Tag: accounting equation and business transactions

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Questions Related to accounting equation and business transactions

Multiple choice 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

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?

  1. Fiscal year

  2. Calendar year

  3. Accounting period

  4. Accrual period
Reveal answer Fill a bubble to check yourself
C Correct answer
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. 

Multiple choice 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

Retained earnings statement depicts _________________.

  1. Appropriation of profits

  2. Estimates of profits

  3. Estimates of costs

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

Multiple choice 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

Financial Accounting states the _______ position of a concern.

  1. Financial

  2. Economic

  3. Non-financial

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

Multiple choice 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

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.

  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
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Funds flow refers to the movement of working capital. The purchase of assets (Building, Machinery, Stock) using shares is a non-current transaction. However, the question asks for funds flow; since the shares were issued for assets, the only 'funds' (working capital) impact is the increase in stock (current asset) by 1,00,000, resulting in a net inflow of 1,00,000.

Multiple choice 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

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

  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 } } } $
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The explicit cost of capital (CI) is calculated by discounting the expected cash outflows (CO) over time at the cost of capital rate (c). Option D correctly represents the present value summation formula for these outflows.

Multiple choice 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

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?

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

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

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

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

Financial statements are interim reports (covering a specific period), rely on various assumptions (like going concern), are not the ultimate aim of accounting (which is decision-making), and often use realizable or historical values depending on the standard. All statements provided are generally accepted characteristics or limitations of financial reporting.

Multiple choice 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

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

  1. Debit

  2. Credit

  3. Zero

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

Multiple choice 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

__________ is prepared to know the financial performance.

  1. Balance Sheet

  2. Trading & Profit and Loss Account

  3. Both

  4. None
Reveal answer Fill a bubble to check yourself
B Correct answer
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
                                             ------------------                                             -----------------
                                            -------------------                                            ------------------

Multiple choice 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

Profit and Loss Account is prepared to know __________.

  1. Net profit

  2. Gross profit

  3. Both A and B

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

Multiple choice 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

Trading account is prepared to know _________.

  1. Gross profit

  2. Net profit

  3. Both (A) and (B)

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