Tag: bases of accounting

Questions Related to bases of accounting

Cash discount terms offered by trade creditors should never be accepted because __________________.

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

  1. Benefit is very small

  2. Cost is very high

  3. No sense to pay earlier

  4. None of the above

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Correct Option: D
Explanation:

Cash discount is allowed by the firms to speed up the cash collections. 


If cash discount is allowed by the creditors, business have to make a trade off between the earning from cash discount verses the cost of repaying the amount. 

Interest on performing assets should be recognized on ___________ basis.

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

  1. actually received

  2. standard

  3. accrual

  4. None of these

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Correct Option: C
Explanation:

Banks are to recognize their income on accrual basis in respect of income on performing assets and on cash basis in respect of income on non-performing assets (NPA). Any interest accrued and credited to income account must be cancelled by a reverse entry once the credit facility comes under the category of NPAs.

Income includes ______________.

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

  1. Income earned

  2. Income received

  3. Income receivable

  4. All of the above

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Correct Option: D

Which of the following is not followed in capital budgeting?

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

  1. Cash flows Principle

  2. Interest Exclusion Principle

  3. Accrual Principle

  4. Post-tax Principle

Show answer
Correct Option: C
Explanation:

Capital budgeting has five principles that plays a crucial role in the allocation of money and the process of capital budgeting.

The five principles are:-

(1) Decision are based on cash flows, not accounting income,

(2) Cash flow are based on opportunity cost,
(3) The timing of cash flows are important,
(4) Cash flows are analysed on an after tax basis
(5) Financing costs are reflected on projects required rate of return.
 
Accrual principle is not followed in capital budgeting.

In lease system, interest is calculated on _________________.

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

  1. Cash down payment

  2. Cash price outstanding

  3. Hire purchase price

  4. None of the above

Show answer
Correct Option: B
Explanation:

If the rate of interest is not given (the cash price and amount of each instalment being given), interest will be calculated on the basis that the interest for each year will be in the ratio of amounts outstanding.

Which one of the following is not an accounting convention?

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

  1. Consistency

  2. Full disclosure

  3. Materiality

  4. Secrecy

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Correct Option: C

Double entry system is used in which type of accounting ___________.

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

  1. Cost

  2. Financial

  3. Management

  4. All of these

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Correct Option: B
Explanation:

Financial accounting is based on dual concept. On the basis of dual concept, all business transactions are recorded in the books of accounts. This signifies that, every business transaction will affect two accounts while making an accounting entry. Its basically a double entry system of accounting. For every debit, there will be a credit and vice versa.

The accrual cost is the basis for ____________.

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

  1. Management system of accounting

  2. Mercantile system of accounting

  3. Internal system of accounting

  4. External system of accounting

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Correct Option: B
Explanation:

Accrual Accounting is the base of present accounting. It is also known as the mercantile system of accounting, wherein the transactions are recognised, as and when, they take place. 

Under this method, the revenue is recorded when it is earned, and the expenses are reported when they are incurred.

The system of recording transaction based on dual aspect concept is called ________________.

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

  1. Double account system

  2. Double entry system

  3. Single entry system

  4. None of these

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Correct Option: B
Explanation:

Dual aspect accounting is a concept which assumes that every business transaction will give two effects, i.e. debit and credit. For every debit there will be a credit, and vice versa. Double entry system of accounting is commonly used by all the organizations. Small concerns who are not well versed with double entry system are following the single entry system, in which they maintained only account of debtors and creditors and bank account. 

The basis for the accounting equation is the principle of _________.

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

  1. Rights

  2. Rules

  3. Procedures

  4. Policies

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Correct Option: A
Explanation:

Accounting equation is the foundation of double entry system of book-keeping. It displays that all the assets are either financed by borrowing money or paying from the shareholder's equity. The balance sheet being the complex version shows explain the equation very clearly and it shows that total assets is equal to total liability plus shareholder's equity. The basis for this equation is the principle of rights.