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Meaning and purposes of accounting - class-XI

Description: meaning and purposes of accounting
Number of Questions: 49
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Tags: elements of accounts introduction to book-keeping and accountancy theory base of accounting, accounting standards and indian accounting standards (ind-as) introduction to accounting commercial studies accounting principles conventions, assumption, concepts and principles of accounting generally accepted accounting principles (gaap) commercial applications accountancy book keeping and accountancy introduction to accountancy conceptual framework of accounting generally accepted accounting principles (gaap) and accounting standards basic accounting principles and concepts theory base of accounting
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Which of the following is not valuation principle?

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. Historical cost 

  2. Present value

  3. Gross value

  4. Realisable value

Show answer
Correct Option: C
Explanation:

In economics, gross value added is the measure of the value of goods and services produced in an area, industry or sector of an economy. In national accounts GVA is output minus intermediate consumption; it is a balancing item of the national accounts' production account.

Accounting Principle is general law or rule followed in the preparation of financial statements.

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. True

  2. False

Show answer
Correct Option: A

In cash accounting system __________________________.

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. Revenues of assets are shown only when cash is received irrespective of the period

  2. Revenues of assets are shown only of the cash received for the transactions of the financial year

  3. Revenues of assets are shown only of the cash received for the current year

  4. None of the above

Show answer
Correct Option: A

The characteristic feature of dual aspect concept of accounting is?

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. The total amount debited is always equal to total amount credited

  2. All the transactions are settled in cash

  3. Cost of the various asset is taken on the basis of actual amount spent on it

  4. None of the above

Show answer
Correct Option: A

Which of the following statements is correct?

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. Accounting profit is the difference between cash receipts and cash paid in a period

  2. Accounting profit is the total of cash sales in the year less the expenses for the period

  3. Accounting profit is the difference between revenue income and expenses for the period

  4. Accounting profit is the difference between revenue income and cash payments for the period

Show answer
Correct Option: C

Select the odd one in relation to users of accounting information's.

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. Officers

  2. Managers

  3. Debtors

  4. Board of directors

Show answer
Correct Option: C

Accounts which represent a certain person or group of persons are termed as ___________________.

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. Artificial or legal persons account

  2. Natural persons personal account

  3. Representative personal accounts

  4. Any of the above

Show answer
Correct Option: C
Explanation:

Representative Personal Accounts are accounts which represent a certain person or group of people. Accounts relating to outstanding and prepaid items are called representative personal accounts. For example, prepaid insurance, outstanding rent, outstanding wages/salaries etc. Outstanding salaries is one such account.

A change in accounting policy is justified ______________________.

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. To comply with accounting standard

  2. To ensure more appropriate presentation of the financial statement of the enterprise.

  3. To comply with law

  4. All of the above.

Show answer
Correct Option: D

All of the following are limitations of Accounting Standards except ______________________.

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. The choice between different alternative accounting treatments is difficult.

  2. There may be trend towards rigidity.

  3. Accounting Standards cannot override the statute.

  4. None of the above.

Show answer
Correct Option: D

Mr. Nachiket, owner of Furniture Shop, owns a personal residence that cost Rs. 6,00,000, but has a market value of Rs.9,00,000. During preparation of the financial statement for the business, the entire value of property was ignored and was not shown in the financial statements. The principle that was followed was _________________.

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. The concept of the business entity

  2. The concept of the cost principle

  3. The concept of going concern principle

  4. The concept of duality principle

Show answer
Correct Option: A

Measurement discipline deals with __________________.

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. Identification of objects and events.

  2. Selection of scale

  3. Evaluation of dimension of measurement scale.

  4. All of the above

Show answer
Correct Option: D

An in-depth examination to detect a suspected fraud in an enterprise may be termed as ___________.

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. Internal audit

  2. Management audit

  3. Financial audit

  4. investigation

Show answer
Correct Option: D

Consider the following statements :
A mutual fund helps the investor in securing -
1. Professional management 
2. Diversification of risk
3. Steady appreciation
4. Lower cost of operation
Of these statement following is correct :

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. 1, 2, 3 and 4

  2. 1, 2 and 4

  3. 2 and 3

  4. 3 and 4

Show answer
Correct Option: A

Information Gatekeepers come under ____________ sources.

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. Documentary

  2. Human

  3. Institutional

  4. Neo-conventional

Show answer
Correct Option: A

Suppose, a Cement manufacturing company allows a post supply discount of ' 5/-Cores to his Distributor without any prior agreement to that effect or without disclosing the same at the time of supply. Whether, it is a Deemed Supply or Not?

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. Yes

  2. No

  3. Subject to the Individual Circumstances

  4. None of the Above

Show answer
Correct Option: A

Accounting principles are generally based on _________.

