Commerce Accountancy

Accounting Principles and Practices

2,324 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

Closing stock in the Trial Balance implies that

  1. it is already adjusted in the Opening Stock

  2. it is adjusted in the Purchase Account

  3. it is adjusted in the Cost of Sale Account

  4. it is adjusted in the Profit and Loss Account
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

It means that the purchases have been reduced to the extent of stock amount at the end of the period.

Multiple choice

Trial balance is a/an

  1. statement

  2. account

  3. summary

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

Trial balance is a statement of all debits and credits in a double-entry accounts book, with any disagreement indicating an error.

Multiple choice

A trial balance contains the balances of

  1. personal account and real account

  2. real account and nominal account

  3. nominal account and personal account

  4. real account, personal account and nominal account
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

A trial balance contains balances of all the accounts. 

Multiple choice

A suspense account is a ___________

  1. temporary account

  2. permanent account

  3. loan account

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

Suspense account is an account in the books of an organization in which items are entered temporarily before allocation to the correct or final account.

Multiple choice

To make provision for bad debts, which of the following journal entries is correct?

  1. Debit the profit and loss, and credit the bad debt account

  2. Debit the profit and loss account, and credit provision on bad debt account

  3. Debit the provision account and credit the bad debt account

  4. Debit the provision and credit the account of individual customer
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The provision for doubtful debts is an account receivable contra account, so it should always have a credit balance. Hence, entry for provision for bad debts is:

Profit and Loss a/c Dr       To Provision for bad and doubtful debt

Multiple choice

The term ___________ means manipulation of accounts in such a way as to conceal vital facts and present the financial statements in such a way as to show a better position than what actually is.

  1. window dressing

  2. short term solvency

  3. long term solvency

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

Window dressing means the actions taken to improve the appearance of a company's financial statements. Window dressing is particularly common when a business has a large number of shareholders, so that management can give the appearance of a well-run company to investors who probably do not have much day-to-day contact with the business.

Multiple choice

The bank balance shown in the balance sheet of an organization is

  1. balance as per passbook

  2. higher than the balance as per passbook

  3. corrected balance as per passbook

  4. corrected balance as per cash book
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The bank balance which is shown in the balance sheet of an organisation is the balance after matching it with the cash book.

Multiple choice

Which of the following entries is correct in respect of reserve for discounts on accounts payable?

   
(a) Profit & Loss A/c
To Reserve for Discount on Accounts Payable A/c Dr.
(b) Accounts Payable A/c
To Profit& Loss A/c Dr.
(c) Reserve for Discount on Accounts Payable A/c
To Profit & Loss A/c Dr.
(d) Reserve for Discount on Accounts Payable A/c
To Accounts Payable A/c Dr.

  1. (a)

  2. (b)

  3. (c)

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

Accounts payable (creditors) carries a credit balance. Hence, a reserve created on creditors will be debited and P & L a/c would be credited against it.

Reserve for Discount on Accounts Payable A/c To Profit & Loss A/c

Multiple choice

While taking stock for the purpose of preparation of trading account, stock in hand on the last day of the accounting year should be adjusted for purchases recorded but goods not received, goods sold but not yet delivered and goods that may be out of business premises because of consignment, goods delivered on sale or return basis, and so on.

  1. True

  2. False because stock in hand at the beginning day of the accounting year should be adjusted

  3. False because no adjustment is required for goods delivered on sale or return basis

  4. False because of both (2) and (3)
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The given statement is true.

Multiple choice commerce sources of business finance - 2 gdrs, adrs and idrs depository receipts international sources

American Depository Receipt (ADR) is a certified negotiable instrument issued by an American bank suggesting the number of shares of a foreign company that can be traded in U.S. financial markets.

  1. True

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

American Depository Receipt (ADR) is a certified negotiable instrument issued by an American bank suggesting the number of shares of a foreign company that can be traded in U.S. financial markets- this is a true statement. Common types of ADR are: mediation, concilation, arbitration.

