Tag: meaning and purposes of accounting

Questions Related to meaning and purposes of accounting

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

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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

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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

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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

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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

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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.

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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

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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

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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)

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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.