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 commercial studies accounting procedures - rules of debit and credit modern approach of rules of accounts meaning and classification of accounts classification of accounts

Conventional system of accounting cannot give a complete picture of all transactions.

  1. True

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

Under conventional system of Accounting  :-

  • Since only one cash book is kept, personal and business transactions will be recorded together.
  • Real and Nominal accounts will be ignored by this system.
  • Profit or Loss can be ascertained but we cannot represent the financial position of the organization
  • No trial balance is prepared, so arithmetical accuracy of accounts cannot be verified
  • So, conventional or single entry system of accounting cannot give a complete picture of all transactions. 

Multiple choice commercial studies accounting procedures - rules of debit and credit modern approach of rules of accounts meaning and classification of accounts classification of accounts

Examples of real account.

  1. Creditor account

  2. Goodwill account

  3. Capital account

  4. Salary account
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

All assets of a firm, which are tangible or intangible, fall under the category "Real Accounts".

Tangible real accounts are related to things that can be touched and felt physically. Few examples of tangible real accounts are building, machinery, stock, land, etc.
Intangible real accounts are related to things that can't be touched and felt physically. Few examples of such real accounts are goodwill, patents, trademarks, etc.
Golden rule for real accounts are: Debit what comes in; Credit what goes out.
Hence, of all the options above, goodwill account is a real account.

Multiple choice commercial studies accounting procedures - rules of debit and credit modern approach of rules of accounts meaning and classification of accounts classification of accounts

M/s Ram & Sons Ltd's Account is ________________.

  1. Natural Personal Account

  2. Artificial Personal Account

  3. Representative Personal Account

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

M/s Ram & Sons Ltd is a business entity created by law, making it an artificial person. Therefore, it is classified as an artificial personal account.

Multiple choice commercial studies accounting procedures - rules of debit and credit modern approach of rules of accounts meaning and classification of accounts classification of accounts

Ram's Capital Account is _______________.

  1. Natural Personal Account

  2. Artificial Personal Account

  3. Representative Personal Account

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

A capital account represents the owner's equity in the business. Since it represents the person (Ram) in the books, it is a representative personal account.

Multiple choice commercial studies accounting procedures - rules of debit and credit modern approach of rules of accounts meaning and classification of accounts classification of accounts

Advance Salary to Shyam Account is _______________.

  1. Natural Personal Account

  2. Artificial Personal Account

  3. Representative Personal Account

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

Advance Salary to Shyam is an asset account that represents a future claim on an individual. It is a representative personal account because it represents the salary paid to Shyam in advance.

Multiple choice commercial studies accounting procedures - rules of debit and credit modern approach of rules of accounts meaning and classification of accounts classification of accounts

Interest receivable from Mohan, a Borrower Account is ______________.

  1. Natural Personal Account

  2. Artificial Personal Account

  3. Representative Personal Account

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

Interest receivable is an asset representing money owed by a person. It is a representative personal account because it stands for the interest due from Mohan.

Multiple choice commercial studies accounting procedures - rules of debit and credit modern approach of rules of accounts meaning and classification of accounts classification of accounts

Salary Payable to Shyam Account is _____________.

  1. Natural Personal Account

  2. Artificial Personal Account

  3. Representative Personal Account

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

Salary Payable is a liability account representing an amount owed to an employee. It is a representative personal account as it represents the liability towards Shyam.

Multiple choice commercial studies accounting procedures - rules of debit and credit modern approach of rules of accounts meaning and classification of accounts classification of accounts

Ram's Drawings Account is _________________.

  1. Natural Personal Account

  2. Artificial Personal Account

  3. Representative Personal Account

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

Drawings account is a representative personal account. A representative personal account represents a person/persons. Some examples of representative personal account are capital, outstanding wages, prepaid salaries.

Multiple choice commercial studies accounting procedures - rules of debit and credit modern approach of rules of accounts meaning and classification of accounts classification of accounts

Purposes of an accounting system includes all of the following except _____________.

