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 accounting for not-for-profit organisation accounting record of non-trading organisations features of not-for-profit organisation meaning and characteristics of not-for-profit organisation

Receipts and Payments Account is in nature of _______________.

  1. Personal Account

  2. Artificial Personal Account

  3. Real Account

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

Receipt and payments account is a real account just like cash account. Its prepared at the end of the year. All receipts are recorded on the debit side and expenses on the credit side. Its basically a summary of cash book, it records cash expenses and incomes of all nature and is prepared on cash basis. It follows the rule of a real account, debit what comes and credit what goes out. The receipts are credited and the payments are debited. 

Multiple choice book keeping and accountancy accounting for not-for-profit organisation accounting record of non-trading organisations features of not-for-profit organisation meaning and characteristics of not-for-profit organisation

Which of the following is correct treatment of legacy received by non-profit organization?

  1. It appears on the credit side of the income and expenditure account. It should be treated as revenue item as it is of recurring nature.

  2. It appears on the credit side of the receipts and payments account. It should be capitalized being an item of non recurring nature and should be shown on the asset side of the balance sheet.

  3. It appears on the debit side of the receipts and payments account and on credit side of income and expenditure account.

  4. It appears on the debit side of the receipts and payments account. It should be capitalized being an item of non recurring nature.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Legacy is generally shown on the debit side of receipts and payments accounts. Legacy is the property received by virtue of a will of a person or after his death. Its a capital receipt and hence would not appear in income and expenditure account and will be added to the capital in Balance sheet. It should be capitalised being an item of non-recurring nature. 

Multiple choice book keeping and accountancy accounting for not-for-profit organisation accounting record of non-trading organisations features of not-for-profit organisation meaning and characteristics of not-for-profit organisation

Which of the following is not recorded in the Receipts and Payments Account:
W. Outstanding subscription
X. Prepaid insurance premium
Y. Depreciation

  1. W and X

  2. Y and W

  3. Y only

  4. All W, X and Y
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Receipt and payment account records all cash receipts and cash payments during the year whether related to current year, previous year or future year. It records both capital and revenue nature receipts and payments. Depreciation being non-cash item is not recorded in this account. Outstanding subscription received and prepaid insurance Premium being cash items are recorded in this account.

Multiple choice book keeping and accountancy accounting for not-for-profit organisation accounting record of non-trading organisations features of not-for-profit organisation meaning and characteristics of not-for-profit organisation

Income and Expenditure Account is a  ______________.

  1. Nominal Account

  2. Real Account

  3. Representative Personal Account

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

Option A is correct. Nominal account is related to expenses or losses and incomes or gains. Income and Expenditure account is an account prepared by non trading concerns to ascertain surplus or deficit of income over expenditure for a particular period. So Income and Expenditure account is a Nominal account.

Multiple choice book keeping and accountancy accounting for not-for-profit organisation accounting record of non-trading organisations features of not-for-profit organisation meaning and characteristics of not-for-profit organisation

Income and Expenditure Account records income and expenditure items of ______________.

  1. Both capital and revenue nature

  2. Only capital nature

  3. Only revenue nature

  4. Only revenue nature related to the current period
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Income and expenditure account is a nominal account and is just like a profit and loss account. All the expenses are recorded on the debit and side and incomes on the credit side. It records all incomes and expenses on accrual basis which means as and when its realised or incurred. Hence items related with the current period are to be recorded only. 

Multiple choice book keeping and accountancy accounting for not-for-profit organisation accounting record of non-trading organisations features of not-for-profit organisation meaning and characteristics of not-for-profit organisation

How much amount as Rent A/c will be debited to income & Expenditure A/c ? 

  1. Rent Paid (-) Outstanding Rent Of current year (+) Outstanding Rent of last year

  2. Rent Paid (+) Outstanding Rent Of current year (+) Outstanding Rent of last year

  3. Rent Paid (-) Outstanding Rent Of current year (-) Outstanding Rent of last year

  4. Rent Paid (+) Outstanding Rent Of current year (-) Outstanding Rent of last year
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Rent a/c records the various entries regarding rent like advance payment, outstanding rent. 

