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 depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

In plant account repair comes on ______side.

  1. Debit

  2. Credit

  3. Either Debit or Credit

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

None of the above. 

Repairs and maintenance are expenses a business incurs to restore an asset to a previous operating condition or to keep an asset in its current operating condition. Under generally accepted accounting principles – GAAP  you must record repairs and maintenance expenses in your records and report them on your financial statements in the period in which they were incurred. 

Journal entry to record repairs is :

Repairs A/c        Dr.

     To Cash/ Bank/ Creditors for expense A/c

Multiple choice book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

In plant account installation expenses comes on ______ side.

  1. Debit

  2. Credit

  3. Either debit or credit

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

The cost of installation must be added to the cost of assets itself. According to IFRS standard on PPE, the cost and incidental costs like installation cost to bring the asset into use must be measured and accounted for in order to determine the actual cost of any PPE. Hence you will debit Property, plant and equipment (PPE) and credit cash/ bank.

Remember the PPE must be debited under the correct asset category.

In this situation, the journal entry would be :

Plant A/c       Dr.

      To Bank A/c

Multiple choice elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

Which method of inventory valuation helps in reducing the burden of income tax in times of rising prices?

  1. Last-in-first-out

  2. First-in-first-out

  3. Average cost

  4. Base stock method
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

LIFO (Last-In-First-Out) assumes that the most recently purchased, higher-cost items are sold first during periods of rising prices. This results in a higher cost of goods sold, which reduces taxable income.

Multiple choice elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

A higher inventory ratio indicates ____________.

  1. Better inventory management

  2. Quicker turnover

  3. Both A and B

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

A higher inventory turnover ratio indicates that a company is selling its goods quickly and managing its stock levels efficiently. Therefore, both A and B are correct interpretations.

Multiple choice elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

Which one out of the following is not an inventory valuation method?

  1. FIFO

  2. LIFO

  3. Weighted Average

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

FIFO, LIFO, and Weighted Average are standard methods for valuing inventory. EOQ (Economic Order Quantity) is a formula used to determine the optimal order quantity to minimize total inventory costs, not a valuation method.

Multiple choice elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

Accounting policy for inventories of an enterprise is, ' Inventories are valued at the lower of cost determined on weighted average basis or the net realizable value.' Which accounting principle is followed by the enterprise?

  1. Materiality

  2. Prudence

  3. Substance over form

  4. All of these
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The principle of prudence (or conservatism) dictates that assets should not be overstated. Valuing inventory at the lower of cost or net realizable value ensures that potential losses are recognized, while potential gains are not.

Multiple choice elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

Goods sold by other co-venturer is debited to which account ________________.

  1. Joint venture A/c

  2. Other co-venturer's personal A/c

  3. Joint bank A/c

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

In a joint venture, when one co-venturer sells goods, the transaction is recorded in the joint venture account, but the personal account of the other co-venturer is debited to track the liability or settlement between them.

Multiple choice elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

Goods given as charity should be credited to _______________.

  1. Purchases account

  2. Charity account

  3. Sales account

  4. Trading A/c
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Purchases will be credited if goods are given as charity. When accounting for goods given as charity, purchases are reduced with the exact cost of goods contributed. The amount is reduced from purchases in the trading account. It is shown as an expense on the debit side of the income statement and the purchase account is credited.

Multiple choice elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

While making an adjusting entry in respect of closing stock, we debit ______________.

  1. Closing stock

  2. Trading account

  3. Purchases account

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

The closing stock is the unsold goods lying in the concern. Generally, the firm takes out a list of all stocks, remaining unsold along with their value. The stock is always valued at cost or market price whichever is lower. Generally, the closing stock will not appear in the Trial Balance and it lies in the adjustment. When it lies in the adjustment, adjustment entry has to be passed before the preparation of Final Accounts. The Entry will be

Closing stock A/c    Dr.        xx

        To Trading A/c                  xx

Multiple choice elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

Inventories are assets __________________.

  1. Held for sale in the ordinary course of business

  2. In the production process for such sale

  3. In the form of material or supplied to be consumed in the production process or in the rendering of service

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

According to accounting standards, inventory includes assets held for sale, assets in the production process for sale, and materials/supplies to be consumed in production or service rendering.

Multiple choice elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

The success of perpetual inventory system depends upon ______________.

  1. Placing order for materials at regular intervals

  2. Exercising control over the issue of materials

  3. Recording the receipt and issue of materials immediately after each transaction

  4. Recording the receipt of materials by storekeeper in the 'Bin Cards'
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The perpetual inventory system requires continuous recording of all receipts and issues of materials to maintain an up-to-date balance of inventory at all times.

Multiple choice elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

Which of the following is not classified as inventory in the financial statements?

  1. Finished goods

  2. Work-in-progress

  3. Stored and spares

  4. Advance payments made to suppliers for raw materials
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Advance payments to suppliers are classified as current assets (prepayments or advances), not as inventory, because the goods have not yet been received or controlled by the entity.

Multiple choice elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

Change in inventories of finished goods, work-in-progress and stock-in-trade means _________________________.

  1. Difference between opening inventories and closing inventories

  2. Difference between closing and opening invetories

  3. Difference between opening and closing inventories, if opening inventories are higher

  4. Difference between closing and opening inventories, if closing inventories are higher
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Change in inventory means difference between total of opening and closing inventories. Opening inventories and closing include all raw material, work-in-progress and finished goods of inventory. 

Multiple choice elements of book keeping and accountancy trial balance develop the skill of preparing trial balance by balance method methods of preparing trial balance preparation of trial balance

Closing stock appearing in the Trial Balance is shown in_____________.

  1. The Balance Sheet only

  2. Both Trading Account and Balance Sheet

  3. Trading Account only

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

Closing stock usually doesn't appear in the trail balance, if it does it will appear only in balance sheet on the assets side and not in trading account. It is the stock left in business at the end of the year.

 It is basically the inventory the company has hands on at the end of the year or is unsold. It includes work-in-progress, raw materials, finished goods etc. 

Multiple choice elements of book keeping and accountancy trial balance develop the skill of preparing trial balance by balance method methods of preparing trial balance preparation of trial balance

The balances of all liabilities accounts, income accounts, profits, capital are placed in the ______of trial balance. 

  1. Credit Column

  2. Debit Column

  3. Ledger Folio

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

Liabilities, income, profits, and capital have credit balances. Therefore, they appear in the credit column of the trial balance.