Tag: income-expenditure account

Questions Related to income-expenditure 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    

Characteristic feature NOT found in a company is _______.

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. Legal entity

  2. Common seal

  3. Affected by insolvency of an individual member

  4. Association of individual members

Show answer
Correct Option: C

Fixed assets are recorded at _______.

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. current cost

  2. original cost

  3. depreciated cost

  4. all of the above

Show answer
Correct Option: B
Explanation:

Fixed assets are those which gives the benefits to the organization on a long term basis. Fixed Assets are recorded in the books of account on the original cost irrespective of their market value as per the cost concept in accounting.

On 1.1.2019, CS N. S. Zad paid rent of Rs. 25,000 for Zads Professional Academy. This can be classified as _________.

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. an event

  2. a transaction

  3. a transaction as well as an event

  4. neither a transaction nor an event

Show answer
Correct Option: B
Explanation:

Monetary concept of accounting defines that only those transactions are recorded in the books of account which are measured in terms of money. 

Rent of Rs.25000 paid is monetary transaction hence to be recorded in books of account. 
Accounting entry will be as under:

Rent A/c                           Dr.
        To Cash/Bank

Which of the following statements 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. Accounting profit is the difference between cash receipts and cash paid in a period.

  2. Accounting profit is the total of cash sales in the year less the expenses for the period.

  3. Accounting profit is the difference between revenue income and expenses for the period.

  4. Accounting profit is the difference between revenue income and cash payments for the period.

Show answer
Correct Option: C
Explanation:

Profit & Loss account is prepared for a business for a particular period. Profit & Loss account is having two sides i.e. Income and expenses side or debit or credit side. All incomes/revenues are recorded in credit side and expenses are debited. 

Excess of Income over expenditure is treated as profit and excess of expenditure over income is a loss. 

Which of the following statements is correct in relation to a trial balance?

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. It shows the financial position of a business.

  2. All the balances in the trial balance will be summarized on the business balance sheet.

  3. It is a list of balances and forms the starting point for the preparation of the business accounts.

  4. None of the above.

Show answer
Correct Option: C

When a consistency is found between financial statements of one entity from period to period it is _____________.

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. conventions of conservatism

  2. conventions of materiality

  3. conventions of disclosure

  4. conventions of horizontal consistency

Show answer
Correct Option: D
Explanation:

Consistency is the basic assumption and it is assumed that the various Policies/Methods adopted by the concern while preparing the accounts are consistent from one period to another. This convention plays its role particularly when there are some different methods available. However, consistency does not implies that there is no way for the introduction of new policies. 

If there is a change in the policy which results in inflating or deflating the figures of profits as compared to the previous year, a note to that should be given with the financial statements.