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 elements of accounts accounting in business journal - book of original entry purchases and sales book meaning and importance of journal

Transactions that a business doesn't record in any specialized journal are recorded in which journal or book?

  1. Cash payments journal

  2. Cash receipts journal

  3. Purchases return journal

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

Specialized journals are used for repetitive transactions like cash receipts or purchases. Any transaction that does not fit into these specialized journals is recorded in the general journal.

Multiple choice elements of accounts accounting in business journal - book of original entry purchases and sales book meaning and importance of journal

Journal is a book of __________.

  1. original entry

  2. all cash transactions

  3. secondary entry

  4. all non-cash transactions
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The journal is known as the book of original entry because it is the first place where financial transactions are recorded chronologically before being posted to the ledger.

Multiple choice elements of accounts accounting in business journal - book of original entry purchases and sales book meaning and importance of journal

The process of recording a transaction in the journal is called __________.

  1. Posting

  2. Journalising

  3. Tallying

  4. Casting

  5. Balancing
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Journalising is the specific accounting term for the act of recording transactions into the journal. Posting refers to moving data from the journal to the ledger.

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

Accrued income is also been called as ________.

  1. Outstanding income

  2. Outstanding expense

  3. Prepaid income

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

It may happen that certain items of income such as interest on loan, commission, rent, etc. are earned during the current accounting year but have not been actually received by the end of the same year. Such incomes are known as accrued income. It is the income which has been earned during a particular accounting period, also known as outstanding income. 

Examples include accrued interest, accrued rent (to be received), etc. Accrued income is recorded in the books at the end of an accounting period to show true numbers of a business.

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

Payment received from debtor _______________.

  1. decreases the total assets

  2. increases the total assets

  3. results in no change in the total assets

  4. increases the total liabilities

  5. decreases the total liabilities
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

When a debtor pays, the company receives cash (an asset) and decreases accounts receivable (an asset). Since one asset increases and another decreases by the same amount, the total assets remain unchanged.

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

The account of accrued income will be shown on _________ side.

  1. debit side of profit & loss account

  2. credit side of profit & loss account

  3. debit side of trading account

  4. credit side of trading account
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

It may happen that certain items of income such as interest on loan, commission, rent, etc. are earned during the accounting year but have not been actually received by the end of the same year. Such incomes are known as accrued income. The adjusting entry for accrued income is:

Accrued Income A/c Dr.
      To Concerned Income A/c
The amount of accrued income will be added to the related income in the profit and loss account on the credit side and the new account of accrued income will appear on the asset side of the balance sheet.

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

 Amount which has accrued but is still to be received.

  1. Outstanding Income

  2. Outstanding Expense

  3. Prepaid Income

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

It may happen that certain items of income such as interest on loan, commission, rent, etc. are earned during the current accounting year but have not been actually received by the end of the same year. Such incomes are known as accrued income. It is also known as Outstanding income. The adjusting entry for accrued income is:

Accrued Income A/c Dr.
       To Concerned Income A/c
The amount of accrued income will be added to the related income in the profit and loss account and the new account of accrued income will appear on the asset side of the balance sheet.

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

What are the other names for income received in advance?

  1. Unearned Income

  2. Accrued Income

  3. Pre-received income

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

Sometimes a certain income is received but the whole amount of it does not belong to the current period. The portion of the income which belongs to the next accounting period is termed as income received in advance. The other names for income received in advance is known as an Unearned Income or Pre-received Income. Income received in advance is adjusted by recording the following entry:

Concerned Income A/c Dr. 
      To Income received in advance A/c
The effect of this entry will be that the balance in the income account will, be equal to the amount of income earned for the current accounting period, and the new account of income received in advance will be shown on the liability side of the balance sheet.

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

Accrued income will appear on the ____ side of the balance sheet. 

  1. Asset

  2. Liabilities

  3. Debit

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

It may happen that certain items of income such as interest on loan, commission, rent, etc. are earned during the current accounting year but have not been actually received by the end of the same year. Such incomes are known as accrued income. The adjusting entry for accrued income is:

Accrued Income A/c Dr.
     To Concerned Income A/c 
The amount of accrued income will be added to the related income in the profit and loss account and the new account of accrued income will appear on the asset side of the balance sheet.

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

When income is received in advance ___________ account is debited.

  1. Expense

  2. Profit and loss

  3. Income

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

 When a company receives money in advance of earning it, the accounting entry is a debit to the asset Cash for the amount received and a credit to the liability account such as Customer Advances or Unearned Revenues.

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

If Incomes received in advance appears in the trial balance, it__________.

  1. will be shown in Profit and Loss Account by way of deduction from the income received

  2. will be credited to Profit and Loss Account

  3. will not be shown any where

  4. will be shown on the liabilities side of the balance sheet only
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

If an item appears in the trial balance, it has already been recorded in the books. Income received in advance is a liability, so it is shown on the liabilities side of the balance sheet.

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

Drawings account of a partner will have _____________. 

  1. debit balance

  2. credit balance

  3. either (a) or (b)

  4. neither (a) nor (b)
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Drawings represent a reduction in the partner's capital. Since capital accounts have credit balances, drawings are debited to the partner's account to reflect this reduction.

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

While preparing final account, to record outstanding income which of the following adjustment entry will be passed?

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

  1. A

  2. B

  3. C

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

Outstanding income is income earned but not yet received. To record this, we debit the asset account (Outstanding Income) and credit the income account to recognize the revenue in the current period.

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

While preparing final account, to adjust income received in advance which of the following adjustment entry will be passed?

Income Received in Advance A/cTo Income A/c Dr.
Income A/cTo Income Received in Advance A/c Dr.
Income Received in Advance A/cTo Outstanding Income A/c Dr.
Income Received in Advance A/cTo Profit & Loss A/c Dr.

  1. A

  2. B

  3. C

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

Income received in advance must be removed from the current income account because it has not been earned yet. We debit the income account and credit the liability account (Income Received in Advance).