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 applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

The governing principle of double entry system is that _________.

  1. for every debit there is an equal and corresponding credit

  2. debit the given credit the receiver

  3. debit what goes out credit what comes in

  4. debit profits and gains credit expenses and losses
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Dual aspect is the foundation or basic principle of accounting. It provides the very basis for recording business transactions into the book of accounts. 

This concept states that every transaction has a dual or two-fold effect and should therefore be recorded at two places. In other words, at least two accounts will be involved in recording a transaction.

The double-entry system also requires that for all transactions, the amounts entered as debits must be equal to the amounts entered as credits.

Multiple choice commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

A system in which accounting entries are made on the basis of amounts having become due for payment or receipt is called _______________.

  1. Cash concept

  2. Accrual concept

  3. Matching concept

  4. On-going concept
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

There are two ways of accounting: 

1. cash system of accounting; and 
2. accrual system of accounting.
Accrual system of accounting defines that the revenues and expenses are to be accounted in the books of account on the basis of their accrual and not on the basis of their payment. 

For example, if any salary is due, it should be debited to the salary account, irrespective of when it is paid. 
The same applies to incomes. If any income is due to be received, the same has to be credited in the respective income account, irrespective of it being received or not.

Multiple choice commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

Under the accrual concept, which one of the following will not be shown as an asset/liability in the balance sheet of an entity?

  1. Interest due but not paid.

  2. Interest due but not received.

  3. Interest due and paid.

  4. Interest paid but not due.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Under the accrual concept, is the fundamental concept of accounting in which revenues are recorded when they are earned and not received in cash, and recording expenses when they are incurred and not actually paid. 

Hence point C is the only one which will not appear in the balance sheet as its been due and paid.

Multiple choice commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

Double entry system is  more accurate because__________.

  1. Mis-appropriations are minimised

  2. Arithmetic inaccuracies in records can be checked

  3. Possibilities of frauds is reduced

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

The accounting system is a system of double entry , which means that every business transaction that is to be recorded or have been recorded, always have dual impact. This system is more accurate because of the following reasons:

  1. Mis-appropriation are minimized: The record of every transaction is first classified into assets, liabilities, expenses, revenue, capital and then these are recorded accordingly so if there will be any misappropriations that can be checked.
  2. Arithmetic inaccuracies in records can be checked: Double-entry system of book-keeping is based on the dual entry principle which means that for every debit there is a equal and corresponding credit amount. Such a method of debit and credit helps in ensuring the arithmetical accuracy of the recordings of the transactions.
  3. Possibilities of frauds is reduced: Accounting records helps the organizations to detect the frauds and errors that have taken place in business and take steps to prevent their recurrence i.e occurring again. Under this system mistakes and deflections can be detected - this exerts a moral pressure on the accountant and his staff.

Multiple choice commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

Name the accounting concept on the basis of which income statement is prepared ______________.

  1. Realization concept

  2. Matching concept

  3. Accrual concept

  4. Cost concept
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Under accrual basis of accounting, expenses are matched with the related revenues and/ or are reported when the expense occurs, not when the cash is paid. The result of accrual accounting is an income statement that better measures the profitability of a company during a specific time period.

Multiple choice commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

System in which entry is recorded for cash as well as credit transactions is known as _____________.

  1. Cash system

  2. Credit system

  3. Accrual System

  4. Non-accrual system
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Accrual system is an accounting method that records revenues and expenses when they are incurred, regardless of when cash is exchanged. For example -In a credit sale, the sale is entered into the books when the invoice is generated rather than when cash is collected. 

Multiple choice commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

Expenses/Income are recorded when it is earned irrespective of cash being received/paid as per _____________.

  1. Cash basis

  2. Accrual basis

  3. Both of the above

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

Under accrual basis of accounting, expenses are matched with the related revenues and/ or are reported when the expense occurs, not when the cash is paid. The result of accrual accounting is an income statement that better measures the profitability of a company during a specific time period.

