Explanation: The Statement of Affair is a summary of a Comapny’s assets and liabilities. It states the net book value and amount expected to realise at the date of Insolvency of the business. Accompanying the balance sheet is a list of creditors and shareholders.
Q3. Which of the following businesses usually maintain incomplete accounting record of the business activities?
Explanation: Incomplete accounting records occur most often when employees forget to record transactions. Often, small businesses begin with the owner attending to nearly all accounting matters. When one person is responsible for accounting for all of the transactions, it’s less likely for records to get misplaced or to believe that another employee already has made the accounting entry. However, as the business grows and responsibility for the accounting process expands, this can change. If policies and procedures are not enacted to consolidate responsibility for each transaction to a specific person, then entries can get lost in the shuffle.
Q4. In which of the following systems of recording the financial statements reflect true and fair view of an entity and accounting records are considered to be more accurate?
Option:B .Explanation:Double-entry accounting is based on the fact that every financial transaction has equal and opposite effects in at least two different accounts. It is used to satisfy the equation Assets = Liabilities + Equity, in which each entry is recorded to maintain the relationship.
Q5. Identify the correct formula used to ascertain the closing balance of capital:
(a) Opening capital + Net income – Drawing – Assets = Closing capital
(b) Closing capital = Opening Capital + Net loss – Drawings
(c) Closing Capital = Opening capital + Assets + Incomes – Expenses
(d) Closing capital = Opening capital + Net income – Drawings
Explanation: Net income (NI) is a company’s total earnings (or profit); net income is calculated by taking revenues and subtracting the costs of doing business such as depreciation, interest, taxes and other expenses. This number appears on a company’s income statement and is an important measure of how profitable the company is over a period of time. Net income also refers to an individual’s income after taking taxes and deductions into account.
Q7. Which of the following statement is correct:
(a) The main purpose of any business is to earn profit
(b) If expenses exceed revenue then business is running loss
Explanation: Dual aspect is the foundation or basic principle of accounting. It provides the very basis of recording business transactions in the books of accounts. This concept assumes that every transaction has a dual effect, i.e. it affects two accounts in their respective opposite sides. Therefore, the transaction should be recorded at two places. It means, both the aspects of the transaction must be recorded in the books of accounts. For example, goods purchased for cash has two aspects which are (i) Giving of cash (ii) Receiving of goods. These two aspects are to be recorded. Thus, the duality concept is commonly expressed in terms of fundamental accounting equation :
Q9. Which one of the following accounts is supposed to be used to get the figure of credit purchases made during the current accounting period?
Explanation: A debtor is a person or enterprise that owes money to another party. (The party to whom the money is owed is often a supplier or bank that will be referred to as the creditor.) A creditor is a person, bank, or other enterprise that has lent money or extended credit to another party.
Q10. To obtain the amount of credit sales made during an accounting period, which account is generally used in single entry and incomplete records?
Explanation: A cash book is a financial journal that contains all cash receipts and payments, including bank deposits and withdrawals. Entries in the cash book are then posted into the general ledger. Larger firms usually divide the cash book into two parts: the cash disbursement journal that records all cash payments, such as accounts payable and operating expenses, and the cash receipts journal, which records all cash receipts, such as accounts receivable and cash sales.
Q12. Closing balance of cash can be obtained by drawing up a:
Explanation: A conversion is the exchange of a convertible type of asset into another type of asset, usually at a predetermined price, on or before a predetermined date. The conversion feature is a financial derivative instrument that is valued separately from the underlying security. Therefore, an embedded conversion feature adds to the overall value of the security.
Q14. Which of the following is not a subsidiary book?
Explanation: Subsidiary Books are those books of original entry in which transactions of similar nature are recorded at one place and in chronological order. In a big concern, recording of all transactions in one Journal and posting them into various ledger accounts will be very difficult and involve a lot of clerical work.
