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Basic Accounting Concepts: NBSE Class 9 Book Keeping
Get summaries, questions, answers, solutions, notes, extras, PDF and guide of Chapter 2 Basic Accounting Concepts, NBSE Class 9 Environmental Education textbook, which is part of the syllabus of students studying under Nagaland Board. These solutions, however, should only be treated as references and can be modified/changed.
If you notice any errors in the notes, please mention them in the comments
Summary
Accounting is the language of business. It helps communicate financial information to people interested in the business. These people include owners, creditors, employees, investors, and the government. If every business used its own methods, it would cause confusion. So, GAAP provides common principles and concepts for maintaining accounts.
Accounting concepts are basic ideas that guide how transactions should be treated. These concepts make accounting information meaningful. One concept is the Business Entity Concept. This means a business is separate from its owners. Owners are seen as creditors to the business for the money they invest. Money taken out by owners for personal use is recorded as drawings. Goods used by owners personally are also recorded this way. This separation helps report profits fairly.
The Money Measurement Concept says only transactions expressed in money are recorded. For example, a firm with chairs, raw materials, and machines records them in monetary terms like ₹6,000 for chairs. Non-monetary things like manager skills or employee relationships are not recorded because they cannot be measured in money.
The Going Concern Concept assumes a business will keep running for the foreseeable future. It will not close down or sell everything soon. The Accounting Period Concept divides the life of a business into smaller periods. This helps measure performance regularly. Accounts are maintained assuming the business will continue.
The Dual Aspect Concept states every transaction has two sides. For every debit, there is a credit. This idea forms the basis of the Double Entry System. Luca Pacioli first introduced this system in 1494. Every transaction affects at least two accounts. This keeps the accounting equation balanced. Assets equal liabilities plus capital.
Double Entry System has advantages. It gives a complete record of transactions. It checks the accuracy of accounts through trial balance. It helps determine profit or loss and understand financial position. But it requires expert knowledge. It can be lengthy and expensive.
There are two ways to calculate profit or loss. The Cash Basis records transactions when cash is received or paid. Outstanding expenses and incomes are ignored. This method is simple but does not show a true picture. The Accrual Basis records income when earned and expenses when incurred, regardless of cash flow. It adjusts outstanding and prepaid items. This method is more scientific but complex. Companies Act, 2013 asks companies to follow this method.
These concepts help businesses maintain clear and consistent records. They ensure everyone understands the financial health of the business. This clarity helps stakeholders make informed decisions.
Textbook solutions
Multiple Choice Questions (MCQs)
1. As per Dual Aspect concept:
(a) Assets Liabilities- Capital
(b) Assets= Capital – Liabilities
(c) Assets Liabilities+ Capital
(d) Capital= Assets+ Liabilities
Answer : (c) Assets Liabilities+ Capital
2. As per Income Tax Act, accounting period is:
(a) From 1st January to 31st December
(b) From 1st April to 31st March
(c) From 1st July to 30th June
(d) From Diwali to Diwali
Answer : (b) From 1st April to 31st March
3. A business is considered to be having an indefinite life according to:
(a) Accounting Period Concept
(c) Going Concern Concept
(b) Dual Aspect Concept
(d) Business Entity Concept
Answer : (c) Going Concern Concept
4. Due to which principle qualitative transactions are not recorded in the books:
(a) Business Entity Concept
(c) Historical Cost Concept
(b) Money Measurement Concept
(d) Dual Aspect Concept
Answer : (b) Money Measurement Concept
5. During the life-time of an entity, accounting produces financial statements in accordance with which accounting concept?
