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 book keeping and accountancy adjustments in preparation of financial statements outstanding and prepaid expenses outstanding expenses need for adjustment, closing stock and outstanding expenses

While preparing final account, to adjust prepaid expenses which of the following adjustment entry will be passed?

Prepaid Expenses A/cTo Expenses A/c Dr.
Outstanding Expenses A/cTo Prepaid Expenses A/c Dr.
Prepaid Expenses A/cTo Outstanding Expenses A/c Dr.
Prepaid Expenses A/cTo Profit & Loss A/c Dr.

  1. A

  2. B

  3. C

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

The adjusting entry to record a prepaid expense involves debiting the Prepaid Expenses account (to create the asset) and crediting the Expenses account (to reduce the expense).

Multiple choice book keeping and accountancy adjustments in preparation of financial statements outstanding and prepaid expenses outstanding expenses need for adjustment, closing stock and outstanding expenses

In case of unexpired entry following entry should be made ______________.

  1. It should be shown as an asset in the balance sheet

  2. It is shown as a expense in profit and loss account

  3. Both a & b

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

An unexpired expense (prepaid expense) is an asset on the balance sheet. When adjusting, it is removed from the expense account in the profit and loss statement, effectively reducing the expense for the period.

Multiple choice book keeping and accountancy adjustments in preparation of financial statements outstanding and prepaid expenses outstanding expenses need for adjustment, closing stock and outstanding expenses

What will be the treatment of prepaid expenses if adjustment of it is appearing outside the trial Balance?

  1. Prepaid Expenses account will be debited and respective expenses account will be credited

  2. Respective expense account will be debited and prepaid expenses account will be credited

  3. Prepaid expenses account will be debited and profit and loss account will be credited

  4. Profit and loss account will be debited and prepaid expenses account will be credited
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Prepaid expenses are deducted from the respective accounts in trading and P & L A/c and shown in asset side in the balance sheet.

Multiple choice book keeping and accountancy reserve and fund meaning and characteristics of reserves reserves provisions and reserves

What journal entry is passed for transfer to capital redemption reserve account?

  1. General Reserve Dr.Capital Redemption Reserve Account Cr.

  2. Profit & Loss Account Dr.Capital Redemption Reserve Account Cr.

  3. Dividend Equalization fund accoint Dr.Capital Redemption Reserve Account Cr.

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

Section 69 : Companies Act 2013

1. Where a company purchase its own shares out of free reserves or securities premium account, a sum equal to the nominal value of the shares so purchased shall be transfrred to the capital redemption reserve account and details of such transfer shall be disclosed in the balance sheet.
2. The capital redemption reserve account may be applied by the company, in paying up unissued shares of the company to be issued to members of the company as fully paid bonus shares.
Journal entry passed for transfer to capital redemption reserve account is:
  General reserves A/c                        Dr.
  Profit & Loss A/c                                Dr.
  Dividend Equalization Fund A/c       Dr.
                     To Capital Redemption Reserve A/c

Multiple choice elements of accounts ledger and posting distinction between subsidiary books and ledger explain the meaning of ledger posting methods of posting entries

The following relate to the recording process. Which of these statements is correct?

  1. The general ledger is chronological record, of transactions.

  2. The general ledger is posted from transactions recorded in the general journal

  3. The trial balance provides the primary source document for recording transactions into the journal.

  4. Transposition is the transfer of information from the general journal to the general ledger.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The general ledger is a collection of accounts where transactions are posted from the general journal. The journal is the chronological record, while the ledger organizes data by account.

Multiple choice elements of accounts ledger and posting distinction between subsidiary books and ledger explain the meaning of ledger posting methods of posting entries

Ledger is also called  ___________.

  1. Principal Book of Accounts

  2. Cash Books

  3. Subsidiary Books

  4. Petty Cash Book
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Journal is called subsidiary books of account. It does not provide the summarized data. 

Hence, all entries need to be posted in ledger account. Ledger is also called as principal book of accounts as it gives the details of each account.

Multiple choice elements of accounts ledger and posting distinction between subsidiary books and ledger explain the meaning of ledger posting methods of posting entries

__________ is a summary of all transactions relating to particular account.

  1. Balance sheet

  2. Trial balance

  3. Ledger

  4. Journal
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Ledger is the principal book of accounts. Journal is kept only to facilitate for passing the entries. All entries which are passed in journal are posted in ledger. For every account , a separate ledger is opened. Ledger is a summary of all transactions relating to a particular account.

