MGT101 Grand Test ( Lesson 1 - 22 ) Aryan Ahmad Evening Class

Journalizing is the act of recording each transaction in the Journal. The Journal is a book of original entry where all transactions are initially recorded in chronological order. Journalizing involves analyzing the transaction, determining the accounts affected, and recording the details of the transaction in the Journal. This step is essential in the accounting process as it provides a complete and accurate record of all financial transactions for a business.

The correct answer is "Net Profit = Income – Expenses" because net profit is calculated by subtracting expenses from income. This formula represents the concept that net profit is the amount left over after deducting all expenses from the total income generated.

In accounting or business terms, a transaction refers to any dealing between two persons involving money or a valuable. This can include the exchange of goods, services, or money between parties. Transactions are recorded in the financial statements and play a crucial role in determining the financial position and performance of a business.

The given statement is true. A budget is indeed a plan that outlines the expected income, expenses, and other financial operations for a future period. It helps individuals and organizations to manage their finances effectively by setting financial goals, allocating resources, and tracking progress. A budget allows for better decision-making and helps in ensuring that income is sufficient to cover expenses and achieve financial objectives.

An accounting system is used by a business to analyze transactions, handle routine book-keeping tasks, and classify and summarize financial information. It encompasses all of these options to ensure accurate and organized record-keeping and financial reporting.

The missing amount in the accounting equation can be computed by subtracting the equity from the total assets. In this case, the total assets are given as Rs 70000 and the equity is given as Rs 31000. So, the missing amount in the liabilities can be calculated as Rs 70000 - Rs 31000 = Rs 39000.

A trust is not a profit-oriented entity because its primary purpose is to manage assets and funds for the benefit of others, such as charitable organizations or beneficiaries. Unlike sole proprietorships, partnerships, and companies, which are all business entities focused on generating profit, a trust is established to serve a specific purpose or cause rather than to maximize financial gains.

The depreciable cost is calculated by subtracting the salvage value from the initial purchase cost. In this case, the salvage value is $800 and the purchase cost is $10,000. Therefore, the depreciable cost would be $10,000 - $800 = $9,200.

Sole proprietorship is a type of business organization where a single individual owns and operates the business. In this structure, the owner has full control and responsibility for all aspects of the business, including decision-making and financial obligations. This type of organization is commonly found in small businesses and offers simplicity in terms of formation and management.

The double entry system is an accounting system that records both aspects of a transaction, including the receipt or payment and the source. This system ensures that every transaction is recorded in at least two accounts, with one account debited and another account credited. This ensures accuracy and completeness in financial record-keeping, as it provides a clear trail of the transaction from both the perspective of the company and the external party involved.

The single entry system is a method of bookkeeping that records only cash movements and only one aspect of the transaction. It is a simplified form of accounting where only one entry is made for each transaction, typically in a cash book. This system is commonly used by small businesses or individuals who have a limited number of transactions to record. Unlike the double entry system, which records both the debit and credit aspects of a transaction, the single entry system only focuses on the cash aspect.

The correct answer is 800. To calculate the net income, we need to subtract the total expenses from the total sales. In this case, the total expenses are 1200 and the total sales are 10000. Subtracting 1200 from 10000 gives us a net income of 8800. However, since the question also mentions purchases, we need to subtract the purchases from the net income. The purchases are given as 8000, so subtracting 8000 from 8800 gives us a final net income of 800.

Capital is like a backbone of any business because it represents the financial resources that a company uses to fund its operations and investments. It includes the money invested by the owners, as well as any loans or financing obtained. Capital is essential for a business to start and grow, as it enables the purchase of assets, payment of expenses, and generation of profits. Without sufficient capital, a business may struggle to meet its financial obligations and expand its operations. Therefore, capital plays a crucial role in providing stability and support to a business, making it an appropriate analogy to a backbone.

The single entry system of bookkeeping is a simplified method used by small businesses to record their financial transactions. It is not suitable for large scale businesses or governments, which typically require more complex and accurate accounting methods. Therefore, the correct answer is small businesses only.

