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

At the time of preparation of financial accounts, bad debts recovered account will be transferred to______________.

  1. Debtors A/c

  2. Profit and Loss A/c

  3. Profit and Loss Adjustment A/c

  4. Profit and Loss Appropriation A/c
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

At times. a debtor whose account had earlier been written off as bad debts may decide to make the payments. 

This is called Bad debts recovered. While journalizing for bad debts, Debtor's personal account is credited and bad debts account is debited because bad debts are treated as loss to the firm and now when they are recovered it is seen as a gain to the business. So, they are transferred to Profit and Loss Account.  

Multiple choice book keeping and accountancy accounting procedures - rules of debit and credit golden rules of debit and credit (traditional approach) types of account meaning and classification of accounts

Which of the following is a personal account?

  1. Outstanding Expense

  2. Investment

  3. Share premium

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

Outstanding expenses are recorded in books of finance at the end of an accounting period to show the true numbers of a business. 

The outstanding expense is a personal account and is treated as a liability for the business. It is also shown on the liability side of a balance sheet.

Multiple choice commercial studies accounting procedures - rules of debit and credit golden rules of debit and credit (traditional approach) types of account meaning and classification of accounts

Which of the following is a real (permanent) account?

  1. Goodwill

  2. Sales

  3. Accounts Receivable

  4. Both Goodwill and Accounts Receivable
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Accounts of things are called real accounts. For each of the thing, a separate account is opened in the ledger. The balances of real account are carries over to the next period. Goodwill is a intangible fixed assets and accounts receivable are current assets. Both are real accounts.

Multiple choice commercial studies accounting procedures - rules of debit and credit golden rules of debit and credit (traditional approach) types of account meaning and classification of accounts

Goods Account is _____.

  1. Real

  2. Nominal

  3. Personal

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

Real accounts are the accounts that refer to the possession of a business. The possessions may be tangible or intangible. The possession are the assets of a business.

Normally the books of business contains tangible assets that have physical existence. However, there are intangible assets as well that can appear in the books of accounts for instance Copyrights, Trademarks, Goodwill, Patents are intangible in nature but a business certainly possess them.The balances of these real accounts are closed at the financial year end but are carried forward as opening balances of the new financial year. Goods account is classified as a real account, as it is a tangible asset.

Multiple choice commercial studies accounting procedures - rules of debit and credit golden rules of debit and credit (traditional approach) types of account meaning and classification of accounts

Income Receivable Account is _______.

  1. Personal

  2. Real

  3. Nominal

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

Personal accounts are related to individuals, firms, companies, etc. A few examples of personal accounts are debtors, creditors, banks, outstanding.//prepaid expenses, accounts of credit customers, accounts of goods suppliers, capital, drawings, etc. Personal accounts are classified into three subcategories: Artificial, Natural, and Representative.

Representative personal accounts represents a certain person or a group directly or indirectly.
Income Receivable Account is a representative personal account, i.e it represents the income to be received from a group of persons. Hence, it is classified as a personal account.

Multiple choice commercial studies accounting procedures - rules of debit and credit golden rules of debit and credit (traditional approach) types of account meaning and classification of accounts

Import Duty Account is ________ in nature.

  1. Real

  2. Nominal

  3. Personal

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

Import duty is a tax collected on imports and some exports by a country's customs authorities. It is usually based on the imported goods value. Depending on the context, import duty may also be referred to as customs duty, tariff, import tax or import tariff.

There are mainly three types of accounts: Real, Personal and Nominal accounts.
Accounts which are related to expenses, losses, incomes or gains are called Nominal accounts. The dictionary meaning of the word :nominal" is "existing in name only" and the meaning remains absolutely true in accounting sense too, because nominal accounts do not really exist in physical form, but behind every nominal account money is involved. The final result of all nominal accounts is either profit or loss which is the transferred to the capital account.
Import Duty Accounts is a direct expense of a business and hence, it is classified as a nominal account.

Multiple choice commercial applications accounting procedures - rules of debit and credit golden rules of debit and credit (traditional approach) types of account meaning and classification of accounts

Office Equipment Account is _________.

  1. Real

  2. Nominal

  3. Personal

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

Accounts relating to properties or assets are known as "Real Accounts". A separate account is maintained for each asset e.g. Cash, Machinery, Building, etc. Real accounts can be further classified into tangible and intangible.

1. Tangible Real Accounts: These accounts represent assets and properties which can be seen, touched, felt, measured, purchased and sold. For e.g. Machinery account, Cash account, Furniture account etc.
2. Intangible Real Accounts: These accounts represent assets and properties which cannot be seen, touched or felt but they can be measured in terms of money. For e.g. Goodwill accounts, Patents account, etc.
Office Equipment is the account whose value can be measured in terms of money and treated as an asset of the business. Hence, it is classified as a real account.

