Tag: financial statement of company

Questions Related to financial statement of company

A has $Rs. 3,500$ due from B. On January $20$, B makes a partial payment of $Rs. 2,100$ to A. The journal entry made on January $20$ by A to record this transaction include_________.

book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

  1. A credit to the cash received account of $Rs. 2,100$

  2. A credit to B's account of $Rs. 2,100$

  3. A debit to the cash account of $Rs. 1,400$

  4. A debit to B's account of $Rs. 1,400$

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Correct Option: B

Withdrawals by proprietor would.

book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

  1. Reduce both Assets and Owner's Equity

  2. Reduce Assets and increase Liabilities

  3. Reduce Owner's Equity and increase Liabilities

  4. Have no affect on the Balance Sheet

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Correct Option: A

Financial analysis is used only by the creditors. 

book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

  1. True

  2. False

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Correct Option: B
Explanation:

Financial statement analysis is used by internal and external stakeholders to evaluate business performance and value. Financial accounting calls for all companies to create a balance sheet, income statement, and cash flow statement which form the basis for financial statement analysis.

Cash purchases _________.

book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

  1. Increases assets

  2. Results in no change in the total assets

  3. Decreases assets

  4. Increases liability

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Correct Option: C
Explanation:

Every business transaction gives two affects because financial accounting is based on double entry system of accounting. 


Cash purchases will affect two account i.e. purchases and cash. 

Accounting entry will be done as under:

Purchases A/c      Dr.
    To Cash A/c. 

Cash is a current assets which gets reduced. Hence it decreases the assets.

Recording of all business transactions is based on ________.

book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

  1. Sales journal

  2. Accounting equation

  3. Formula

  4. Policies

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Correct Option: B
Explanation:

Accounting equation is the foundation of double entry system of book-keeping. It displays that all the assets are either financed by borrowing money or paying from the shareholder's equity. The balance sheet being the complex version shows explain the equation very clearly and it shows that total assets is equal to total liability plus shareholder's equity. Hence, recording of all business transactions is based on accounting equation.

Accounting equation is a _______.

book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

  1. Formula

  2. Theory

  3. Rule

  4. Procedure

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Correct Option: A
Explanation:

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.

Which one of the following statements is correct?

book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

  1. Increases in liabilities are credits and decreases are debits.

  2. Increases in assets are credits and decreases are debits.

  3. Increases in capital are debits and decreases are credits.

  4. Increases in expenses are credits and decreases are debits.

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Correct Option: A
Explanation:

Business transactions are events that have a monetary impact on the financial statements of an organization. When accounting for these transactions, numbers in two accounts are recorded, where the debit column is on the left side and the credit column id on the right side.

1. A debit is an accounting entry that either increase an asset or expense account, or decreases a liability or equity account. It is positioned on the left in an accounting entry.
2. A credit is an accounting entry that either increases a liability or equity account, or decreases an asset or expense account. It is positioned to the right in an accounting entry.

Payment received from debtor _____________.

book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

  1. Decreases the total assets

  2. Increases the total assets

  3. Results in no change in total assets

  4. Increase the total liabilities

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Correct Option: C
Explanation:

Every business transaction affects two accounts as accounting is based on double entry system of accounting. For every debit there will be a credit and vice versa. 


Accounting entry for payment received from debtors will be:

Cash A/c              Dr.
    To Debtors

Cash and debtors both are current assets. One is increasing and another is decreasing. There will be no change in total assets.

Purchase of office equipment for cash would cause __________.

book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

  1. Cash in hand to decrease

  2. External liability to decrease

  3. Total liabilities to increase

  4. Total assets to increase

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Correct Option: A
Explanation:

Cash exists as a company's most liquid asset. Purchasing office equipment for cash will reduce a company's assets (i.e. reduction in cash in hand). Since owner's equity equals assets minus liabilities, owner's equity will be reduced as a result of buying office equipment with cash.

Bills Receivable A/c is _________.

book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

  1. Personal A/c

  2. Real A/c

  3. Nominal

  4. None of the above

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Correct Option: A
Explanation:

There are mainly three types of account: Real, Personal and Nominal accounts. Personal accounts are classified into three subcategories: Natural, Artificial and Representative. Bills Receivable and Bills Payable are personal accounts. Both these accounts represent debtors and creditors of a particular entity. The rule of personal account is Debit the receiver, Credit the giver. Suppose when Bills Receivable is issued, its debited because that represents debtor from whom money is receivable. In a way the entity has given those debtors a benefit i.e. credit so as per the rule  Bills Receivable A/c is debited. Hence, bills receivable is a personal a/c.