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 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
C Correct answer
Explanation

Net profits in financial accounting are generally ascertained on the basis of historical costs or matching principles rather than current replacement costs, making option C incorrect and therefore the right answer to 'which is NOT true'. Statements A, B, and D correctly describe the nature of a profit and loss account as an interim report based on historical financial records with inherent limitations.

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

Copyright A/c is_____.

  1. Real

  2. Personal

  3. Nominal

  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 possessions of a business. The possessions may be tangible and intangible. The possessions are assets of the 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 not closed a the financial year end but are carried forward as opening balances of the new financial year.
Copyright is an intangible asset, and hence it is classified as 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

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

Prepaid/Advance Salary A/c is classified as _______.

  1. Representative personal A/c

  2. Real A/c

  3. Nominal A/c

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

There are mainly three types of accounts in accounting: Real, Personal and Nominal accounts. Personal accounts  are classified into three subcategories: Artificial, Natural, and Representative. Personal accounts are related to individuals, firms, companies, etc. A few examples of personal  accounts include debtors, creditors, banks, outstanding/prepaid accounts, accounts of credit customers. accounts of goods suppliers, capital, drawings, etc. Representative Personal accounts are those which represent a certain person or a group directly or indirectly. E.g. Let's say that wages are paid in advance to an employee-a wage prepaid account will be opened in the books of accounts. This wages prepaid account is a representative personal account directly linked to the person. Prepaid.Advance Salary A/c are classified as representative 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

_______ is a Nominal A/c.

  1. Insurance prepaid A/c

  2. Insurance premium A/c

  3. Bank A/c

  4. Rent outstanding A/c
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

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

  • Personal accounts are classified into three subcategories: Artificial, Natural and Representative.
Accounts which are related to expenses, losses, incomes or gains are called Nominal accounts.
Example, Purchase A/c, Salary A/c, Sales A/c, Commission Received A/c, etc. The final result of all nominal accounts is either profit or losses which is then transferred to the capital account.