Multiple choice commercial applications accounting procedures - rules of debit and credit golden rules of debit and credit (traditional approach) types of account meaning and classification of accounts

Fill in the blanks with correct alternative and rewrite the statements.
___________ accounts usually shows a debit balance.

  1. Personal

  2. Real

  3. Nominal

  4. Income
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation
Real account usually shows a debit balance.
A real account is an account hat retains and rolls forward its ending balance from period to period. The areas in the balance sheet in which real accounts are found are assets, liabilities, and equity. Examples of real accounts are: Accounts payable. Retained earnings.

Assets, expenses, losses, and the owner's drawing account will normally have debit balances. Their balances will increase with a debit entry, and will decrease with a credit entry.

Multiple choice commercial applications accounting procedures - rules of debit and credit golden rules of debit and credit (traditional approach) types of account meaning and classification of accounts

________ accounts relate to assets of the firm.

  1. Personal

  2. Real

  3. Nominal

  4. Impersonal

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

There are mainly three types of accounts: Real, Personal and Nominal accounts. 

All assets of the firm, which are tangible or intangible, fall under the category "Real accounts". 
Tangible real accounts are related to things that can be touched and felt physically. Few examples of tangible real accounts are building, machinery, stock, land, etc. 

Intangible real accounts are related to things that can't be touched and felt physically. Few examples of such real accounts are goodwill, trademarks, etc.

Multiple choice commercial applications accounting procedures - rules of debit and credit golden rules of debit and credit (traditional approach) types of account meaning and classification of accounts

Credit balance of a personal account indicates ________________.

  1. Cash balance

  2. Amount payable

  3. Amount receivable

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

The debit balance of a personal account indicated debt owing by the person and credit balance indicates debts owing to the person concerned. For the business, the first one is account receivable or asset, while the second is accounts payable or liability. Every personal account showing debit balance (i.e. excess of debit side over credit side) will reveal the amount by which the debit side is more than the credit side. Debit balance is recoverable from the person whose account shows a debit balance. A debit balance to a personal account is an asset and therefore the more debit balance to a personal account is an asset and therefore the more debit balances to personal accounts, more the assets are in the form of outstanding recoverables. The debit balance of a personal account shows the amount receivable.

Multiple choice commercial applications accounting procedures - rules of debit and credit golden rules of debit and credit (traditional approach) types of account meaning and classification of accounts

Which one of the following is a personal account?

  1. Bills Receivable Account

  2. Livestock Account

  3. Goodwill Account

  4. Outstanding Salaries A/c
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Outstanding Salary A/c is a Representative Personal Account as it represents a group of people to whom some amount of salary is payable. Similarly other outstanding and prepaid expenses also fall under the category of representative personal accounts.

Multiple choice commercial applications accounting procedures - rules of debit and credit golden rules of debit and credit (traditional approach) types of account meaning and classification of accounts

Normally, the following accounts are balanced _________________.

  1. Personal accounts and nominal accounts.

  2. Real accounts and nominal accounts.

  3. Personal accounts and real accounts.

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

Normally the Personal account and Real account are balanced. Only accounts relating to assets and liabilities ,that is real account and personal accounts are balanced periodically.

Multiple choice commercial applications accounting procedures - rules of debit and credit golden rules of debit and credit (traditional approach) types of account meaning and classification of accounts

Ram's account is related to ___________.

  1. Personal account

  2. Nominal account

  3. Real account

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

A personal account is an account for use by an individual for that person's own needs. It is a relative term to differentiate them from those accounts for business or corporate use.

Ram's A/c is a personal A/c.

Multiple choice commercial applications accounting procedures - rules of debit and credit golden rules of debit and credit (traditional approach) types of account meaning and classification of accounts

The basic rule of book-keeping "Debit all expenses and losses and credit all gains and incomes" is applicable to _________.

  1. Personal account

  2. Real account

  3. Nominal account

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

Accounts relating to income, revenue, gain, expenses and losses are termed as nominal accounts. These accounts are also known as fictitious accounts as they do not represent any tangible asset. A separate account is maintained for each head or expense or loss and gain or income. Wages account, Rent account, Commission account, Interest received accounts are some examples of nominal account. 

The rule for Nominal accounts is: Debit all expenses and losses; Credit all incomes and gains.

Multiple choice commercial applications accounting procedures - rules of debit and credit golden rules of debit and credit (traditional approach) types of account meaning and classification of accounts

At the end of the accounting year all the nominal accounts of the ledger book are _________________________.

  1. Balanced but not transferred to profit and loss account

  2. Not balanced and also the balance is not transferred to the profit and loss account

  3. Balanced and the balance is transferred to the balance sheet

  4. Not balanced and transferred to the profit and loss account.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Nominal accounts represent expenses, losses, incomes, and gains. At the end of the accounting year, these are closed by transferring their balances to the Profit and Loss Account.