(a) Dual Aspect Concept
(c) Business Entity Concept
(b) Accounting Period Concept
(d) Matching Concept
Answer : (b) Accounting Period Concept
True/False
1. Accounting is the language of business.
Answer: True
2. Accounting is a profession and is being practised by qualified chartered Accountants.
Answer: True
3. Cash Basis considers the revenue as realized when the goods are produced.
Answer: False
4. The enterprise is normally viewed as a going concern that is as continuing in operation for the Indefinite period.
Answer: True
Assertion Reason Based Questions
Choose the correct option :
A. Both Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of the Assertion (A).
B. Both Assertion (A) and Reason (R) are correct but Reason (R) is not the correct explanation of Assertion (A).
C. Only Assertion (A) is correct.
D. Only Reason (R) is correct.
1. Assertion: Only those facts and events are recorded which are expressed in terms of money.
Reason: As per money measurement concept only those transactions are recorded which are expressed in terms of money.
Answer: (A)
2. Assertion: Rules of debit and credit are same for liabilities and capital.
Reason: According to business entity concept capital is also treated as liability of the business.
Answer: (A)
Statement Based Questions
Choose the correct option from the options given below :
A. Statement I is true and II is false.
B. Statement II is true and I is false.
C. Both the statements are false.
D. Both the statements are true.
1. Statement I: As per Dual concept for every debit, there is always credit.
Statement II: Every transaction should have two sided effect to the extent of same amount.
Answer: (D)
2. Statement I: As per Accrual Basis ofAccounting incomes are credited to the period in which they are earned irrespective of the fact whether cash is received or not.
Statement II: Cash Basis ofAccounting are more scientific as compared to Accrual Basis and hence is preferred by accountants.
Answer: (A)
Short Answer Type-l Questions
1. Define the Business Entity concept.
Answer : The Business Entity Concept states that business is treated as a unit separate and distinct from its owners. Business transactions are recorded in the books of accounts from the viewpoint of the business. Owners are regarded as separate and distinct from the business and are treated as creditors of the business to the extent of their capital invested in the business. The capital is treated as a liability of the firm because it is assumed that the firm has borrowed funds from its own proprietors instead of borrowing it from outside parties.
2. Define the Money Measurement concept.
Answer : The Money Measurement Concept states that only those transactions and events that can be expressed in terms of money are recorded in the books of accounts of the enterprise. In other words, money is the common denominator in recording and reporting all transactions. Transactions or events, however important they may be, which cannot be measured in monetary terms, are not recorded in accounting.
3. Define Accounting Period concept. (Short Answer Type-l Questions)
Answer : The Accounting Period Concept, also known as the Periodicity Concept, states that the life of an enterprise is broken into smaller periods so that its performance can be measured at regular intervals. According to this concept, financial statements are prepared for a specific time period, typically a period of 12 months commencing from 1st April to 31st March. The main purpose of this concept is to determine the financial performance of the business during a particular time period.
4. Define Dual Aspect concept.
Answer : The Dual Aspect concept states that for every debit, there is a credit. Every transaction should have a two-sided effect to the extent of the same amount. This concept is the basis for double-entry accounting and has resulted in the Accounting Equation, which states that at any point in time, the assets of any entity must be equal (in monetary terms) to the total of the owner’s equity and outsider’s liabilities. This can be expressed in the form of an equation: Assets = Liabilities + Capital.
5. Who introduced the concept of Double Entry System?
Answer : The concept of Double Entry System was first introduced by Luca Pacioli in 1494 in Venice.
6. What is Cash Basis of Accounting?
Answer : Cash Basis of Accounting is a system in which transactions are recorded only when cash is actually received or paid, i.e., entry is not recorded when a payment or receipt is merely due. It means all incomes are considered to be earned only when they are actually received in cash. Likewise, expenses are considered to be incurred only when they are actually paid. The difference between the total incomes and total expenses represents profit or loss of a business for the accounting period.
Short Answer Type-ll Questions
1. What are Basic Accounting Concepts? Explain any two concepts.
Answer : Basic Accounting Concepts are the basic assumptions or fundamental propositions within which accounting operates. It is important to follow the accounting concepts in order to make the accounting information meaningful to its users.
