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Question and answers for Financial Accounting, Exams of Financial Accounting

Bharathiar UniversityFinancial Accounting

Question and answers for Financial Accounting. It includes all types of financial questions with answers. It's useful for Finance Students and Staffs.

Typology: Exams

2019/2020

Available from 03/06/2022

Meikandan.K
Meikandan.K 🇮🇳

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UNIT I
PART – A (1 Marks)
1. _____________ is a way of recording, analysing and summarising financial data.
(a) Financial reporting (b) Book keeping
(c) Cost Accounting (d) Management Accounting
Answer: (a) Financial reporting
2. ____________ is the name given to the actual transactions carried out by a business.
(a) Business ideas (b) Commercial transaction
(c) Financial data (d) Financial statement
Answer: (c) Financial data
3. A_____________ is an organisation which uses economic resources to create goods or
services which customers will buy.
(a) Idea (b) Transaction
(b) Data (d) Business
Answer: (d) Business
4. ______________are people who work for themselves.
(a) Sole Traders (b) Professionals
(c) Managers (d) Jobbers
Answer: (a) Sole Traders
5. _____________occurs when two or more people decide to run a business together.
(a) Sole Proprietorship (b) Partnerships
(c) Joint Stock Company (d) Departmental Store
Answer: (b) Partnership
6. A _____________ is legally a separate entity from its owners.
(a) Partnerships (b) Departmental Organisation
(c) Share Market (d) Limited Liability Company
Answer: (d) Limited Liability Company
7. The objective of ____________is to provide information about the financial position,
performance and changes in financial position.
(a) Idea (b) Transaction
(c) Financial statement (d) Advertisement
Answer: (c) Financial statement
8. _____________ of the company appointed by the company's owners to supervise the
day-to-day activities of the company.
(a) Managers (b) Traders
(c) Jobbers (d) Agent
Answer: (a) Managers
9.______________ie the company's owners, want to assess how well themanagement is
performing.
(a) Managers (b) Shareholders of the company
(c) Traders (d) Employees
Answer: (b) Shareholders of the company
10. A business entity is owned and run by Alpha, Beta and Gamma. What type of business is
this an example of?
(a) Sole trader (b) Partnership
(c) Limited liability company (d) None of the above
Answer: (b) Partnership
11. Which of the following is an example of a liability?
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pf9
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UNIT I

PART – A (1 Marks)

  1. _____________ is a way of recording, analysing and summarising financial data. (a) Financial reporting (b) Book keeping (c) Cost Accounting (d) Management Accounting Answer: (a) Financial reporting
  2. ____________ is the name given to the actual transactions carried out by a business. (a) Business ideas (b) Commercial transaction (c) Financial data (d) Financial statement Answer: (c) Financial data
  3. A_____________ is an organisation which uses economic resources to create goods or services which customers will buy. (a) Idea (b) Transaction (b) Data (d) Business Answer: (d) Business
  4. ______________are people who work for themselves. (a) Sole Traders (b) Professionals (c) Managers (d) Jobbers Answer: (a) Sole Traders
  5. _____________occurs when two or more people decide to run a business together. (a) Sole Proprietorship (b) Partnerships (c) Joint Stock Company (d) Departmental Store Answer: (b) Partnership
  6. A _____________ is legally a separate entity from its owners. (a) Partnerships (b) Departmental Organisation (c) Share Market (d) Limited Liability Company Answer: (d) Limited Liability Company
  7. The objective of ____________is to provide information about the financial position, performance and changes in financial position. (a) Idea (b) Transaction (c) Financial statement (d) Advertisement Answer: (c) Financial statement
  8. _____________ of the company appointed by the company's owners to supervise the day-to-day activities of the company. (a) Managers (b) Traders (c) Jobbers (d) Agent Answer: (a) Managers 9.______________ie the company's owners, want to assess how well themanagement is performing. (a) Managers (b) Shareholders of the company (c) Traders (d) Employees Answer: (b) Shareholders of the company
  9. A business entity is owned and run by Alpha, Beta and Gamma. What type of business is this an example of? (a) Sole trader (b) Partnership (c) Limited liability company (d) None of the above Answer: (b) Partnership
  10. Which of the following is an example of a liability?

