MGT101 Financial Accounting Exam Quiz!

The cost of material consumed can be calculated by subtracting the closing stock of raw material from the sum of the opening stock and purchases of raw material. In this case, the opening stock is Rs. 100,000 and the purchases of raw material is Rs. 200,000, making the total available material Rs. 300,000. Subtracting the closing stock of Rs. 85,000 from this gives us Rs. 215,000, which is the cost of material consumed.

When goods are purchased on cash, the amount paid will be credited to the Cash account. This is because the Cash account represents the company's cash balance, and when cash is paid out, the balance in the Cash account decreases. Therefore, the Cash account will be credited to reflect the decrease in cash due to the purchase of goods.

The double entry accounting system includes both cash and accrual accounting. Cash accounting records transactions when cash is received or paid, while accrual accounting records transactions when they occur, regardless of cash flow. By using both methods, the double entry system provides a more comprehensive and accurate representation of a company's financial transactions and performance.

Book-keeping is the correct answer because it refers to the process of recording all financial transactions undertaken by an individual or organization. It involves keeping track of income, expenses, assets, and liabilities, and is essential for maintaining accurate financial records. Book-keeping helps in monitoring financial health, preparing financial statements, and making informed decisions based on the recorded transactions. It is a crucial aspect of financial management and ensures transparency and accountability in financial matters.

The closing written down value (WDV) can be calculated by subtracting the depreciation during the year from the opening written down value and adding the cost of the new machine. In this case, the opening WDV is Rs. 1,00,000, the cost of the new machine is Rs. 50,000, and the depreciation during the year is Rs. 21,000. Therefore, the closing WDV would be Rs. 1,00,000 + Rs. 50,000 - Rs. 21,000 = Rs. 1,29,000.

The net profit can be calculated by subtracting the cost of sales and operating expenses from the sales. In this case, the cost of sales is Rs. 60,000 and the operating expenses are Rs. 20,000. Therefore, the net profit would be Rs. 95,000 (sales) - Rs. 60,000 (cost of sales) - Rs. 20,000 (operating expenses) = Rs. 15,000.

A bank overdraft is not an example of a current asset because it represents a liability rather than an asset. A bank overdraft occurs when a company withdraws more money from its bank account than it currently has available, resulting in a negative balance. This negative balance represents a debt owed by the company to the bank, making it a liability. In contrast, accounts receivable, notes receivable, and prepaid expenses are all examples of current assets that represent the company's right to receive cash or other assets within a year.

The amount of Rs. 3,00,000 will be treated as revenue for the business because revenue refers to the total income generated from the sale of goods or services. In this case, Mr. A sold goods to Mr. B for Rs. 3,00,000, which constitutes the revenue earned by the business.

The money measurement concept in accounting states that only transactions that can be expressed in monetary terms are recorded in the financial statements. This means that any event or item that cannot be measured in money, such as employee satisfaction or customer loyalty, will not be recorded. The concept ensures that financial information is objective and comparable, as it focuses on quantifiable data that can be easily understood and analyzed.

Nonprofit organizations, by definition, do not aim to generate profits. They focus on fulfilling a social or charitable mission rather than making money. Therefore, they do not prepare Profit & Loss accounts, which are used to measure the profitability of a business or organization. Instead, nonprofits typically prepare an Income & Expenditure account to track their revenue and expenses, a Receipts & Payments account to record their cash inflows and outflows, and a Balance Sheet to provide a snapshot of their financial position.

When a business buys goods on credit from Mr. Ali, it means that the business owes money to Mr. Ali for the goods purchased. In accounting terms, this is recorded as a liability. The account that will be credited in this transaction is Mr. Ali account, as it represents the amount owed to him.

When a payment is made to the creditor of the business, it means that the business is using its assets (cash) to decrease its liabilities (creditor's payable). As a result, there is a decrease in an asset (cash) and a decrease in a liability (creditor's payable), which is reflected in the accounting equation (Assets = Liabilities + Owner's Equity).

Double entry bookkeeping is the correct answer because it is the foundation of commercial accounting. This method involves recording every financial transaction in at least two accounts, with one account debited and another credited. This ensures that the accounting equation (assets = liabilities + equity) remains in balance. Double entry bookkeeping provides a comprehensive and accurate record of a business's financial transactions, allowing for the preparation of financial statements and analysis of the company's performance. It is widely used in commercial accounting to maintain accurate and reliable financial records.