When rent a/c is to be prepared the outstanding rent for current year has to be added because it has to be paid next year and outstanding rent for previous year has to be in current year.
$Rent\quad paid (+) Outstanding\quad rent\quad for\quad current\quad year (-) Outstanding\quad rent\quad for\quad previous\quad year$.

Multiple choice book keeping and accountancy accounting for not-for-profit organisation accounting record of non-trading organisations features of not-for-profit organisation meaning and characteristics of not-for-profit organisation

Subscription A/c will be credited to Income & Expenditure A/c after making following adjustments:

  1. Subscription Received

    (+) Outstanding Subscription for current year

    (-) Outstanding Subscription for of last year

    (+) Subscription received in advance of last year

    (-) Subscription received in advance of next year

  2. Subscription Received

    (+) Outstanding Subscription for current year

    (+) Outstanding Subscription for of last year

    (-) Subscription received in advance of last year

    (-) Subscription received in advance of next year

  3. Subscription Received

    (-) Outstanding Subscription for current year

    (-) Outstanding Subscription for last year

    (+) Subscription received in advance of last year

    (+) Subscription received in advance of next year

  4. Subscription Received

    (-) Outstanding Subscription for current Year

    (+) Outstanding Subscription for of last year

    (-) Subscription received in advance of last year

    (+) Subscription received in advance of next year
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Subscription amount that has to be credited in the income & expenditure account is calculated after adjusting the various subscription amounts.


The adjustments are outstanding subscriptions for the current and previous year and subscriptions received in advance for the current and previous year. The adjustments have to be treated in the following way :


$Subscription\quad amount=\quad Subscription\quad received\\ \quad (+)\quad Outstanding\quad subscription\quad for\quad current\quad year\\ \quad (-)\quad Outstanding\quad subscription\quad for\quad previous\quad year\\ \quad (+)\quad Subscription\quad advanced\quad for\quad previous\quad year\\ \quad (-)\quad Subscription\quad advanced\quad for\quad current\quad year$.

Multiple choice book keeping and accountancy accounting for not-for-profit organisation accounting record of non-trading organisations features of not-for-profit organisation meaning and characteristics of not-for-profit organisation

In accounting of non-profit organizations, the sale of old newspapers is generally considered as a/an ______________.

  1. Revenue expense

  2. Capital expenditure

  3. Revenue income

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

Sale of old newspapers is a type of revenue income or receipt. This is because it neither created any liability for firm nor reduces any asset of the firm. Thus, such incomes are revenue receipts.

Multiple choice book keeping and accountancy accounting for not-for-profit organisation accounting record of non-trading organisations features of not-for-profit organisation meaning and characteristics of not-for-profit organisation

Which of the following items should be entered in the Receipts and Payment Account of a club ?
1. Sale of old newspapers.
2. Loss in sale of some assets.
3. Payments for investments.
Select the correct answer from the codes given below:

  1. 1 , 2 and 3

  2. 1 and 3

  3. 1 and 2

  4. 2 and 3
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Receipts and payments account records the inflow and outflow of cash during a period. 

1. Sale of old newspapers is a routine activity which results in inflow of cash, hence should be entered in the receipts and payments account.
2. Loss in the sale of some assets do not result in flow of cash, hence should not be entered.
3. Payments for investments require outflow of cash, hence should be entered in the receipts and payments account.

Multiple choice book keeping and accountancy accounting for not-for-profit organisation accounting record of non-trading organisations features of not-for-profit organisation meaning and characteristics of not-for-profit organisation

Receipt and Payment account includes all receipts and payments whether they are of __________ nature or of _________ nature.

  1. Cash, Non-cash

  2. Capital, Revenue

  3. Fixed, Fluctuating

  4. Deferring, Non-deferring
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Receipt and Payment account is the summary of cash and bank transactions which helps in preparation of Income and Expenditure account. All receipts and payments whether of capital or revenue nature are included in Receipt and Payment account. This is one of the salient feature of Receipt and Payment account.

