Accounts Questions Test Quiz! Trivia

VAT stands for Value Added Tax, which is a consumption tax levied on the value added to a product or service at each stage of its production or distribution. It is commonly used by governments as a way to generate revenue and is typically calculated as a percentage of the final selling price of a product or service. VAT is not the same as a sales tax, as it is applied at multiple stages of production rather than just at the point of sale.

Creditors for goods are a liability because they represent the amount owed by the company to its suppliers for goods purchased on credit. This liability arises from the company's obligation to pay its creditors in the future, typically within a specified period of time. As a result, creditors for goods are recorded as a liability on the company's balance sheet, reflecting the company's financial obligation to repay the amount owed.

Bills Payable A/c is shown in the balance sheet under the head "Current liabilities" because it represents the amount of money that a company owes to its creditors for bills that have been issued but not yet paid. Current liabilities are obligations that are expected to be settled within a year, and bills payable falls under this category as it is a short-term debt that needs to be paid off in the near future.

Crossing your cheques with the phrase 'Account Payee only, Not Negotiable' ensures that the cheque can only be deposited into the account of the named payee and cannot be transferred to another person. This reduces the risk of the cheque being cashed by someone else if it is lost or stolen in the post. Using the postal service, paying by cash, or taking the money in person do not provide the same level of protection for lost or stolen cheques.

Loan from Harish is not an asset because it represents a liability rather than something of value that the company owns. While buildings, debtors, and cash balance are all assets that contribute to the company's value, a loan from Harish represents money that the company owes to someone else. Therefore, it is considered a liability rather than an asset.

Net profit is calculated in the Profit and loss account. The Profit and loss account is a financial statement that summarizes the revenues, costs, and expenses incurred during a specific period. It shows the net profit or loss of a business after deducting all expenses from the revenues. The balance sheet, on the other hand, provides a snapshot of a company's financial position at a specific point in time and does not directly calculate net profit. The trading account calculates the gross profit or loss, while the trial balance is a list of all the accounts and their balances to ensure that the books are in balance.

A Bank Reconciliation Statement is a statement drawn up by us to verify our cash book balance with the bank statement balance. This statement helps in identifying any discrepancies or errors in recording transactions between the bank and the company. By comparing the transactions in the cash book with those in the bank statement, any differences can be identified and necessary adjustments can be made to ensure the accuracy of the company's financial records.

The journal is part of the double entry system. In accounting, the double entry system is used to record financial transactions. It requires every transaction to have an equal and opposite entry in at least two accounts. The journal is the book where these transactions are initially recorded in chronological order before being transferred to the appropriate accounts in the ledger. It serves as a primary record of all financial transactions and is an essential component of the double entry system.

In India, two companies cannot be registered under the same name. The Companies Act, 2013 mandates that every company must have a unique name to avoid confusion and ensure transparency in business transactions. The name of a company must be unique and should not resemble or be identical to any existing registered company. This is done to protect the interests of the companies and prevent any potential misuse or infringement of trademarks. Therefore, registering two companies with the same name is not allowed in India.

Carriage inwards refers to the cost incurred in transporting goods from the supplier to the buyer's location. Since it is directly related to the purchase of goods, it is considered an expense connected with buying goods. As a result, it is charged to the trading account, which records all the expenses and revenues related to the core business operations. Carriage inwards should not go in the balance sheet because it is not an asset or liability, but rather an expense. Carriage outwards, on the other hand, is the cost of transporting goods from the buyer's location to the customers and is recorded in the profit and loss account. It is important to note that carriage inwards is distinct from motor expenses, which include the cost of operating vehicles for business purposes.

Profit increases capital because when a business earns profit, it adds to its capital or financial resources. Profit is the surplus amount remaining after deducting expenses from revenue. This surplus can be reinvested into the business, leading to an increase in capital. By accumulating profit, a business can expand its operations, invest in new assets, or finance future projects. Therefore, profit plays a crucial role in growing and strengthening the capital base of a business.

Fixed assets are items that have a long life and are not intended for resale. They are typically expensive items that are purchased to be used in the business and are not expected to wear out quickly. These assets are considered long-term investments and are not intended for short-term profit through resale.