(a) Inventory (b) Receivables (c) Plant and machinery (d) Loan Answer: (d) Loan

  1. Expand IASB ____________________________. (a) International Accounting Standards Board (b) Indian Accounting Systematic Board (c) Italian Advanced Systematic Board (d) Institute of Advanced Standard Board Answer: (a) International Accounting Standards Board
  2. Businesses of whatever size or nature exist to make a _________. (a) loan (b) profit (c) advance (d) share Answer: (b) profit
  3. The concern of a management accountant is to present accounting information in the form most helpful to management. (a) trader (b) cost (c) employee (d) management Answer: (d) management
  4. Accounting provides information on__________________. (a) Cost and income for managers (b) Company’s tax liability for a particular year (c) Financial conditions of an institution (d) All of the above Answer: (d) All of the above
  5. Patents, Copyrights and Trademarks are______________. (a) Current assets (b) Fixed assets (c) Intangible assets (d) Investments Answer: (c) Intangible assets
  6. Accounting statements are prepared in standard accounting language is known as_________. (a) Generating Accepted Accounting Principles (GAAP) (b) GAAT (c) WHO (d) None of these Answer: (a) Generating Accepted Accounting Principles (GAAP)
  7. AAA stands for _________ (a) Accounting Association for American (b) American Accounting Association (c) Authority allocation of America (d) None of these Answer: (b) American Accounting Association
  8. Which are not the objectives of accounting? (a) Provide accounting information for the owners (b) Failure to recognize the business (c) Related party disclosure (d) Statutory disclosure Answer: (b) Failure to recognize the business
  9. For companies if they become insolvent due to their debts arise out of operation, the liability is _____________. (a) Limited (b) Unlimited (c) restricted to 50 (d) restricted to 100

a) Sundry Debtors b) Cash c) Bills Receivables d) Stock e) Prepaid Expenses.

  1. Explain about liabilities. Answer: A liability is something which is owed to somebody else. 'Liabilities' is the accounting term for the debts of a business. Examples of liabilities are amounts owed to a supplier for goods bought on credit, amounts owed to a bank (or other lender), a bank overdraft and amounts owed to tax authorities (eg in respect of sales tax). Some liabilities are due to be repaid fairly quickly eg suppliers. Other liabilities may take some years to repay (eg. a bank loan).
  2. What is an income statement? Answer: An income statement is a record of revenue generated and expenditure incurred over a given period. The statement shows whether the business has had more revenue than expenditure (a profit or loss).
  3. Explain about Accounting Standards. Answer: In an attempt to deal with some of the subjectivity, and to achieve comparability between different organisations, accounting standards were developed. These are developed at both a national level (in most countries) and an international level. In this text we are concerned with International Accounting Standards (IASs) and International Financial Reporting Standards (IFRSs).
  4. What you meant by Standard Advisory Council? Answer: The Standards Advisory Council assists the IASB in standard setting. It has about 50 members drawn from organisations all over the world, such as national standard–setting bodies, accountancy firms, the IMF and the World Bank. The SAC meets the IASB at least three times a year and puts forward the views of its members on current standard–setting projects.
  5. What are the uses and application of IASs and IFRSs? Answer: (a) As national requirements, often after a national process. (b) As the basis for all or some national requirements. (c) As an international benchmark for those countries which develop their own requirements. (d) By regulatory authorities for domestic and foreign companies. (e) By companies themselves.
  1. What are the objectives of financial statements? Answer: The Framework states that: The objective of financial statements is to provide information about the financial position performance and changes in financial position of an entity that is useful to a wide range of users in making economic decisions.' Such financial statements will meet the needs of most users. The information is, however, restricted. (a) It is based on past events not expected future events. (b) It does not necessarily contain non-financial information.
  2. Explain the changes in accounting policies. Answer: (a) By an standard or an interpretation (of a standard). (b) If the change will result in a more appropriate presentation of events or transactions in The financial statements of the entity. A change in accounting policy is a change in measurement, presentation or recognition of an item (eg) a business has written off all development expenditure in the past, but now decides to capitalise qualifying development expenditure in the statement of financial position. The standard highlights two types of event which do not constitute changes in accounting policy. (a) Adopting an accounting policy for a new type of transaction or event not dealt with previously by the entity. (b) Adopting a new accounting policy for a transaction or event which has not occurred in the past or which was not material. PART – C (10 Marks)
  3. What are the Types of Business Entity? Answer: Types of Business Entity: There are three main types of business entity. ● Sole Tradership ● Partnerships ● Limited Liability Companies Sole Tradership: Sole traders are people who work for themselves. Examples include the local shopkeeper, a plumber and a hairdresser. The term sole trader refers to the ownership of the business, sole traders can have employees. Partnerships: Partnerships occur when two or more people decide to run a business together. Examples include an accountancy practice, a medical practice and a legal practice.

The preparation of these statements is the responsibility of the board of directors. IAS 1 also encourages a financial review by management and the production of any other reports and statements which may aid users.

