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

According to money measurement concept, currency transactions and events are recorded in the books of accounts

  1. in the ruling currency of the country in which transaction takes place

  2. in the ruling currency of the country in which books of account are prepared

  3. in the currency set by the ministry of finance

  4. in the currency set by the government
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

According to the money measurement concept in accounting, transactions and events should be recorded in the currency of the country where the books of accounts are being prepared, regardless of where the transaction takes place. This ensures consistency in financial reporting and avoids confusion from multiple currencies in a single set of accounts.

Multiple choice

Consistency with reference to an application of accounting principles refers to the fact that

  1. companies in the same industry use identical accounting procedures and methods and are consistent

  2. income of the assets have not been overstated

  3. accounting methods and procedures used have been consistently applied from year to year

  4. all accounting methods and procedures have been utilised
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The consistency principle requires that a company use the same accounting methods and procedures from one accounting period to the next, enabling comparability of financial statements over time. Option A incorrectly describes uniformity across different companies rather than consistency over time periods within the same company.

Multiple choice

The determination of expenses for an accounting period is based on the principal of

  1. objectivity

  2. materiality

  3. matching

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

The matching principle requires that expenses incurred in generating revenue should be recognized in the same accounting period as the related revenue. This ensures accurate measurement of net income for the period by matching efforts (expenses) with accomplishments (revenues).

Multiple choice

When should fundamental accounting assumptions followed be disclosed in the financial statement?

  1. Should be disclosed always

  2. Disclosed only when not followed

  3. Disclosed only when followed

  4. Disclosure depends on the nature of the enterprise
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

According to AS-1, disclosure of fundamental accounting assumptions (going concern, accrual, business entity) is required only when they are NOT followed. If these assumptions are followed (which is normally the case), no disclosure is necessary in the financial statements.

Multiple choice

The concerned account debited in the main journal should be

  1. debited in the ledger but reference should be of the respective credit account

  2. Credited in the ledger but reference should be of the respective debit account

  3. credited in the ledger and reference should be of the respective credit account

  4. debited in the ledger but reference should also be of the respective debit account
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

When an account is debited in the journal, it must be debited in the ledger as well. However, the cross-reference (posting reference) should indicate the account that was credited in the transaction, not the debit account. This maintains the dual-entry system's audit trail.

Multiple choice

Income tax paid by the sole proprietor from business bank account is debited to

  1. income tax account

  2. bank account

  3. capital account

  4. not to be shown in the business books
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Income tax is the owner's personal obligation, not a business expense. When paid from business account, it's treated as drawings/debit to capital account. It doesn't appear in business profit/loss calculation.

Multiple choice

As contractor while executing a number of projects can adopt accounting system of

  1. either completed contact or percentage of completion method

  2. both the methods for different contracts

  3. both the methods for single contract

  4. as per the list given in AS - 6
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

A contractor can use different accounting methods (completed contract or percentage of completion) for different contracts, but must consistently apply one method to each specific contract. Using both methods on a single contract would violate consistency principles.

Multiple choice

Which of the following is generally considered a normal loss?

  1. Leakage of oil during transit

  2. Loss due to faulty packaging

  3. Loss due to theft

  4. Loss due to fire

  5. Loss due to negligence
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Normal loss is that which cannot be avoided inspite of best efforts. The leakage may be taken as normal loss.

Multiple choice

The amount of abnormal loss on the goods sent on consignment is shown on

  1. credit side of the consignment account

  2. debit side of the consignment account

  3. debit side of consignee account

  4. credit side of consignee's account

  5. dedited to goods sent on consignment account
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

It is the correct answer. The correct entry is Abnormal loss account ___ Dr. To consignment account

Multiple choice

During the life time of an entity, accountants prepare financial statements at arbitrary points of time as per

  1. prudence

  2. consistency

  3. periodicity

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

Periodicity concept divides entity life into artificial time periods (accounting year) for reporting. Financial statements prepared at these arbitrary intervals - quarterly, half-yearly, annually. Prudence, consistency, matching are separate accounting principles. Periodicity answers 'when' to report - at regular intervals rather than waiting for entity's liquidation.