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Theory Base of Accounting Test - 29

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Theory Base of Accounting Test - 29
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  • Question 1
    1 / -0
    According to________ concept, every business transaction has two aspects. 
    Solution
    Dual aspect is the foundation or basic principle of accounting. It provides the very basis for recording business transactions into the book of accounts. This concept states that every transaction has a dual or two-fold effect and should therefore be recorded at two places. 
    In other words, at least two accounts will be involved in recording a transaction.
  • Question 2
    1 / -0
    A concept on which double entry book keeping system is based  is ___________.
    Solution

    Dual aspect is the foundation or basic principle of accounting. It provides the very basis for recording business transactions into the book of accounts. This concept states that every transaction has a dual or two-fold effect and should therefore be recorded at two places. In other words, at least two accounts will be involved in recording a transaction.

    The double-entry system also requires that for all transactions, the amounts entered as debits must be equal to the amounts entered as credits.

    The best example to describe the concept is Accounting Equation.

    Assets = Liabilities + Capital.

    In other words, the equation states that the assets of a business are always equal to the claims of owners and the outsiders.

  • Question 3
    1 / -0
    Period of time for which accounts of the business are prepared is _____________.
    Solution
    Every organization surely want to analyse the overall business performance. Normally this is 12 month or a period of a year. This year is called accounting year, also termed as financial year.
  • Question 4
    1 / -0
    Accounts must be honestly prepared and they must disclose all material information is known as______.
    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 5
    1 / -0
    ____________ is an accounting concept states that only monetary transactions are recorded in the books of accounts.
    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.
    Another important aspect of the concept of money measurement is that the records of the transactions are to be kept not in the physical units but in the monetary unit.
  • Question 6
    1 / -0
    Name the accounting concept on the basis of which income statement is prepared ______________.
    Solution
    Under accrual basis of accounting, expenses are matched with the related revenues and/ or are reported when the expense occurs, not when the cash is paid. The result of accrual accounting is an income statement that better measures the profitability of a company during a specific time period.
  • Question 7
    1 / -0
    According to______ concept, assets are recorded at a price paid to acquire them. 
    Solution

    The cost concept requires that all assets are recorded in the book of accounts at their purchase price, which includes cost of acquisition, transportation, installation and making the asset ready to use.

  • Question 8
    1 / -0
    According to__________ convention, while preparing planning anticipate losses. 
    Solution

    The convention of conservatism mean that the convention of caution, or the policy of playing safe. This principle requires that in the situation of uncertainty and doubt, the business transactions should be recorded in such a manner that the profits and assets are not overstated and losses and liabilities are not understated. The following are some examples:

    1. Closing stock is valued at cost price or Net realisable value, whichever is lower.

    2. Joint life insurance policy  is shown only at surrender value as against the amount paid.

    3. Provision for doubtful debt is created in anticipation of bad debts etc.

    4. Provision for pending law suit against the firm, which may either be decided in its favour.

  • Question 9
    1 / -0
    According to_______ concept revenue is recognized when it is earned. 
    Solution
    Accrual concept is the most fundamental principle of accounting which requires recording revenue when they are earned and not when they are received in cash, and recording expenses when they are incurred and not when they are paid. 
  • Question 10
    1 / -0
    Choose the wrong statement.
    Solution
    Accounting is a systematic process of identifying, recording, measuring, classifying, verifying, summarizing, interpreting and communicating financial information. transactions and events of financial information. It reveals profit or loss for a given period, and the value and nature of the firm's assets, liabilities and owner's equity. It is the language of business.
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