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

Which of the following financial statements is a list of financial statements prepared monthly, quarterly or annually to find out the balance of each account?

  1. Account receivable statement

  2. Profit and loss account statement

  3. Cash transaction statement

  4. Prepared statement

  5. Trial balance statement
Reveal answer Fill a bubble to check yourself
E Correct answer
Explanation

This financial statement is a list of financial statements prepared monthly, quarterly annually to find out the balance of each account.

Multiple choice

In which of the following accounting self evident statements, it is assumed that the business will exist for a long time and transactions are recorded on this basis?

  1. Money measurement concept

  2. Going concern concept

  3. Accounting period concept

  4. Convention of consistency

  5. Profit and loss account statement
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

In this accounting self evident statement, it is assumed that the business will exist for a long time and transactions are recorded on this basis.

Multiple choice

Which of the following accounting activities attempts to summarise and present data in a predetermined format to various levels of management at regular intervals, for the purpose of evaluating performance?

  1. Financial accounting

  2. Cost accounting

  3. Farm accounting

  4. Cash transaction

  5. Management reporting
Reveal answer Fill a bubble to check yourself
E Correct answer
Explanation

This accounting activity attempts to summarise and present data in a predetermined format to various levels of management at regular intervals, for the purpose of evaluating performance.

Multiple choice

Which of the following accounting concepts suggests that to find out the profitability, the expenses incurred to generate revenue are to be matched against that revenue?

  1. Accounting period concept

  2. Money measurement concept

  3. Value added concept

  4. Matching concept

  5. Legal aspect concept
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

This accounting concept suggests that to find out the profitability, the expenses incurred to generate revenue are to be matched against that revenue.

Multiple choice

Which of the following accounting concepts suggests that incomes and expenses should be recognised as and when they are earned and incurred, irrespective of whether the money is received or paid?

  1. Legal aspect concept

  2. Accrual concept

  3. Accounting period concept

  4. Money measurement concept

  5. Value added concept
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

This accounting concept suggests that incomes and expenses should be recognised as and when they are earned and incurred, irrespective of whether the money is received or paid.

Multiple choice

Which of the following accounting activities is defined as the measurement and reporting of internal and external information concerning the impact of an entity and its activities on society?

  1. Financial accounting

  2. Cost accounting

  3. Social responsibility accounting

  4. Farm accounting

  5. Government accounting
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

This accounting activity is defined as the measurement and reporting of internal and external information concerning the impact of an entity and its activities on society.

Multiple choice

Directions: Choose the correct option for the given question.

Which of the following statements is correct?

  1. Internal audit and management audit are the same.

  2. Internal audit and statutory audit are the same.

  3. Internal audit is compulsory in all cases.

  4. Statutory audit of company accounts is compulsory.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Internal audit is optional and depends on management decision. Statutory audit of company accounts is mandatory under Companies Act for all companies regardless of size. Management audit is different from internal audit - the former evaluates management efficiency while latter checks internal controls.

Multiple choice

Directions: Choose the correct option for the given question.

Where does an auditor of a cooperative society submit the audit report?

  1. To the managing committee of the society only.

  2. To the Registrar of Cooperative Societies of the state concerned only.

  3. To the State Assembly concerned.

  4. To the Registrar of Cooperative Societies of the state concerned and a copy to the society.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Cooperative Societies Act mandates auditors to submit reports directly to the Registrar of Cooperative Societies. The Registrar is the regulatory authority overseeing cooperative societies in each state, making the primary submission to them statutory - not to the managing committee first.

Multiple choice

Directions: Choose the correct option for the given question.

Which of the following statements is correct?

  1. Audit of an educational institution is compulsory, if it is run by a charitable trust.

  2. A club is treated as a commercial establishment.

  3. The accounts of a charitable trust can be audited by any person, who belongs to accountancy profession.

  4. Audit of a charitable trust is not compulsory under law.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Educational institutions run by charitable trusts must undergo audit under income tax regulations if they receive exemptions or public funding. Clubs are not commercial establishments. Charitable trust audits require qualified auditors, not any person from the accountancy profession.

