Tag: accounting equations and transactions

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Questions Related to accounting equations and transactions

Multiple choice book keeping and accountancy accounting equation meaning, objectives and need of adjustments need for adjustments accounting equations and transactions

Which of the following is correct?

  1. Gross profit + Purchase + Sales = Net profit

  2. Gross profit + Purchases + Administrative and other expenses = Net profit

  3. Gross profit + Sales + Administrative and other expenses = Net profit

  4. Gross profit - Administrative and selling expenses = Net profit
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Net profit is calculated by taking the gross profit and subtracting all operating expenses, including administrative and selling expenses.

Multiple choice book keeping and accountancy accounting equation meaning, objectives and need of adjustments need for adjustments accounting equations and transactions

Closing entries are those which are passed______.

  1. at the end of the year

  2. at the beginning of the year

  3. for rectification of errors

  4. for suppressing profit
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Closing entries are journal entries made at the end of an accounting period to transfer balances from temporary accounts (like revenue and expenses) to permanent accounts (like retained earnings).

Multiple choice book keeping and accountancy accounting equation meaning, objectives and need of adjustments need for adjustments accounting equations and transactions

Which of the following would appear as an operating expense in the P/L A/c of a trading firm?

  1. Freight inward

  2. Freight outward

  3. Sales returns and allowances

  4. Purchases returns and allowances.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Freight outward is a selling expense, which is an operating expense. Freight inward is typically part of the cost of goods sold (COGS), while sales and purchase returns are contra-accounts.

Multiple choice book keeping and accountancy accounting equation meaning, objectives and need of adjustments need for adjustments accounting equations and transactions

Type of financial securities that matures in less than a year are classified as ___________________.

  1. Money market securities

  2. Capital market securities

  3. Saving intermediaries

  4. Discounted intermediaries
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The money market is part of the fixed-income market that specializes in short-term debt securities that mature in less than one year. Most money market investments often mature in three months or less. 

Multiple choice book keeping and accountancy accounting equation meaning, objectives and need of adjustments need for adjustments accounting equations and transactions

Which of the following is correct?

  1. Gross profit + Sales + Direct expenses + Purchases + Closing stock = Opening stock

  2. Gross profit + Direct expenses + Purchases + Closing stock - Opening stock = Sales

  3. Gross profit + Direct expenses + Purchases + Opening stock - Closing stock = Sales

  4. <span>Gross profit + Indirect expenses + Purchases + Opening stock - Closing stock = Sales</span>
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Gross profit is calculated as Sales minus Cost of Goods Sold (COGS). COGS is Opening Stock + Purchases + Direct Expenses - Closing Stock. Substituting this into the formula gives Gross Profit = Sales - (Opening Stock + Purchases + Direct Expenses - Closing Stock), which rearranges to Gross Profit + Direct Expenses + Purchases + Opening Stock - Closing Stock = Sales.

Multiple choice book keeping and accountancy accounting equation meaning, objectives and need of adjustments need for adjustments accounting equations and transactions

Adjustment entries are those which are passed________.

  1. at the end of the year

  2. at the beginning of the year

  3. for adjustment of prepaid and outstanding expenses/income

  4. for suffering profit
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Adjustment entries are made at the end of an accounting period to ensure that revenues and expenses are recorded in the period they occur, following the accrual basis of accounting. This specifically includes adjusting for items like prepaid expenses, accrued income, and outstanding liabilities.

Multiple choice book keeping and accountancy accounting equation meaning, objectives and need of adjustments need for adjustments accounting equations and transactions

The closing stock of the year becomes the ______ of the next year.

  1. Liabilities

  2. Asset

  3. Opening stock

  4. Dead stock
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The closing stock represents the cost of unsold goods lying in the stores at the end of the accounting period. The adjustment with regard to the closing stock is done by crediting it to the trading profit and loss account and by showing  it on the asset side of the balance sheet. The closing stock of the year becomes the opening stock of the next year and is reflected in the trial balance of the next year.

Multiple choice book keeping and accountancy accounting equation meaning, objectives and need of adjustments need for adjustments accounting equations and transactions

For contingency exposure of foreign exchange, the best derivative that can be used to hedge is ________________.

  1. Forwards.

  2. Futures.

  3. Options.

  4. Swaps.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

For contingency exposure of foreign exchange, the best derivative that can be used to hedge is Options. Options are financial instruments that are derivatives based on the value of underlying securities such as stocks. An options contract offers the buyer the opportunity to buy or sell depending on the type of contract they hold the underlying asset.