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 book keeping and accountancy nature of accounts and rules of debit and credit meaning, advantages and limitations of journals understand the classification of accounts introduction to books of prime entry

Audit Fees Account is ________.

  1. Real

  2. Personal

  3. Nominal

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

As per various laws, the audit of accounts is being done by the competent and professionally qualified persons. The audit of accounts record is done by qualified accountants and authorized by the concerned government . For example, cost audit is done by cost accountant, statutory audit and tax audit is done by chartered accountants, etc/. These professionals charge their fees for auditing of accounts. The amount, which is paid to the auditors for auditing the accounts, is called as audit fees.

Representative account are related to expenses, losses, incomes or gains are called as nominal accounts. The dictionary meaning of the word "nominal" is "existing in name only" and the meaning remains absolutely true in accounting senses too, because nominal accounts do not exist in physical form, but behind every nominal account money is involved. The final result of all nominal accounts is either profit or loss which is then transferred to the capital account.
Golden rule for nominal accounts is: Debit all expenses and losses; Credit all incomes and gains.
Examples of nominal accounts are Audit Fees A/c, Purchase A/c, Salary A/c, Sales A/c, etc.

Multiple choice elements of book keeping and accountancy nature of accounts and rules of debit and credit meaning, advantages and limitations of journals understand the classification of accounts introduction to books of prime entry

Legal Expenses Account __________.

  1. Real

  2. Personal

  3. Nominal

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

Accounts relating to income, revenue, gain, expenses and losses are termed as nominal accounts. These accounts are also known as fictitious assets as they do not represent any tangible asset. A separate account is maintained for each head or expense or loss and gain or income. Wages account, Rent account, Commission account, Interest received account are some examples of nominal account. The rule for nominal accounts is: Debit all expenses and losses; Credit all incomes and gains.

Legal expenses account are the indirect expenses of a business and hence, they are classified as nominal accounts.

Multiple choice elements of book keeping and accountancy nature of accounts and rules of debit and credit meaning, advantages and limitations of journals understand the classification of accounts introduction to books of prime entry

Sales Account is Nominal Account.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

All assets of a firm, which are tangible or intangible, fall under the category "Real Accounts".

Tangible real accounts are related to things that can be touched and felt physically. Few examples of tangible real accounts are building, machinery, stock, land, etc.
Intangible real accounts are related to things that can't be touched and felt physically. Few examples of such real accounts are goodwill, patents, trademarks, etc.
Golden rule for real accounts: Debit what comes in; Credit what goes out.
Purchases A/C and Sales A/C are real accounts because goods is a thing of value.

Multiple choice elements of book keeping and accountancy nature of accounts and rules of debit and credit meaning, advantages and limitations of journals understand the classification of accounts introduction to books of prime entry

Accrued Interest is a Personal Account.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Accrued income is the income which has been earned during a particular accounting period, but has not been received till the end of that accounting period. So, they grow by addition and stay due to being received in the forthcoming accounting periods.

Accrued income is recorded in the books at the end of an accounting period to show true numbers of a business. 
Personal accounts are related ton individuals, firms, companies, etc. They are classified into three subcategories: Artificial, Natural and Representative.
Representative personal accounts represent a certain person or a group directly or indirectly. Accrued interest is a representative personal account indirectly linked to the person, and is shown on the assets side of a balance sheet.

Multiple choice elements of book keeping and accountancy nature of accounts and rules of debit and credit meaning, advantages and limitations of journals understand the classification of accounts introduction to books of prime entry

Recording two fold effects of each transaction in the journal is called journalisation.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The process of recording transactions in the book of original entry is known as journalising. The transactions are recorded in the form of a Journal entry. 

Recording is made in the double-entry system of accounting. Thus, it records the two-fold effect of every transaction.

Multiple choice elements of book keeping and accountancy nature of accounts and rules of debit and credit meaning, advantages and limitations of journals understand the classification of accounts introduction to books of prime entry

Fill in the blanks with correct alternative and rewrite the statements.
Real accounts usually show a ____________ balance.

  1. debit

  2. credit

  3. equal

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

Real accounts usually show a debit balance.

Assets, expenses, losses, and the owner's drawing account will normally have debit balances.  Their balances will decrease when they debited. 
For example, if a company borrows cash from its local bank, the company will debit its asset account Cash since the company's cash balance is increasing.

Multiple choice elements of book keeping and accountancy nature of accounts and rules of debit and credit meaning, advantages and limitations of journals understand the classification of accounts introduction to books of prime entry

Journal is maintained for keeping random individual records of business transactions. 