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. Practicability

  2. Subjectivity

  3. Convenience in Recording

  4. Applicability

Show answer
Correct Option: A
Explanation:

Certain accounting principle concepts and conventions are formulated which are not static and are adaptable to changes according to the changing need of the business. 

Accounting principles are generally based upon _________________.

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. Practicability

  2. Subjectivity

  3. Convenience in recording

  4. None of the above

Show answer
Correct Option: A
Explanation:

Accounting principles can be defined as rule of conduct or action. These are the general laws used with the theory and practices of accounting. These are broad guidelines and adaptability of the same depends on the the internal characteristics of the firm. 

Accounting principles are divided into two types. These are _________.

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. Accounting Concepts

  2. Accounting Conventions

  3. Accounting Standards

  4. Accounting Concepts & Accounting Conventions

Show answer
Correct Option: D
Explanation:

Accounting principles can be defined as rule of conduct. These are general laws used with the theory and practices of accounting. These are the broad guidelines, and adaptability of the same depends on the nature of the firm or business.


These principles can be classified into two parts:
1) Accounting Concepts
2) Accounting Conventions

Rules of action or conduct adopted by the accountants universally while recording accounting transaction _______________.

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. Accounting convention

  2. Accounting concepts

  3. Accounting principles

  4. None of these

Show answer
Correct Option: C
Explanation:

Accounting is based on certain concepts and conventions which are called as generally accepted accounting principles. On the basis of these principles, whole accounting function is performed. These can be classified as:

Concepts:
1) Separate Entity Concept
2) Money measurement Concept
3) Periodicity Concept
4) Dual Aspect Concept
5) Going Concern Concept
6) Cost Concept
7) Realization Concept
8) Matching Concept
Conventions:
 1) Full Disclosure
2) Materiality
3) Consistency
4) Conservatism

Custom and traditions which guide the accountant while preparing the accounting statements _______________.

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. Accounting convention

  2. Accounting concepts

  3. Accounting principles

  4. None of these

Show answer
Correct Option: C
Explanation:

Accounting is based on certain concepts and conventions which are called as generally accepted accounting principles. On the basis of these principles, whole accounting function is performed. These can be classified as:

Concepts:
1) Separate Entity Concept
2) Money measurement Concept
3) Periodicity Concept
4) Dual Aspect Concept
5) Going Concern Concept
6) Cost Concept
7) Realization Concept
8) Matching Concept
Conventions:
 1) Full Disclosure
2) Materiality
3) Consistency
4) Conservatism

Accounting principles are ________ which are adopted by the accountant universally while recording accounting transaction.

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. Rules of action or conduct

  2. Which you can change as per accountant

  3. Which keep changing every year

  4. None of these

Show answer
Correct Option: A
Explanation:

Accounting principles may be defined as, "those rules of conduct or procedure which are adopted by the accountants universally, while recording the accounting transactions." 

The accounting principles can be classified into two categories: 
I. Accounting Conventions;
II. Accounting Concepts.

Accounting principles are__________________.

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. As definite as principles of physics and chemistry

  2. Unlike principles of physical sciences.

  3. Verifiable through observations and records

  4. Thoughts of accountant

Show answer
Correct Option: B
Explanation:

Accounting principles are the rules and guidelines that companies must follow at the time of preparation of financial reporting statement.

These principles followed by accountants universally.
Generally Accepted Accounting Principles (GAAP) refers to the rules or guidelines adopted for recording and reporting of business transactions, in order to bring uniformity in the preparation and the presentation of financial statements.

Accounting principles represent_____________________________.

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. A consensus at a particular time to the recording of accounting transactions.

  2. Inviolable laws fixed by the legal boards.

  3. Laws fixed by accounting experts.

  4. Laws fixed by the respective governments.

Show answer
Correct Option: A
Explanation:

Accounting principles represent a consensus at a particular time to the recording of accounting transactions. Accounting principles are the rules and guidelines that companies must follow when reporting financial data. 

Psycho-analytic theory is developed by________.

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. Marshall

  2. Philip Kotler

  3. Thorstein Veblen

  4. Sigmund Freud

Show answer
Correct Option: D
Explanation:

Psycho-analytic theory is developed by Sigmund Freud. The theory is the theory of personality organisation and dynamics of personality a clinical method for treating psychopathology. It was founded in the 19th century. 

"The cost of capital declines when the degree of financial leverage increases." Who advocated it?

