1.

Identify financial transaction in the following list

a. Formulating a bonus policy
b. Discussion on discontinuation of production of a product
c. Receiving royalty for the minerals extracted
d. A wordy warfare between employees and management about wages.

2. The object of financial Accounting is not
a. To prepare future financial plans
b. To prepare and communicate final accounts
c. To record all transactions and interpret the financial data
d. To take into consideration the historical data

3. What is a credit transaction?
a. Transaction to transfer goods from one to another
b. Transaction with a promise to pay for the goods at a future date
c. Transaction, where customers has already paid the price and the goods are due to be sent
d. Transaction where goods are promised to be transferred and the price promised to be paid.

4. What do you mean by a concept?
a. Reasonable assumption
b. A willful prediction
c. Universal characteristic
d. A regulated condition

Notes:
Underlying Assumptions, Principles, and Conventions
Financial accounting relies on the following underlying concepts:
Assumptions: Separate entity assumption, going-concern assumption, stable monetary unit assumption,
fixed time period assumption.
Principles: Historical cost principle, matching principle, revenue recognition principle, full disclosure
principle.
Modifying conventions: Materiality, cost-benefit, conservatism convention, industry practices
convention.
5. A manufacturing Company has produced 50000 units of a product during 2006. What
accounting concept is missing in the above statement?
a. Separate business unit
b. Accrual concept
c. Going concern concept
d. Money measurement concept

6. The principle of full disclosure means
a. Giving all business information to all parties
b. Giving all business information to a few parties
c. Giving part of business information to all parties
d. Giving relevant business information to relevant parties
7. Capital is invested in the business. How does it impact the accounting equation?
a. Capital of the business increases
b. Cash is received into the business as asset
c. Cash increases the liability and capital increases asset of the business
d. Capital appears as a liability and cash appears as asset of the business

8. What is 'Accounting Trail'?
a. Process of preparing all accounts
b. Process of commencing from recording to preparation of final accounts
c. Process of preparing a trial balance
d. Process of finding out P & L Account

9. What is a real Account?
a. Account which is truthful
b. Account which is existing
c. Account which is tangible and can be felt
d. Account which is not personal

10. What is the purpose of preparing a voucher?
a. To safeguard all cash disbursements
b. To have some supportive document
c. A mere formality
d. Helpful for finalizing final accounts

11. What does an accounting equation indicate?
a. Sources of funds are equal to application of funds
b. Assets and liabilities to outsiders are equal
c. Owner's equity only is equal to assets
d. Assets and liabilities put together are equal to owner's equity

12. What is journalizing
a. Writing a transaction in a book
b. Systematic recording of journal entries in journal
c. A career of journalism
d. Process of making a record

13. State the rule of journalizing with regard to personal accounts
a. Debit the given and credit the receiver
b. Debit the receiver and credit the giver
c. Debit what comes in and credit what goes out
d. Debit all assets and credit all liabilities

14. Debit all assets and credit all liabilities. This principle hold good because, they belong to
a. Personal accounts
b. Real accounts
c. Nominal accounts
d. Personal and real a/s accounts

15. Credit sales create
a. Tr. Debtors
b. Tr. Creditors
c. Supplier
d. Agents

16. To close Rent Received Account' at the end of the year, what closing entry is drawn in
Journal proper?
a. Rent Received account Dr To P & L account
b. P & L Account Dr To Rent Received Account
c. Rent Received Account Dr To Total rent account
d. Trading Account Dr To Rent Received account

17. If Rao's account shows debit balance in your books, what does it indicate?
a. Rao has received benefit from you
b. Rao is a liability to you.
c. Rao has given benefit to you
d. Rao is an item of expense to you.

18. What is outstanding expense?
a. Expense which is outstanding
b. Expense yet to be incurred
c. Expense incurred but not yet paid
d. Expense incurred and paid

19. Prepare journal entries, post them to ledger and show the total of trial balance for the
following transactions
A. Shankar started his business with capital of Rs.30,000 brought in cash and brings
furniture worth of Rs.20,000 into the business as part of capital
B. He purchased goods worth Rs.50,000 on credit from Mohan and soon paid Rs. 15,000
cash
C. Sold goods for cash Rs. 20,000 and on credit to Gopal Rs. 20,000
D. Paid business expenses Rs.5,000
E. Received cash from Gopal Rs. 10,000 and allowed him a discount of Rs. 500
F. Paid cash to Mohan Rs. 20,000 and received discount of Rs.1,000

20. If Rao's account shows debit balance in your books, what does it indicate?
a. Rao has received benefit from you
b. Rao is a liability to you.
c. Rao has given benefit to you
d. Rao is an item of expense to you.