The depreciation expense for the year ended is $3,750. This is calculated by taking the initial cost of the vehicle ($20,000) and subtracting the estimated salvage value at the end of its useful life ($5,000). The result is $15,000. Then, this amount is divided by the expected useful life of the vehicle (4 years). The annual depreciation expense is therefore $3,750.

When the owner invests personal cash in the business, it leads to an increase in assets. This is because cash is considered an asset, and when the owner invests their personal cash, it adds to the cash balance of the business, thereby increasing the overall assets of the business.

The depreciable value is calculated by subtracting the salvage value from the cost of the asset. Depreciable value = Cost - Salvage value = $35,000 - $3,000 = $32,000. The annual depreciation under the straight-line method is the depreciable value divided by the useful life: $32,000 / 10 years = $3,200 per year. So, the correct annual depreciation is $3,200.

In accounting, a debit balance represents an increase in an asset account or a decrease in a liability or equity account. Therefore, under normal circumstances, an asset account would show a debit balance. This means that the total value of assets owned by a company exceeds the total value of its liabilities and equity.

The entry to the Cash account should be a debit because a debit entry increases the balance of an asset account. Cash is an asset account, and when cash is received, it is recorded as a debit entry to reflect the increase in the cash balance. Therefore, the correct answer is "Yes."

Capital Expenditure refers to the expenses incurred to acquire fixed assets or to increase the economic life of existing fixed assets. These expenditures are expected to create future benefits for the company. However, it does not necessarily reduce the profit of the concern. While capital expenditures may have an initial negative impact on profit due to the upfront costs, they can also lead to increased revenue and improved profitability in the long run. Therefore, the statement that capital expenditure reduces the profit of the concern is not true.

If a company has negative working capital, it means that its current liabilities exceed its current assets. This indicates that the company may have difficulty in meeting its short-term obligations with its current assets.

Payment of utility bills is considered a revenue expenditure. Revenue expenditures are expenses incurred in the day-to-day operations of a business to generate revenue. Utility bills, such as electricity, water, and gas, are regular expenses necessary for the functioning of a business. These expenses are incurred regularly and are necessary to keep the business running smoothly. Therefore, payment of utility bills falls under the category of revenue expenditure.

The entry to Mary Smith, Capital should not be a debit because a debit entry would increase the capital account. In accounting, capital accounts are typically credited to reflect an increase in ownership equity. Therefore, the correct answer is "No".

When the company receives $2,000 from the customer in September, the company should debit the Cash account. This is because debiting the Cash account increases the balance of the account, reflecting the inflow of cash into the company.

Partnership is a business structure where two or more individuals share ownership and responsibility for the business. Therefore, ownership is indeed a feature of partnership. The other options, trading, profit sharing, and loss sharing, are all features of partnership as well.

The missing amount in the accounting equation can be computed by subtracting the total assets from the total equity. In this case, the total assets are Rs. 35,000 and the total equity is Rs. 42,000. Subtracting Rs. 35,000 from Rs. 42,000 gives us a difference of -Rs. 7,000. This means that the liabilities for the entity are Rs. 7,000.

A feature of a Joint Stock Company is its separate legal entity. This means that the company is recognized as a distinct legal entity from its owners or shareholders. It can enter into contracts, own property, and sue or be sued in its own name. This provides limited liability to the shareholders, as their personal assets are protected in case of any debts or legal issues faced by the company.

Cash accounting is the correct answer because it is a system in which events are recorded only when actual cash or checks are received or paid. This means that transactions are not recorded until the money is physically exchanged. This method is commonly used by small businesses and individuals as it provides a simple and straightforward way to track cash flow. In contrast, credit accounting records transactions based on credit sales and purchases, regardless of whether cash has been exchanged. The term "transaction" is a general term that refers to any business activity or event that involves the exchange of goods, services, or money. Therefore, "All Of Above" is not the correct answer in this case.

