Theory Base of Accounting Test

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Theory Base of Accounting Test - 18

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Question 1
1 / -0

Which of the following equation is related with Dual Aspect Concept?

A
Total Assets = Total Liabilities

B
Total Assets = Capital + Outsider's Liabilities

C
Capital = Total Assets - Outsider's Liabilities

D
All of the above

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.

All the below mentioned equations are based on dual aspect concept and are true:
Total Assets = Total Liabilities
Total Assets = Capital + Outsider's Liabilities
Capital = Total Assets - Outsider's Liability
Question 2
1 / -0

Proprietor (owner) is treated as creditor of business due to ________________.

A
Periodicity Concept

B
Materiality Principle

C
Entity Concept

D
Consistency Concept
Question 3
1 / -0

The amount brought in by the proprietor in the business should be credited to _____________.

A
Cash A/c

B
Capital A/c

C
Drawing A/c

D
Bank A/c

Solution

Separate entity concept defines that the business and its owner are treated two separate legal entities. Owner is considered as a creditor in the books of accounts of business. Amount contributed by the owner is a liability, and it is to be credited to capital account.
The accounting entry will be as under:
Cash A/c Dr.
To Capital A/c
Question 4
1 / -0

The convention of conservatism is applicable ______________.

A
In providing for discount on creditors

B
In making provision for bad doubtful debts

C
Providing depreciation

D
None of these

Solution

The conservatism concept defines that, the business should record all anticipated or future losses, but ignore all the anticipated revenues or future revenues until they are realized.
Making a provision for bad & doubtful debts is an example of recording the anticipated future losses. This is based on conservatism concept.
Question 5
1 / -0

Business entity concept distinguishes between ________________.

A
Individual and business

B
Business and business

C
Owners

D
Debtors and creditors

Solution

Under the business entity concept, a business holds a separate entity which has a distinct identity from its owners. " The entity view holds the business enterprise to be an institution in its own rights, separate and distinct from the parties who furnish its funds".
Question 6
1 / -0

Accounting concepts are based on ___________________.

A
Certain assumption

B
Certain facts and figures

C
Certain accounting records

D
Practice experience

Solution

The financial statements are prepared based on certain assumptions which are neither disclosed nor required to be disclosed as the same are understood, so they are called Fundamental Accounting Assumptions.
Question 7
1 / -0

A system in which accounting entries are made on the basis of amounts having become due for payment or receipt is called _______________.

A
Cash System

B
Accrual basis of Accounting

C
Matching concept

D
On-going concept

Solution

There are two ways of accounting:
1. cash system of accounting; and
2. accrual system of accounting.
Accrual system of accounting defines that the revenues and expenses are to be accounted in the books of account on the basis of their accrual and not on the basis of their payment.
For example, if any salary is due, it should be debited to the salary account, irrespective of when it is paid.
The same applies to incomes. If any income is due to be received, the same has to be credited in the respective income account, irrespective of it being received or not.
Question 8
1 / -0

The convention of disclosure implies that all material information should _____________.

A
Be disclosed with the financial statements

B
Be disclosed as per choice

C
Not be disclosed

D
None of these

Solution

The principle of full disclosure requires that all material and relevant facts concerning financial performance of an enterprise must be fully and completely disclosed in the financial statements and their accompanying footnotes.
This is to enable the users to make correct assessment about the profitability and financial soundness of the enterprise and help them to take informed decisions.
Question 9
1 / -0

Creating provision against fluctuation in the price of investment is application of accounting concept _____________________.

A
Convention of conservatism

B
Convention of full disclosure

C
Convention of consistency

D
None of these

Solution

Conservatism concept is basically "playing safe". This convention defines that, a company should record all the anticipated losses in the books of account. But anticipated gains are not to be recorded until actually realized. On the basis of this convention, valuation of inventory is done at cost or net realizable value, whichever is lower, provision for bad & doubtful debts, and fluctuation in the price of investment.
Question 10
1 / -0

"Accountant should follow the same principles of accounting continuously", is as per which accounting convention ____________________.

A
Convention of conservatism

B
Convention of full disclosure

C
Convention of consistency

D
None of these

Solution

Consistency is a basic assumption of accounting and it is assumes that, the various policies and methods adopted by the concern while preparing the accounts, are to be consistent from one period to another.
The accounting information provided by the financial statements would be useful in drawing conclusions regarding the working of an enterprise only when it allows comparisons over a period of time as well as with the working of other enterprises.
This can be possible only when accounting policies and practices followed by enterprises are uniform and are consistent over the period of time.

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Theory Base of Accounting Test - 18

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Theory Base of Accounting Test - 18

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SHARING IS CARING

Question 1

Total Assets = Total Liabilities

Total Assets = Capital + Outsider's Liabilities

Capital = Total Assets - Outsider's Liabilities

All of the above

Solution

Question 2

Periodicity Concept

Materiality Principle

Entity Concept

Consistency Concept

Question 3

Cash A/c

Capital A/c

Drawing A/c

Bank A/c

Solution

Question 4

In providing for discount on creditors

In making provision for bad doubtful debts

Providing depreciation

None of these

Solution

Question 5

Individual and business

Business and business

Owners

Debtors and creditors

Solution

Question 6

Certain assumption

Certain facts and figures

Certain accounting records

Practice experience

Solution

Question 7

Cash System

Accrual basis of Accounting

Matching concept

On-going concept

Solution

Question 8

Be disclosed with the financial statements

Be disclosed as per choice

Not be disclosed

None of these

Solution

Question 9

Convention of conservatism

Convention of full disclosure

Convention of consistency

None of these

Solution

Question 10

Convention of conservatism

Convention of full disclosure

Convention of consistency

None of these

Solution

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