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

A Journal is called the book of prime entry because all the transactions of a business are first recorded in a Journal, i.e. book of original entry. The transactions are recorded in chronological order and on the basis of the source documents. After recording, these transactions are posted to the ledger accounts, i.e secondary books. Hence, a Journal is called the book of prime entry. 

Multiple choice elements of book keeping and accountancy nature of accounts and rules of debit and credit meaning, advantages and limitations of journals understand the classification of accounts introduction to books of prime entry

State whether the following statements are True or False
Personal A/c showing credit balance is called creditor. 

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The personal A/c as the name suggests are of people. The rule for the Personal A/c is Debit the receiver and Credit the giver. The creditor is a person who lends us or gives us money. Thus, we shall credit the creditor A/c. So, any personal account showing a credit balance will be called a Creditor.

Thus, the correct answer is A.

Multiple choice elements of book keeping and accountancy nature of accounts and rules of debit and credit meaning, advantages and limitations of journals understand the classification of accounts introduction to books of prime entry

State whether the following statements are True or False
Personal account showing debit balance is called creditor.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

It is a false statement because, normally liabilities account shows the debit balance is called creditors.

Multiple choice elements of book keeping and accountancy nature of accounts and rules of debit and credit meaning, advantages and limitations of journals understand the classification of accounts introduction to books of prime entry

Discount is a personal account.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Nominal accounts are fictitious assets that are associated with expenses, losses, revenues and gains of the firm, such as rent and rates account, travelling expenses A/c, the commission received A/c, interest paid A/c.

Discount can be the indirect income (if received) or indirect expenses (if paid) of a business and hence, they are classified as nominal accounts.

Multiple choice elements of book keeping and accountancy nature of accounts and rules of debit and credit meaning, advantages and limitations of journals understand the classification of accounts introduction to books of prime entry

All transaction are recorded directly in ledger.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

A transaction should be recorded first in a journal because journal provides complete details of a transaction in one entry. Further, a journal forms the basis for posting the transactions into their respective accounts into ledger.

Multiple choice elements of book keeping and accountancy nature of accounts and rules of debit and credit meaning, advantages and limitations of journals understand the classification of accounts introduction to books of prime entry

Book of original entries is also known as ______.

  1. Invoice book

  2. Journal

  3. Debit/credit notebook

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

Keeping the kind of books for recording the business transaction depends on the business need but there are two important books which are essentially to kept by each business i.e. journal and ledger. Any transaction which occurs in the business need to be first recorded in journal first. Hence all the original entries can be found from journal itself. 

Multiple choice elements of book keeping and accountancy nature of accounts and rules of debit and credit meaning, advantages and limitations of journals understand the classification of accounts introduction to books of prime entry

Capital account is a personal account.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Accounts recording transactions with a person or group of persons are known as personal accounts. These accounts are necessary, to record credit transactions. Personal accounts are of the following types:

1. Natural persons: An account recording transactions with an individual is termed as a natural persons' personal account. For e.g, Kamal's account, Mala's account. Both males and females are included in it.
2. Artificial or legal persons: An account recording financial transactions with an artificial person created by law or otherwise is termed as artificial persons' personal account. For e.g. Firms' accounts, limited companies' accounts.
3. Representative personal accounts: An account indirectly representing a person or persons is known as representative personal accounts. When accounts are of similar nature and their number is large, it is better to group them under one head and  open a representative personal account. For e.g. prepaid rent, outstanding wages etc.
Capital account is the account of a natural person, i.e. an account of person who is alive. Hence, it can be classified as a personal account.

Multiple choice elements of book keeping and accountancy nature of accounts and rules of debit and credit meaning, advantages and limitations of journals understand the classification of accounts introduction to books of prime entry

Book of Original entry is called _____.

  1. a journal

  2. memorandum A/c

  3. kachha record

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

Every business transaction must first be recorded in journal. Hence all original entries are found in journal itself which is a subsidiary books. Subsidiary books of accounts are also called book of original entry as all the transactions are recorded originally or at the first instance in these books.

Multiple choice elements of book keeping and accountancy nature of accounts and rules of debit and credit meaning, advantages and limitations of journals understand the classification of accounts introduction to books of prime entry

Another term used for recording a business transaction is ___________.

  1. Journalizing

  2. Vouching

  3. Ledger posting

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

Every business transaction must first be recorded in journal. Hence all original entries are found in journal itself which is a subsidiary books. Recording a transaction is also known as journalizing.