Tag: basic accounting terminologies

Questions Related to basic accounting terminologies

Sole traders differ from other types of trading organizations. Which of the following statements correctly summarizes the key characteristics of a sole trader's business?

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. Liability is limited to the providers of loan finance and only the trader takes an active part in managing the business.

  2. The trader has unlimited liability and runs the business in conjunction with the providers of loan finance.

  3. The trader has unlimited liability and must have the business accounts audited.

  4. The trader has unlimited liability, takes sole responsibility for management of the busines.

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Correct Option: D

Which of the following is TRUE about the sole trader form of business?

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. A sole trader is liable to pay income tax on his/her earnings

  2. Sole traders must have to prepare books of accounts by law

  3. Sole traders must register the name of their business with the Registrar of Companies

  4. All of the given options

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Correct Option: D

Which one of the following is NOT a feature of sole proprietorship business?

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. Easy Formation

  2. Easy Dissolution

  3. Unlimited Liability

  4. Separate Legal Entity

Show answer
Correct Option: D
Explanation:

Separate entity concept defines that the owner/proprietor and business are treated two separate legal entity in the eyes of law. Hence any contribution made by owner as part of capital is treated as liability in the business. 


In case of proprietorship, owner and business both are same as the proprietor is only the sole owner of the business. Hence separate legal entity concept does not applies in the proprietorship business. 

Accounting transactions are recorded in terms of ________.

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. money

  2. purpose

  3. characteristics

  4. none of the above

Show answer
Correct Option: A
Explanation:


In accounting we can communicate only those business transactions and other events which can be expressed in monetary units. This is called monetary unit assumption.  Therefore, only money or money's worth transactions are recorded in the books of account. 


Non monetary events like death, dispute etc. may have a great influence on the organization but these factors will not form the part of accounts as they can be calculated on monetary basis.

We may simply say " wherever there is money, there is an accounting, no money, no accounting". 

Atul purchased a car for Rs. $5,00,000$, by making a down payment of Rs. $1,00,000$ and signing a Rs. $4,00,000$ bill payable due in $60$ days. As a result of this 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. total assets increased by Rs. $5,00,000$

  2. total liabilities increased by Rs. 4,00,0004,00,000

  3. total assets increased by Rs. 3,00,0004,00,000

  4. total assets increased by Rs. 4,00,0004,00,000

Show answer
Correct Option: D
Explanation:

On purchase of a Car, total assets of balance sheet will be increased by $Rs. 5,00,000$ and on making of down payment of $Rs.1,00,000$ total assets will decrease by $Rs. 1,00,000$. The result will be that total assets of Balance sheet will increase by $Rs.4,00,000$.
On other hand a liability of $Rs.4,00,000$ has been made so the liability side of Balance Sheet will be increased by $Rs.4,00,000$.

Revenue from sales of products is generally accounted in the period in which __________.

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. cash is collected

  2. sales in made

  3. products are manufactured

  4. none of the above

Show answer
Correct Option: B
Explanation:


Business transactions are recorded when they occur and not when the related payments are received or made. This concept is called accrual basis of accounting and it is fundamental to the usefulness of financial accounting information.


Thus sale of products is recorded when sales is made and not when cash is collected or when products are manufactured.

Goods returned to supplier is an example of __________.

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. Increase in Asset & Owner's Liability

  2. Decrease in Asset & Owner's Liability

  3. Increase in Liability & Owner's Liability

  4. Decrease in Liability & Increase in Owner's Liability

  5. Increase in Liability & Decrease in Owner's Liability

Show answer
Correct Option: D

Which of the following is correct?

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. A transaction which increases the capital is called income.

  2. A transaction which decreases the capital is called loss.

  3. A transaction which increases the capital is called additional capital.

  4. A transaction which decreases the capital is called drawing.

  5. All of above.

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Correct Option: E

Sale of goods to Ram for Rs. 1,000 with a credit term of 5 days is a/an ____________.

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. cash transaction

  2. credit transaction

  3. barter system

  4. internal event

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Correct Option: B
Explanation:

The transaction in which there is no immediate payment of cash is known credit transaction. For e.g., sale of goods to Ram for Rs. 1,000. In this transaction goods worth Rs. 1,000 sold to Ram on 5 days credit is a credit transaction as the payment is not made immediately for the goods.

Sale of goods to Ram for Cash $Rs.1000$ is a ______________.

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. cash transaction

  2. credit transaction

  3. barter system

  4. internal event

Show answer
Correct Option: A
Explanation:

The transaction which involves immediate payment of cash is known as cash transaction. For e.g., Sale of goods to Ram for Cash Rs. 1,000. In this transaction goods are sold to Ram when he paid Rs. 1,000 cash.