Explanation: Accounting concepts are postulates, assumptions or conditions upon which accounting records and statement are based. The various accounting concepts are as follows: Entity Concept: For accounting purpose the “business” is treated as a separate entity from the proprietor.
Explanation: Gross profit is a company’s total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company makes after deducting the costs associated with making and selling its products, or the costs associated with providing its services.
Net profit + operating expenses = Gross profit
Q17. Which of the following accounting equation is not correct?
Explanation: The basic accounting equation, also called the balance sheet equation, represents the relationship between the assets, liabilities, and owner’s equity of a business. It is the foundation for the double-entry bookkeeping system. For each transaction, the total debits equal the total credits. It can be expressed as In a corporation, capital represents the stockholders’ equity. Since every business transaction affects at least two of a company’s accounts, the accounting equation will always be “in balance,” meaning the left side should always equal the right side. Thus, the accounting formula essentially shows that what the firm owns (its assets) is purchased by either what it owes (its liabilities) or by what its owners invest (its shareholders equity or capital).
For example: A student buys a computer for $945. To pay for the computer, the student uses $445 in cash and borrows $500 for the remainder. Now his assets are worth $945, liabilities are $500, and equity $445. The formula can be rewritten:
Assets – Liabilities = (Shareholders’ or Owners’ Equity).
Explanation:The double entry system of accounting or bookkeeping means that every business transaction will involve two accounts (or more). For example, when a company borrows money from its bank, the company’s Cash account will increase and its liability account Loans Payable will increase.
Q19. The features of Double Entry System are?
(a) It has two parties; Receiver and Giver
(b) Total amount of Debit will be equal to total amount of Credit
Explanation: Double entry systems of book keeping are based on the principle that “every debit has a credit and every credit has a debit”. Some importance features of double entry systems are as follows:
(A) Duality principle: this system appliers the principle of duality, it means a transaction has got two aspects & they are recorded in two opposite sides.
(B) Recording of personal and impersonal aspects: both personal and impersonal aspects of a transaction are recorded in double entry system.
(C) Use of certain rules for recording: there are certain specific rules for debiting and crediting various aspects of a transaction and credit and debits are made on the basic of these rules.
Q20. Generally, what type of accounts is not kept in Single entry system?
Explanation: A single entry system records each accounting transaction with a single entry to the accounting records, rather than the vastly more widespread double entry system. The single entry system is centered on the results of a business that are reported in the income statement. The core information tracked in a single entry system is cash disbursements and cash receipts. Asset and liability records are usually not tracked in a single entry system; these items must be tracked separately.
Q21. Which one is correct?
(a) Opening capital = opening total assets – closing total assets
(b) Closing capital = opening total liabilities + closing total liabilities
(c) Opening capital = opening total assets – opening total liabilities
(d) Closing capital = opening total assets + closing total assets
Explanation: An accounting worksheet is a spreadsheet used to prepare accounting information and reports. Accounting worksheets are most often used in the accounting cycle process to draft an unadjusted trial balance, adjusting journal entries, adjusted trial balance, and financial statements. Worksheets are prepared at the end of an accounting period and usually include a list of accounts, account balances, adjustments to each account, and each account’s adjusted balance all sorted in financial statement order.
Q23. Which one is the principle of Double Entry System?
(a) Purchase increases Debit, income decreases Credit
(b) Expense increases Debit, Income decreases Credit
Explanation: In the double entry system of book keeping, you have two columns for entering your transactions. It is a basic understanding that an entry to the left side column is Debit and an entry to the right side column is Credit. Debit & Credit are shortly mentioned as Dr. and Cr respectively. Any kind of transaction has two effects.
Explanation:Double-entry accounting is based on the accounting equation that was developed around 1494 by Luca Pacioli. Luca Pacioli was a Franciscan friar who was a friend and collaborator of Leonardo da Vinci. Pacioli’s equation is profound in its simplicity:
Assets = Liabilities + Equity
Double-entry accounting puts this equation to use by making sure that every financial transaction is recorded with an entry that utilizes at least two accounts and where the total amount of money on the left, the debit side, equals the total amount of money on the right, the credit side.
