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

Directions:The following question consists of two statements, one labelled as the 'Assertion' (A) and the other as 'Reason' (R). You have to examine these two statements carefully and select the answer from the options given below Assertion (A)—Income tax paid is not shown on the debit side of the sole proprietor's Profit and Loss account. Reason (R)—It is an appropriation of profit and thus goes to Profit and Loss Appropriation Account.

  1. Both (A) and (R) are individually true and (R) is the correct explanation of (A)

  2. Both (A) and (R) are individually true but (R) is not the correct explanation of (A)

  3. (A) is true but (R) is false

  4. (A) is false but (R) is true
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

For a sole proprietor, income tax is NOT debited to the Profit and Loss Account as an expense. Instead, it's treated as an appropriation of profit, meaning it's distributed to the Profit and Loss Appropriation Account after calculating net profit. The Assertion claiming it's not shown in P&L is FALSE. The Reason explaining it's an appropriation is TRUE.

Multiple choice

Directions: Choose the correct option for the given question.

Government grants related to income as per the Accounting Standard (AS)-12 should be

  1. presented as a credit in the statement of Profit and Loss.

  2. presented as a deferred income on the asset side of the balance sheet.

  3. presented as a capital grant on the liability side of balance sheet.

  4. presented both in the profit and loss statement and in the balance sheet.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

AS-12 requires that government grants related to income be presented in both financial statements - as income in the P&L and separately in the balance sheet until realized. This dual presentation ensures transparency about the nature and timing of grant recognition. The standard distinguishes between revenue and capital grants.

Multiple choice

Directions: Choose the correct option for the given question.

Which of the following is affected by treatment of an accrued item in accounting?

  1. Profit and loss account only

  2. Profit and loss appropriation account

  3. Balance sheet only

  4. Profit and loss account and balance sheet
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Accrued items represent revenues earned but not received, or expenses incurred but not paid. Recording accruals impacts the Profit and Loss account (revenue/expense recognition) and the Balance Sheet (receivable/payable creation). This dual effect maintains the accounting equation.

Multiple choice

Directions: Choose the correct option for the given question.

Which of the following statements about preparation of financial statements of a limited liability company is correct ?

  1. Financial statements should be prepared according to the cash basis of accounting only.

  2. Financial statements should be prepared according to the accrual basis of accounting only.

  3. Financial statements should be prepared according to either the cash basis or accrual basis of accounting.

  4. Financial statements should be prepared according to both the accrual and cash basis of accounting.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Limited liability companies must prepare financial statements using accrual basis accounting as per statutory requirements and accounting standards. Accrual basis recognizes revenues when earned and expenses when incurred, matching income to the period it relates to. Cash basis is not appropriate for corporate financial reporting as it doesn't reflect true financial position.

Multiple choice

Directions: Choose the correct option for the given question.

Match List-I with List-II and select the correct answer using the code given below the lists. List-I (Nature of Expenditures/Receipts) (a) Capital receipts (b) Capital expenditure (c) Revenue expenditure (d) Revenue receipt List II (Example)

  1. Sale of fixed assets
  2. Improvement of fixed assets
  3. Income received as interest
  4. Interest on loan for business

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

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

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

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

Capital receipts include sale of fixed assets (1). Capital expenditure includes improvement of fixed assets (2). Revenue expenditure includes interest on loan for business (4). Revenue receipts include income received as interest (3). This classification tests understanding of capital vs. revenue nature in accounting.

Multiple choice

Directions: Choose the correct option for the given question.

Expenses need to be recorded in the period in which the associated revenues are recognised. This is to be ensured as per which of the following accounting principles?

  1. Revenue recognition

  2. Cost benefit

  3. Matching

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

The principle described is revenue recognition, which states that revenues should be recorded when earned and realizable. While matching principle also relates to this timing, the question specifically focuses on when expenses are recorded in relation to revenue recognition period. Revenue recognition principle addresses this timing.

Multiple choice

If the order of permanence is followed in preparing of Balance Sheet

  1. the assets which can be easily converted into cash are written first

  2. the assets which are to be used permanently and not meant to be sold are written first

  3. short-term liablities are written first

  4. none of these

Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

 The asset like goodwill, land and building, which are not meant to be sold are written first .As these assets are meant for permanent use and not easily convertible into cash they are written first. 

Multiple choice

Adjustments in the final acount are made either in trading A/c, profit and loss A/c and balance sheet because

  1. the principle of single entry has to be followed

  2. the principle of double entry has to be followed

  3. the principle of revenue and capital has to be followed

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

 This principle must be followed because the amount has to be debited at one place and credited at the another, otherwise the balance sheet would not tally.

Multiple choice

Four columns are made in the Trial Balance under

  1. the Totals Method

  2. the Balances Method

  3. the Totals and Balances Method

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

 In this method, the totals as well as balances are entered. There are four columns. First one of the totals of the debit side, second one for the totals of credit side, third one for debit balances and fourth one for credit balances.

Multiple choice

The debit balance of cash book is a/an

  1. current asset

  2. current liability

  3. income

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

 It is a current asset, since the debit balance is the closing balance of cash account. It is shown in assets side of Balance Sheet.

Multiple choice

Which of the following is not an objective of preparing the Trial Balance?

  1. To ascertain arithmetical accuracy

  2. To help in preparation of final accounts

  3. Summary of each account

  4. To ascertain the financial position of the business
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

 It is not the objective of preparing the Trial Balance, as the assets and liabilities are shown in the balance sheet. Hence, the financial position is ascertained by the balance sheet.

Multiple choice

Which of the following is a limitation of the use of a journal?

  1. It reduces the possibility of error.

  2. It provides an explanation of the transactions.

  3. It becomes very bulky.

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

 This is the limitation of journal, since if all the transactions are recorded, it becomes very bulky and lengthy process.

Multiple choice

You want to give contact details in ledger accounts. For this you need to activate

  1. F11 > F1: Accounting features.

  2. F12 > Voucher entry.

  3. F12 > Accts / Inventory info.

  4. F12 > Invoice / Orders entry.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

 F12 > Accts / Inventory Info. is used to configure masters setting and in this dialogue box you need to activate the below option for Contact Details for ledger accounts. Use CONTACT DETAILS for Ledger Accounts.