and loss account

The trading account does not __________.

  1. calculate gross profit

  2. compare the sales with the cost of those sales

  3. include the cost of goods sold

  4. show the effect of profit on capital
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

A trading account helps in determining the gross profit or gross loss of a business made strictly out of trading activities. Only direct revenue and direct expenses are considered in it. 

It is prepared mainly to know the profitability of goods. In this indirect expenses and indirect revenue are not included. So, it can not show the effect of profit on capital. In Capital net profit is added. 

Multiple choice commercial studies company final accounts forms of statements of profit and loss operating profit (ebit) meaning, need and format of profit and loss account

_______ is the part of income statement, which is prepared to ascertain the profit/ loss for a given accounting period.

  1. Manufacturing A/c

  2. Profit and Loss A/c

  3. Balance Sheet

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

Final Account is the final process of accounting. Final accounts include the preparation of Trading account, Profit and Loss account and Balance Sheet. The main purpose of this account is to show the profit or loss earned by the firm during the accounting period. It shows the profitability of the business. 

Multiple choice commercial studies company final accounts forms of statements of profit and loss operating profit (ebit) meaning, need and format of profit and loss account

Which of the following principle/s must be kept in mind while preparing Trading and Profit and Loss Account?

  1. Profit or loss is determined by matching revenues and expenses according to the matching principle

  2. Only revenue expenses together with losses should be taken into account

  3. Only revenue receipts i.e. sale proceeds and other incomes should be entered

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

Profit or loss is determined by matching revenues and expenses. All expenses incurred for the purpose of earning income should be debited to the account. Expenditure of revenue nature alone and that relating to only the period concerned should be debited to the account.

 Losses suffered by accident or otherwise should be debited to the statement of profit and loss account. All the revenue income relating to the period concerned is recorded, even if they have not been actually received in cash. 

Multiple choice commercial studies company final accounts forms of statements of profit and loss operating profit (ebit) meaning, need and format of profit and loss account

The _________ measures net profit/ loss by matching revenues and expenses according to the accounting principles.

  1. trading A/c

  2. manufacturing account

  3. profit and loss A/c

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

Profit and Loss Account measures net profit/loss by matching revenues and expenses according to the Matching Principle. The matching principle is one of the basic underlying guidelines in accounting. This principle requires a company to match expenses with related revenue. The matching is based on a cost and effect relationship.

Multiple choice commercial studies company final accounts forms of statements of profit and loss operating profit (ebit) meaning, need and format of profit and loss account

Which of the following is NOT true with regard to preparation of Profit and Loss Account?

  1. Profit and Loss Account is prepared for a certain period and hence it is an interim statement

  2. Profit and Loss Account does not disclose the effect of non-financial iterms

  3. Net Profits are ascertained on the basis of current costs

  4. Net Profit as disclosed by Profit and Loss Account is not absolute
Reveal answer Fill a bubble to check yourself
A Correct answer