Q25. The term financial asset includes all of the following except:
Explanation: A balance sheet is a financial statement that summarizes a company’s assets, liabilities and shareholders’ equity at a specific point in time. These three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by shareholders.
Q27. The accounting equation may not be expressed as:
(a) Assets = Liabilities + Equity
(b) Equity = Liabilities – Assets
(c) Non-current assets + Net current assets = Non-current liabilities + Equity
Explanation: A balance sheet is a financial statement that summarizes a company’s assets, liabilities and shareholders’ equity at a specific point in time. These three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by shareholders. It doesn’t represent revenues and expenses of an enterprise.
Q29. Which of the following transactions would increase Cash and cash equivalents and increase Non-
Explanation: A bank loan is a debt financing obligation issued by a bank or similar financial institution to a company or individual that holds legal claim to the borrower’s assets above all other debt obligations.
Q30. Sabrina Migliaccio owns and runs a general store. State which of the following business transactions do not have any impact on the accounting equation:
(a) Sabrina reduces the price of milk to match the price offered by a competitor
(b) Sabrina pays a high school student for cleaning the driveway at the back of the store
(c) Sabrina pays interest to herself on a loan she made three years ago to the enterprise
(d) Sabrina fills her son’s car with gasoline in payment for his help with the vending machines and the snack food shelves
Explanation: As per the question, we all knew that Business doesn’t effect from these activities. Price, Demand, Ratios etc effect the business turnover. and these other activities doesn’t impact upon business.
Q31. Which one of the following accounts is a current asset?
Explanation: Current assets are balance sheet accounts that represent the value of all assets that can reasonably expect to be converted into cash within one year. Current assets include cash and cash equivalents, accounts receivable, inventory, marketable securities, prepaid expenses and other liquid assets that can be readily converted to cash.
Q32. Which one of the following accounts is a non-current asset?
Explanation: Noncurrent assets are company long-term investments where the full value will not be realized within the accounting year. Examples of noncurrent assets include investments in other companies, intangible assets such as goodwill, brand recognition and intellectual property, and plant and equipment. Non current assets appear on the company’s balance sheet.
Q33. Which one of the following accounts is a current liability?
Explanation: Current liabilities are a company’s debts or obligations that are due within one year, appearing on the company’s balance sheet and include short term debt, accounts payable, accrued liabilities, Trade payable and other debts.
Q34. Which of the following accounts is a non-current liability?
Explanation: Noncurrent liabilities are long-term financial obligations listed on a company’s balance sheet that are not due within the present accounting year, such as long-term borrowing, bonds payable, Bank loan and long- term lease obligations.
Q35. In financial accounting, a record is made only of information that can be expressed in monetary terms. This is known as:
Explanation: Money Measurement Concept in accounting, also known as Measurability Concept, means that only transactions and events that are capable of being measured in monetary terms are recognized in the financial statements.
Explanation: Single entry system is an incomplete form of recording financial transactions. It is the system, which does not record two aspects or accounts of all the financial transactions. It is the system, which has no fixed set of rules to record the financial transactions of the business.
Q37. Listed in random order below are the balance sheet figures of Qalam Ltd as at 31 March 2006:
Explanation: Capital employed, also known as funds employed, is the total amount of capital used for the acquisition of profits. It is the value of all the assets employed in a business and can be calculated by adding fixed assets to working capital or subtracting current liabilities from total assets.
Q38. Listed in random order below are the balance sheet figures of Qalam Ltd as at 31 March 2006:
Explanation: working capital formula is calculated by subtracting the current liabilities from the current assets. Here is what the basic equation looks like. Typical current assets that are included in the networking capital calculation are cash, accounts receivable, inventory, and short-term investments.
Working capital = Current liabilities – Current asset
Q39. Listed in random order below are the balance sheet figures of Qalam Ltd as at 31 March 2006: