Tag: analysis of financial statements

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Questions Related to analysis of financial statements

Multiple choice book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

____________ reduces both total assets as well as owner's equity.

  1. Credit purchases

  2. Retained earnings

  3. Bank loans

  4. Drawings
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

A drawing account is an accounting record maintained to track money withdrawn from a business by its owners. For example if proprietor withdraw cash from business then cash in hand account in decreased i.e. total assets decreased and it is recorded in the proprietor capital account as drawing which will reduce owner's equity. 

Multiple choice book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

$A$ purchased a car for Rs. $10,00,000$, making a down payment of Rs. $1,00,000$ and signing a Rs. $9,00,000$ bill payable due in 60 days. As a result of this transaction.

  1. Total asset increased by Rs. $10,00,000$

  2. Total liabilities increased by Rs. $9,00,000$

  3. Total asset increased by Rs. $9,00,000$

  4. Total asset increased by Rs. $9,00,000$ with corresponding increase in liabilities by Rs. $9,00,000$
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The car (asset) is worth 10,00,000. The payment of 1,00,000 reduces cash (asset), and the bill payable (liability) of 9,00,000 increases. The net increase in assets is 9,00,000 (10,00,000 - 1,00,000) and liabilities increase by 9,00,000.

Multiple choice book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

Loss of stock by fire would lead to ____________.

  1. No change in total assets

  2. Total assets to decrease

  3. Total assets to increase

  4. Total assets and owners equity to decrease
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Loss of stock by fire will lead to decrease in closing stock on the asset side of balance sheet and decrease in net income of profit and loss account i.e. decrease in owner's equity on the liability side of the balance sheet.

Multiple choice book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

On sale of old furniture, owner's equity would ______________.

  1. Increase

  2. Decrease

  3. Remain unchanged

  4. May or may not change
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Selling furniture at book value results in no change to equity. Selling at a profit increases equity, while selling at a loss decreases it. Since the sale price is not specified, the effect on equity is uncertain.

Multiple choice book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

_____________ increases both total assets as well as owner's equity.

  1. Credit purchases

  2. Retained earnings

  3. Bank loans

  4. Drawings
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Profits earned by the business are generally considered as retained earning, if not withdrawn by the owners. If firm generate the profits and retained in the business, cash of the firm increases which is part of the total assets. Parallel to this, all profits which are retained in the business are ultimately part of owners capital, hence it increases.

Multiple choice book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

Accounts which relates to assets tangible or intangible are called ________ .

  1. Personal a/c

  2. Real a/c

  3. Nominal a/c

  4. Impersonal a/c
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

There are mainly three types of accounts: Real, Personal and Nominal accounts. Personal accounts are classified into three subcategories: Artificial, Natural and Representative. All assets of a firm, which are tangible or intangible, fall under the category "Real Accounts". Tangible real accounts are related to things that can b touched and felt physically, e.g., building, machinery, stock, land, etc. Intangible real accounts are related to things that can't be touched and felt physically, e.g., goodwill, patents, trademarks, etc.

Multiple choice book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

Purchase of RBI bonds for cash would lead to ____________.

  1. No change in total assets

  2. Total assets to decrease

  3. Total assets to increase

  4. Total liabilities to increase
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Bonds are considered to be an investment and part of assets, similarly cash is also an asset. If RBI bonds are purchased that will increase the assets against the cash which is going to be reduced. Hence there will be no change in assets. 

Multiple choice book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

Withdrawals by the proprietor would_______.

  1. Reduce both assets and owner's equity

  2. Reduce assets and increase liabilities

  3. Reduce owner's equity and increase liabiltiy

  4. No change
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Withdrawals by the proprietor reduce the cash or assets of the business and simultaneously reduce the owner's claim (equity) on the business assets.

Multiple choice book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

Payment of a liability results in _________________.

  1. Increase in total assets

  2. Decrease in total assets

  3. No change in total assets

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

Paying a liability involves using cash (an asset) to settle a debt. Therefore, both the liability and the asset (cash) decrease.

Multiple choice book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

Purchase of furniture for cash would ______________________.

  1. Increase the fixed assets and reduce the current assets

  2. Reduce the fixed assets and increase the current assets

  3. Increase total assets

  4. Both (a) and (b)
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Purchasing furniture for cash involves an exchange of assets: cash (a current asset) decreases, and furniture (a fixed asset) increases. Since both are assets, the total asset value remains unchanged, but the composition shifts.