Multiple choice elements of accounts introduction of financial statement of company general instructions for preparation of balance sheet tools of financial statements uses, importance, and limitation of financial statements

User of Financial Statements are ____________.

  1. creditor

  2. employee

  3. owner

  4. all of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation
Users of financial statements are the people who refer the financial statements for various reasons. Creditors, employees and owners are some of the users of financial statements. Creditors use the financial statements to ascertain whether the company to whom they are lending money are capable to repay the same. The employees use the financial statements to understand the business better which will ensure active participation. The owners use the financial statements to understand whether their business is profitable or not. 
Multiple choice elements of accounts introduction of financial statement of company general instructions for preparation of balance sheet tools of financial statements uses, importance, and limitation of financial statements

 Financial statements contain only_____information.

  1. monetary

  2. non-monetary

  3. qualitative

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

The financial statements show only the monetary/quantitative information and ignores the impact of a qualitative information on the financial statements. Qualitative information like efficiency of the management, employer employee relationship, customer satisfaction, loyalty of customers etc. are ignored by the financial statements. However, these are equally important to understand the financial position of an organisation.

Multiple choice elements of accounts introduction of financial statement of company general instructions for preparation of balance sheet tools of financial statements uses, importance, and limitation of financial statements

Financial statements does not provide _____information.

  1. monetary

  2. qualitative

  3. both

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

The financial statements show only the monetary/quantitative information and ignores the impact of a qualitative information on the financial statements. Qualitative information like efficiency of the management, employer employee relationship, customer satisfaction, loyalty of customers etc. are ignored by the financial statements. However, these are equally important to understand the financial position of an organisation.

Multiple choice elements of accounts introduction of financial statement of company general instructions for preparation of balance sheet tools of financial statements uses, importance, and limitation of financial statements

Profit and loss account discloses the profit/loss for a ___________period.

  1. over time

  2. specified

  3. not specified

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

Profit and loss account discloses the profit/loss for a specified period. The period can be for a year or for a quarter. The Statement of Profit and loss shows the revenues and expenses of the business earned or incurred during the accounting year. The statement helps in understanding the financial position of the business.

Multiple choice elements of accounts introduction of financial statement of company general instructions for preparation of balance sheet tools of financial statements uses, importance, and limitation of financial statements

Financial statements show ____information but not __information.

  1. correct,detailed

  2. aggregate,detailed

  3. detailed,correct

  4. detailed,aggregate
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Financial statements of a company show the aggregate information. By aggregate we mean that all the transactions that have taken place in the business during the whole year. The financial statements do not show detailed information regarding about every transaction only recording of transaction takes place, not all details of the same are disclosed in the statements.

Multiple choice elements of accounts introduction of financial statement of company general instructions for preparation of balance sheet tools of financial statements uses, importance, and limitation of financial statements

 Financial statements, provide the necessary information about the performance of the ____________.

  1. owner

  2. management

  3. emplyoee

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

Financial statements provide necessary information about the performance of management. The financial statements show the financial position of an organisation, thereby telling if the policies, procedures and methods used by the management were useful or not. 

Multiple choice elements of accounts introduction of financial statement of company general instructions for preparation of balance sheet tools of financial statements uses, importance, and limitation of financial statements

 Importance of financial statements are _________.

  1. basis for granting of credit

  2. report on stewardship function

  3. basis for prospective investors

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

The financial statements of a company show the financial position of an organisation and helps in comparison with the past results. The financial statements helps the credit lending institutions to understand the liquidity, solvency of the company and thereby helping them with the decision to whether grant credit or not. The steward is a person who manages the resources and financial statements helps to understand if resource utilisation was useful or not. The investors of the company want to know whether the company will be profitable or not. 

Multiple choice elements of accounts introduction of financial statement of company general instructions for preparation of balance sheet tools of financial statements uses, importance, and limitation of financial statements

Two primary qualitative characteristics of financial statements are _________.

  1. understandability and materiality

  2. relevance and reliability

  3. relevance and understandability

  4. materiality and reliability
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Two primary qualitative characteristics are: - 1. relevance and reliability. 
Secondary qualitative characteristics are:- 1. Understandability 2. Verifiability 3. Timeliness 4. Comparability. 
Relevance refers to how useful the information is for financial decision making processes. 
Reliability refers to the extent to which information accurately reflects company's resources. 
Relevance and reliability are primary characteristics because if information is not helpful for decision making or not providing accurate information then understandability , timeliness of information is of no use.