FIFO stands for "First In, First Out," which means that the first items purchased or produced are the first ones to be sold or used. In terms of inventory cost flow assumption, FIFO assumes that the cost of the most recent purchases are likely to remain in inventory. This means that the cost of the items purchased most recently is matched with the revenue from the sale of those items, resulting in a more accurate representation of the current value of inventory. Therefore, the correct answer is FIFO.

Goodwill refers to the intangible value of a business's reputation, customer loyalty, and brand image. It represents the positive perception and trust that customers have towards a company, which can lead to increased sales, customer retention, and overall business growth. Goodwill is considered an asset because it can be bought, sold, or transferred as part of a business acquisition or merger. Therefore, it can be seen as an investment in the business, as it contributes to its long-term success and financial value.

Income refers to the value of goods or services that a business charges from its customers. It is the revenue generated by a company from its primary activities, such as sales of products or services. Income is an important financial metric that indicates the company's ability to generate revenue and is a key component in determining profitability. It represents the inflow of economic benefits to the business, which contributes to its overall financial performance.

The purchase of plant and machinery is considered a capital expenditure because it is a long-term investment that is expected to generate benefits over a period of time. Capital expenditures are typically made to acquire or improve assets that will be used in the business for an extended period, such as equipment, property, or vehicles. These expenditures are not immediately consumed or used up, but rather provide ongoing value to the business. In contrast, revenue expenditures are expenses incurred in the day-to-day operations of the business and are typically consumed or used up within a short period of time. Administrative expenditures are a type of revenue expenditure that relates to the administrative functions of the business.

A budget is a plan that includes both income and expenses, as well as other financial operations. It is a comprehensive plan that outlines how much money will be earned, how much will be spent, and any other financial activities that will take place. This includes not only income and expenses, but also savings, investments, and any other financial transactions that may occur.

Cash in hand is not our profit because cash in hand refers to the physical currency or cash that a business has on hand at a given time. Profit, on the other hand, is the financial gain that a business earns after deducting all expenses from its revenue. While cash in hand can contribute to a business's overall financial health, it does not directly represent the profit generated by the business. Profit is calculated by considering various factors such as revenue, expenses, investments, and taxes. Therefore, cash in hand cannot be equated to profit.

The correct quotation for the calculation of profit is "Cash Sale-Cash Payment + (Credit Sale-Credit Expense)". This equation takes into account the cash sales, cash payments, credit sales, and credit expenses to determine the overall profit. By subtracting the cash payments and adding the credit sales and credit expenses, we can calculate the net profit.

Depreciation expenses of fixed assets are considered capital expenses. Capital expenses are incurred to acquire or improve long-term assets, such as buildings, equipment, or vehicles, which are expected to provide benefits over multiple accounting periods. Depreciation expenses, which represent the allocation of the cost of these assets over their useful lives, are considered a capital expenditure because they are associated with the acquisition or improvement of fixed assets.

The correct answer is "Accumulated Depreciation". Accumulated Depreciation refers to the gradual decrease in the value of a fixed asset over time due to factors such as age, wear and tear. It is a contra-asset account that is used to record the total depreciation expense incurred on the asset since its acquisition. By subtracting the accumulated depreciation from the original cost of the asset, the net book value or written down value can be determined.

The main objective of any business is to earn a gain. This means that the business aims to generate a profit and increase its revenue. By earning a gain, the business can cover its expenses, invest in growth opportunities, and provide returns to its stakeholders. Minimizing margin, decreasing profit, and increasing sales are not the primary objectives of a business, although they may be strategies or factors that contribute to achieving the main objective of earning a gain.

Expenses will cause owner's equity to decrease, not increase. Owner Draws will also decrease owner's equity. However, Revenue will increase owner's equity. Therefore, the correct answer is C, "All of above", as both Expenses and Owner Draws will decrease owner's equity, while Revenue will increase it.

