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Accounting Equation Effects Test 22

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Accounting Equation Effects Test 22
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Weekly Quiz Competition
  • Question 1
    1 / -0
    Only the significant events which affect the business must be recorded as per concept of __________.
    Solution
    Only the significant events which affect the business must be recorded as per the concept of Materiality. 
    According to this concept, only the matters that are material are to be recorded in the financial statements either individually or collectively. 
    Matters are deemed to be material when they are important for the users of financial statements.
  • Question 2
    1 / -0
    An obligation of the entity to owners is treated as a liability in the balance sheet according to __________.
    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 3
    1 / -0
    The immediate recognition of loss is supported by the underlying principle of _____________.
    Solution

    The concept of conservatism (also called ‘prudence’) provides guidance for recording transactions in the book of accounts and is based on the policy of playing safe. 

    The concept states that a conscious approach should be adopted in ascertaining income so that profits of the enterprise are not overstated.  

    The concept of conservatism requires that profits should not to be recorded until realised but all losses, even those which may have a remote possibility, are to be provided in the books of accounts.

  • Question 4
    1 / -0
    Economic life of an enterprise is split into the periodic interval as per ___________.
    Solution

    Economic life of an enterprise Is split into periodic interval as per Periodicity concept. It is the concept that each accounting period has an economic activity associated with it, and that the activity can be measured, accounted for, and reported upon.

    Accounting period refers to the span of time at the end of which the financial statements of an enterprise are prepared, to know whether it has earned profits or incurred losses during that period and what exactly is the position of its assets and liabilities at the end of that period.

  • Question 5
    1 / -0
    Qualitative transaction are not recorded in accounts due to ____________.
    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
    Revenue is generally recognized at the point of sale. Which principle is applied?
    Solution
    The revenue recognized principle states that the business should recognize the revenue when the sale is made.
    It is a Generally Accepted Accounting Principle. It is based on the accrual concept. It is also known as the Realization Concept.
  • Question 7
    1 / -0
    The outside liabilities of a business are Rs. $$20,000$$. The proprietor's capital is Rs. $$50,000$$. Total assets of the firm are worth ___________.
    Solution
    As per Accounting Equation
    Assets = Liabilities + Capital
    Assets = 20,000 + 50 , 000
        = 70,000
  • Question 8
    1 / -0
    The accounting principle of matching is best demonstrated by __________.
    Solution
    The matching principle is an accounting principle which states that all the expenses of the particular period should be matched with the relevant revenue of that period.
    For example, if a business pays a 10% commission at the end of each month. If the company has Rs. 100,000 sales in December, the company will pay the commission of Rs. 10000 next January. The matching statement requires that the commission expense is reported in the December month's income Statement.
  • Question 9
    1 / -0
    Which of the following is an exception of 'Full Disclosure' principle?
    Solution
    Materiality principle is exception of Full Disclosure as Materially states that only those information should be stated that impacts the decision of the users of the financial statement and unnecessary information should not be disclosed whereas Full Disclosure states that all the information should be informed to the users of the financial statement. 
  • Question 10
    1 / -0
    Money-measurement concept of accounting theory is based on the assumption that the value of money will be _____________.
    Solution
    The Money-measurement concept states that only those transactions shall be recorded in the books of accounts which can be measured in monetary terms. Therefore, non-monetary transactions shall not be recorded in the books of accounts, for example, the death of the key manager.
    Under this concept the effect of inflation is not considered, therefore the value of money will remain constant.
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