Multiple choice

Directions: Choose the correct option for the given question.

Which of the following is not a part of the usual contents of the current file and audit working papers?

  1. A copy of accounts on which auditors are reporting

  2. Audit programme

  3. Minutes of the meetings

  4. Memorandum of Association and Articles of Association
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Current audit working papers contain the current year's audit-related documents like accounts, audit programs, and minutes. The Memorandum of Association and Articles of Association are constitutional documents that belong in the permanent audit file (continuing file), not the current file. They are retained permanently and referenced across multiple audits.

Multiple choice

Directions: Choose the correct option for the given question.

Match List-I with List-II List-I (Liability of Auditor) List-II (Example) (a) Liability for negligence 1. Breach of trust or duty (b) Liability for misfeasance 2. Untrue statement in the prospectus (c) Criminal liability 3. Not liable for untrue statement in prospectus (d) Liability to third party 4. Dividends paid out of capital Which of the following is the correct match?

  1. (a) 4 (b) 3 (c) 2 (d) 1

  2. (a) 2 (b) 1 (c) 4 (d) 3

  3. (a) 4 (b) 1 (c) 2 (d) 3

  4. (a) 2 (b) 3 (c) 4 (d) 1
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Liability for negligence (a) occurs when auditors fail to exercise due care, such as allowing dividends paid out of capital (4). Misfeasance (b) means breach of trust or duty (1). Criminal liability (c) arises for untrue statements in prospectus (2) under Companies Act provisions. Liability to third parties (d) is generally excluded - auditors are not liable to third parties for untrue statements in prospectus (3), as this is governed by the principle of privity of contract.

Multiple choice

Directions: Choose the correct option for the given question.

Consider the following statements: Accounting control comprises

  1. The plan of organization concerned with decision process.
  2. The plan of organization concerned with safeguarding of assets.
  3. The procedure concerned with safeguarding of assets. Which of the statements given above are correct?

  1. (1) and (2) only

  2. (2) and (3) only

  3. (1) and (3) only

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

Statement 1 is incorrect - decision-making processes are management functions, not accounting controls. Accounting controls focus on safeguarding assets and reliability of financial records. Statement 2 is correct - accounting controls include the organizational plan for asset safeguarding. Statement 3 is correct - accounting controls include specific procedures designed to protect assets. The core purpose of accounting controls is asset protection, not decision-making.

Multiple choice

Directions: Choose the correct option for the given question.

Consider the following statements: Audit working papers are maintained because

  1. They act as a guide to subsequent audit.
  2. They verify the arithmetical accuracy of the books of accounts.
  3. They provide evidence of the work performed by the auditor. Which of the statements given above are correct?

  1. (1) and (2) only

  2. (2) and (3) only

  3. (1) and (3) only

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

Statement 1 is correct - working papers provide a roadmap for future audits by documenting what was done. Statement 2 is incorrect - working papers themselves don't verify accuracy; they document the verification procedures performed. The audit procedures verify accuracy, not the papers. Statement 3 is correct - working papers serve as primary evidence of audit work performed, supporting the auditor's opinion.

Multiple choice

Directions: Choose the correct option for the given question.

Consider the following stages: An auditor has to undergo before commencing an audit

  1. Ascertaining the scope of audit work.
  2. Gaining knowledge about business of the client.
  3. Going through the agreement with the client.
  4. Instructions to and information from the client. What is the correct sequence of the above stages?

  1. 2 - 1 - 3 - 4

  2. 3 - 4 - 2 - 1

  3. 2 - 4 - 3 - 1

  4. 3 - 1 - 2 - 4
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The correct sequence begins with the client agreement (3) - establishing the engagement terms. Next is ascertaining the audit scope (1) based on the agreement. Then the auditor gains knowledge about the client's business (2) to understand risks and operations. Finally, instructions and information are obtained from the client (4) to facilitate the audit execution. This logical flow moves from contractual commitment to detailed execution.