Accounting Equation Effects Test 4

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Accounting Equation Effects Test 4

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Question 1
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 2
1 / -0

Which of the following is not related with Money Measurement Concept?

A
All business transaction should be expressed only in Money

B
The transactions which cannot be expressed in money, will not be recorded in accounting books

C
Business is treated as separate from the proprietor

D
None of these

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.

However, the concept of business entity assumes that business has a distinct and separate entity from its owners.
Question 3
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 4
1 / -0

Information about an item is _______ if its omission or misstatement might influence the financial decision of the users taken on the basis of that information.

A
Concrete

B
Complete

C
Immaterial

D
Material

Solution

According to the materiality convention, the business must report all the transactions which are of material nature and ignore the insignificant items. The firm has to make a distinction between material and immaterial matters.
Question 5
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 6
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 7
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 8
1 / -0

If the total assets of the company amount to Rs 1,50,000 and owner's equity is Rs 70,000, the amount of liabilities will be _____________.

A
Rs 70,000

B
Rs 80,000

C
Rs 90,000

D
Rs 1,00,000

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.

In the given situation:

Total Assets = Capital + Outsider's Liabilities
150000 = 70000 + Outsider's Liabilities
Outsider's Liability = 150000 - 70000
Outsider's Liability = Rs. 80000
Question 9
1 / -0

Accounting is the process of matching __________.

A
Benefits & costs

B
Revenues & costs

C
Cash Inflow & cash outflow

D
Potential & real performance
Solution
- When the owner of the business wants to know the profit earned from the business then all the expenses of that period are deducted from the receipts belonging to that period.
- The matching concept states the same that all the expenses belong to the accounting period should be deducted from the income belonging to that during the period to ascertain the profit.
- Here, Cost is used instead of word expense.
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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Re-Attempt Weekly Quiz Competition

Accounting Equation Effects Test 4

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Accounting Equation Effects Test 4

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SHARING IS CARING

Question 1

Cash A/c

Capital A/c

Drawing A/c

Bank A/c

Solution

Question 2

All business transaction should be expressed only in Money

The transactions which cannot be expressed in money, will not be recorded in accounting books

Business is treated as separate from the proprietor

None of these

Solution

Question 3

In providing for discount on creditors

In making provision for bad doubtful debts

Providing depreciation

None of these

Solution

Question 4

Concrete

Complete

Immaterial

Material

Solution

Question 5

Total Assets = Total Liabilities

Total Assets = Capital + Outsider's Liabilities

Capital = Total Assets - Outsider's Liabilities

All of the above

Solution

Question 6

Be disclosed with the financial statements

Be disclosed as per choice

Not be disclosed

None of these

Solution

Question 7

Convention of conservatism

Convention of full disclosure

Convention of consistency

None of these

Solution

Question 8

Rs 70,000

Rs 80,000

Rs 90,000

Rs 1,00,000

Solution

Question 9

Benefits & costs

Revenues & costs

Cash Inflow & cash outflow

Potential & real performance

Solution

Question 10

Convention of conservatism

Convention of full disclosure

Convention of consistency

None of these

Solution

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