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Theoretical Framework of Accounting

Description: This test covers the basics of accounting along with the accounting concepts.
Number of Questions: 20
Created by:
Tags: Accounting basics Theoretical Framework
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Which of the following is not a subfield of accounting?

  1. Management accounting

  2. Cost accounting

  3. Auditing

  4. Financial accounting

Show answer
Correct Option: C
Explanation:

It is not a subfield of accounting. Auditing starts where accounting ends.

Which of the following is not a primary book of accounts?

  1. Journal

  2. Ledger

  3. Cash book

  4. Purchase book

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Correct Option: B
Explanation:

A primary book means where an entry is passed for the first time. Ledger is not a primary book, but a secondary book of accounts.

Which of the following is the first stage in the process of accounting?

  1. Recording of transaction

  2. Summarising

  3. Identification of transactions

  4. Analysing

Show answer
Correct Option: C
Explanation:

It is the first stage in the process of accounting.

Which qualitative characteristics of accounting suggets that the financial statements should be free from biasness and misstatements?

  1. Relevance

  2. Understandability

  3. Comparability

  4. Reliability

Show answer
Correct Option: D
Explanation:

It is the correct answer.

Which of the following is a legal compulsion?

  1. Management accounting

  2. Financial accounting

  3. Human resources accounting

  4. Social accounting

Show answer
Correct Option: B
Explanation:

It is a legal compulsion as it is required to calculate profits or loss.

Which of the following is an internal user of accounting?

  1. Consumers

  2. Board of directors

  3. Employees

  4. Regulatory authorities

Show answer
Correct Option: B
Explanation:

These are internal users of accounting.

Which of the following is an example of representative personal account?

  1. Amitabh Bachan

  2. Rotary club

  3. Goodwill

  4. Accrued income

Show answer
Correct Option: D
Explanation:

It is the correct answer. The accounts representing natural or artificial persons are called representative personal accounts.

The bill discounted from bank but not matured yet is an example of

  1. long term liability

  2. short term liability

  3. contingent liability

  4. fictitious asset

Show answer
Correct Option: C
Explanation:

It is the correct answer. It is not a liability yet and thus is contingent.

The capital expenditure should be shown in the financial accounts in

  1. asset side of balance sheet

  2. liability side of balance sheet

  3. debit side of profit and loss account

  4. debit side of trading account

Show answer
Correct Option: A
Explanation:

It is the correct option. These are the payments made for the purchase of items like machinery, furniture, building etc. and are thus an asset.

Which of the following is not a liquid asset?

  1. Inventory

  2. Debtors

  3. Bank balance

  4. Marketable securities

Show answer
Correct Option: A
Explanation:

It is the correct answer. Inventory is current asset but not a liquid asset.

A heavy expenditure of revenue nature, which affects the generation of income over a number of years, is called

  1. capital expenditure

  2. deferred revenue expenditure

  3. revenue expenditure

  4. direct expenses

Show answer
Correct Option: B
Explanation:

It is the correct option. These expenditures are called deferred revenue expenditures.

The amount debited to purchase account consists of

  1. purchase of goods and assets

  2. purchase of goods on credit only

  3. purchase of goods for cash only

  4. purchase of goods on cash as well as on credit basis

Show answer
Correct Option: D
Explanation:

It is the correct answer. Both types of purchases are debited to purchase account.

Deferred expenditures are put in which account till they are written off?

  1. Trading account

  2. Profit and loss account

  3. Profit and loss appropriation account

  4. Balance sheet

Show answer
Correct Option: D
Explanation:

These expenses are shown on the asset side of balance sheet till they are not written off.

Closing stock at the end of the year should be valued at

  1. cost price only

  2. market price only

  3. cost price or market price whichever is lower

  4. cost price or market price whichever is higher

Show answer
Correct Option: C
Explanation:

The closing stock should be valued at cost price or market price whichever is lower. It is as per concept of conservatism.

Calculate the amount of gross purchases from the data: COGS - Rs. 2,20,000, opening stock - Rs. 35,000, closing stock - Rs. 55,000, purchase return - Rs. 5,000, sales return - Rs. 2,000, carriage inward - Rs. 10,000, carriage outward - Rs. 4,000

  1. Rs. 2,35,000

  2. Rs. 2,30,000

  3. Rs. 2,32,000

  4. Rs. 2,45,000

Show answer
Correct Option: A
Explanation:

COGS = Opening stock + Net purchases + Direct expenses - Closing stock 2,20,000 = 35,000 + Net purchases + 10,000 - 55,000 Thus, net purchases = Rs. 2,30,000 Gross purchases = Net purchases + Purchase return                              = 2,30,000 + 5,000 = Rs. 2,35,000

The liabilities, which are not due till date but may or may not be payable in future, are called

  1. current liabilities

  2. fixed liabilities

  3. long term liabilities

  4. contingent liabilities

Show answer
Correct Option: D
Explanation:

This is the correct answer. These are those liabilities, which may or may not arise in the future.

Calculate COGS from the data: Net profit = Rs.1,05,000, carriage inward = Rs. 15,000, carriage outward = Rs. 5,000, opening stock = Rs.25,000, closing stock = double of opening stock and G.P. = 20% of net purchases

  1. Rs. 5,15,000

  2. Rs. 5,40,000

  3. Rs. 12,000

  4. Rs. 5,02,500

Show answer
Correct Option: B
Explanation:

Net profit = Rs. 1,05,000, carriage outward = Rs. 5,000 Thus, G.P. = Rs. 1,10,000 Net purchases = 1,10,000 * 100/20 = Rs. 5,50,000. COGS = Opening stock + Net purchases + Direct expenses - Closing stock             = 25,000 + 5,50,000 + 15,000 - 50,000 = Rs. 5,40,000

COGS = Rs. 2,00,000, Gross loss = Rs. 40,000, Operating expenses = Rs. 30,000 Calculate net sales.

  1. Rs. 2,40,000

  2. Rs. 1,60,000

  3. Rs. 70,000

  4. Rs. 1,30,000

Show answer
Correct Option: B
Explanation:

Sales = COGS - Gross loss, i.e. 2,00,000 - 40,000

Sales of old furniture of Rs. 10,000 for cash at Rs. 8,000 should be credited to

  1. furniture account with Rs. 8,000

  2. furniture account with Rs. 10,000

  3. cash account with Rs. 8,000

  4. furniture account with Rs. 8,000, profit and loss a/c with Rs. 2,000

Show answer
Correct Option: B
Explanation:

The correct entry is: Cash account____ Dr. 8,000 Profit and loss a/c__ Dr. 2,000 To furniture a/c         10,000

'To know the financial position of the business' is the main objective of

  1. accounting

  2. book keeping

  3. auditing

  4. all of these

Show answer
Correct Option: A
Explanation:

Accounting helps in ascertaining the financial position of the business at any time

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