A Bank Reconciliation Statement is a memorandum statement that helps in reconciling the difference between the bank balance as per the cash book and the bank balance as per the bank statement. It lists all the transactions that have not yet been recorded in the cash book, such as outstanding checks, deposits in transit, bank charges, and interest earned. By comparing the two balances and making necessary adjustments, the Bank Reconciliation Statement ensures that the cash book and bank statement are in agreement.

The Bank Reconciliation Statement is prepared by the Accountant of the business. This statement is used to reconcile the bank balance as per the company's records with the bank statement. The accountant is responsible for comparing the transactions recorded in the company's books with the transactions reflected in the bank statement, identifying any discrepancies, and making necessary adjustments. This ensures that the bank balance is accurate and any differences are accounted for. Bankers, statutory auditors, and managers may have access to the statement, but it is the accountant's role to prepare and reconcile it.

The amount of salary paid to Mr. Sohail should be debited to the Salaries account. This is because the Salaries account is used to record all the salaries paid to employees. By debiting the Salaries account, it will accurately reflect the amount of money paid out for salaries in the financial records.

A trial balance is an informal accounting statement that lists the ledger account balances at a specific point in time and compares the total of debit balances with the total of credit balances. It helps in identifying any errors or discrepancies in the recording of transactions. By comparing the total debits and credits, it ensures that the accounting equation (Assets = Liabilities + Equity) is in balance. Therefore, the correct answer is Trial Balance.

When a liability is reduced or decreased, it is recorded on the left or debit side of the account. This is because liabilities have a normal credit balance, meaning they increase on the credit side and decrease on the debit side. By recording the reduction on the debit side, it helps maintain the balance of the account and accurately reflects the decrease in the liability.

The value of Gross Profit can be calculated by subtracting the cost of sales from the sales. In this case, the cost of sales is Rs. 60,000 and the sales are Rs. 95,000. Therefore, the Gross Profit would be Rs. 35,000 (Rs. 95,000 - Rs. 60,000).

A summarized record of transactions related to individuals or things is called an account. This record provides a detailed overview of all the financial activities and transactions associated with a specific entity or item. It includes information such as debits, credits, balances, and any relevant details pertaining to the transactions. Accounts are essential for tracking and managing financial information accurately and efficiently.

The policy for charging depreciation is selected by management. This is because management is responsible for making decisions regarding the overall financial strategy and operations of the company. They have the authority to determine the appropriate depreciation policy based on factors such as the company's financial goals, industry standards, and regulatory requirements. The management's decision on the depreciation policy will impact the financial statements and the calculation of the company's net income and asset values.

The cost incurred for the maintenance of a shop is considered a revenue expense. Revenue expenses are the costs that a business incurs in its day-to-day operations to generate revenue. These expenses are deducted from the revenue earned in the same accounting period and are not expected to provide long-term benefits. Maintenance costs, such as repairs, cleaning, and regular upkeep of the shop, are necessary expenses to keep the business running smoothly and generate revenue in the short term. Therefore, they fall under the category of revenue expenses.

The correct answer is "Accounts". Accounts refer to the records that are maintained for individual asset, liability, equity, revenue, expense, and dividend components. These records provide a detailed overview of the financial transactions and balances associated with each component. By keeping track of accounts, organizations can effectively manage their financial resources and make informed decisions.

The profit or loss on the disposal of the fixed asset can be calculated by subtracting the sale price from the written down value of the asset. In this case, the written down value of the asset after 5 years is Rs. 75,000 and the sale price is Rs. 15,000. Therefore, the loss on the disposal of the fixed asset is Rs. 60,000.

A voucher is a documentary evidence used to record the details of a transaction. It is a specific format that provides information about the transaction such as the date, amount, description, and parties involved. Vouchers are important for maintaining accurate financial records and can be used as proof of the transaction. They serve as a supporting document for the entries made in the accounting system and help in ensuring transparency and accountability in financial transactions.

The unfavorable balance of the Profit and Loss account represents a loss incurred by the business. Since losses reduce the capital of the business, the unfavorable balance should be subtracted from the capital. This adjustment reflects the decrease in the owner's equity due to the loss.

Expense refers to the cost of goods and services that are used up in the process of generating revenue. It represents the outflow of resources from a company to generate income. Expenses include various costs such as salaries, rent, utilities, and raw materials. By deducting expenses from revenue, a company can determine its net income or profit. Therefore, expense is the correct answer in this context as it accurately describes the cost of goods and services used up in obtaining revenue.