  1. interpret and record the effect of business transactions

  2. classify the effects of transactions to facilitate the preparation of reports

  3. summarize and communicate information to decision makers

  4. deciding the line of business for an entity
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Accounting systems are designed to record, classify, and summarize financial data to assist in decision-making. Deciding the line of business is a strategic management function, not a function of the accounting system itself.

Multiple choice commercial studies budgeting distinction between funds flow and cash flow statements preparation of cash flow statement statement of changes in financial position

Cash Flow Statement ignores fundamental accounting __________ .

  1. concept

  2. principle

  3. policy

  4. all of the above
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Cash flow statements are based on the cash basis of accounting, whereas the fundamental accounting concept (accrual basis) is ignored in favor of tracking actual cash movements.

Multiple choice commercial studies budgeting distinction between funds flow and cash flow statements preparation of cash flow statement statement of changes in financial position

Which of the following items appears first on the statements of cash flows prepared using direct method?

  1. Retained earnings

  2. Cash received from customers

  3. Net income

  4. Depreciation
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Under direct method of statement of cash flow, major heads of cash inflows and outflows are considered. 

Certain items are recorded on accrual basis in profit and loss account.
Hence, certain adjustments are made to convert them into cash basis such as cash receipt from customers, cash payments to suppliers, Purchases etc.

Multiple choice commercial studies budgeting distinction between funds flow and cash flow statements preparation of cash flow statement statement of changes in financial position

On the statement of cash flows prepared by the indirect method, the cash flows from operating activities section would include ______________________.

  1. Receipt from sale of investments

  2. Amortization of premium on bonds payable

  3. Payment of cash dividends

  4. Receipt from issuance of capital stock
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Indirect method of ascertaining cash flow from operating activities begins with the amount of net profit/loss. Income statement is prepared on accrual basis it also include certain non-operating items such as interest paid and non cash items. 

Therefore, it becomes necessary to adjust the amount of net profit/loss as shown by profit and loss account for arriving at cash flows from operating activities. 
Examples of such transactions are - cash receipt from royalties, fees, commissions and other revenues, cash payments for premium and claims, annuities, and other policy benefits, cash payments to suppliers for goods and services etc. 

Multiple choice commercial studies budgeting distinction between funds flow and cash flow statements preparation of cash flow statement statement of changes in financial position

Under the direct method, which of the following items must be added to operating expenses reported on the income statement to determine cash payments for operating expenses?

  1. Increase in accrued expenses

  2. Decrease in prepaid expenses

  3. Increase in income taxes payable

  4. Increases in prepaid expenses
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Under direct method of statement of cash flow, major heads of cash inflows and outflows are considered. Certain items are recorded on accrual basis in profit and loss account.

Hence, certain adjustments are made to convert them into cash basis such as cash receipt from customers, cash payments to supplies, purchases, prepaid expenses etc. 

Multiple choice commercial applications generally accepted accounting principles (gaap) distinction between accounting and book-keeping distinction between book-keeping and accounting meaning and objectives of accounting

Book-keeping is an ________ of correctly recording of business transaction.

  1. Art and science

  2. Art

  3. Science

  4. Art or Science
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Book-keeping is that branch of knowledge which tells us how to keep a record of financial transaction. Book - keeping may be defined as the science and art of recording transactions in books so accurately and systematically that the true state of a business can be correctly ascertained. 

Multiple choice commercial applications generally accepted accounting principles (gaap) distinction between accounting and book-keeping distinction between book-keeping and accounting meaning and objectives of accounting

Importance and utility of Book-keeping is _________ .

  1. Help in future reference

  2. Knowledge about Financial status

  3. Help in comparison

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

Bookkeeping is the organization of financial information. Keeping your financial records organized makes it easier to locate and provide to appropriate parties. Bookkeeping is important because it helps with business analysis. It is a tool used by management to analyze business performance. It helps in taking the financial decision and comparison between the two firm also.