Tag: basic accounting terms

Questions Related to basic accounting terms

State with reasons whether the following statement is true or false:
Transactions and events are guided by generally accepted accounting principles subject to law of land.

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  1. True

  2. False

Show answer
Correct Option: A
Explanation:

Accounting is based on the certain concepts and conventions which are commonly known as Generally Accepted Accounting principles". 

Each transaction is based on some or other accounting concept. For example:
1) Furniture costing Rs.1000 is purchased- based on cost concept
2) Director is not having good health- based on money measurement concept which signifies that only those transactions are recorded which are having monetary value.  
3) Provision  for bad debts- based on conservatism convention which signifies that business records all anticipated losses. 

Which of the following statement is false?

commercial studies basic accounting terms basic accounting terminologies introduction to financial accounting and financial accounts basic accounting terminology 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. Void agreements are punishable

  2. Illegal agreements are punishable

  3. Illegal agreements are forbidden under the law

  4. Collateral transactions of a void agreement are not void

Show answer
Correct Option: A
Explanation:

A void agreement is not punishable under law whereas an illegal agreement is considered as an offence, hence the parties to it are punishable and penalised under Indian Penal Code (IPC)


An illegal agreement is one which is forbidden by law ; but a void agreement may not be forbidden , the law may merely say that if it is made , the courts will not enforce it . Thus every illegal contract is void but a void contract is not necessarily illegal.

Collateral agreements of a void agreement may or may not be void i.e. they may be valid also. Conversely, collateral agreements of an illegal agreement cannot be enforceable by law as they are void ab initio.

Which of the following is a cash transaction?

commercial studies basic accounting terms basic accounting terminologies introduction to financial accounting and financial accounts basic accounting terminology 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. Sold goods

  2. Sold goods to a customer

  3. Sold goods to a customer on credit

  4. none of above

Show answer
Correct Option: A
Explanation:

This can be summarized as:


Sold Goods- It represent the sale of goods on cash as nothing is mentioned about customer name or sold on credit. Hence this is considered as cash sales. 
Sold Goods to customer- Its a credit sale
Sold goods to customer on credit- Its a credit sales.
Sold goods to customer on account- Its also a credit sales.

Which of the following is a credit transaction?

commercial studies basic accounting terms basic accounting terminologies introduction to financial accounting and financial accounts basic accounting terminology 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. Sold goods

  2. Sold goods for cash

  3. Sold goods to a customer for cash

  4. Sold goods to a customer

Show answer
Correct Option: D
Explanation:

Sold goods to customer is defined as credit sales. 


Rest three statements are specifically denotes cash sales.

Posting means the recording of a transaction _____________.

commercial studies basic accounting terms basic accounting terminologies introduction to financial accounting and financial accounts basic accounting terminology 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. In any two accounts.

  2. On the debit side of an account related to that transaction.

  3. On the credit side of an account related to that transaction.

  4. On the proper side of two accounts related to that transaction.

Show answer
Correct Option: D
Explanation:

Posting is the transfer of journal entries to a general ledger, which usually contains a separate form for each account. Journals record transactions in chronological order, while ledgers summarize transactions by account. Posting in accounting consists of a few simple steps.

Adjusting entries are essential to the ___________.

commercial studies basic accounting terms basic accounting terminologies introduction to financial accounting and financial accounts basic accounting terminology 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. matching rule

  2. accrual accounting

  3. proper determination of net income

  4. all of these

Show answer
Correct Option: D
Explanation:

Before financial statements are prepared, additional journal entries, called adjusting entries, are made to ensure that the company's financial records adhere to the revenue recognition and matching principles. Adjusting entries are necessary because a single transaction may affect revenues or expenses in more than one accounting period and also because all transactions have not necessarily been documented during the period. Each adjusting entry usually affects one income statement account (a revenue or expense account) and one balance sheet account (an asset or liability account)


The basic concepts related to P&L Account are _______________.

commercial studies basic accounting terms basic accounting terminologies introduction to financial accounting and financial accounts basic accounting terminology 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. Realization concept

  2. Matching concept

  3. Cost concept

  4. Both (a) and (b)

Show answer
Correct Option: D
Explanation:

The matching concept is an accounting practice whereby firms recognize revenues and their related expenses in the same accounting period.

The realization principle is the concept that revenue can only be recognized once the underlying goods or services associated with the revenue have been delivered or rendered, respectively. 

In every business transaction, at least _______ parties are involved.

commercial studies basic accounting terms basic accounting terminologies introduction to financial accounting and financial accounts basic accounting terminology 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. Two

  2. Three

  3. Four

  4. Six

Show answer
Correct Option: A
Explanation:

Any business transaction will involve at least two parties. One can not do the transaction with himself. One party may be receiver and another will be give. 


For example, XYZ Ltd sold goods to ABC Ltd. In this case, XYZ Ltd is the giver who is transferring the goods and ABC Ltd is the receiver who is accepting the goods.

Which of the following business entity will not prepare Trading Account?

commercial studies basic accounting terms basic accounting terminologies introduction to financial accounting and financial accounts basic accounting terminology 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. Banking companies

  2. Insurance companies

  3. Investment companies

  4. All of the above

Show answer
Correct Option: D
Explanation:

Trading accounting is prepared only by those organization where the purchase and sale of goods is done. 

Below are the entities which are not involve in any trading business, hence no trading account is prepared.
Banking Companies- It carries the business of taking deposits and lending money.
Insurance Companies- It carries Insurance business and provide services.
Investment Companies- It involves in advisory services. No trading. 

The manufacturing account is prepared __________________.

commercial studies basic accounting terms basic accounting terminologies introduction to financial accounting and financial accounts basic accounting terminology 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. To ascertain the profit or loss on the goods produced

  2. To ascertain the cost of the manufactured goods

  3. To show the sale proceeds from the goods produced during the year

  4. Both (B) and (C)

Show answer
Correct Option: B
Explanation:

Manufacturing account does not show the profit & loss. Manufacturing account accumulate the cost of manufacturing of material including raw material, labour and production overheads. 

Below is the format of manufacturing account.

                                             Manufacturing Account


 Particulars  Amount  Particulars  Amount
 To Op Stock of Raw Material    By Closing Stock of Raw Material  
 To Opening Stock of WIP    By Closing WIP  
 To Purchases of Raw Material    By Cost of goods transferred to Trading A/c   
 To Carriage Inwards      
 To Direct Labor      
 To Direct Expenses      
 To Factory Rent      
 To Fuel, Power      
 To Manufacturing overheads