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. Net operating income approach

  2. Net income approach

  3. Modigliani-Miller approach

  4. Traditional approach

Show answer
Correct Option: B
Explanation:

According to Net income Approach the capital structure decision is relevant to valuation of the firm. This means that a change in financial leverage will automatically lead to corresponding change in overall cost of the capital as well as the total value of the firm. Hence, if the financial leverage increases the weighted average cost of capital decreases and the value of firm and market price of equity share increases and vice versa. 

The most difficult and controversial cost to measure is_________.

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. Cost of debt

  2. Cost of preference shares

  3. Cost of equity capital

  4. Cost of retained earnings

Show answer
Correct Option: C
Explanation:

The most difficult and controversial cost to measure us cost of equity capital. Cost of equity capital is a return a company requires to decide if an investment meets capital return requirements. 

Rules of conduct accepted universally to record business transactions are known as ___________.

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. Accounting Principle

  2. Accounting Standards

  3. Accounting Concepts

  4. All of the above

Show answer
Correct Option: D
Explanation:

In order to maintain uniformity and consistency in accounting records, certain rules or principles have been developed which are generally accepted by the accounting profession. These rules are called by different names such as principles, concepts, conventions, postulates, assumptions and modifying principles. The term 'principle' has been defined by AICPA as 'A general law or rule adopted or professed as a guide to action, a settled ground or basis of conduct or practice'. The word 'generally' means 'in a general manner', i.e. pertaining to many persons or cases or occasions. Thus, Generally Accepted Accounting principles (GAAP) refers to the rules or guidelines adopted for recording and reporting of business transactions, in order to bring uniformity in the preparation and the presentation of financial statements.

The general acceptance of an accounting principle usually depends on how well it meets the criteria of _________.

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. Relevance

  2. Feasibility

  3. Objectivity

  4. All the three

Show answer
Correct Option: D
Explanation:

Accounting is based on certain principle which are collectively known as GAAP. 

While adopting any principle, objective must be defined, need to ensure that it has some relevance along with the feasibility.

Which one of the following is not a generally accepted accounting principle?

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. Sales, revenues and incomes should not be anticipated or materially overstated.

  2. There must be proper cut off accounting for inventories and liabilities for cost and expenses.

  3. Non-recurring and extraordinary gains and losses should be recognized in the period they accrue, but should be shown separately from the usual operations.

  4. Long-term investments in securities should ordinarily be carried at inflated market values.

Show answer
Correct Option: D

Accounting principles and policies are to be standardised to achieve __________.

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. Transparency

  2. Consistency

  3. Comparability

  4. All of the above

Show answer
Correct Option: D
Explanation:

Accounting principles and policies are to be standardised to achieve transparency, consistency and comparability. 

Transparency means, the extent to which the financial users of statement have access to the financial statements. 
Consistency is a quality that enables the comparison of financial statements from one accounting period to another by using the same accounting treatments for similar transactions. 

Comparability means financial statements that help in easy inter-firm and intra-firm comparison.

Generally accepted accounting principles ___________.

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. define accounting practice at a point in time

  2. are similar in nature to the principles of chemistry or physics

  3. are rarely changed

  4. are not affected by changes in the way business operates

Show answer
Correct Option: A
Explanation:

GAAP (generally accepted accounting principles) is a collection of commonly-followed accounting rules and standards for financial reporting. The acronym is pronounced "gap." GAAP specifications include definitions of concepts and principles, as well as industry-specific rules.

These "principles" are not like the unchangeable laws of nature in chemistry or physics.
They encompass conventions ,rules,and procedures,necessary to define accepted accounting practice at a particular time.

It is essential to standardize the accounting principles and policies in order to ensure _____________.

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. Transparency

  2. Consistency

  3. Comparability

  4. All of these

Show answer
Correct Option: D

Which of the following statements describes GAAP properly?

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. Generally accepted accounting principles (GAAP) compries a set of rules, concepts and guidelines used in preparing financial accounting reports

  2. Generally accepted accounting principles (GAAP) incorporate the consensus at any time as to which economic resources and obligations should be recorded as assets and liabilities

  3. What information should be disclosed and how it should be disclosed, and which financial statements should be prepared

  4. None of the above

Show answer
Correct Option: A

According to which of the following conventions, secret reserves are not permitted?

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. Consistency

  2. Disclosure

  3. Conservatism

  4. All of these

Show answer
Correct Option: D

A general law adopted as a guide is called _____________ .

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. Accounting System

  2. Accounting Principles

  3. Accounting Process

  4. Accounting Plan

Show answer
Correct Option: B

State with reasons whether the following statement is true or false.
Transaction and events are guides by generally accepted accounting principles and the transactions and events are guided by those principles. 

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. True

  2. False

Show answer
Correct Option: A

State with reasons whether the following statement is true or false:
Loss of stock is said to be abnormal loss, which is due to inherent characteristics of the commodity.