Two of the concepts are:
(i) Business Entity Concept : According to the Business Entity Concept, business is treated as a unit separate and distinct from its owners. Business transactions, therefore, are recorded in the books of accounts from the viewpoint of the business. Owners being regarded as separate and distinct from business, are treated as creditors of the business to the extent of their capital invested by them in the business.
(ii) Money Measurement Concept : According to the Money Measurement Concept, only those transactions and events that can be expressed in the terms of money are recorded in the books of accounts of the enterprise. In other words, money is the common denominator in recording and reporting all transactions.
2. Write a short notes on:
(i) Accounting Period Concept?
Answer : The Accounting Period Concept, also known as the Periodicity Concept, states that the life of an enterprise is broken into smaller periods so that its performance can be measured at regular intervals. Financial statements are prepared for a specific time period, typically 12 months, commencing from 1st April to 31st March. The main purpose of this concept is to know the financial performance during a particular time period.
(ii) Dual Aspect Concept?
Answer : The Dual Aspect Concept states that every transaction should have two-sided effects to the extent of the same amount. This concept forms the basis of double-entry accounting and results in the Accounting Equation, which states that at any point in time, the assets of any entity must be equal (in monetary terms) to the total of the owner’s equity and outsider’s liabilities. This can be expressed in the form of an equation: Assets = Liabilities + Capital. Whenever a transaction is recorded, it has to be recorded in two or more accounts to balance the equation.
(iii) Going Concern Concept?
Answer : The Going Concern Concept implies that the business entity will continue its operations in the future and will not liquidate or be forced to discontinue operations due to any reason. According to International Accounting Standards, the enterprise is normally viewed as a going concern, meaning it is expected to continue operating indefinitely in the future. A company is considered a going concern if there is no evidence available to believe that it will stop its operations in the foreseeable future.
(iv) Money Measurement Concept?
Answer : The Money Measurement Concept states that only those transactions and events that can be expressed in terms of money are recorded in the books of accounts of the enterprise. In other words, money serves as the common denominator for recording and reporting all transactions. Transactions or events that cannot be measured in monetary terms, such as the skill, experience, or honesty of employees, are not recorded in the books of accounts because they are non-monetary transactions. In India, the rupee is the legal currency used as the unit of measurement.
3. What is Double Entry System of accounting? Explain two advantages and disadvantages.
Answer : The Double Entry System is a system of accounting under which every business transaction has two aspects—a debit aspect and a credit aspect. Every debit has a corresponding credit, and the total of all debits equals the total of all credits. For example, when a sale of goods is effected, cash is received, and goods are delivered out of stock. This transaction will record an increase in cash in hand and a decrease in the stock of goods. The two aspects of this transaction would be cash and goods, and entries would be recorded in both accounts. Because two separate entries are recorded in two separate accounts, it is called the double entry system.
Two advantages of the Double Entry System are:
(i) It is a scientific system of recording business transactions as compared to other systems of bookkeeping because transactions are recorded according to certain specified rules.
(ii) It provides a complete record of each and every transaction, resulting in showing correct income or loss, assets, and liabilities.
Two disadvantages of the Double Entry System are:
(i) It requires expert knowledge, as accounting is a profession practiced by qualified Chartered Accountants.
(ii) The process of recording, classifying, analyzing, and interpreting is lengthy and takes a long time to record transactions.
4. Explain Accrual basis of Accounting with advantages.
Answer : Accrual Basis of Accounting is a system in which incomes are credited to the period in which they are earned, irrespective of whether cash is received or not. For example, credit sales are recognized as sales regardless of whether the amount has been received. Similarly, expenses are charged to the period to which they relate, irrespective of whether cash has been paid or not. For instance, rent due to the landlord but not yet paid is still treated as an expense because it has become due. This basis follows the concept of realization and adheres to two fundamental accounting principles: revenue recognition and matching principle.
The advantages of Accrual Basis of Accounting are:
(i) It is more scientific compared to Cash Basis of Accounting and is therefore preferred by accountants.
