Accounting Equation Effects Test 2

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Accounting Equation Effects Test 2

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Question 1
1 / -0

What does GAAP represents?

A
Generally Accepted Audit Procedure

B
Generally Accepted Accounting Principles

C
Generally Agreement on Audit Principles

D
General Agreement on Accounting Principles

Solution

Financial accounting is based on certain concepts and conventions. These are called as Generally Accepted Accounting Principles.
Question 2
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An expenditure is treated as capital nature, when it ________________.

A
receiver of the amount is going to use it for the purchase of fixed assets

B
increases the quantity of fixed assets

C
is paid for meeting the normal expenses of the business

D
decreases the quantity of other assets

Solution

Expenditure incurred for normal day to day business activity are revenue expenditure. An expense incurred to enhance the capacity and gives the benefits to the business for longer duration is a capital expenditure. This will increase the value of fixed assets.
Question 3
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Amortization of intangible asset such as Goodwill which has a indefinite life is an example of accounting concept __________________.

A
Conservatism Concept

B
Continuity Concept

C
Realisation Concept

D
Measurement Concept

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 other 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 4
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Creating Provision against fluctuation in the price of investment is an example of which accounting convention _________________.

A
Convention of conservatism

B
Convention of full disclosure

C
Convention of materiality

D
Convention of consistency

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 other 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 5
1 / -0

Closing stock is valued at ___________.

A
Market price

B
Cost price

C
Cost price or market price whichever is lower

D
Cost price or market price whichever is higher

Solution

Accounting is based on certain concepts and conventions. One of the convention 'conservatism " defines that firm should make a provision for all future losses while making the financial statement. On this concept only, stocks are valued at cost or market price whichever is lower.
Question 6
1 / -0

Which of the following is an accounting equation?

A
Assets = Capital/Liabilities

B
Capital = Assets - Liabilities

C
Assets = Liabilities - Capital

D
Liabilities = Assets + Capital

Solution

Accounting equation may defined as:
Capital+Liabilities= Total assets

This can further be presented as:
Capital=Total assets-Liabilities
Question 7
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Qualitative transactions are not recorded in accounts due to _________.

A
Dual Concept

B
Accrual Concept

C
Money Measurement Concept

D
None of the Above

Solution

The money measurement concept states that business should record only those transactions which can be expressed in terms of money. Only quantitative transactions are recorded. To be a financial record, a transaction should be capable of being expressed in terms of money.
Question 8
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Contingent liability is taken due to ___________.

A
Convention of Full Disclosure

B
Convention of Conservatism

C
Convention of Materiality

D
Dual Aspect Concept

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.
Contingent liability is a potential liability which may occur depending on the outcome of an uncertain future event. This has to be shown as notes to accounts.
Question 9
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The nature of financial accounting is ________.

A
Historical

B
Forward looking

C
Analytical

D
Social

Solution

Financial accounting is the system of recording, classifying and summarizing the financial information in such a way that the user can make the economic decision out of it.
Financial accounting consider only those transactions which are of historic nature i,e the transactions which are already taken place.Futuristic transactions are of no value in financial accounting, not of any importance.

Question 10

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Match List-I with List-II and select the correct answer using the codes given the lists.

List-I	List-II
I. Income measurement	(a) Accrues to owner's equity
II. Expense recognition	(b) Revenue recognition
III. Basis for realisation in accounting	(c) Matching revenues
IV. Recognised revenue	(d) Accounting period

I-(c), II-(d), III-(b), IV-(a)

I-(c), II-(d), III-(a), IV-(b)

I-(b), II-(c), III-(d), IV-(a)

I-(b), II-(c), III-(a), IV-(d)

Solution

Matching revenue-Income measurement

Accounting period-Expenses recognition

Revenue recognition-Basis of realization in accounting

Accrues to owners equity-Recognized revenue

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Accounting Equation Effects Test 2

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Accounting Equation Effects Test 2

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Question 1

Generally Accepted Audit Procedure

Generally Accepted Accounting Principles

Generally Agreement on Audit Principles

General Agreement on Accounting Principles

Solution

Question 2

receiver of the amount is going to use it for the purchase of fixed assets

increases the quantity of fixed assets

is paid for meeting the normal expenses of the business

decreases the quantity of other assets

Solution

Question 3

Conservatism Concept

Continuity Concept

Realisation Concept

Measurement Concept

Solution

Question 4

Convention of conservatism

Convention of full disclosure

Convention of materiality

Convention of consistency

Solution

Question 5

Market price

Cost price

Cost price or market price whichever is lower

Cost price or market price whichever is higher

Solution

Question 6

Assets = Capital/Liabilities

Capital = Assets - Liabilities

Assets = Liabilities - Capital

Liabilities = Assets + Capital

Solution

Question 7

Dual Concept

Accrual Concept

Money Measurement Concept

None of the Above

Solution

Question 8

Convention of Full Disclosure

Convention of Conservatism

Convention of Materiality

Dual Aspect Concept

Solution

Question 9

Historical

Forward looking

Analytical

Social

Solution

Question 10

I-(c), II-(d), III-(b), IV-(a)

I-(c), II-(d), III-(a), IV-(b)

I-(b), II-(c), III-(d), IV-(a)

I-(b), II-(c), III-(a), IV-(d)

Solution

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