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

The equality of debits and credits of the ________ does not mean that the individual accounts are also accurate.

  1. bank reconciliation statement

  2. cash book

  3. trial balance

  4. none of these
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Trial balance lists all ledger balances showing equality of total debits and credits. But this equality only proves mathematical accuracy - debits equal credits. It does NOT prove that individual account balances are correct. Errors like compensating errors, errors of omission, posting to wrong account but correct side can still exist while trial balance balances. Bank reconciliation and cash book don't test accuracy.

Multiple choice

Prepaid salary has a

  1. credit balance

  2. debit balance

  3. negative balance

  4. none of these
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Prepaid salary is an advance payment made to employees before the salary is actually earned. Like all prepaid expenses, it represents an asset for the company since the benefit (work performed) will be received in the future. Assets always carry a debit balance, which is why prepaid salary has a debit balance. Credit balance would indicate a liability, not an asset.

Multiple choice

Credit balance in the cash book means

  1. overdraft as per pass book.

  2. favourable balance as per pass book.

  3. both (1) and (2).

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

When the cash book shows a credit balance, it means the business has spent more than it has deposited - resulting in a bank overdraft. From the customer's perspective, this is a negative bank balance. The pass book (bank statement) would show this as an overdraft. A favourable balance would mean the cash book has a debit balance (money deposited exceeds withdrawals).

Multiple choice

What will be the correct entry for commission received of Rs. 500?

  1. Debit Cash account and credit bank account

  2. Debit bank account and credit cash account

  3. Debit Commission account and credit cash account

  4. Debit cash account and credit sales account

  5. Debit Cash account and credit commission received account with Rs. 500
Reveal answer Fill a bubble to check yourself
E Correct answer
Explanation

Cash comes in, so cash account is credited. Commission is an item of income, so it will be credited.

Multiple choice

What is the first step of accounting process?

  1. Preparing the source document

  2. Post the transactions

  3. Recording the transactions

  4. Identifying the transactions

  5. None of these
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

This is the first step of accounting process.

Multiple choice

Discount allowed is deduction from which of the following?

  1. Discount account

  2. Cash account

  3. Account receivable

  4. Account payable

  5. None of these
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Discount allowed is discount given to buyer that will be deducted from Account Receivable. A credit sale will increase Accounts Receivable, but the collection of the amount will decrease Accounts Receivable.

Multiple choice

According to accounting process, which of the following sequences is best justified?

  1. Transaction, source document, journal entry, ledger, trial balance

  2. Transaction, source document, journal entry, trial balance, ledger

  3. Source document Transaction, journal entry, trial balance, ledger

  4. Source document, Transaction, journal entry, ledger, trial balance

  5. Source document, Transaction, ledger journal entry, trial balance
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Transactions occurs, then the source documents are reduced to debit and credit in form of journal entry, then posted to ledger and from ledger trial balance is prepared.

Multiple choice

An incorrect journal entry is made by posting amount paid for servicing vehicle to motor vehicle account. Which of the following entries can be made to correct the previous entry?

  1. Debit motor vehicle account and credit vehicle maintenance account

  2. Debit vehicle maintenance account and credit cash account

  3. Debit cash account and credit motor vehicle account

  4. Debit vehicle maintenance account and credit motor vehicle account

  5. Entry cannot be corrected
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Motor vehicle entry needs to be reduced by making credit entry and debit the vehicle maintenance account.