(ii) It provides a complete picture of financial transactions as it considers all transactions related to a period along with adjustments like outstanding expenses, prepaid expenses, accrued income, and income received in advance.
(iii) It discloses the true profit or loss for a specific period and also reflects the true financial position of the business at the end of that period.
(iv) It helps present the true financial position of the business and thus enjoys wide acceptability.
(v) The Companies Act, 2013 recognizes the accrual basis of accounting.
Long Answer Type Questions
1. Explain Basic Accounting concepts. (Long Answer Type Questions)
Answer : Basic Accounting Concepts are the fundamental assumptions or propositions within which accounting operates. These concepts help make accounting information meaningful to its users. Below are the key Basic Accounting Concepts:
(i) Business Entity Concept : According to this concept, a business is treated as a unit separate and distinct from its owners. Business transactions are recorded in the books of accounts from the viewpoint of the business. Owners are regarded as separate from the business and are treated as creditors of the business to the extent of their capital invested. The capital is treated as a liability of the firm because it is assumed that the firm has borrowed funds from its proprietors instead of outside parties. Similarly, goods used by the proprietor for personal use are treated as drawings.
(ii) Money Measurement Concept : According to this concept, only those transactions and events that can be expressed in terms of money are recorded in the books of accounts. Money serves as the common denominator for recording all transactions. For example, if a firm has chairs, raw materials, and machines, these items must be expressed in monetary terms to be recorded systematically. Non-monetary transactions, such as the skill or honesty of employees, are not recorded.
(iii) Going Concern Concept : This concept implies that the business entity will continue its operations in the future and will not liquidate or discontinue operations due to any reason. A company is considered a going concern unless there is evidence suggesting it will stop operations in the foreseeable future.
(iv) Accounting Period Concept : Also known as the Periodicity Concept, this concept states that the life of an enterprise is broken into smaller periods so that its performance can be measured at regular intervals. Accounts are maintained under the assumption that the enterprise will continue its activities in the foreseeable future. Normally, financial statements are prepared for a period of 12 months, starting from 1st April to 31st March.
(v) Dual Aspect Concept : This concept states that every transaction has two aspects—a debit and a credit—and both must be recorded to maintain balance. It forms the basis for the double-entry system of accounting. The Accounting Equation derived from this concept is: Assets = Liabilities + Capital. Whenever a transaction occurs, it must be recorded in two or more accounts to ensure the equation remains balanced.
These concepts collectively ensure that accounting records are systematic, relevant, understandable, and homogeneous.
2. What is Double Entry system? Explain its disadvantages.
Answer : The Double Entry System is a system of accounting under which every business transaction has two aspects—a debit aspect and a credit aspect. Every debit has a corresponding credit, and the total of all debits equals the total of all credits. For example, when a sale of goods is effected, cash is received, and the goods are delivered out of stock. This transaction will record an increase in cash in hand and a decrease in the stock of goods. The two aspects of this transaction would be cash and goods, and entries would be recorded in both of these accounts. Because two separate entries are recorded in two separate accounts, it is called the double entry system.
The disadvantages of the Double Entry System are:
- Requirement of Expert Knowledge: Nowadays, accounting is a profession and is being practiced by qualified Chartered Accountants.
- Lengthy Process: The process of recording, classifying, analyzing, and interpreting is lengthy and takes a long time to record transactions.
- Expensive: The accounting department requires qualified and trained personnel for recording and maintaining the books of accounts, making it expensive to give high salaries to trained staff.
Extras
Additional questions and answers
1. What is the purpose of Generally Accepted Accounting Principles (GAAP)?
Answer : The purpose of Generally Accepted Accounting Principles (GAAP) is to provide accepted principles and concepts that businesses follow to maintain their books of accounts, avoiding confusion that would arise if every business adopted its own methods.
Q. Define the Going Concern Concept.
Answer : The Going Concern Concept implies that the business entity will continue its operations in the future and will not liquidate (close the business or sell all things on its own to pay debts) or be forced to discontinue operations due to any reason. According to International Accounting Standard, “The enterprise is normally viewed as a going concern, that is as continuing in operation for the foreseeable future.”