Multiple choice commercial applications financial accounting and reporting balance sheet, classification of assets and liabilities accounting records of not-for-profit organisations special issues associated with accounts of non-trading concerns accounting procedure for not-for-profit organisations prepration of income and expenditure account

'Subscriptions received in advance" pertaining to last year will be on _________ of the Subscription A/c prepared for the current year. 

  1. Debit side

  2. Credit side

  3. No where

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

Subscription is the amount that is paid by members of NPO every year. It is the primary source of income of NPO. It is generally paid every month. It is the amount paid by members to keep their membership alive. An advance receipt of subscription from a member is an income received in advance. It is liability for NPO. So it is recorded on credit side of Subscription Account. 

Multiple choice commercial applications financial accounting and reporting balance sheet, classification of assets and liabilities accounting records of not-for-profit organisations special issues associated with accounts of non-trading concerns accounting procedure for not-for-profit organisations prepration of income and expenditure account

Which of the following is correct treatment of legacy received by non-profit organization ?

  1. It appears on the credit side of the income and expenditure account. It should be treated as revenue item as it is of recurring nature.

  2. It appears on the credit side of the receipts and payments account.It should be capitalized being an item of non recurring nature and should be shown on the asset side of the balance sheet

  3. It appears on the debit side of the receipts and payments account and on credit side of income and expenditure account.

  4. It appears on the debit side of the receipts and payments account. It should be capitalized being an item of non recurring nature and should be shown on the liability side of the balance sheet
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation
Legacy : Legacy represents the amount or property received by organization under a will on death of the contributors. In other words we can say that legacies are the donations made by a person in his will, so their donation are called legacy.
(i)  Legacies received for a specific purpose must be capitalized in the name of concerned fund for which it is received.
(ii) Legacies received not for any specific fund/general may be added to the capital fund.
Multiple choice commercial applications financial accounting and reporting balance sheet, classification of assets and liabilities accounting records of not-for-profit organisations special issues associated with accounts of non-trading concerns accounting procedure for not-for-profit organisations prepration of income and expenditure account

Surplus revealed by income and expenditure account ___________________.

  1. is shown as deduction in accumulated fund at the balance sheet

  2. is transferred to an account called capital fund

  3. distrusted among the members of the non-profit organization

  4. must be donated to other non-profit organization.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation
The following are the features of income and expenditure account:
It is prepared on an accrual basis.
It records all cash and non-cash expenses and incomes, which are revenue nature.
It is debited with the expenses and losses and credited with incomes and gains.
The closing balance of income and expenditure account either surplus or deficit is transferred to the capital fund in the balance sheet
Multiple choice commercial applications financial accounting and reporting balance sheet, classification of assets and liabilities accounting records of not-for-profit organisations special issues associated with accounts of non-trading concerns accounting procedure for not-for-profit organisations prepration of income and expenditure account

The balance sheet of a non-profit organization such as a charitable hospital doesn't contain the _____________.

  1. Assets

  2. Building

  3. Debts

  4. Owner's equity
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

When the balance sheet is prepared for any company set up to earn profit, the owner's equity is mentioned because it is funded by the owner to start the business.

Similarly, a non-profit organisation is not there for any kind of business and thus it doesn't require funds and hence, owner's equity is not mentioned while preparing balance sheet.

Multiple choice elements of accounts accounting for not-for-profit organisation balance sheet, classification of assets and liabilities accounting records of not-for-profit organisations financial accounting and reporting

If a small amount is received as specific donation the __________.

  1. it is shown on the liabilities side of the balance sheet

  2. it is shown by way of deduction in capital fund in liability side of the balance sheet

  3. it is treated as income and credited to income and expenditure account

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

b"Donation received for specific purpose is capital receipt. Specific donation can't be used for any other purpose than the purpose for which it is given. It creates a liability for Not for Profit Organisation. That's why It is shown on the liabilities side of the balance sheet. "