The accounting equation should remain in balance because every transaction affects at least two accounts. In double-entry accounting, each transaction has a dual effect on the equation, with one account being debited and another account being credited. This ensures that the equation stays in balance, as the total debits must equal the total credits. Therefore, the correct answer is "Two Or More" because multiple accounts are impacted by each transaction.

LIFO (Last In, First Out) is the correct answer because it is an inventory cost flow assumption where the cost of the most recent purchase is matched first against sales revenues. This means that under LIFO, the most recently acquired inventory is assumed to be sold first, leaving the older inventory in stock. This method is commonly used in situations where prices are rising, as it results in a higher cost of goods sold and lower ending inventory value, which can provide tax advantages by reducing taxable income.

The FIFO (First-In, First-Out) method assumes that the first units purchased are the first ones sold. In this case, the beginning inventory of 10 units is sold first, followed by the first purchase of 35 units, and then the second purchase of 40 units. The ending inventory is therefore made up of the remaining 20 units from the second purchase and the entire third purchase of 20 units. The value of the ending inventory can be calculated by multiplying the number of units in inventory (40 units) by the cost per unit from the second purchase (Rs. 12 per unit), which equals Rs. 480. Subtracting the cost of the units sold (Rs. 220) from this value gives us Rs. 260, which is the value of the ending inventory.

Financial accounting is used to meet the financial needs of a business. It involves recording, summarizing, and reporting financial transactions and information to stakeholders such as investors, creditors, and regulators. Financial accounting provides crucial information about the financial performance and position of a business, which helps in making informed decisions. It also ensures transparency and accountability in financial reporting, which is essential for attracting investors and maintaining the trust of stakeholders. Therefore, financial accounting is necessary to fulfill the financial requirements of a business.

Fuel cost of plant and machinery is considered as a revenue expenditure because it is a regular and recurring expense that is incurred frequently during the year. Revenue expenditures are expenses that are incurred in the normal course of business operations and are essential for generating revenue. These expenses are deducted from the revenue earned in the same accounting period and are not capitalized or included in the cost of assets. In this case, the fuel cost is necessary for operating the plant and machinery, which directly contributes to the generation of revenue.

Bookkeeping refers to the practice of maintaining a daily record of all financial transactions. It involves recording, organizing, and summarizing financial data to help businesses track their income, expenses, and overall financial health. By keeping accurate and up-to-date records, bookkeeping enables businesses to make informed financial decisions, comply with legal requirements, and assess their financial performance. Therefore, bookkeeping is the correct answer as it aligns with the description provided in the question.

The correct answer is "none of above" because the net income is calculated by subtracting expenses from the sales. In this case, the sales are $100,000 and the expenses are $55,000. Therefore, the net income would be $45,000. None of the given options match this amount.

When the owner withdraws cash from the business for personal use, it does not have any effect on liabilities. Liabilities are the obligations or debts of the business to external parties, such as loans or accounts payable. The owner's withdrawal of cash for personal use is not considered a liability because it does not create an obligation or debt for the business. Therefore, there is no effect on liabilities when the owner withdraws cash for personal use.

Repair of plant and machinery is considered a revenue expenditure because it is a routine expense incurred to maintain and keep the assets in working condition. This type of expenditure is necessary for the day-to-day operations of a business and does not result in the acquisition of a new asset or an increase in the earning capacity of the business. As it is done every year, it is classified as a revenue expenditure rather than a capital expenditure, which would involve significant investments in new assets or improvements to existing ones.

The cost of acquiring copyright, patents, and goodwill is considered a capital expenditure because these intangible assets are expected to provide long-term benefits to the company. Capital expenditures are investments in assets that will be used for many years and are not intended for immediate consumption or sale.

The correct answer is profit. Profit refers to the money or resources that an individual invests from their own pocket into a business. It is the financial gain that a business makes after deducting all expenses and losses. This term is used to indicate the positive outcome of a business venture, where the revenue generated exceeds the costs incurred.