Tag: bases of accounting

Questions Related to bases of accounting

A company sends its cars to dealers on sale or return basis. All such transactions are, however, treated like actual sales and are passed through the sales day book. Just before the end of the financial year, two cars which had cost Rs 50,000 each have been sent on 'sale or return' and have been debited to customers at Rs 80,000 each. Cost of goods lying with the customers will be _______________.

commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

  1. Rs 1,00,000

  2. Rs 1,60,000

  3. Rs 50,000

  4. None of these

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Correct Option: A

The current ratio of a company is 2: 1 which of the following suggestions would Improve, reduce and net change it. I. Payment to trade creditors II. Sell machinery for cash Ill. Purchased goods for cash IV. Issue of equity shares ________________________.

commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

  1. Decrease, Increase, Increase, No effect

  2. No effect, Increase, Decrease, Increase

  3. Increases, Increase, No effect, Increase

  4. Increase, No effect, Decrease, Increase

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Correct Option: C

Cash basis considers the revenue as realized, when the goods are produced. 

commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

  1. True

  2. False

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Correct Option: B
Explanation:

 The major difference between the accrual accounting method and the cash accounting method is the way in which revenue and expenses are recorded in the accounts of the business. This difference consequently leads to a different profit result for a given period depending on the approach adopted. 

· Cash-basis - Using the cash-basis, revenue is only recorded when the cash is actually exchanged i.e. when revenue is received as cash and when expenses are actually paid.

Amit is recording sales transactions in the  accounting system so that they can be summarized in a logical manner for the purpose of providing financial statement for decision-making. Amit is doing________.

commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

  1. management consulting

  2. review

  3. accounting

  4. auditing

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Correct Option: C

A merchant sends out his goods casually to his dealers on approval basis. All such transactions are, however, recorded as actual sales and are passed through the sales book. On 31.12.2006, it was found that 200 articles at a sale price of 200 each sent on approval basis were recorded as actual sales at that price. The sale price was made at cost plus 25%. The amount of stock (at cost) on approval will be ______________.

commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

  1. Rs 32,000

  2. Rs 40,000

  3. Rs 30,000

  4. None of these

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Correct Option: A

Select the correct one/ones if all banks in an economy are nationalised and converted into a monopoly bank:
1. Deposits will decrease in the new bank
2. Deposits will increase in the new bank
3. There will be no effect on either saving rate or lending Code:

commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

  1. Only 1

  2. 1 and 2

  3. Only 2

  4. 1 and 3

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Correct Option: A
Explanation:

Monopoly will discourage the depositors from putting money in the bank-this being the main reason. The saving rate of the economy together with the lending activities of the bank will also get hampered.

State, with reasons, whether the following statements are True or False.
Depositors approval is must for renewal of deposit.

commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

  1. True

  2. False

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Correct Option: A
Explanation:

Depositor's approval is must for renewal of deposit. This statement is True. Reasons : 

(i) On maturity of deposits. a depositor may apply for renewal of the deposition. the renewal of deposits, the old deposit receipt is cancelled and in that place new deposit receipt is issued without repaying deposit amount. 

(ii) Usually, depositors expect safety and regular income in the form of interest on their investments. If they are satisfied with the above conditions, they get their deposits renewed for a further period. 

(iii) A company on its own cannot renew the deposits without approaching deposit holders. However, a company is authorised to renew its deposits only if the proposal to renew, is approved and sanctioned by BOD in Board meetings. 

(iv) Thus, if the depositors are willing and interested, the company can allow the renewal of deposits. Hence, depositors approval is must for renewal of deposits. 

An adjusting entry to accrue wages earned but not yet paid is an example of ______________________________.

commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

  1. Adjusting recorded costs with the appropriate accounting periods

  2. Adjusting recorded revenue with the appropriate accounting periods

  3. Reflecting unrecorded expenses incurred during the accounting period

  4. Reflecting unrecorded revenue earned during the accounting period

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Correct Option: C

______ attempt to record the financial effects of the transactions, events, and circumstances of an enterprise in the period in which they occur rather than recording them in period(s) in which cash is received or paid by the enterprise.

commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

  1. Accrual system of accounting

  2. Cash basis of accounting

  3. Hybrid system of accounting

  4. None of the above

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Correct Option: A

Which accounting system best reflect the time picture of organization?

commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

  1. Accrual system of accounting

  2. Cash system of accounting

  3. Receipts & expenditure accounts

  4. All of the above

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Correct Option: A