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 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.

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.