CHAPTER 2 - ACCOUNTANCY - Test 1

According to accrual concept of accounting, financial or business transaction is recorded:

• when cash is received or paid

• when transaction occurs

• when profit is computed

• when balance sheet is prepared

The John Marketing Company provides advertising services to an investment company in year A but receives advertising fee in year B. The John Marketing Company recognizes this revenue in year A. This action of John Marketing Company is justified by:

• business entity concept

• revenue recognition principle

• economic entity concept

• going concern concept

A company is a going concern if:

• its balance sheet shows a strong financial position

• its income statement for the current year shows huge profit

• there is no evidence that it will or will have to cease operations within foreseeable future

• it is a public limited company

Which accounting concept or principle states that the transactions of a business must be recorded separately from those of its owners or other businesses?

• materiality concept of accounting

• time period concept of accounting

• matching principle of accounting

• business or economic entity concept of accounting

The business or economic entity concept is applicable to:

• sole proprietorship form of business

• partnership form of business

• corporate form of business

• all of the above

Which of the following states that a transaction is not recorded in the books of accounts unless it is measurable in terms of money?

• Matching principle

• Revenue recognition principle

• Money measurement concept

• Time period assumption

Which one of the following states that the life of a business can be divided into equal time periods?

• Periodicity concept

• Revenue recognition principle

• Economic entity concept

• Accrual concept

The auditor noticed that the financial statements of Meta Company were missing some footnotes important for users for decision making. This action of the management is a violation of:

• materiality concept

• going concern concept

• economic entity concept

• full disclosure concept

A fixed asset costing Rs 30,000 is depreciated over its estimated useful life of 15 years. This action is related to:

• matching principle

• monetary unit assumption

• full disclosure concept

• None of the above

In certain situations, companies might recognize losses but not gains. This action belongs to:

• revenue recognition principle

• monetary unit assumption

• conservatism principle

• matching principle