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. True

  2. False

Show answer
Correct Option: B

State with reasons whether the following statement is true or false:
Accounting principle is general rule followed in preparation of Financial Statements.

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. True

  2. False

Show answer
Correct Option: A

Accounting policy for inventories of X ltd. states that inventories are valued at the lower of cost or net realizable value. Which accounting principle in followed in adopting the above policy?

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. Materiality

  2. Prudence

  3. Substance over form

  4. All of the above

Show answer
Correct Option: B

The other name of merchantile system of accounting is _________.

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. cash system of accounting

  2. receipts & expenditure accounts

  3. accrual system of accounting

  4. all of the above

Show answer
Correct Option: C

GAAP tells _________.

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. Accounting policies

  2. Accounting procedures

  3. Accounting statements

  4. Both a & b

Show answer
Correct Option: D

If rights and beneficial interest in a property is transferred but documentation and legal formalities are pending then seller & purchaser should record in their accounts sale & purchase. Which principle is applied here?

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. Prudence

  2. Substance over from

  3. Materiality

  4. All of the above

Show answer
Correct Option: B

The notion that the life of a business is divisible into equal time periods of equal length is known as the _________.

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. Continuing concern principle

  2. Time-period principle

  3. Business entity principle

  4. Recognition principle

Show answer
Correct Option: B

Goodwill should be tested for value impairment at which of the following levels?

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. Each identifiable long-term asset.

  2. Each reporting unit.

  3. Each acquisition unit.

  4. Entire business as a whole

Show answer
Correct Option: B

Bank overdraft account is a _____________.

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. Personal account

  2. Real account

  3. Nominal account

  4. Representative personal account

Show answer
Correct Option: A

Which one of the following statements correctly explain the term 'doctrine of Indoor Management? 

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. The doctrine seeks to protect the outsiders against the company

  2. Every person dealing with the company is presumed to have read and understood the contents of company's Memorandum and Articles of association

  3. If a person enters into a contract with the company which is contrary to the provisions of Memorandum and Articles of Association, he will not get any right under such contract

  4. It protects the company against the outsiders.

Show answer
Correct Option: B
Explanation:

Option B is correct.

Doctrine of indoor management is an exception to rule of constructive notice. According to this doctrine, persons dealing with company are entitled to presume that internal requirements prescribed in the memorandum and articles have been properly observed. 
They can assume that the members of the company are performing their acts within the scope of their apparent authority. 

Comparative financial statements are prepared at the end of __________ .

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. Each financial year

  2. Every six months

  3. Every quarter of a year

  4. At the will of management

Show answer
Correct Option: D
Explanation:

Comparative financial statements are the complete set of financial statements that an entity issues, revealing information for more than one reporting period. The financial statements that may be included in this package are: The income statement (showing results for multiple periods)


These statements can be prepared anytime at the will of management.

Latest generation of personal computers (PCs) being used in an office setup is _____________.

commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. PC XT

  2. PC Pentium

  3. PC AT

  4. PC 486

Show answer
Correct Option: B

Match List-I with List-II and select the correct answer using the codes given the lists.

List-I(Accounting concept) List-II(Principle involved)
I. Consistency (a) Losses are anticipated and accounted for in advance but profits are not accounted for until realised
II. Comparability (b) All the relevant financial information should be summarised and presented in the accounting statements
III. Conservatism (c) According procedures in an entity should be followed uniformly from period to period
IV. Disclosure (d) Accounting statement of different periods of an entity and those of different entities of a period should be based on the same accounting principles and procedures
(e) Personal Judgement of accountants should not influence accounting measurements
commercial applications basic accounting principles and concepts meaning and purposes of accounting need and basic principles of accounting generally accepted accounting principles

  1. I-(d), II-(c), III-(e), IV-(b)

  2. I-(c), II-(d), III-(a), IV-(b)

  3. I-(d), II-(c), III-(a), IV-(e)

  4. I-(c), II-(d), III-(b), IV-(e)

Show answer
Correct Option: B
Explanation:
  1. Consistency: The consistency principle states  that, once you adopt an accounting principle or method, continue to follow it consistently in future accounting periods. Only change an accounting principle or method if the new version in some way improves reported financial results. 
    2. Comparability: It is one of the key qualities which accounting information must possess. Accounting information is comparable when accounting standards and polices are applied consistently from one period to another and from one region to another.
    3. Conservatism: 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.
    4. Disclosure: Full disclosure principle requires a company to provide the necessary information so that people who are accustomed to reading financial information can make informed decisions concerning the company. All relevant financial information should be summarised and presented in the accounting statements. 
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