Tag: commercial applications

Questions Related to commercial applications

A system in which accounting entries are made on the basis of amounts having become due for payment or receipt is called _______________.

commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

  1. Cash concept

  2. Accrual concept

  3. Matching concept

  4. On-going concept

Show answer
Correct Option: B
Explanation:

There are two ways of accounting: 

1. cash system of accounting; and 
2. accrual system of accounting.
Accrual system of accounting defines that the revenues and expenses are to be accounted in the books of account on the basis of their accrual and not on the basis of their payment. 

For example, if any salary is due, it should be debited to the salary account, irrespective of when it is paid. 
The same applies to incomes. If any income is due to be received, the same has to be credited in the respective income account, irrespective of it being received or not.

In cash transactions, goods or services are exchanged for ______________. 

commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

  1. Other goods

  2. Other services

  3. Immediate cash

  4. Grains

Show answer
Correct Option: C
Explanation:

A cash transaction is a transaction where there is an immediate payment of cash for the purchase  of an asset, goods or services. It differs from other types of transaction that involve delayed payment, credit transaction etc. 

Under the accrual concept, which one of the following will not be shown as an asset/liability in the balance sheet of an entity?

commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

  1. Interest due but not paid.

  2. Interest due but not received.

  3. Interest due and paid.

  4. Interest paid but not due.

Show answer
Correct Option: C
Explanation:

Under the accrual concept, is the fundamental concept of accounting in which revenues are recorded when they are earned and not received in cash, and recording expenses when they are incurred and not actually paid. 

Hence point C is the only one which will not appear in the balance sheet as its been due and paid.

If the convertibility of the currency is restricted to certain foreign currency transactions, it is termed as _______________.

commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

  1. Full convertibiltity

  2. Partial convertibility

  3. Current account convertibility

  4. Capital account convertibility

  5. Both (A) and (C) above

Show answer
Correct Option: B
Explanation:

Convertibility means that a foreign currency can be converted into domestic currency and vice versa without any restrictions. If the convertibility is restricted to certain foreign currencies transactions and/or people, it is termed as partial convertibiltiy.

Consider the following statements:
1. The bonus shares shall not be issued in lieu of dividend,
2. A company may issue fully paid up bonus shares to its members out of its 'Capital Redemption Reserve Account'
3. A company may not issue bonus shares out of its 'Securities Premium Account'
Which of the above statement/s is are not correct?

commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

  1. 1,2, and 3

  2. Only 1

  3. Only 2

  4. Only 3

Show answer
Correct Option: D

Double entry system is  more accurate because__________.

commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

  1. Mis-appropriations are minimised

  2. Arithmetic inaccuracies in records can be checked

  3. Possibilities of frauds is reduced

  4. All of the above

Show answer
Correct Option: D
Explanation:

The accounting system is a system of double entry , which means that every business transaction that is to be recorded or have been recorded, always have dual impact. This system is more accurate because of the following reasons:

  1. Mis-appropriation are minimized: The record of every transaction is first classified into assets, liabilities, expenses, revenue, capital and then these are recorded accordingly so if there will be any misappropriations that can be checked.
  2. Arithmetic inaccuracies in records can be checked: Double-entry system of book-keeping is based on the dual entry principle which means that for every debit there is a equal and corresponding credit amount. Such a method of debit and credit helps in ensuring the arithmetical accuracy of the recordings of the transactions.
  3. Possibilities of frauds is reduced: Accounting records helps the organizations to detect the frauds and errors that have taken place in business and take steps to prevent their recurrence i.e occurring again. Under this system mistakes and deflections can be detected - this exerts a moral pressure on the accountant and his staff.

Name the accounting concept on the basis of which income statement is prepared ______________.

commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

  1. Realization concept

  2. Matching concept

  3. Accrual concept

  4. Cost concept

Show answer
Correct Option: C
Explanation:

Under accrual basis of accounting, expenses are matched with the related revenues and/ or are reported when the expense occurs, not when the cash is paid. The result of accrual accounting is an income statement that better measures the profitability of a company during a specific time period.

Match the items of the following two lists and indicate the correct answer:

List - I List - II
(i) Earning ability of firm (a) Basis of Accounting
(ii) Conservation (b) P/V ratio
(iii) Cash profit (c) Cash flow statement
(iv) Cash and Accrual (d) Prudence
commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

  1. $(i) - (b), (ii) - (d), (iii) - (c), (iv) - (a)$

  2. $(i) - (b), (ii) - (a), (iii) - (d), (iv) - (c)$

  3. $(i) - (c), (ii) - (d), (iii) - (a), (iv) - (b)$

  4. $(i) - (c), (ii) - (d), (iii) - (b), (iv) - (a)$

Show answer
Correct Option: A
Explanation:
  • A basis of accounting is the time various financial transactions are recorded. The cash basis (EU VAT vocabulary Cash accounting) and the accrual basis is the two primary methods of tracking income and expenses in accounting.
  • In accounting, the convention of conservatism, also known as the doctrine of prudence, is a policy of anticipating possible future losses but not future gains. 
  • Profitability ratio is used to evaluate the company's ability to generate income as compared to its expenses and other cost associated with the generation of income during a particular period. 
  • The cash flow statement or statement of cash flows measures the sources of a company's cash and its uses of cash over a specific time period.

Break-even analysis helps in __________.

commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

  1. Formulating price policy

  2. Determining the amount of overhead cost to be changed at various levels of operations

  3. Forecasting the profit

  4. All of these

Show answer
Correct Option: D
Explanation:

Break-even analysis helps in formulating price policy, determining the amount of overhead cost to be charged at various levels of operations and forecasting profit.

 Break-even analysis is done to find out the activity level that is required for achieving a no profit no los situation, wherein where cost=sales. 

System in which entry is recorded for cash as well as credit transactions is known as _____________.

commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

  1. Cash system

  2. Credit system

  3. Accrual System

  4. Non-accrual system

Show answer
Correct Option: C
Explanation:

Accrual system is an accounting method that records revenues and expenses when they are incurred, regardless of when cash is exchanged. For example -In a credit sale, the sale is entered into the books when the invoice is generated rather than when cash is collected.