Q. What is meant by the term “drawings” in accounting?
Answer : In accounting, “drawings” refers to the amount withdrawn by the proprietor from the business for his personal use. Similarly, goods used by the proprietor for his personal use are also treated as his drawings.
Q. Who introduced the Double Entry System?
Answer : The Double Entry System was first evolved by Luca Pacioli in 1494 in Venice.
Q. What is the equation that represents the Dual Aspect Concept?
Answer : The equation that represents the Dual Aspect Concept is: Assets = Liabilities + Capital.
Q. When does an enterprise prepare its financial statements under the Accounting Period Concept?
Answer : An enterprise prepares its financial statements under the Accounting Period Concept at regular intervals, specifically for a period of 12 months commencing from 1st April to 31st March, to measure its performance and present the gains or losses earned or suffered by the business during that period.
Q. What are outstanding expenses?
Answer : Outstanding expenses are those expenses which have become due during the accounting period but have not yet been paid.
Q. Define prepaid expenses.
Answer : Prepaid expenses are those expenses which have been paid in advance.
Q. What is accrued income?
Answer : Accrued income is an income which has been earned during the accounting period but has not yet become due and, therefore, has not been received.
Q. Explain the concept of income received in advance.
Answer : Income received in advance is an income which has been received before it has been earned, i.e., goods have been sold or services have been rendered.
Q. Why is the Money Measurement Concept important in accounting?
Answer : The Money Measurement Concept is important in accounting because it ensures that only transactions and events which can be expressed in terms of money are recorded in the books of accounts. This makes accounting records relevant, simple, understandable, and homogeneous by expressing them in a common unit of measurement, i.e., money.
Q. What is the legal currency of measurement in India for accounting purposes?
Answer : The legal currency of measurement in India for accounting purposes is the rupee.
Q. Name two non-monetary factors that are not recorded in accounting.
Answer : Two non-monetary factors that are not recorded in accounting are the skill, experience, and honesty of a manager, and employer or employee relationships.
Q. How does the Business Entity Concept treat the owner’s capital?
Answer : According to the Business Entity Concept, the owner’s capital is treated as a liability of the firm because it is assumed that the firm has borrowed funds from its own proprietors instead of borrowing it from outside parties.
Q. What is the primary difference between cash basis and accrual basis accounting?
Answer : The primary difference between cash basis and accrual basis accounting is that in cash basis accounting, transactions are recorded only when cash is actually received or paid, while in accrual basis accounting, incomes are credited to the period in which they are earned, irrespective of whether cash is received or not, and expenses are charged to the period to which they relate, regardless of whether cash has been paid or not.
Q. What does the term “realisation” refer to in accounting?
Answer : Realisation refers to the concept that incomes are credited to the period in which they are earned, irrespective of whether cash is received or not.
Q. How are credit sales treated under the Accrual Basis of Accounting?
Answer : Under the Accrual Basis of Accounting, credit sales are recognised as sales irrespective of whether the amount has been received or not.
Q. What is the significance of maintaining a Trial Balance?
Answer : The significance of maintaining a Trial Balance is that it helps establish the arithmetical accuracy of the accounting records through the use of the Double Entry System.
Q. What is the role of estimates and personal judgments in the Accrual Basis of Accounting?
Answer : In the Accrual Basis of Accounting, estimates and personal judgments are required to record transactions, as adjustments such as outstanding expenses, prepaid expenses, accrued income, and income received in advance need to be considered to depict the true financial position of the business.
Q. Discuss the features of the Double Entry System.
Answer : The features of the Double Entry System are:
- It recognises the two-fold aspect of every transaction, i.e., the aspect of receiving (value in) and the aspect of giving (value out).
- It maintains a complete record of each and every transaction.
- There are certain rules and regulations for recording transactions. On the basis of these rules and regulations, the respective accounts are debited and credited.
