Tag: accounting equation and business transactions

Questions Related to accounting equation and business transactions

Which of the following is a time span in which the total life of a business is divided for the purpose of preparing financial statements?

book keeping and accountancy accounting equation and business transactions introduction to final accounts meaning, objectives and importance of final accounts meaning, objectives, importance and preparation of final accounts

  1. Fiscal year

  2. Calendar year

  3. Accounting period

  4. Accrual period

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Correct Option: C
Explanation:

According to the going concern concept, it is assume that the life of the business is indefinite. Once the business commenced, it will run forever. There will be no intend to close the business until it goes into liquidation.


As the life of the business is indefinite, the accounting records must be kept for a specific period of time to know the state of affairs of the business. This period is normally of 12 months and called as an accounting period. 

Retained earnings statement depicts _________________.

book keeping and accountancy accounting equation and business transactions introduction to final accounts meaning, objectives and importance of final accounts meaning, objectives, importance and preparation of final accounts

  1. Appropriation of profits

  2. Estimates of profits

  3. Estimates of costs

  4. None of these

Show answer
Correct Option: A
Explanation:

One of the components of financial statements, retained earnings statement depicts the changes in enterprises retained earnings over a period.

The items that form part of the retained earnings statement are the net income for the period and dividends declared during the period.

Financial Accounting states the _______ position of a concern.

book keeping and accountancy accounting equation and business transactions introduction to final accounts meaning, objectives and importance of final accounts meaning, objectives, importance and preparation of final accounts

  1. Financial

  2. Economic

  3. Non-financial

  4. None of the above

Show answer
Correct Option: A
Explanation:

Financial accounts state the financial position of the firm. To know the financial position of the company, the financial statement like profit & loss statement and balance sheet are prepared. profit & loss account show the profit or loss of the business for a particular period whereas the balance sheet shows the state of affairs as on date, this includes the position of assets and liabilities. 

A company purchased the following assets and paid through 1,00,000 fully paid equity shares of Rs. 10 at a premium of Rs. 2.
Building - Rs. 5,00,000
Machinery - Rs. 4,00,000
Stock in trade - Rs. 1,00,000
In the context of funds flow statement, this transaction will result in.

book keeping and accountancy accounting equation and business transactions introduction to final accounts meaning, objectives and importance of final accounts meaning, objectives, importance and preparation of final accounts

  1. Funds in flow of Rs. 10,00,000

  2. Funds in flow of Rs. 12,00,000

  3. Funds in flow of Rs. 1,00,000

  4. Funds in flow of Rs. 9,00,000

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Correct Option: C

The general formula for the explicit cost of capital of any source of raising finance would be as follows:

book keeping and accountancy accounting equation and business transactions introduction to final accounts meaning, objectives and importance of final accounts meaning, objectives, importance and preparation of final accounts

  1. ${ CI } _{ o }={ CO }^{ t }{ \left( 1-c \right) }^{ t }$

  2. $k={ r } _{ j }+b+f$

  3. ${ k } _{ p }=\cfrac { d }{ { p } _{ o }(1-f) } $

  4. ${ CI } _{ o }=\sum _{ t=1 }^{ n }{ \cfrac { { Co }^{ t } }{ { \left( 1+c \right) }^{ t } } } $

Show answer
Correct Option: D

Read the following statements :
i)Financial statements are only interim reports.
ii)Financial statements are prepared on the basis of realizable values.
iii)The preparation to financial statements is not an ultimate aim.
iv)Certain assumptions are necessary to prepare financial statements.
Which of the following combinations consists of all true statements?

book keeping and accountancy accounting equation and business transactions introduction to final accounts meaning, objectives and importance of final accounts meaning, objectives, importance and preparation of final accounts

  1. (i), (ii) and (iii)

  2. (ii), (iii) and (iv)

  3. (i), (iii) and (iv)

  4. All of the above.

Show answer
Correct Option: D

All real account can either show ________ balance or nil balance.

book keeping and accountancy accounting equation and business transactions introduction to final accounts meaning, objectives and importance of final accounts meaning, objectives, importance and preparation of final accounts

  1. Debit

  2. Credit

  3. Zero

  4. Positive

Show answer
Correct Option: A
Explanation:

Real Account refer to the account of thing or asset. All such real account will have either debit balance or nil balance depend on the business transactions. Like if any asset is purchased for the business, the asset account will have a debit balance. If the asset is sold out, than asset account will have nil balance. 

__________ is prepared to know the financial performance.

book keeping and accountancy accounting equation and business transactions introduction to final accounts meaning, objectives and importance of final accounts meaning, objectives, importance and preparation of final accounts

  1. Balance Sheet

  2. Trading & Profit and Loss Account

  3. Both

  4. None

Show answer
Correct Option: B
Explanation:
Trading & Profit and Loss account is prepared to know the financial performance of the business for a particular period , usually a year. These statements are prepared at the end of financial year. 
                                              Trading & Profit and Loss Account
Particulars                                Amount               Particulars                 Amount

To Opening Stock                                              By Sales 
To Purchases                                                      By Closing Stock
To Direct Expenses
To Wages 
To Gross Profit
                                               -----------------                                          ----------------
                                              ------------------                                         ----------------- 
To Rent                                                             By Gross Profit b/f
To Salary                                                          By Dividend
To Insurance
To Office Expense
To Depreciation
To Stationery
To Other indirect Expenses
To Net Profit
                                             ------------------                                             -----------------
                                            -------------------                                            ------------------

Profit and Loss Account is prepared to know __________.

book keeping and accountancy accounting equation and business transactions introduction to final accounts meaning, objectives and importance of final accounts meaning, objectives, importance and preparation of final accounts

  1. Net profit

  2. Gross profit

  3. Both A and B

  4. None of the above

Show answer
Correct Option: A
Explanation:

Profit and Loss Account is prepared to find out the net profit earned by the business from its operations. This includes a credit of gross profit and other income received and debit of all indirect expenses. 


                                            Profit & Loss Account
Particulars                             Amount                           Particulars              Amount
To Rent                                                                    By Gross Profit c/f
To Electricity                                                           By Dividend received
To Insurance
To Salary
To Interest
To Depreciation
To Employee Welfare
To Indirect exp (Others)
To Net Profit 
                                                 ----------------------                                        --------------
                                                 ----------------------                                        --------------

Trading account is prepared to know _________.

book keeping and accountancy accounting equation and business transactions introduction to final accounts meaning, objectives and importance of final accounts meaning, objectives, importance and preparation of final accounts

  1. Gross profit

  2. Net profit

  3. Both (A) and (B)

  4. None of the above

Show answer
Correct Option: A
Explanation:

To know the financial position of the business, financial statements are prepared. Normally the financial statements are prepared at the end of the financial year. 


Trading account includes the items of purchase and sale of trading goods and direct expenses. The overall outcome of trading account is to know the gross profit of the business.