Tough-Level MCQs: Accounting Concepts

Which concept justifies that a business enterprise is treated as a separate entity distinct from its owner?

• Matching Concept

• Going Concern Concept

• Entity Concept

• Periodicity Concept

Which of the following would NOT be recorded in the books under the money measurement concept?

• Purchase of machinery worth Rs.5 lakhs

• Increase in employee morale

• Payment of rent Rs.30,000

• Loan taken from bank Rs.10 lakhs

Which assumption provides the basis for preparing financial statements for a fixed interval, such as annually or quarterly?

• Entity Concept

• Accrual Concept

• Periodicity Concept

• Realisation Concept

Under the accrual concept, revenue is recognized when:

• Cash is received

• Goods are delivered

• It is earned, regardless of when cash is received

• Invoice is prepared

In matching concept, which of the following is NOT required to be matched against revenue?

• Cost of goods sold

• Prepaid insurance

• Accrued salary

• Owner's drawings

The assumption that a business will continue to operate in the foreseeable future is known as:

• Realisation Concept

• Going Concern Concept

• Materiality Concept

• Cost Concept

Which concept implies that an asset is recorded at the price paid to acquire it and not at its current market price?

• Realisation Concept

• Cost Concept

• Conservatism

• Accrual Concept

Realisation concept states that:

• Profit is recognized only when cash is received

• Losses must always be anticipated

• Gains are recognized only when realized

• Expenses are recorded only when paid

Which of the following represents the dual aspect of a transaction?

• One-sided entry

• Credit sales increase asset and decrease liability

• Increase in one asset must correspond to increase in liability or equity

• Decrease in equity must lead to decrease in capital

The concept that guides recognizing potential losses but ignoring potential gains is called:

• Consistency

• Prudence

• Conservatism

• Realisation