Multiple choice elements of accounts ratio analysis liquidity ratios accounting ratio's accounting ratios

If the current ratio is $2 : 1$ and working capital is $Rs. 60,000$, what is the value of the current assets?

  1. $Rs. 60,000$
  2. $Rs. 1,00,000$
  3. $Rs. 1,20,000$
  4. $Rs. 1,80,000$
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Current Ratio = Current Assets (C.A)/ Current Liabilities (C.L)  = $2/1$

So, CA= $2$ CL

Now, Working Capital = Current Assets(C.A) minus Current Liabilities (C.L) = $Rs.60000$
So, C.A - C.L = $60000$
       $2$ C.L-CL = $60000$
        C.L = $Rs. 60000$

Now, C.A = $2$ x $60000$ = $Rs. 120000$

Multiple choice elements of accounts ratio analysis liquidity ratios accounting ratio's accounting ratios

Quick ratio is 1.8:1, current ratio is 2.7:1 and current liabilities are Rs. 60,000. Determine value of stock.

  1. Rs. 54,000

  2. Rs. 60,000

  3. Rs. 1,62,000

  4. None of the above
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation
QA = Quick assets; CL = Current liabilities; CA = Current assets
QA = 1.8 x CL
QA = 1.8 x Rs. 60,000
QA = Rs. 1,08,000
CA = 2.7 x CA
CA = 2.7 x Rs. 60,000
CA = Rs. 1,62,000
Stock = CA - QA
Stock = Rs. 1,62,000 - Rs. 1,08,000
Stock = Rs. 54,000
Hence, the value of stock is Rs. 54,000.
Multiple choice elements of accounts ratio analysis liquidity ratios accounting ratio's accounting ratios

'X' Ltd. has a liquid ratio of 2:1. If its stock is Rs. 40,000 and its current liabilities are of Rs. 1 Lakh, What will be the current ratio________.

  1. 1.4 times

  2. 2.4times

  3. 1.2 times

  4. 3.4 times
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Liquid Ratio = [Current Assets minus Stock]/ Current Liabilities

             2      = [Current Assets - $40000$]/ $100000$
        $200000$ = Current Assets - $40000$
Therefore Current Assets = $Rs.240000$
Now,
Current Ratio = Current assets/Current liabilities
                        = $240000/100000$
                         = $2.4$ times

Multiple choice elements of accounts ratio analysis liquidity ratios accounting ratio's accounting ratios

Given current ratio = $2.5$
Quick ratio = $1.5$
Net working capital = Rs $30,000$
What is the amount of stock?

  1. $Rs 20,000$
  2. $Rs 30,000$
  3. $Rs 50,000$
  4. $Rs 60,000$
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation
Net working capital = Current assets - Current liabilities
$Rs. 30000$ = Current assets - Current liabilities
Therefore, Current assets = Current liabilities + $Rs. 30000$
Current ratio = Current assets/ Current liabilities
$2.5$ = [Current liabilities + $Rs. 30000$] / Current liabilities
 $2.5$ Current liabilities  = Current liabilities + $Rs. 30000$
Current liabilities = $Rs. 30000/ 1.5$
Therefore, Current liabilities = $Rs. 20000$
Now,
Current assets = Current liabilities + $Rs. 30000$
                          = $Rs.20000 + Rs. 30000$
                          =$Rs. 50000$
Now, Quick Ratio = Quick Assets/ Current liabilities
                     $1.5$   = Quick Assets/ $20000$
Therefore,
                  Quick Assets = $Rs. 30000$
Quick Ratio = Quick Assets/ Current liabilities
Quick Ratio = [Current Assets - Stock ]/ Current liabilities
            $1.5$ = [$50000$ - Stock] / $20000$
Stock = $50000 - 30000$
          = $Rs. 20000$
Multiple choice memorandum of understanding and articles of association company business studies

Final accounts of companies are prepaid according to_________of the companies Act,2013.

  1. Schedule VI

  2. Schedule V

  3. Schedule II

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

Schedule III of the Companies Act, 2013, provides the format for the preparation of the Balance Sheet and Statement of Profit and Loss for companies.