Multiple choice commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

______ is the Accounting method that recognizes the impact of transactions on the financial statements in the time periods when revenue and expenses occurs.

  1. Cash basis

  2. Hybrid basis

  3. Accrual basis

  4. Double entry basis
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

There are two methods of accounting on the basis of business transactions are recorded i.e. cash system and accrual system.

If the transactions are recorded in books of account when cash is physically received is known as cash system of accounting irrespective of the period of revenue or expense. 
On the other side, if revenue and expense are recorded in the books of account based on the period of occurrence, its called accrual system of accounting irrespective of cash actually paid or not. 

Multiple choice commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

Transactions affecting cash balance only are recorded in the books of accounts.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

False. In the books of accounts, transactions whether cash or on credit both are recorded in the books of accounts. Accrual basis of accounting records transactions by recognizing economic events regardless whether cash is received or not. 

Multiple choice commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

The accounting system that affects at least two accounts is called __________ .

  1. Single entry system

  2. Double entry system

  3. Double account system

  4. Duplicate system of accounting
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Dual aspect is the foundation or basic principle of accounting. It provides the very basis for recording business transactions into the book of accounts. This concept states that every transaction has a dual or two-fold effect and should therefore be recorded at two places. In other words, at least two accounts will be involved in recording a transaction.

The double-entry system also requires that for all transactions, the amounts entered as debits must be equal to the amounts entered as credits.

Multiple choice commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

In a mercantile system of accounting adjustment is required for _______.

  1. Prepaid expenses

  2. Outstanding expenses

  3. Accrued income/income received in advance

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

Accrual accounting is the base of present accounting. It is also known as the mercantile system of accounting wherein the transactions are recognized as and when they take place. 

Under this method, the revenue is recorded when it is earned, and the expenses are reported when they are incurred. 
Hence, in this question accounting adjustment is required for prepaid expenses, outstanding expenses, accrued income/income received in advance.

Multiple choice commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

______ is the Accounting method that recognizes the impact of transactions on the financial statements in the time periods when cash is disbursed or received.

  1. Cash basis

  2. Hybrid basis

  3. Accrual basis

  4. Double entry basis
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

There are two methods of accounting on the basis of business transactions are recorded i.e. cash system and accrual system.

If revenue and expense are recorded in the books of account based on the period of occurrence, its called accrual system of accounting irrespective of cash actually paid or not.
If the transactions are recorded in books of account when cash is physically received is known as cash system of accounting irrespective of the period of revenue or expense.  

Multiple choice commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

The system of recording of transactions based on dual aspect is called _________ .

  1. Single entry

  2. Cash entry

  3. Double entry system

  4. Double account system
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Dual aspect is the foundation or basic principle of accounting. It provides the very basis for recording business transactions into the book of accounts. This concept states that every transaction has a dual or two-fold effect and should therefore be recorded at two places. In other words, at least two accounts will be involved in recording a transaction.

The double-entry system also requires that for all transactions, the amounts entered as debits must be equal to the amounts entered as credits.

Multiple choice commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

Select the correct statement.

  1. Accural basis of Accounting recognizes revenue only when cash is actually received

  2. As per Companies Act, Cash basis or Hybrid system of Accounting is allowed

  3. In cash basis of accounting, actual receipt of cash or disbursement of cash is the point of recognizing income and expenditure

  4. Cash basis of Accounting recognizes revenue only when the goods are delivered
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Under the cash basis, entries in the book of accounts are made when cash is received or paid and not when the receipt or payment become due. The cash basis is a method of recording accounting transactions for revenue and expenses only when the corresponding cash is received or payments are made.

Multiple choice commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

A cash receipt may cause ___________.

  1. Increase in liability

  2. Decrease in other asset

  3. Reduction in one asset and increase in other asset

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

An amount of money received by a company for goods or services, is called as cash receipts. 

Following are the results of cash receipts:-
Increase in liability, reduction in one asset and increase in other asset, decrease in other asset etc.