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Accounting Equation Effects Test 10

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Accounting Equation Effects Test 10
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Weekly Quiz Competition
  • Question 1
    1 / -0
    All accounting entries must satisfy the accounting equation specified by  ___________.
    Solution
    All accounting entries must be based on dual aspect concept. As per dual concept, every transaction affects two accounts. One account must be debit and the other account must be credit.
    Dual aspect concept has been made on the basis of accounting equation. In accounting equation, there are two sides. One side is total assets and other side is total liabilities. Assets are always equal to liabilities. 
    The accounting equation is as follows:
    Capital + Liabilities = Assets
  • Question 2
    1 / -0
    From the following which is according to Dual aspects.
    Solution
    As per dual concept, every transaction has two effects. One effect must be debit and the other must be credit. Dual aspect concept has been made on the basis of accounting equation. In accounting equation, there are two sides. One side represents total assets and other side represents total liabilities. The total liabilities include capital and external liabilities. Assets always equal to liabilities. 

    The accounting equation is as follows:
    Capital + Liabilities = Assets.
  • Question 3
    1 / -0
    Dual Aspect concept results in an accounting equation which is __________.
    Solution
    As per dual concept, every transaction has two effects. One effect must be debit and the other must be credit. Dual aspect concept is the basis of an accounting equation. In an accounting equation, there are two sides. One side is total assets and other side is total liabilities. Liabilities include capital and other external liabilities. Assets are always equal to liabilities. 
    The accounting equation is as follows:
    Capital + Liabilities = Assets.
  • Question 4
    1 / -0
    Accounts must be honestly prepared  & they must disclose all material information is know 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
    Concept which provide a line between present & future is known as __________.
    Solution
    Going concern is a basic underlying assumption in accounting. This  concept is the line between present and future. The assumption is that a company or other entity will be able to continue operating for a period of time that is sufficient to carry out its commitments, obligations, objectives, and so on. 
  • Question 6
    1 / -0
     Under which accounting concept owner & firm are to be treated as two separate entities _______________.
    Solution
    The concept of business entity assumes that business has a distinct and separate entity from its owners. It means that for the purposes of accounting, the business and its owners are to be treated as two separate entities. Keeping this in view, when a person brings in some money as capital into his business, in accounting records, it is treated as liability of the business to the owner. 
    Here, one separate entity (owner) is assumed to be giving money to another distinct entity (business unit). 
    Similarly, when the owner withdraws any money from the business for his personal expenses (drawings), it is treated as reduction of the owner’s capital and consequently a reduction in the liabilities of the business.
  • Question 7
    1 / -0
    "Make sufficient provisions for future losses, but do not anticipate future profits." This statement is in accordance to the concept of _________.
    Solution
    The conservatism principle is the general concept of recognising expenses and liabilities as soon as possible when there is uncertainty about the outcome, but to only recognize revenues and assets when they are assured of being received. Under the conservatism principle, if there is uncertainty about incurring a loss, you should tend towards recording the loss. Conversely, if there is uncertainty about recording a gain, you should not record the gain.
  • Question 8
    1 / -0
    Contingent liability is shown due to________________.
    Solution
    Contingent liability is shown due to the convention of full disclosure. The convention of full disclosure requires that all material facts should be disclosed in the financial statements. 
    A contingent liability is a liability which may or may not arise in the near future hence, its necessary for the users of the financial statements to know about any such liability which might arise in the future. 
  • Question 9
    1 / -0
    Depreciation was not recorded because to do so wold result in a net loss for the period. Indicate the accounting principle that is violated___________.
    Solution
    If Depreciation was not recorded because to do so wold result in a net loss for the period. The accounting principle that is violated is consistency principle. According to consistency principle, the company should use same accounting treatment for similar events or transactions. It facilitates better comparison and understanding.
  • Question 10
    1 / -0
    LIFO inventory method was used in year I, FIFO in year II and weighed average in year III. Which accounting principle is violated?
    Solution
    LIFO inventory method was used in year I, FIFO in year II and weighed average in year III. The accounting principle violated is consistency principle.
    According to consistency principle, the company should use same accounting treatment for similar events or transactions. It facilitates better comparison and understanding.
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