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 accrued income earned or accrued income need for adjustment, closing stock and outstanding expenses

Which of the following accounting treatments is/are TRUE in respect of accrued commission appearing on the debit side of a trial balance?

  1. It is shown on the debit side of the Profit & Loss A/c

  2. It is shown on the credit side of the Profit & Loss A/c

  3. It is shown on the liabilities side of the Balance Sheet

  4. It is shown on the assets side of the Balance Sheet
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

If an item appears on the debit side of the trial balance, it is an asset or an expense. Accrued commission is an asset because it is income earned but not yet received.

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 will be the treatment of "accrued income" if appearing in the Trial Balance.

  1. It will be shown on the assets side as current assets in the balance sheet

  2. It will be shown on the liabilities side as current liability in the balance sheet

  3. It will be shown on the debit side of trading account as an expense

  4. It will be shown on the credit side of profit and loss account as an income
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Accrued Income is treated as an asset for the company , hence it will be shown in Asset Side in 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

In balance sheet, accrued income is shown under which head of assets _______________.

  1. Intangible Assets

  2. Current Assets

  3. Fictitious Assets

  4. Tangible Assets
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 current accounting year but have not been actually received by the end of the same year. Such incomes are known as accrued incomes. 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 under the head current assets of the balance sheet

Multiple choice book keeping and accountancy company accounts - redemption of debentures debentures redemption methods of redemption of debentures accounting effects for redemption of debentures

The Debenture Redemption Reserve account appears on the liability side of the balance sheet under the head ___________.

  1. capital

  2. reserves and surplus

  3. non-current liabilty

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

The Debenture Redemption Reserve (DRR) is a reserve created out of profits to ensure funds are available for the redemption of debentures. In the balance sheet, it is classified under the 'Reserves and Surplus' head within Shareholders' Funds.

Multiple choice book keeping and accountancy company accounts - redemption of debentures debentures redemption methods of redemption of debentures accounting effects for redemption of debentures

Premium on redemption of debentures account is recorded on issue of debentures.

  1. A real account

  2. A nominal account-income

  3. A personal account

  4. A nominal account-expenditure
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The 'Premium on Redemption of Debentures' account represents a liability that the company will have to pay to debenture holders at the time of redemption. Since it represents an amount payable to a specific group (debenture holders), it is classified as a personal account.

Multiple choice book keeping and accountancy company accounts - redemption of debentures debentures redemption methods of redemption of debentures accounting effects for redemption of debentures

Debenture Premium Account is a -

  1. Personal Account

  2. Real Account

  3. Nominal Account

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

Debenture Premium (when received on issue) is a gain for the company, making it a nominal account. However, in some contexts, it is treated as a liability (personal account). Given the options, 'Nominal Account' is the standard classification for premium on issue.

Multiple choice book keeping and accountancy company accounts - redemption of debentures debentures redemption methods of redemption of debentures accounting effects for redemption of debentures

In the Balance Sheet of a company, Debenture Premium Account appears under the head:

  1. Share Capital

  2. Reserves & Surplus

  3. Non-Current Liabilities

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

Debenture Premium (or Securities Premium) is a capital reserve and is shown under the head 'Reserves and Surplus' in the balance sheet.

Multiple choice book keeping and accountancy company accounts - redemption of debentures debentures redemption methods of redemption of debentures accounting effects for redemption of debentures

Debenture Redemption Premium Account is a -

  1. Personal Account

  2. Real Account

  3. Nominal Account

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

Premium on redemption of debentures is a personal account and it is a liability of the company which is payable on redemption.

Multiple choice elements of accounts ratio analysis activity (or turnover) ratios accounting ratio's accounting ratios

If the closing balance of receivables is less than the opening balance for a month then which one is true out of __________________.

  1. Collections > Current Purchases

  2. Collections > Current Sales

  3. Collections < Current Purchases

  4. Collections < Current Sales
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Collection is more than the current sales, In such situation closing balance of receivables will be less than the opening balance. As credit is more than the debit.

Multiple choice elements of accounts ratio analysis activity (or turnover) ratios accounting ratio's accounting ratios

Given below are two statements, identify the correctness of the following:
I. Activity ratios show where the company is going.
II. Balance sheet ratios show how the company stands.

  1. I is correct, but II is wrong

  2. Both I and II are correct

  3. I is wrong, but II is correct

  4. Both I and II are wrong
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Activity ratios are used to assess the efficiency with which the firm manages and utilises  its assets. These ratios usually compare the revenue growth with respect to the asset deployed giving an idea of where the company is headed, towards growth or decline.

Balance sheet ratios are those in which the variables used are those which are present in the balance sheet. A balance sheet is a statement which shows a picture of how the company stands as on a particular date and so the balance sheet ratios carry out the same task.

Multiple choice elements of accounts accounting in business meaning and classification of business transactions develop the understanding of recording of transactions in journal illustrations on journal entries

The invoice relating to the acquisition on credit of an Office Equipment for Rs 24,500 from Globe Ltd was entered in the Purchases Journal. To correct this error which of the following needs to be done?

  1. A Journal entry: Debit Office Equipment ale and credit Purchases ale with Rs 24,500

  2. No journal entry is needed

  3. Journal entry: Debit Office Equipment ale and credit Globe Ltd ale with Rs 24,500

  4. Journal entry: Debit Globe Ltd ale and credit Office Equipment ale with Rs 24,500
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Purchasing office equipment on credit should be recorded in the Journal Proper, not the Purchases Journal (which is for inventory). To correct this, we must remove the entry from Purchases and record it as an asset (Office Equipment).

Multiple choice elements of accounts accounting in business meaning and classification of business transactions develop the understanding of recording of transactions in journal illustrations on journal entries

Transactions which are inter-connected and have taken place simultaneously are recorded by means of a _____________.

  1. Adjustment entry

  2. Combined journal entry

  3. Either (A) or (B)

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

A combined journal entry is used when multiple accounts are involved in a single transaction or when multiple transactions occur simultaneously that share the same debit or credit accounts.

Multiple choice elements of accounts accounting in business meaning and classification of business transactions develop the understanding of recording of transactions in journal illustrations on journal entries

Journal is the book of _______ in which every transaction is recorded before being posted into the ledger. 

  1. Primary entry

  2. Secondary entry

  3. Third entry

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

The journal is known as the book of original or primary entry because transactions are recorded here chronologically before being classified in the ledger.

Multiple choice elements of accounts accounting in business meaning and classification of business transactions develop the understanding of recording of transactions in journal illustrations on journal entries

________are passed in the general journal for transferring an item entered in one account to another account.

  1. Transfer Entries

  2. Adjustment Entries

  3. Closing Entries

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

Transfer entries are used to move an amount from one account to another, such as transferring a balance or correcting an allocation.

Multiple choice elements of accounts dual effect of transactions and types of accounts meaning and classification of business transactions develop the understanding of recording of transactions in journal illustrations on journal entries

Book-keeping is mainly concerned with _________.

  1. recording of financial data relating to business operations

  2. designing the system in recording, classifying, summarizing the recorded data

  3. interpreting the data for internal and external end users

  4. only for internal purpose
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 of a business. Book keeping is a clerical job. Book keeping is concerned with recording and classifying the data and accounting is concerned with interpreting and analysing of transactions.