When a cheque drawn to a creditor is not paid by the bank, it means that the payment is not deducted from the bank account. As a result, the cash book will show a higher balance because the payment is still recorded as an outgoing transaction. On the other hand, the bank book will show a lower balance because the payment was not processed by the bank. Therefore, the correct answer is that the cash book will show less balance and the bank book will show more.

The realization concept states that revenue should be recognized or recorded when the goods are sold or services are rendered to the customer. This means that revenue should be recognized when it is earned, regardless of when the payment is received. This concept ensures that revenue is accurately reported in the period in which it is earned, providing a more accurate representation of the company's financial performance.

The statement "A vague term for loans to be repaid by an enterprise after twelve months" is incorrect because current liabilities are obligations that are due within one year, not after twelve months. Current liabilities include short-term loans and other obligations that need to be settled within a year. In working capital calculations, current liabilities are deducted from assets to determine the net working capital of a company.

Expenditures incurred annually on renewal of patent are known as revenue expenditures because they are recurring expenses that are necessary to maintain the patent rights and are deducted from the company's revenue in the same accounting period. These expenditures do not result in the acquisition of any new assets or increase the company's earning capacity, but rather help in maintaining the existing patents.

The cash account will be shown on the debit side of the trial balance because it represents an asset. In accounting, assets are typically recorded on the debit side, while liabilities and equity are recorded on the credit side. Therefore, the cash account, which represents an asset, will be shown on the debit side of the trial balance.

The correct answer is "All of the given options." This is because all three terms - residual value, salvage value, and scrap value - refer to the estimated value at which an asset is expected to be sold after the end of its useful life. These terms are often used interchangeably in accounting and finance to represent the same concept.

The revenue that should be reported on the income statement of the current time period under the Cash Basis of Accounting is Rs. 400,000. This is because the Cash Basis of Accounting recognizes revenue when cash is received, regardless of whether it is from cash sales or credit sales. In this case, the company sold Rs. 400,000 of merchandise for cash, so this amount should be reported as revenue on the income statement. The Rs. 120,000 of merchandise sold to credit customers will be recognized as revenue in the later time period when the customers actually pay for the merchandise.

Accrual accounting is an accounting system in which events are recorded as and when they occur. This means that transactions are recorded when they are incurred, regardless of when the cash is received or paid. It provides a more accurate picture of a company's financial position and performance by recognizing revenues and expenses in the period they are earned or incurred, rather than when the cash is exchanged. This method is widely used by businesses to comply with generally accepted accounting principles (GAAP). Cash accounting, on the other hand, records transactions only when cash is received or paid, making it less accurate and less commonly used.

The beginning balance of Owner's Equity was Rs.7,500. Dividends paid to stockholders were Rs.1,500. The ending balance of Owner's Equity is Rs.5,000. To find the Net Income or Net Loss, we need to calculate the change in Owner's Equity. The change in Owner's Equity can be calculated by subtracting the dividends paid from the beginning balance and adding the ending balance. Therefore, the change in Owner's Equity is (7500 - 1500) + 5000 = 11,000. Since the ending balance is lower than the beginning balance, there is a Net Loss. The Net Loss is the difference between the change in Owner's Equity and the dividends paid, which is 11,000 - 1,500 = Rs.1,000. Therefore, the correct answer is Net Income of Rs. 1,000.

If no distribution is made between capital and revenue expenditure, it means that expenses are not classified correctly. Net profit is calculated by deducting all expenses from the revenue. If the expenses are not properly classified, the net profit figure will be incorrect.

The Trading and Profit & Loss account shows the financial health of an organization at a stated period of time. This statement summarizes the revenues, expenses, and profits or losses of a company during a specific accounting period. It provides information on the company's ability to generate profits and manage expenses, giving insights into its financial performance and overall health. The balance sheet, cash flow statement, and statement of retained earnings provide different types of financial information but do not specifically show the financial health of the organization at a stated period of time.

The missing value of the Accounting Equation can be calculated by subtracting the sum of Owner's equity, Total Liabilities, Cash in hand, Cash at bank, and Debtors from the given value of Rs. 1, 02,885 for other assets.

The correct answer is Cash & Bank. When Mr. A borrows money from the bank, it implies that cash is received by Mr. A and the bank's liability towards Mr. A increases. Therefore, the transaction involves both the Cash account (as it increases) and the Bank account (as it decreases).