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 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.  

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 can be used by ___________.

  1. Owners

  2. Creditors

  3. Investors

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

The accounting information generated by the accounting process is communicated in the form of reports, statements, graphs and charts to the users who need it in different decision situations. There are two main user group viz. internal users, mainly management, who needs timely information on cost of sales, profitability, etc. for plaining, controlling and decision making and external users who have limited authority, ability and resources to obtain the necessary information and have to rely on financial statements (Balance sheet, profit and loss 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

Financial statements are the outcome of recorded facts, accounting concepts and conventions used and personal judgement made in different situations by the _________.

  1. owners

  2. accountants

  3. managers

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

Financial statements are the outcome of recorded facts, accounting concepts and conventions used and personal judgements made in different situations by the accountants. Hence, bias may be observed in the results, and the financial position depicted in financial statements may not be realistic.

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

As financial statements do not show aggregate information, it may not help the ________ in decision-making much.

  1. owners

  2. users

  3. customers

  4. both a and b
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

A financial statement is a collection of data organised according to logical and consistent accounting procedures. Its purpose is to convey an understanding of some financial aspects of a business firm.

Financial statements show aggregate information but not detailed information. Hence, they may not help the users in decision-making much. 

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

____________ may develop standard ratios and design uniform system of accounts.

  1. Owners association

  2. Trade associations

  3. Company association

  4. Both a and b
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

A financial statement is a collection of data organized according to logical and consistent accounting procedures. Its purpose is to convey an understanding of some financial aspects of a business firm.

One of the importance of financial statement is it aids trade associations in helping their members as Trade associations may analyse the financial statements for the purpose of providing service and protection to their members. They may develop standard ratios and design uniform system of accounts.

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 but not ___________ information.

  1. monetary, quantitative

  2. qualitative, quantitative

  3. monetary, qualitative

  4. qualitative, monetary
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Financial statements are written records of a business's financial situation. They include standard reports like the balance sheet, income or profit and loss statements, and cash flow statement.

Though utmost care is taken in the preparation of the financial statements and provide detailed information to the users. Shareholders of companies are interested in knowing the status, safety and return on their investment. They may also need information to take decision about continuation or discontinuation of their investment in the business.

But financial statements contain only monetary information but not qualitative information like industrial relations, industrial climate, labour relations, quality of work, etc.

Multiple choice accountancy statement of changes in financial position preparation of cash flow statement cash flow statement finance

In cash flow statement the item of Interest is shown in:
a. Operating activities
b. Financing activities
c. Investing activities

  1. Both (a) and (b)

  2. Both (a) and (c)

  3. Both (b) and (c)

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

Interest received in cash from loans and advances is recorded under investing activities. Interest paid on loans, debentures and advances is recorded under financing activities.

Multiple choice accountancy statement of changes in financial position preparation of cash flow statement cash flow statement finance

Cash Flow Statement does not disclose the ________ .

  1. cash inflow

  2. cash outflow

  3. financial position

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

A cash flow statement only reports the movement of cash. It does not provide a comprehensive view of the overall financial position (assets, liabilities, and equity), which is the purpose of the balance sheet.

Multiple choice accountancy statement of changes in financial position preparation of cash flow statement cash flow statement finance

Which of the following is not the objective of cash flow statement?

  1. To show cash and cash equivalent generated.

  2. To show cash and cash equivalent used.

  3. To show net changes in cash and cash equivalents.

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

The main objective of preparing cash flow statement for a particular accounting period is to present information regarding inflow and outflow of cash, cash and cash equivalent generated , used, and net changes in cash flows.

Besides,

It presents the investment and financial activities of a concern for a particular period. It also fulfills the following objectives;

  • Ensuring future positive cash flow of particular concern.
  • Ensuring capacity of an organization to pay a dividend.
  • Identifying non-cash items ensuring cash income and expenses of a concern.
  • Comparing various items of the current year with those of last year.

Multiple choice accountancy statement of changes in financial position preparation of cash flow statement cash flow statement finance

Which of the following is not the limitation of cash flow statement?

  1. Non-cash Trasactions are not reported.

  2. Not a substitute for Income Statement.

  3. Not a sustitute for Balance sheet.

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

Comparative study is an analytical tool used to interpret financial statements; it is not a limitation of the cash flow statement itself.

Multiple choice elements of accounts ledger and posting meaning of bill of exchange index of ledger, forms of ledger and process of posting posting of entries in ledger

_______________ is real account in nature and also an asset and will always show debit balance.

  1. Bill Receivable

  2. Bill payable

  3. Debtor

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

Bills receivable represent money owed to the business by others, functioning as an asset. Assets are real accounts and carry a debit balance.