Tag: basis of accounting system

Questions Related to basis of accounting system

Mercantile system is followed by __________.

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

  1. Merchants, trade and industry

  2. Doctors, lawyers, brokers etc.

  3. Industry, trade and agriculturist

  4. Multi-national firms

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Correct Option: A
Explanation:

Mercantile system is the system which states that revenue and expenditure must be recorded at the time they are recognized or incurred. Mercantile is followed by Merchants, trade and industry as they get arithmetic accurate financial statements and it helps them to take important decisions.

Match the following:

1. Artificial persons accounts a) Firms account, educational institution's accounts, bank account etc.
2. Representative personal accounts b) Prepaid insurance, outstanding wages etc.,
3. Tangible real accounts c) Building, furniture, cash and machinery etc.
4. Intangible real accounts d) trademark, goodwill, patents, etc.
commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

  1. a, b, c, d

  2. b, a, d, c

  3. a, c, d, b

  4. d, b, c, a

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Correct Option: A
Explanation:

An artificial person consists of any institution, which can be bank, educational institute or a firm.
Representative personal account means, an account which represents a person which can be prepaid insurance, outstanding wages.etc.
Tangible real account is an account, which is related to the assets that can be felt and seen by eyes.
Intangible real account is an account, which cannot be seen and felt.

The system of recording 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. All the above

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Correct Option: B
Explanation:

Dual aspect is the foundation or basic principle of accounting. It provides the very basis for recording business transactions into the book of accounts. This concept states that every transaction has a dual or two-fold effect and should therefore be recorded at two places. In other words, at least two accounts will be involved in recording a transaction.

The double-entry system also requires that for all transactions, the amounts entered as debits must be equal to the amounts entered as credits.

The governing principle of double entry system is that _________.

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

  1. for every debit there is an equal and corresponding credit

  2. debit the given credit the receiver

  3. debit what goes out credit what comes in

  4. debit profits and gains credit expenses and losses

Show answer
Correct Option: A
Explanation:

Dual aspect is the foundation or basic principle of accounting. It provides the very basis for recording business transactions into the book of accounts. 

This concept states that every transaction has a dual or two-fold effect and should therefore be recorded at two places. In other words, at least two accounts will be involved in recording a transaction.

The double-entry system also requires that for all transactions, the amounts entered as debits must be equal to the amounts entered as credits.

A system in which accounting entries are made on the basis of amounts having become due for payment or receipt is called _______________.

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

  1. Cash concept

  2. Accrual concept

  3. Matching concept

  4. On-going concept

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Correct Option: B
Explanation:

There are two ways of accounting: 

1. cash system of accounting; and 
2. accrual system of accounting.
Accrual system of accounting defines that the revenues and expenses are to be accounted in the books of account on the basis of their accrual and not on the basis of their payment. 

For example, if any salary is due, it should be debited to the salary account, irrespective of when it is paid. 
The same applies to incomes. If any income is due to be received, the same has to be credited in the respective income account, irrespective of it being received or not.

In cash transactions, goods or services are exchanged for ______________. 

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

  1. Other goods

  2. Other services

  3. Immediate cash

  4. Grains

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Correct Option: C
Explanation:

A cash transaction is a transaction where there is an immediate payment of cash for the purchase  of an asset, goods or services. It differs from other types of transaction that involve delayed payment, credit transaction etc. 

Under the accrual concept, which one of the following will not be shown as an asset/liability in the balance sheet of an entity?

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

  1. Interest due but not paid.

  2. Interest due but not received.

  3. Interest due and paid.

  4. Interest paid but not due.

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Correct Option: C
Explanation:

Under the accrual concept, is the fundamental concept of accounting in which revenues are recorded when they are earned and not received in cash, and recording expenses when they are incurred and not actually paid. 

Hence point C is the only one which will not appear in the balance sheet as its been due and paid.

If the convertibility of the currency is restricted to certain foreign currency transactions, it is termed as _______________.

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

  1. Full convertibiltity

  2. Partial convertibility

  3. Current account convertibility

  4. Capital account convertibility

  5. Both (A) and (C) above

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Correct Option: B
Explanation:

Convertibility means that a foreign currency can be converted into domestic currency and vice versa without any restrictions. If the convertibility is restricted to certain foreign currencies transactions and/or people, it is termed as partial convertibiltiy.

Consider the following statements:
1. The bonus shares shall not be issued in lieu of dividend,
2. A company may issue fully paid up bonus shares to its members out of its 'Capital Redemption Reserve Account'
3. A company may not issue bonus shares out of its 'Securities Premium Account'
Which of the above statement/s is are not correct?

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

  1. 1,2, and 3

  2. Only 1

  3. Only 2

  4. Only 3

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Correct Option: D

Double entry system is  more accurate because__________.

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

  1. Mis-appropriations are minimised

  2. Arithmetic inaccuracies in records can be checked

  3. Possibilities of frauds is reduced

  4. All of the above

Show answer
Correct Option: D
Explanation:

The accounting system is a system of double entry , which means that every business transaction that is to be recorded or have been recorded, always have dual impact. This system is more accurate because of the following reasons:

  1. Mis-appropriation are minimized: The record of every transaction is first classified into assets, liabilities, expenses, revenue, capital and then these are recorded accordingly so if there will be any misappropriations that can be checked.
  2. Arithmetic inaccuracies in records can be checked: Double-entry system of book-keeping is based on the dual entry principle which means that for every debit there is a equal and corresponding credit amount. Such a method of debit and credit helps in ensuring the arithmetical accuracy of the recordings of the transactions.
  3. Possibilities of frauds is reduced: Accounting records helps the organizations to detect the frauds and errors that have taken place in business and take steps to prevent their recurrence i.e occurring again. Under this system mistakes and deflections can be detected - this exerts a moral pressure on the accountant and his staff.