The salary paid to a partner is a distribution of profits and is recorded in the Profit & Loss appropriation account. This account is used to allocate the profits of the partnership among the partners, including any salaries or bonuses paid to partners. The Profit & Loss appropriation account is a part of the financial statement that shows how the profits are distributed and is separate from the Trading account, which records the revenue and expenses related to the regular operations of the business. It is also different from the Revaluation account, which is used to adjust the values of assets and liabilities during a partnership revaluation.

When the trial balance totals do not agree, it means that there is an imbalance in the debits and credits. To rectify this imbalance, the difference is entered in a temporary account called a Suspense Account. The Suspense Account acts as a placeholder until the error causing the imbalance is identified and corrected. Once the error is found, the necessary adjustments are made, and the Suspense Account is closed by transferring the balance to the correct accounts. Therefore, the correct answer is A Suspense Account.

The correct answer is Companies Act. ABC Limited prepares its accounts based on the Companies Act, which is a legislation that governs the formation, operation, and dissolution of companies. This act provides guidelines and regulations for financial reporting, disclosure, and accounting standards that companies need to follow. Therefore, ABC Limited follows the Companies Act to ensure compliance with legal requirements and to maintain transparency and accuracy in their financial statements.

The owner of the consignment stock is the consignor. The consignor is the party who sends the goods to another party, known as the consignee, for the purpose of selling them on behalf of the consignor. The consignor retains ownership of the goods until they are sold by the consignee. Therefore, the consignor is the correct answer in this case.

There are three golden rules.

Capital Expenditure refers to the money spent on purchasing fixed assets or enhancing their value. This includes investments made in acquiring new equipment, machinery, buildings, or making improvements to existing assets. It is a long-term investment that is expected to generate future benefits for the business. Unlike day-to-day operational expenses, capital expenditure is aimed at improving the business's productive capacity or efficiency.

The given answer is incorrect because outstanding expenses are not considered as a current asset. Outstanding expenses are liabilities that occur when a company has received goods or services but has not yet paid for them. They are recorded as a liability in the balance sheet, not as a current asset. Current assets include items like cash, inventory, and accounts receivable, which can be easily converted into cash within a year.

Working capital is the term used to describe the excess of current assets over current liabilities. This means that it represents the amount of money a company has available to cover its short-term obligations and fund its day-to-day operations. By subtracting the current liabilities from the current assets, the resulting figure indicates the company's liquidity and ability to meet its short-term financial obligations. A positive working capital indicates that the company has enough resources to cover its short-term debts, while a negative working capital implies potential liquidity problems.

The correct answer is "Yes, always." This means that the trial balance totals should always agree. A trial balance is a statement that lists all the general ledger accounts and their balances to ensure that debits equal credits. If the trial balance totals do not agree, it indicates that there is an error in the recording of transactions. Therefore, it is important for the trial balance totals to always balance in order to ensure the accuracy of the financial records.

Office rent should be charged in the Profit and Loss Account because it is an expense incurred in the normal course of business operations. The Profit and Loss Account is used to record all the expenses and revenues of a company, and office rent falls under the category of operating expenses. By including office rent in the Profit and Loss Account, the company can accurately calculate its net profit or loss for a specific period.

The annual report is a comprehensive document that provides a summary of a company's financial performance and activities over the course of a year. It typically includes financial statements such as the balance sheet, profit and loss account, and cash flow statement. However, the trial balance is not included in the annual report. The trial balance is an internal document used by accountants to ensure that the debits and credits in the general ledger are in balance before preparing the financial statements. While important for internal record-keeping and auditing purposes, the trial balance is not typically included in the annual report as it is not considered necessary information for external stakeholders.

Prepaid expenses are expenses that have been paid in advance but have not yet been consumed or used. They are considered as assets because they represent future economic benefits for the company. Therefore, prepaid expenses of Rs.1000/- shown in the trial balance will appear on the assets side of the balance sheet.

Real accounts are those accounts that represent tangible assets, properties, or liabilities. They are recorded on the balance sheet and have a physical existence. Cash Account, Investment Account, and Motor Car Account are all examples of real accounts as they represent actual assets. Outstanding Rent Account, on the other hand, represents a liability and is considered a nominal account. Therefore, it is not a real account.

