Accounting Equation Effects Test 7

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Accounting Equation Effects Test 7

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Question 1
1 / -0

The usual accounting period is __________.

A
One year

B
Six months

C
Three months

D
$$1\dfrac {1}{2}$$ years

Solution

Every firm prepare its financial statements for a particular period of time. This period is called as accounting period.
The financial statements are, therefore, prepared at regular interval, normally after a period of one year, so that timely information is made available to the users. This interval of time is called accounting period.
Question 2
1 / -0

The realisation concept is ___________.

A
Vital for determining incomes pertaining to an accounting period

B
Avoiding the possibility of inflating incomes and profits

C
Also known as revenue recognition concept

D
All of the above
Solution
Realisation being one of the fundamental principle of accouting states that revenue is recognised by the seller when it is earned irrespective of whether the cash from the transaction has been received or not. It is also known as revenue recognition concept. The main advantages of this concept are:
Vital for determining incomes pertaining to an accounting period.
Avoiding the possibility of inflating incomes and profits.
Question 3
1 / -0

Which is the basis for several business transaction?

A
Going concern concept

B
Dual aspect concept

C
Money measurement concept

D
Entity concept

Solution

Going concern concept states that business will be carried out continuously without any stoppage. Hence, it is the basis for several business transactions as the business is not going to dissolve.
Question 4
1 / -0

All accounting entries must be based on _____________.

A
Accrual concept

B
Matching concept

C
Realisation concept

D
Objective evidence concept

Solution

Objective evidence concept states that the financial statements of a firm should be based on solid evidence. It should not contain any error. All entries must be correct and must be determined as a evidence of the transactions recorded. Hence, all accounting entries must be based on objective evidence concept.
Question 5
1 / -0

Dual aspect concept is the basis for __________.

A
Double entry system of book-keeping

B
Accounting equation

C
Both (A) and (B)

D
None of the above

Solution

Dual aspect is the foundation or basic principle of accounting. It provides the very basis for recording business transactions into the book of accounts.
This concept states that every transaction has a dual or two-fold effect and should therefore be recorded at two places. In other words, at least two accounts will be involved in recording a transaction.
The double-entry system also requires that for all transactions, the amounts entered as debits must be equal to the amounts entered as credits.
The duality principle is commonly expressed in terms of fundamental Accounting Equation, which is as follows :
Assets = Liabilities + Capital
Question 6
1 / -0

Which of the following are true or false?
(a) The historical cost does not reflect true value of the asset
(b) Accounting is a historical record of the transactions of a business entity.

A
Both (a) and (b) are true

B
(a) is true, but (b) is false

C
(a) is false, but (b) is true

D
Both (a) and (b) are false

Solution

A historical cost is the measure of the value used in accounting in which the price of an asset in the balance sheet is based on its original cost when acquired by the company. It is one of the four basic accounting principles. It does not reflect true value of the asset. As accounting consists of recording the original value when the asset is purchased, it is a historical record of the transactions of a business entity.
Question 7
1 / -0

Objective refers to ___________.

A
Verfiability, reliability and absence of bias

B
Policy of caution

C
Playing safe

D
Reliability of financial statements

Solution

Objective evidence concept states that the financial statements of a firm should be based on solid evidence. It should not contain any error. All entries must be correct and must be determined as a evidence of the transactions recorded. It must be verifiable, reliable and must be absence of any bias.
Question 8
1 / -0

Going concern concept is important for ___________.

A
Valuation of assets and liabilities

B
Preparation of accounting statements

C
Decision making

D
All of the above

Solution

Going concern concept states that the business will continue to carry out its operations without any stoppage. Valuation of assets and liabilities are important in every business and it changes as per marketing conditions. Hence, going concern concept is important for valuation of assets and liabilities as it gives correct market value of them.
Question 9
1 / -0

Accounting equation is a _______.

A
Formula

B
Theory

C
Rule

D
Procedure

Solution

Accounting equation states that assets is equal to equity. Equity consists of liabilities and shareholder's capital. Hence, it is a formula .i.e. Assets = Equity.
Question 10
1 / -0

The term 'Material' is _____________.

A
Objective

B
Subjective

C
Psychological

D
None of these

Solution

Materiality being the fundamental concept of accounting states that all important matters of the firm must be disclosed. Items which are important for the firm are called material items.
Hence, materiality means relative importance. It depends on the three aspects viz. informational, amounts and procedures. Because of all these aspects materiality is subjective.

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Accounting Equation Effects Test 7

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Accounting Equation Effects Test 7

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SHARING IS CARING

Question 1

One year

Six months

Three months

$$1\dfrac {1}{2}$$ years

Solution

Question 2

Vital for determining incomes pertaining to an accounting period

Avoiding the possibility of inflating incomes and profits

Also known as revenue recognition concept

All of the above

Solution

Question 3

Going concern concept

Dual aspect concept

Money measurement concept

Entity concept

Solution

Question 4

Accrual concept

Matching concept

Realisation concept

Objective evidence concept

Solution

Question 5

Double entry system of book-keeping

Accounting equation

Both (A) and (B)

None of the above

Solution

Question 6

Both (a) and (b) are true

(a) is true, but (b) is false

(a) is false, but (b) is true

Both (a) and (b) are false

Solution

Question 7

Verfiability, reliability and absence of bias

Policy of caution

Playing safe

Reliability of financial statements

Solution

Question 8

Valuation of assets and liabilities

Preparation of accounting statements

Decision making

All of the above

Solution

Question 9

Formula

Theory

Rule

Procedure

Solution

Question 10

Objective

Subjective

Psychological

None of these

Solution

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