4. How Financial Statements fulfil the User’s and Stakeholders’ needs? Mention who are the entire users’ of Financial Statements and Accounting Information? Answer: The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an entity that is useful to a wide range of users in making economic decisions. The Users’ of Financial Statements and Accounting Information: The following people are likely to be interested in financial information about a large company with listed shares. (a) Managers of the company (b) Shareholders of the company (c) Trade contacts (d) Providers of finance to the company (e) The taxation authorities (f) Employees of the company (g) Financial analysts and advisers (h) Government and their agencies (i) The Publis. Accounting information is summarised in financial statements to satisfy the information needs of these different groups. Not all will be equally satisfied.

  1. Explain in detailed about IASB. Answer: International Accounting Standards Board (IASB): International Financial Reporting Standards (IFRSs) are produced by the International Accounting Standards Board (IASB). The IASB develops IFRSs through an international process that involves the world-wide accountancy profession, the preparers and users of financial statements, and national standard setting bodies. Prior to 2003 standards were issued as International Accounting Standards (IASs). In 2003 IFRS 1 was issued and all new standards are now designated as IFRSs. The objectives of the IASB are: (a) To develop, in the public interest, a single set of high quality, understandable and Enforceable global accounting standards that require high quality, transparent and comparable information in financial statements and other financial reporting to help participants in the world's capital markets and other users make economic decisions. (b) To promote the use and rigorous application of those standards. (c) To bring about convergence of national accounting standards and International Financial Reporting Standards to high quality solutions.

PART – D (10 Marks)

  1. An accountancy training firm has an excellent reputation amongst students and employers. How would you value this? Answer: The firm may have relatively little in the form of assets that you can touch, perhaps a building, desks and chairs. If you simply drew up a statement of financial position showing the cost of the assets owned, then the business would not seem to be worth much, yet its income earning potential might be high. This is true of many service organisations where the people are among the most valuable assets.
  2. Would you treat the following items as assets in the accounts of a company? (a) A box file (b) A computer (c) A small plastic display stand. Answer: (a) No. You would write it off to the income statement as an expense. (b) Yes. You would capitalise the computer and charge depreciation on it. (c) Your answer depends on the size of the company and whether writing off the item has a material effect on its profits. A larger organisation might well write this item off under the heading of advertising expenses, while a small one might capitalise it and depreciate it over time. This is because the item is material to the small company, but not to the large company. UNIT II PART – A (1 Marks) (Minimum of 20 Questions in each Unit of type MCQ, no maximum limit)
  3. Double Entry System is the idea that every transaction has __________ effects, the dual effect. (a) Two (b) Three (c) Four (d) Six Answer: (a) Two
  4. Business transactions are recorded on _____________. (a) Data (b) Report (c) Source Documents (d) Books Answer: (c) Source Document
  5. Business transaction may classified in to ____________. (a) Three ( b) two (c) one (d) none of the above

Answer: (b) debit

  1. An increase in revenue (eg a sale) or an increase in a liability (eg buying goods on credit) is a _____________. (a) debit (b) journal (c) credit (d) invoice Answer: (c) credit 14. The receivables and payables ledgers contain the___________ accounts of individual customers and suppliers. (a) personal (b) real **(c) nominal (d) advance Answer: (a) personal
  2. Real accounts records______________.** (a) dealings with creditors or debtors (b) dealings in commodities & assets (c) gains and losses (d) all of the above **Answer: (b) dealings in commodities & assets
  3. The accounts that records expenses, gains and losses are______________.** (a) personal accounts (b) real accounts (c) nominal accounts (d) none of the above Answer: (c) nominal accounts
  4. Entries in the daybooks are totalled and analysed before posting to the nominal__________. (a) balance sheet (b) ledger (c) budget (d) report Answer: (c) ledger
  5. Ledger accounts __________ all the individual transactions listed in the books of prime entry. (a) summarise (b) record (c) analyse (d) segregate **Answer: (a) summarise
  6. The process of entering all transactions from the journal to ledger is called___________.** (a) Posting (b) Entry (c) Accounting (d) None of the above Answer: (a) Posting
  7. Which of the following is correct? (a) Capital = assets + liabilities (b) Capital = liabilities – assets (c) Capital = assets – liabilities (d) Capital + assets = liabilities Answer: (c) Capital = assets – liabilities PART – B (6 Marks) (Minimum 10 Question from Each unit, no maximum limit)
  1. What is meant by source documents? Answer: It is usual to record a business transaction on a document. Examples sales and purchase orders, invoices and credit notes and goods received notes. In terms of the accounting system these are known as source documents.
  2. Write a short note on Invoice. Answer: An invoice relates to a sales order or a purchase order. When a business sells goods or services on credit to a customer, it sends out an invoice. The details on the invoice should match the details on the sales order. The invoice is a request for the customer to pay what he owes. When a business buys goods or services on credit it receives an invoice from the supplier. The details on the invoice should match the details on the purchase order.
  3. Enumerate the needs for books of prime entry Answer: The need for books of prime entry: In the course of business, source documents are created. The details on these source documents need to be summarised, as otherwise the business might forget to ask for some money, or forget to pay some, or even accidentally pay something twice. In other words, it needs to keep records of source documents of transactions. So that it knows what is going on. Such records are made in books of prime entry. Books of prime entry are books in which we first record transactions.
  4. Explain the rules of double entry book-keeping. Answer: A debit entry will: increase an asset decrease a liability increase an expense A credit entry will: decrease an asset increase a liability increase income.
  5. Write a short note on Journal. Answer: The journal is the record of prime entry for transactions which are not recorded in any of the other books of prime entry. The journal keeps a record of unusual movement between accounts. It is used to record any double entries made which do not arise from the other books of prime entry. For example, journal entries are made when errors are discovered and need to be corrected.
  6. Write the golden rules of accounting & with Examples? Answer :

