1 Introduction to Accounting World

A business uses the owner's private house as an office and pays a monthly rental of $1,500. Which of the following conventions is being applied?

• Conservatism Convention

• Objectivity Convention

• Accrual Convention

• Accounting Entity Convention

The business expects that it will make a large profit from the disposal of its fixed assets. However, this is not disclosed in the current financial statement. Which of the following conventions is being applied?

• Conservatism Convention

• Accounting Entity Convention

• Historical Cost Convention

• Consistency Convention

Your business bought a set of furniture for $5,000 at a very good bargain and another set for $4,500. You would have to pay $6,000 and $4,500 respectively if you acquired the furniture from another source. How much would you record this in the books of accounts based on historical cost?

• $9,500

• $10,500

• $11,000

• $9,000

‘The owner and the business are regarded as separate bodies.’ Which accounting concept aptly applies to this case?

• Legal Entity Concept

• Accounting Entity Concept

• Historical Cost Concept

• Prudence Concept

The accountants have the tendency to understate rather than overstate the profit and assets. The accounting concept which best describes the above statement is ________________________

• Objectivity Concept

• Consistency Concept

• Accrual Concept

• Prudence Concept

The term ‘limited liability’ means _________________

• the liability of a shareholder is limited to the amount of his share invested

• the shareholders have to sell their own properties to pay for the losses incurred

• the shareholders’ profit and loss are limited

• the shareholders’ profit is limited

Which type of business offers shares for sale to the public?

• Single proprietorship

• Partnership

• Private limited company

• Public limited company

The following statements describe the features of a single proprietorship except for statement ___________________

• It is easy to form.

• The owner has a great deal of control over it.

• The owner claims all the profits.

• Liability is limited

Which of the following accounting cycle is correct?

• Source document — Journal — Ledger — Trial Balance — Final account

• Ledger — Journal — Source document — Trial Balance — Final account

• Journal — Source document — Ledger — Trial Balance — Final account

• Trial Balance — Source document — Ledger — Journal — Final account

The business suffers a temporary loss due to the recent regional economic crisis. The owner is confident that the business will recover in due course. However, he chooses to report the loss in the current financial

statement. Which of the following convention is being applied?

• Consistency Convention

• Historical Cost Convention

• Objectivity Convention

• Conservatism Convention