Introduction to Final Accounts

     Which of the following is an example of a current asset?

• Land

• Equipment

• Accounts Receivables

• Building

Answer explanation

Accounts Receivables is a current asset because it represents money owed to a company that is expected to be received within a year. In contrast, land, equipment, and buildings are long-term assets.

The double-entry accounting system is based on which principle?

• Materiality

• Consistency

• Entity

• Dual Aspect

Answer explanation

The double-entry accounting system is based on the Dual Aspect principle, which states that every transaction affects at least two accounts, ensuring that the accounting equation remains balanced.

What is the main purpose of passing journal entries?

• To calculate tax

• To record transactions in a proper manner

• To prepare balance sheet directly

• To find cash balance only

Answer explanation

The main purpose of passing journal entries is to systematically record business transactions in chronological order using proper debit and credit rules. This ensures accuracy, clarity, and completeness of records, which later helps in preparing ledgers, trial balance, and final accounts.

Which of the following is a business transaction?

• Owner watching TV at home

• Business purchasing furniture for office

• Owner going on vacation

• Employee playing a game

Answer explanation

A business transaction is any activity that involves money or money’s worth and affects the business. Purchasing furniture for office use involves expenditure by the business and is therefore recorded in accounting, while the other options are personal or non-business activities.

Which convention allows ignoring small and unimportant items?

• Prudence

• Consistency

• Materiality

• Money measurement

Answer explanation

The materiality convention allows ignoring items that are very small or insignificant. This makes accounting records simpler and more practical.

   Depreciation is the process of allocating the cost of:

• Intangible assets

• Current assets

• Fixed assets

• Investments

Answer explanation

Depreciation is specifically related to fixed assets, which are long-term tangible assets like machinery and buildings. It allocates the cost of these assets over their useful life, reflecting their usage and wear over time.

According to the Business Entity Concept, the business and owner are treated as:

• Same person

• Different persons

• Business is superior to owner

• Owner is superior to business

Answer explanation

This concept separates the owner from the business. All business transactions are recorded separately from the personal transactions of the owner.

What is the purpose of the Trial Balance?

• To ensure the mathematical accuracy of business transactions recorded in the ledger.

• To identify errors in accounting records.

• To calculate net income.

• To record closing entries.

Answer explanation

The purpose of a Trial Balance is to ensure the mathematical accuracy of business transactions recorded in the ledger. It helps verify that total debits equal total credits, indicating that the accounts are balanced.

Which concept states that only transactions that can be expressed in money should be recorded?

• Business entity concept

• Going concern concept

• Money measurement concept

• Matching concept

Answer explanation

Only those events that can be measured in monetary terms are recorded in accounting. Qualities like honesty or efficiency cannot be measured in money, so they are not recorded.

Expenditure incurred on advertising a new product is:

• Capital expenditure

• Deferred Revenue expenditure

• Revenue expenditure

• Current expenditure

Answer explanation

Expenditure on advertising a new product is classified as Deferred Revenue expenditure because it provides future benefits by promoting the product, thus it is not a current expense but an investment in future revenue.