Company accounts are prepared based on Schedule VI. Schedule VI is a part of the Companies Act, 1956, which provides the format and guidelines for the preparation of financial statements for companies in India. It specifies the minimum requirements for the presentation of balance sheets, profit and loss accounts, and other financial statements. This schedule ensures uniformity and comparability in the financial reporting of companies, making it easier for stakeholders to analyze and understand the financial performance and position of the company.

Annual maintenance charges will not be included in the acquisition cost of plant because they are ongoing expenses incurred after the plant has been acquired. The acquisition cost typically includes the purchase price of the plant, installation expenses, and any delivery charges directly related to acquiring the plant. However, annual maintenance charges are separate expenses that occur after the acquisition and are not considered part of the initial cost of acquiring the plant.

Office fixtures sold should not be called 'Sales' because it refers to the sale of assets or equipment owned by the company, rather than the sale of goods or products that the company produces or trades in. 'Sales' typically refers to the revenue generated from the sale of goods or products, either on credit or for cash. However, the sale of office fixtures is considered a disposal of assets and should be categorized separately from sales.

A Provision for Doubtful Debts is created to provide for possible bad debts. This means that a certain amount of money is set aside by a company to cover any potential losses that may arise from customers who are unable to pay their debts. This provision acts as a precautionary measure to ensure that the company's financial statements accurately reflect the potential risks associated with unpaid debts. By creating this provision, the company can better manage its cash flow and financial stability.

TDS stands for Tax Deposited at Source. This refers to the system in which tax is deducted from the income of an individual or entity at the source itself, before it is received by them. The deducted tax is then deposited with the government. This system ensures that tax is collected in a timely manner and helps in preventing tax evasion.

When a fixed asset is sold, the profit or loss on the sale is transferred to the Profit & Loss A/c. This is because the Profit & Loss A/c is used to record all the revenues and expenses of a business, including any gains or losses from the sale of fixed assets. By transferring the profit or loss to the Profit & Loss A/c, the impact of the sale is reflected in the overall financial performance of the company.

A trial balance is a list of closing balances of all the accounts in the general ledger. It is prepared at the end of an accounting period to ensure that the total debits equal the total credits. This helps in identifying any errors or discrepancies in the recording of financial transactions. The purpose of a trial balance is not to show the financial position of a business or to show all the entries in the books, but rather to verify the accuracy of the accounts by comparing the debits and credits.

When a debt that was previously written off as bad is collected by the proprietor and retained for personal use, the accounting treatment for this transaction is to debit the Drawings account and credit the Bad debts account. This is because the amount collected is considered a personal withdrawal by the proprietor, hence it is recorded in the Drawings account. At the same time, the Bad debts account is credited to reverse the previous write-off and reflect the collection of the debt.

Posting the transactions in bookkeeping refers to making the first entry of a double entry transaction. In double-entry bookkeeping, every transaction affects at least two accounts, with one account being debited and another being credited. Posting involves recording the transaction in the respective accounts by entering the debits and credits. The first entry in a double entry transaction is typically recorded by debiting or crediting the appropriate account, while the second entry is made in the corresponding account to maintain the balance.

If the balance on a Suspense Account is of a material amount, it is important to find the error(s) before publishing the final accounts. This is because a material balance on the Suspense Account indicates that there are significant discrepancies or mistakes in the accounting records. By finding and correcting these errors before finalizing the accounts, the financial statements will accurately reflect the company's financial position and performance. Writing off the balance to the balance sheet or the profit and loss account, or carrying it forward to the next period, would not address the underlying errors and could lead to inaccurate financial reporting.

The purchase of stationery should be debited to the Purchases A/c because it represents the cost of acquiring inventory for resale. This account is used to track the cost of goods purchased for the purpose of generating revenue. General Expenses A/c is used for expenses that are not directly related to the purchase of inventory, while Stationery A/c is used to track the inventory of stationery items. Therefore, the correct account to debit in this case is Purchases A/c.

The correct answer is 12%. Service tax is a tax levied by the government on certain services provided by service providers. The rate of service tax in India was 12% until the implementation of Goods and Services Tax (GST) in 2017. After GST, service tax was replaced by GST and the rate of tax on services varies depending on the type of service provided. However, prior to GST, the rate of service tax was indeed 12%.

