Tag: generally accepted accounting principles

Questions Related to generally accepted accounting principles

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

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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

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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

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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

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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

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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.

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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.