accounts in the nominal ledger. The nominal ledger is an accounting record which summarises the financial affairs of a business.

  1. What is meant by accounting equation? and explain with example. Answer: The accounting equation emphasises the equality between assets and liabilities (including capital as a liability). According to Business entity concept , regardless of how a business is legally set up, in accounting a business is always treated separately from its owners(s). The accounting equation is: Assets = Capital + Liabilities Example: When Liza sets up her business: Capital invested = Rs.2, Cash = Rs.2, For Liza, as at 1 July 2016: Assets = Capital + Liabilities Rs.2,500 (cash) = Rs.2,500 + Rs.
  2. Transactions of Ram Lal for the month of January 2016 are given below. With the help of these transactions prepare his ledger. 2016 Rs. Jan 1. Capital brought in 5,00, 3. Paid into bank 80, 5. Purchased furniture 3,00, 7. Purshased buiding 70, 10. Sold goods 80, 15.Withdrew cash from bank 10, 25. Electricty Charges 3, 31.Salaries 15000 Answer: Capital A/C : To Balance c/d 5,00, Cash A/C :To Balance c/d 1,22, Sales A/C To Balance c/d80,

Electricity Charges A/C :To Balance c/d 3000 Salary A/C To Balance c/d15000. PART – C (10 Marks) (Minimum 5 Questions from Each unit, no maximum limit)

  1. Explain the types of source documents. Answer: A business transaction takes place, involving sales or purchases, receiving or paying money, or owing or being owed money, it is usual for the transaction to be recorded on a document. These documents are the source of all the information recorded by a business. Documents used to record the business transactions in the 'books of account' of the business include the following. Quotation: A business makes a written offer to a customer to produce or deliver goods or services for a certain amount of money. Sales order: A customer writes out or signs an order for goods or services he requires. Purchase order: A business orders from another business goods or services, such as material supplies. Goods received note: A list of goods that a business has received from a supplier. This is usually prepared by the business’s own warehouse or goods receiving area. Goods despatched note: A list of goods that a business has sent out to a customer. Invoice: An invoice relates to a sales order or a purchase order. Statement: A document sent out by a supplier to a customer listing all invoices, credit notes and payments received from the customer. Credit note: A document sent by a supplier to a customer in respect of goods returned or overpayments made by the customer. It is a ‘negative’ invoice. Debit note: A document sent by a customer to a supplier in respect of goods returned or an overpayment made. It is a formal request for the supplier to issue a credit note. Remittance advice: A document sent with a payment, detailing which invoices are being paid and which credit notes offset. Receipt: A written confirmation that money has been paid. This is usually in respect of cash sales, eg a till receipt from a cash register.
  2. What does an invoice show? Enumerate the uses of multi-part invoices. Answer: Most invoices are numbered, so that the business can keep track of all the invoices it sends out. Information usually shown on an invoice includes the following: (a) Name and address of the seller and the purchaser

