Tag: accounting equation and business transactions

Questions Related to accounting equation and business transactions

Financial statements only consider _________________.

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. Assets expressed in monetary terms

  2. Liabilities expressed in monetary terms.

  3. Assets expressed in non-monetary terms.

  4. Assets and liabilities expressed in monetary terms

Show answer
Correct Option: D
Explanation:

'Financial Statements' comprises of Statement of Profit/Loss, Balance Sheet (including Notes to Accounts), Cash flow statement and statement of changes in Equity. 

Financial statements is a record of all the monetary items which includes assets and liabilities. In addition to the assets and liabilities, capital, profits and losses of the entity will also form a part of the financial statements.

What is the correct sequence of the following in the preparation of periodical financial statements?
I. Preparation of Balance sheet
II. Preparation of Funds flow statement
III. Preparation of Trial balance
IV. Preparation of Profit/Loss statement
Select the correct answer from the codes given and mark your answer sheet accordingly.

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. IV, II, I, III

  2. III, IV, I, II

  3. II, IV, III, I

  4. I, III, II, IV

Show answer
Correct Option: B
Explanation:

Once all the transactions are recorded in the books of account then only process of preparing the financial statements starts. The sequence of preparation of financial statement is as under:


III - Preparation of Trial Balance
IV- Preparation of Profit & Loss Account
I - Preparation of Balance Sheet
II - Preparation of Funds Flow Statement

When shares are forfeited, the share capital account is debited by ________________.

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. Paid-up amount

  2. Called-up amount

  3. Nominal value of the shares

  4. Market value of the shares

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Correct Option: B

Financial Statements usually consists of _____________.

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. Trading Account

  2. Profit & loss Account

  3. Balance Sheet

  4. All of the above

Show answer
Correct Option: D
Explanation:

Financial statements are prepared at the end of the financial year to know the overall financial performance and financial position of the business. 


Following are the financial statements:
Trading Account is prepared to know the gross profit earned by the business. 
Profit & Loss Account is prepared to find out the net profit after deducting the indirect expenses from the gross profit. 
Balance sheet is prepared to know the financial position of the  business on a particular date including the position of assets and liabilities.  

Which of the following are the basic objectives 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. To view financial performance.

  2. To view financial Position.

  3. Both (A) & (B).

  4. None of the above.

Show answer
Correct Option: C
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. 


Financial statements includes the following:

Trading, Profit & Loss A/c - To know the profitability of the business.
Balance Sheet- To know the position of assets and liabilities of the firm.
Fund Flow Analysis- To know the movement of fund during the year.

Which of the following statement is not correct?

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 statements do adjust themselves for price level changes

  2. Only business transactions are within the ambit of financial records

  3. Financial statements have evidential value in the court of law

  4. Accounting principles have no universal acceptability

Show answer
Correct Option: A

Current assets are those assets which get converted into cash ___________ .

book keeping and accountancy accounting equation and business transactions meaning and features of balance sheet income-expenditure account meaning, importance and specimen of journal objectives, functions, and importance of accounting stages and functions of accounting qualitative characteristics, objectives and roles of accounting

  1. within six months

  2. within one year

  3. between one and three years

  4. between three and five years

Show answer
Correct Option: B
Explanation:

Current assets are assets that can be converted into cash within one fiscal year or one operating cycle. Current assets are used to facilitate day-to-day operational expenses and investments. As a result, short-term assets are liquid meaning they can be readily converted into cash.

Hence, current assets which get converted into cash within one year.

Fresh capital introduction will increase _______________.

book keeping and accountancy accounting equation and business transactions meaning and features of balance sheet income-expenditure account meaning, importance and specimen of journal objectives, functions, and importance of accounting stages and functions of accounting qualitative characteristics, objectives and roles of accounting

  1. Assets and Liabilities

  2. Assets and Equity

  3. Liabilities and equity and bank balance

  4. Capital and Liabilities

Show answer
Correct Option: B

Financial assets _________.

book keeping and accountancy accounting equation and business transactions meaning and features of balance sheet income-expenditure account meaning, importance and specimen of journal objectives, functions, and importance of accounting stages and functions of accounting qualitative characteristics, objectives and roles of accounting

  1. directly contribute to the country's productive capacity

  2. indirectly to the country's productive capacity

  3. contribute to the country's productive capacity both directly and indirectly

  4. do not contribute to the country's productive capacity either directly or indirectly

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Correct Option: A

Capital gain of Rs. 75 lakh arising from transfer of long term capital assets will be exempt from tax if such capital gain is invested in the bonds redeemable after three years, issued by NHAI u/s 54EC of the Act.

book keeping and accountancy accounting equation and business transactions meaning and features of balance sheet income-expenditure account meaning, importance and specimen of journal objectives, functions, and importance of accounting stages and functions of accounting qualitative characteristics, objectives and roles of accounting

  1. True

  2. False

  3. Cannot be said with certainty

  4. Is decided by the Assessing Officer

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Correct Option: A