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

In accounting, GAAP stands for:

  1. Generally Acknowledged Accounting Principals

  2. Generally Averaged Accounting Plans

  3. Generally Argued Accounting Practice

  4. Generally Accepted Accounting Principals
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

GAAP stands for Generally Accepted Accounting Principles. These are the standard framework of guidelines for financial accounting used in any given jurisdiction.

Multiple choice

Total amount of money owed to a business.

  1. Accounting

  2. Accounts Receivable

  3. Assets

  4. Break-even Point
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Accounts receivable represents money owed to a business by customers for goods or services provided on credit.

Multiple choice

A financial plan explains how a business will manage its records.

  1. TRUE

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

A financial plan outlines how a business intends to achieve its financial goals, detailing revenue projections, capital requirements, and budgeting strategies. Managing records is part of bookkeeping and accounting systems rather than the definition of a financial plan.

Multiple choice book keeping and accountancy statement of changes in financial position meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement budgeting

Cash Flow Statement explains the reason on surplus or deficit of cash.

  1. True

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

A Cash Flow Statement provides a detailed breakdown of the sources and uses of cash, explaining why the cash balance increased or decreased over a period.

Multiple choice commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

Which Accounting Standard is applicable for preparation of Cash Flow Statement?

  1. Accounting Standard - 6

  2. Accounting Standard - 3

  3. Accounting Standard - 2

  4. Accounting Standard - 13
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Accounting Standard 3 (AS-3) is the standard specifically mandated for the preparation and presentation of Cash Flow Statements. AS-6 relates to depreciation, AS-2 to inventory valuation, and AS-13 to accounting for investments.

Multiple choice commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

Flow of funds means ___________.

  1. Change in funds

  2. Change in working capital

  3. Either (A) or (B)

  4. Change in cash receipts (or) payments
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Flow of funds are used to track the the flow of money to and from various sectors of a national economy. It is used to track the changes in the assets and liabilities of the company. It depicts the changes in funds as well as working capital.

Multiple choice commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

Cash flow statement is also termed as ___________________.

  1. Statement of changes in Financial Position (working capital basis)

  2. Statement of changes in Financial Position (cash basis)

  3. Appropriate statement for short range planning

  4. Statement showing cash receipts and payments
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The statement of changes in financial position (sometimes called a “cash flow statement”) shows a company's net cash flow in a given period of time. Because it also indicates where the cash flowed from or to, it is often referred to as the “sources and uses of cash statement.”

Multiple choice commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

Stock at the end results in the __________.

  1. Source of funds

  2. Application of funds

  3. No flow of funds

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

Source of funds results in the generation of cash for the company. Stock at the end has two aspects in the financial statements. One effect is credited to trading account and other one is shown as asset in the balance sheet. Assets are nothing but the sources of funds. Hence stock at the end results in source of funds.

Multiple choice commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

Which of the following items would be specifically included in the statement of cash flows constructed in compliance with $AS-3$?

  1. Conversion of debt to equity

  2. Acquiring an asset through lease

  3. Operating and non-operating cash flow information

  4. Purchasing a building by given a mortgage to the seller
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Operating and non-operating cash flow are inflows and outflows of cash that are related or not related to the day-to-day, ongoing operations of a business. These non operating cash flows are associated with cash flows from investing and cash flows from financing on a company's statement of cash flows.

Multiple choice commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

Which of the following statement are false?
a. Old furniture written off doesn't affect cash flow.
b. Cash flow statement is a substitute for cash account.
c. Appropriation of retained earnings is not shown in cash flow statement.
d. Net cash flow during a period can never be negative.

  1. A, B and C

  2. B, C and D

  3. C, D and A

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

Statement of cash flows, is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, financing activities. 

Multiple choice commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

Cash flow statement is based upon ______________.

  1. Cash basis of accounting.

  2. Accrual basis of accounting.

  3. Credit basis of accounting.

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

Cash flow is calculated by making certain adjustments to net income by adding or subtracting differences in revenue, expenses and credit transactions resulting from transactions that occur from one period to the next.  These adjustments are made because non-cash items are calculated into net income and total assets and liabilities. 

So, because not all transactions involve actual cash items, many items have to be reevaluated when calculating cash flow from operations.  

Multiple choice commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

Which of the following statement is true?
a. Cash flow reveals only the inflow of cash.
b. Cash flow reveals only the outflow of cash.
c. Cash flow is a substitute for income statement.
d. Cash flow statement is not a replacement of funds flow statement.

  1. Only (a)

  2. Only (b)

  3. Only (b) and (c)

  4. Only (d)
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

AS-3, issued by the ICAI in June 1981, which dealt with a statement showing 'changes in financial position' (Fund Flow Statement), has been revised and now deals with the preparations of cash flow statement. The revised AS-3 has made it mandatory for all listed companies to prepare and present a cash flow statement along with other financial statements on annual basis, Hence, it may be noted that fund flow statement is no more considered relevant in accounting and so not discussed.  

Multiple choice commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

Which of the following statement is false?
a. Cash flow statement is helpful in the formation of policies.
b. Cash flow statement is useful for external analysis.
c. Cash flow statement is helpful in estimating future cash flow.

  1. Both (a) and (b)

  2. Both (a) and (c)

  3. Both (b) and (c)

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

Cash flow statement helps users to assess the impact of the activities on the financial position of an enterprise and so on its cash and cash  equivalents.