Tag: basic accounting terminology

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Multiple choice 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

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?

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

A sole trader is an individual who owns and manages the business alone. Because there is no legal distinction between the owner and the business, the owner bears unlimited liability for all business debts and is responsible for all management decisions.

Multiple choice 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

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

  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
Reveal answer Fill a bubble to check yourself
D Correct answer
Multiple choice 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

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

  1. Easy Formation

  2. Easy Dissolution

  3. Unlimited Liability

  4. Separate Legal Entity
Reveal answer Fill a bubble to check yourself
D Correct answer
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. 

Multiple choice 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

Accounting transactions are recorded in terms of ________.

  1. money

  2. purpose

  3. characteristics

  4. none of the above
Reveal answer Fill a bubble to check yourself
A Correct answer
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". 

Multiple choice 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

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 ____________________.

  1. total assets increased by Rs. $5,00,000$

  2. total liabilities increased by Rs. <span class="MathJax_Preview"></span><span class="MathJax"><span class="math"><span><span><span class="mrow"><span class="mn">4</span><span class="mo">,</span><span class="mn">00</span><span class="mo">,</span><span class="mn">000</span></span><span></span></span></span><span></span></span><span class="MJX_Assistive_MathML">4,00,000</span></span>

  3. total assets increased by Rs. 3<span class="MathJax"><span class="math"><span><span><span class="mrow"><span class="mo">,</span><span class="mn">00</span><span class="mo">,</span><span class="mn">000</span></span><span></span></span></span><span></span></span><span class="MJX_Assistive_MathML">4,00,000</span></span>

  4. total assets increased by Rs. <span class="MathJax_Preview"></span><span class="MathJax"><span class="math"><span><span><span class="mrow"><span class="mn">4</span><span class="mo">,</span><span class="mn">00</span><span class="mo">,</span><span class="mn">000</span></span><span></span></span></span><span></span></span><span class="MJX_Assistive_MathML">4,00,000</span></span>
Reveal answer Fill a bubble to check yourself
D Correct answer
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 $Rs.4,00,000$.

Multiple choice 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

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

  1. cash is collected

  2. sales in made

  3. products are manufactured

  4. none of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
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.

Multiple choice 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

Goods returned to supplier is an example of __________.

  1. Increase in Asset &amp; Owner's Liability

  2. Decrease in Asset &amp; Owner's Liability

  3. Increase in Liability &amp; Owner's Liability

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

  5. Increase in Liability &amp; Decrease in Owner's Liability
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

When goods are returned to a supplier, the liability to the supplier decreases. Since the goods are no longer in inventory, the asset value also decreases. This is a standard accounting entry for purchase returns.

Multiple choice 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

Which of the following is correct?

  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.
Reveal answer Fill a bubble to check yourself
E Correct answer
Explanation

All listed options describe standard accounting definitions: income increases capital, losses decrease it, additional capital increases it, and drawings decrease it. Therefore, all are correct.

Multiple choice 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

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

  1. cash transaction

  2. credit transaction

  3. barter system

  4. internal event
Reveal answer Fill a bubble to check yourself
B Correct answer
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.

Multiple choice 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

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

  1. cash transaction

  2. credit transaction

  3. barter system

  4. internal event
Reveal answer Fill a bubble to check yourself
A Correct answer
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.