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Theory Base of Accounting Test - 17

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Theory Base of Accounting Test - 17
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  • Question 1
    1 / -0
    Fixed assets and current assets are categorized as per concept of ________________.
    Solution

    The concept of going concern assumes that a business firm would continue to carry out its operations indefinitely, i.e. for a fairly long period of time and would not be liquidated in the foreseeable future. This is an important assumption of accounting as it provides the very basis for showing the value of assets in the balance sheet.

    Conversely, this means the entity will not be forced to halt operations and liquidate its assets in the near term at what may be low fire-sale prices.

  • Question 2
    1 / -0
    Profit & Loss Account is prepared for a period of one year by following __________.
    Solution
    As the going concern concept defines that the life of the business is assumed to be indefinite, the accounting records must be kept for a specific period of time, i.e. accounting period. This may generally be one year.
    Though in the accounting, the term accounting period is not defined but as business is related to various laws such as income tax, excise etc., the period should be defined, taking into consideration the various applicable laws.
  • Question 3
    1 / -0
    The going concern concept assumes that _______________.
    Solution
    The going concern principle is the assumption that an entity will remain in business for the foreseable future. Conversely, this means the entity will not be forced to halt operations and liquidate its assets in the near term at what may be very low fire-sale prices.
  • Question 4
    1 / -0
    The revenue recognition principal dictates that all types of incomes should be recorded or recognized when ___________________.
    Solution

    Revenue recognition is an accounting principle, which is based on accrual system of accounting. The accrual basis is the method of accounting that records revenue when it is earned and expense when they are incurred, irrespective of actual cash receipts or payments. 

    For example, a fixed deposit is maturing on 30th June 2017. Interest on such fixed deposit till 31st march 2017, has to be recorded in the financial year ending 31st March 2017, as it is accrued, although not received.
  • Question 5
    1 / -0
    Which of the following is not related with Money Measurement Concept?
    Solution
    The concept of money measurement states that only those transactions and happenings in an organisation which can be expressed in terms of money such as sale of goods or payment of expenses or receipt of income, etc. are to be recorded in the book of accounts.
     All such transactions or happenings which can not be expressed in monetary terms, for example, the appointment of a manager, do not find a place in the accounting records of a firm.

    However, the concept of business entity assumes that business has a distinct and separate entity from its owners.

  • Question 6
    1 / -0
    The allocation of owner's private expenses to his/her business violates which of the following?
    Solution
    Separate entity concept assumes that, the firm and its owner are two separate legal entities. Owner of the business is considered as creditors in the books of the firm. Hence, the capital contributed to the business is considered as liability.
    Accordingly, if any personal expenses are incurred, those should be debited to the personal account of owner (capital account).
    Private expense debited to the business account is a violation of separate entity concept.
  • Question 7
    1 / -0
    The system of recording transaction based on dual aspect concept is called ________________.
    Solution
    Dual aspect accounting is a concept which assumes that every business transaction will give two effects, i.e. debit and credit. For every debit there will be a credit, and vice versa. Double entry system of accounting is commonly used by all the organizations. Small concerns who are not well versed with double entry system are following the single entry system, in which they maintained only account of debtors and creditors and bank account. 
  • Question 8
    1 / -0
    Accounting is the process of matching __________.
    Solution
    • When the owner of the business wants to know the profit earned from the business then all the expenses of that period are deducted from the receipts belonging to that period.
    • The matching concept states the same that all the expenses belong to the accounting period should be deducted from the income belonging to that during the period to ascertain the profit.
    • Here, Cost is used instead of word expense.
  • Question 9
    1 / -0
    If the total assets of the company amount to Rs 1,50,000 and owner's equity is Rs 70,000, the amount of liabilities will be _____________.
    Solution
    Dual aspect concept defines that every business transaction will have its two effects. One for debit and one for credit. For every debit there will be a credit and vice versa. At the end, the total balance of debit must be equal to the total balance of credit.
     
    In the given situation:

    Total Assets = Capital + Outsider's Liabilities
    150000 = 70000 + Outsider's Liabilities
    Outsider's Liability = 150000 - 70000
    Outsider's Liability = Rs. 80000
  • Question 10
    1 / -0
    Information about an item is _______ if its omission or misstatement might influence the financial decision of the users taken on the basis of that information.
    Solution
    According to the materiality convention, the business must report all the transactions which are of material nature and ignore the insignificant items. The firm has to make a distinction between material and immaterial matters. 
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