A Receipts and Payments Account is a financial statement that records all cash inflows and outflows during a specific period. It is used by non-profit organizations to track their cash transactions. The account shows the surplus of income over expenditure, meaning it calculates the excess of cash received compared to the cash spent. This helps in determining the financial position of the organization and its ability to cover expenses. The account does not calculate profit as it is not applicable to non-profit entities. It is accompanied by a balance sheet that provides a snapshot of the organization's assets, liabilities, and equity at a specific point in time. The opening and closing cash balances are also shown in the Receipts and Payments Account to provide information about the organization's cash position at the beginning and end of the accounting period.

The term "Purchases" refers to goods that are bought for the purpose of resale. This means that the goods are not intended for personal use or consumption, but rather for selling to customers. The term "Purchases" specifically excludes goods that are bought on credit or goods that have been paid for. It focuses on the act of acquiring goods for the purpose of selling them again.

The correct answer is "Written Down Value". In the Reducing Balance Method of depreciation, the depreciation is calculated on the written down value of the asset. This means that the depreciation is based on the remaining value of the asset after deducting the accumulated depreciation. As the asset ages and depreciates, the written down value decreases, and the depreciation expense also decreases over time. This method is commonly used to reflect the decreasing value of assets as they are used and become less valuable over time.

Wages paid for installation of machinery are considered of capital nature because they are directly associated with the acquisition and installation of a long-term asset, which is the machinery. These wages contribute to increasing the value or capacity of the machinery and are therefore classified as capital expenses. On the other hand, the purchase of goods, cost of repair, and rent of a factory are typically considered revenue expenses as they are directly related to the day-to-day operations of the business.

The provision for doubtful debts is an estimated amount set aside by a company to cover potential losses from customers who may not be able to pay their debts. This provision is deducted from the total amount of debtors to reflect the anticipated losses. Therefore, the correct answer is "After deducting provision for doubtful debts." This ensures that the financial statements accurately reflect the net amount of debtors after accounting for potential bad debts.

The Bank Reconciliation Statement is prepared to identify the reasons for the difference between the balance as per the bank column of the Cash Book and the balance as per the Pass Book. This statement helps in reconciling the discrepancies and ensuring that the records of the company's cash transactions are accurate and complete. By comparing the two balances, any errors, omissions, or outstanding transactions can be identified and rectified.

The expenditure of Rs 2.5 lakhs for repairs on the 3-year-old house used as a guest house is considered a revenue expenditure. Revenue expenditures are expenses incurred to maintain or improve the existing assets of a company, which do not increase the earning capacity or lifespan of the asset. In this case, the repairs are necessary for the day-to-day functioning and maintenance of the guest house, making it a revenue expenditure.

The correct answer is "None" because rent due for the month of March will not appear in the cash book. The cash book is used to record cash transactions, but rent due is not a cash transaction. Rent due is typically recorded in a separate account such as accounts payable or rent payable.

Preliminary expenses are costs incurred before the start of a business, such as legal fees, registration costs, or promotional expenses. These expenses are considered as an intangible asset for the business and are shown on the balance sheet under the assets side. This is because preliminary expenses are expected to provide future benefits to the business and are therefore considered as an asset. They are not shown on the trading account or profit and loss appropriation account as they are not directly related to the revenue or expenses of the business operations.

When wages are paid for the construction of a building, the cash account is credited because cash is being paid out. At the same time, the building account is debited because the value of the building is increasing as construction work is being done.

The Debit the Giver rule does not apply to any specific type of account. It is a general accounting principle that states that when recording a transaction, the account that gives or provides something is debited. However, this rule applies to all types of accounts, including real, nominal, and personal accounts. Therefore, the correct answer is "None of these."

The correct answer is "Net profit less expenses of the period." Gross profit is the excess of sales over the cost of goods sold, while net profit is the final profit after deducting all expenses incurred during the period. Therefore, net profit less expenses of the period is the appropriate definition for gross profit.

Depreciation refers to the decrease in value of a fixed asset over time due to wear and tear, obsolescence, or other factors. It is not the amount spent in replacing assets, but rather the part of the cost of the fixed asset that is consumed during its period of use by the firm. Therefore, the correct answer is "The part of the cost of the fixed asset consumed during its period of use by the firm."