Answer: JOURNAL ENTRIES Debit Credit Date Particulars L.F. Rs. Rs. 2006 Jan. 1 Investment Account Dr. 2, To Cash Account 2, (Being purchase of shares of Tata Cotton Mills Ltd. paid in cash) 2 No entry is passed as “placing of an order is not a business transaction.” 3 Mr. Lal’s Account Dr. 980 To Sales Account 980 (Being the entry for credit sale of goods to Mr. Lal at a trade discount of 2%) 4 Mr. Lal’s Account Dr. 95 To Cash Account 95 (Being payment of freight and carriage on behalf of Mr. Lal) 5 Rent Account Dr. 150 To Sales Account 150 (Being rent paid to the landlord in the form of goods, instead of in cash) 6 Mr. Govind Account Dr. 700 To Sales account 700 (Being goods sold to Mr. Govind but delivered to A. Merchants as per instructions) 7 Cash Account Dr. 500 To Lal’s Account 500 (Being in amount received in cash from Lal) 7 Purchases Account Dr. 500 To Cash Account 500 (Being entry for goods purchased from Mr. Deepak from in cash received from Lal) 8 Cash Account Dr. 5, To Proprietor’s Capital Account 5,

(Being amount invested in business out of the sale process of the owner’s personal car) 9 Proprietor’s Capital Account /Drawing A/c Dr. 180 To Cash Account 180 (Being the amount paid to Manoj for goods purchased for his personal use) 10 Cash Account Dr. 450 Bad Debts Account Dr. 250 To Govind’s Account 700 (Being the amount received from Govind in full settlement of his debts) 11 Nandha Dr. 2, To Mohan 2, (Being cash paid by Mohan to Naveen)

  1. Record the following transactions in the journal of the Delhi Furniture Mart and Post them into the ledger. 2015 Jan. 1 Started business with cash Rs.10,000. ” 2 Deposited into bank Rs.9,000. ” 3 Purchased machinery for Rs.5,000 from Jawahar and gave him a cheque for the amount. Jan 15 Paid installation charges of machinery Rs.100. ” 20 Purchased timber from Naveen of the list price of Rs.2,000. He allowed 10% trade discount. Jan 23 Furniture costing Rs.500 was used in furnishing the office ” 25 Sold Furniture to Naresh of the list price of Rs.1,000 and allowed him

To bank A/c To Discount received A/c (Being cheque of Rs.1,750 sent to Naveen in full settlement)

Jan 31 Wages A/c Dr. Rent A/c Dr. To cash A/c (Being amount paid for wages and rent)

Total for the month 30,650 30, Ledger Capital account Date Particulars J.F Amount Date Particulars J.F Amount 2015 Jan 1 By cash A/c 10, Cash account Date Particulars J.F Amount Date Particulars J.F Amount 2015 Jan.1 To capital A/c 10,

Jan 2 By bank A/c 9, Jan15 By machinery A/c 100 Jan 31 By wages A/c 350 Jan 31 By rent A/c 200 Bank account Date Particulars J.F Amount Date Particulars J.F Amount 2015 Jan.2 To cash A/c To Naresh A/c

Jan.3 By Machinery A/c By Naveen A/c

Machinery account Date Particulars J.F Amount Date Particulars J.F Amount 2015 Jan. Jan. To bank A/c To cash A/c

Naveen account Date Particulars J.F Amount Date Particulars J.F Amount 2015 Jan. Jan. To bank A/c To discount A/c

Jan 20 By purchase A/c 1, Purchases account Date Particulars J.F Amount Date Particulars J.F Amount 2015 Jan.20 To Naveen 1,

Jan 23 500

By office furniture A/c Office furniture account Date Particulars J.F Amount Date Particulars J.F Amount 2015 Jan.23 To Purchases A/c 500 Naresh account Date Particulars J.F Amount Date Particulars J.F Amount 2015 Jan.25 To sales A/c 950

Jan 28 Jan. By bank A/c By discount allowed A/c

Sales account Date Particulars J.F Amount Date Particulars J.F Amount 2015 Jan 25 By Naresh A/c 950 Discount allowed account Date Particulars J.F Amount Date Particulars J.F Amount 2015 Jan.20 To Naresh A/c 20 Discount received account Date Particulars J.F Amount Date Particulars J.F Amount 2015 Jan 25 By Naveen A/c 50 Wages account Date Particulars J.F Amount Date Particulars J.F Amount 2015 Jan.31 To Cash A/c 350 Rent account Date Particulars J.F Amount Date Particulars J.F Amount 2015 Jan.31 To Cash A/c 200

  1. Enumerate the nature of sales tax and explain how it is collected. Answer: Sales tax is a cumulative tax, collected at various stages of a product's life. In the illustrative example below, a manufacturer of a television buys materials and components and then sells the television to a wholesaler, who in turn sells it to a retailer, who then sells it to a customer. It is assumed that the rate for sales tax is 15% on all items. All the other figures are for illustration only. Input and output sales tax Irrecoverable sales tax