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

No accounting is made for Abnormal Loss in Joint Venture Account.

  1. True

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

In a joint venture, abnormal losses are typically not recorded in the Joint Venture Account because the venture is temporary and the loss is usually borne by the venturers directly or handled outside the venture's operating account.

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

Cash basis considers the revenue as realised when ____________.

  1. Sale is completed

  2. Amount is ultimately collected from sales

  3. Order is received

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

Under the cash basis of accounting, revenue is recognized only when the cash is actually received from the customer, regardless of when the sale occurred.

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

The basis of revenue recognition often used in accounting for hire-purchase transaction is _______________.

  1. Cash basis

  2. Sales basis

  3. Production basis

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

In hire-purchase transactions, the interest and principal are collected over time. The cash basis is often used to recognize revenue as installments are received.

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

Adjustment of accrued/outstanding income/expenses is not necessary in ______ system of accounting.

  1. Mercantile

  2. Cash

  3. Double Entry

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

Cash accounting is an accounting method in which payment receipt are recorded during the period they are received, and expenses are recorded in the period in which they are actually paid. Hence, in this question accounting adjustment is not required for accrual/outstanding expenses/incomes.

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

State the reasons whether the following statement is true or false:
Accrual concept implies accounting on cash basis.

  1. True

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

The accrual concept requires that transactions be recorded when they occur, regardless of when cash is received or paid. The cash basis of accounting, conversely, only records transactions when cash changes hands.

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

In accrual basis or mercantile basis of accounting, the financial effect of the transaction is recorded in the books ___________.

  1. as and when they occur

  2. on the basis of actual receipt and payment of cash

  3. on confirmation of orders but before the delivery of goods take place

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

Under the accrual basis, revenue and expenses are recognized in the period they are earned or incurred, regardless of the timing of cash receipts or payments.

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

In cash system of accounting, entries are recorded ____________.

  1. when income is earned by a business or expenditure is incurred by it

  2. on the basis of actual receipt of cash or actual payment of cash

  3. when order for goods to be purchased in placed and order for goods to be sold is received

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

The cash system of accounting is strictly based on the actual movement of cash. Transactions are only recorded when money is physically received or paid out.

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

Which of the following has no relevance whether the receipts pertain to previous period or future period?

  1. Accrual system of accounting

  2. Cash system of accouting

  3. Hybrid system of accounting

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

In the cash system, the timing of the receipt or payment is the only factor that matters for recording, making the period to which the receipt pertains irrelevant.

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

Which of the following is/are the essential features of accrual basis of accounting?
(I) Revenue is recognized only when cash is received.
(II) Costs are matched against revenues on the basis of relevant time period to determine periodic income.
(III) Costs which are not charged to income are carried forward and are kept under continuous review.
(IV) Receipts or incomes are recorded as and when cash is received or becomes due on the other hand payments are recorded only when cash is actually paid.
The correct answer is _________________.

  1. (I) & (IV) only

  2. (I), (III) & (IV) only

  3. (III) & (IV) only

  4. (II) & (III) only
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Accrual accounting matches costs against revenues in the relevant period (II) and treats uncharged costs as assets to be carried forward (III). Statements (I) and (IV) describe cash-based accounting practices.

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

Purpose of ac an accounting system include all the following except _______________________.

  1. Interpret and record the effects of business transaction

  2. Classify the effects of transactions to facilitate the preparation of reports

  3. Summarize and communicate information to decision makers

  4. Dictate the specific types of business enterprise transactions that the enterprises may engage in.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Accounting systems are designed to record, classify, and summarize financial data to provide useful information. They do not have the authority to dictate or restrict the types of business transactions an enterprise chooses to engage in.

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

______ is incompatible with the matching principle of income determination.

  1. Accrual system of accounting.

  2. Cash basis of accounting

  3. Hybrid system of accounting

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

The matching principle requires that expenses be recognized in the same period as the revenues they help generate. The cash basis violates this because it records expenses only when paid, which may be in a different period than the associated revenue.

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

Materiality in accounting is decided __________________.

  1. By the size of an item

  2. By the knowledge as to whether an individual item is having a significant influence on financial statement

  3. Solely by the discretion of the accountant

  4. By the physical volume of the transaction
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Materiality is a qualitative characteristic; an item is material if its omission or misstatement could influence the economic decisions of users of the financial statements.

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

It SA/cs is done and by mistake A's account is transferred to Purchase No in such a case which accounts are affected? 

  1. Purchase a/c

  2. A's a/c

  3. Both (a) and (b)

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

When a personal account like A's account is incorrectly transferred to a nominal account like Purchase account, both accounts are affected. A's account shows an incorrect debit balance, while Purchase account is overstated. Both need correction entries to reverse the error and record the proper transaction.

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

Social obligation of accounting refers to ________________.

  1. The completion of journal entries

  2. The preparation of final accounts

  3. Cost recording

  4. Servicing the needs of various stakeholders
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The social obligation of accounting refers to the responsibility of the accounting function to provide relevant and transparent information to all stakeholders, including employees, creditors, government, and the public.