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Accounting Equation Effects Test 5

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Accounting Equation Effects Test 5
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Weekly Quiz Competition
  • Question 1
    1 / -0
    Going concern concept assumes __________________.
    Solution
    Going concern is a basic underlying assumption in accounting. The assumption is that a company or any 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 2
    1 / -0
    Business entity concept distinguishes between ________________.
    Solution
    Under the business entity concept, a business holds a separate entity which has a distinct identity from its owners. " The entity view holds the business enterprise to be an institution in its own rights, separate and distinct from the parties who furnish its funds".
  • Question 3
    1 / -0
    Accounting concepts are based on ___________________.
    Solution
    The financial statements are prepared based on certain assumptions which are neither disclosed nor required to be disclosed as the same are understood, so they are called Fundamental Accounting Assumptions.
  • Question 4
    1 / -0
    Concept of conservatism refers to taking into account ___________.
    Solution
    • The conservatism principle is the general concept of recognizing 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 5
    1 / -0
    Which of the following, equations properly represents a derivation of the fundamental accounting equation?
    (a) Assets + Liabilities = Owner Equity
    (b) Asset = Owner Equity
    (c) Cash = Assets
    (d) Assets - Liabilities = Owner Equity
    Solution
    Accounting is based on dual aspect which signifies that for every debit, there will be a credit and vice versa.
    Accounting Equation may be defined as:

    Owners Equity + Liabilities = Total Assets
    i.e.
    Capital + Reserves & surplus + Liabilities = Fixed Assets + Current Assets.
  • Question 6
    1 / -0
    The cost concept records the figures at _______________.
    Solution
    The cost principle is one of the basic underlying guidelines in accounting. It is also known as the historical cost principle. The cost principle requires that assets be recorded at the cash amount (or the equivalent) at the time that an asset is acquired.
  • Question 7
    1 / -0
    Which of the following is true for: -
    "In accounts recording is done of _________".
    Solution
    Money measurement concept defines that business records only those transaction which are measured in monetary terms. Non monetary transactions have no place in accounting. 
    Simply saying, wherever there is money, there is an accounting. No money, no accounting.
  • Question 8
    1 / -0
    In accounting all business transaction are recorded as having ______________.
    Solution
    Dual aspect is also called as double entry system of accounting. This concept defines that every business transaction will have two effects i.e. debit and credit. For every debit there will be a credit and vice versa.
    For example, goods purchased worth Rs.500 for cash will give two effects. One is in purchase of goods account and another is in cash account.
    Purchases A/c Dr.     500
           To Cash A/c           500
  • Question 9
    1 / -0
    In stock valuation, application of the principle 'at cost price or market price whichever is lower' will result in the valuation of stock sometimes at cost price and at other times at market price. This is an application of the principle of __________.
    Solution
    The principle of conservatism is suitably applicable to the LCM rule.
    Conservatism in accounting means that one should choose accounting methods that are least likely to overstate assets and income. Valuing inventory at cost when its replacement cost is lower overstated the asset merchandise inventory.
    Thus, we apply conservatism principle and use LCM to reduce inventory to a more realistic value and, at the same time, recognise the loss in value that has incurred.
  • Question 10
    1 / -0
    The full disclosure principle, as adopted by the accounting professionals, is best described by which of the following?
    Solution
    The full disclosure principle requires a company to provide the necessary information, so that people who are accustomed to reading financial information are able to make informed decisions regarding the company.
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