- For every debit entry, there is an equal and opposite credit entry.
- When transactions are recorded in the journal and ledger according to the double entry system, it helps in preparing the trial balance.
Q. Describe the importance of the Accounting Period Concept in business operations.
Answer : The Accounting Period Concept is important as it breaks the life of an enterprise into smaller periods so that its performance can be measured at regular intervals. According to this concept, financial statements are prepared for a specific time period, typically 12 months commencing from 1st April to 31st March. The main purpose of this concept is to know the financial performance during a particular time period. It helps in presenting the gains or losses earned or suffered by the business during the period at the end of the year.
Q. What are the advantages of using the Accrual Basis of Accounting over the Cash Basis?
Answer : The advantages of using the Accrual Basis of Accounting over the Cash Basis are:
(i) It is more scientific as compared to Cash Basis of Accounting and hence is preferred by accountants.
(ii) This basis of accounting shows a complete picture of financial transactions of the business as it takes into account the effect of all transactions relating to a period as well as adjustments like outstanding expenses, prepaid expenses, accrued income, and income received in advance.
(iii) This basis discloses true profit or loss for a particular period and also depicts the true financial position of the business at the end of a particular period.
(iv) It is helpful in presenting the true financial position of the business and, therefore, has wide acceptability.
(v) The Companies Act, 2013 recognizes accrual basis of accounting.
Q. How does the Business Entity Concept influence the recording of transactions?
Answer : According to the Business Entity Concept, business is treated as a unit separate and distinct from its owners. Business transactions are recorded in the books of accounts from the viewpoint of the business. Owners are regarded as separate and distinct from the business and are treated as creditors of the business to the extent of their capital invested in the business. The capital is treated as a liability of the firm because it is assumed that the firm has borrowed funds from its own proprietors instead of borrowing it from outside parties. Similarly, the amount withdrawn by the proprietor from the business for personal use is treated as his drawings. Goods used from the stock of the business for business purposes are treated as the expenditure of the business, but similar goods used by the proprietor for personal use are treated as his drawings.
Q. Explain the process of determining profit or loss under the Accrual Basis of Accounting.
Answer : Under the Accrual Basis of Accounting, incomes are credited to the period in which they are earned, irrespective of whether cash is received or not. Likewise, expenses are charged to the period to which they relate, no matter whether cash has actually been paid or not. For example, rent due to the landlord but not paid will still be treated as an expense because it had become due. Profit or loss of a particular period is the result of matching the revenues earned and expenses incurred during the period. All outstanding and prepaid expenses, accrued incomes, and incomes received in advance are adjusted while preparing financial statements.
Q. What are the limitations of the Cash Basis of Accounting?
Answer : The limitations of the Cash Basis of Accounting are:
(i) It does not give a true and fair view of the profit or loss and the financial position of an enterprise because it ignores adjustments relating to outstanding and prepaid expenses, accrued income, and income received in advance.
(ii) The matching principle of accounting is not followed in this method.
(iii) Since capital and revenue items are not distinguished in the cash basis, there is no consistency in the profits of different years.
(iv) The Companies Act, 2013 does not recognize the cash basis of accounting.
Q. Discuss the relevance of the Money Measurement Concept in modern accounting practices.
Answer : The relevance of the Money Measurement Concept in modern accounting practices lies in its role in ensuring that only those transactions and events which can be expressed in terms of money are recorded in the books of accounts of an enterprise. According to this concept, money serves as the common denominator for recording and reporting all transactions, making accounting records relevant, simple, understandable, and homogeneous. For example, items such as chairs worth ₹6,000, raw materials worth ₹10,000, and machines worth ₹60,000 are recorded in monetary terms. Non-monetary transactions, such as the skill, experience, and honesty of a manager or employer-employee relationships, are not recorded because they cannot be measured in monetary terms. This concept ensures uniformity and comparability in financial reporting, which is critical for decision-making by stakeholders.
Q. Describe how the Dual Aspect Concept ensures the accuracy of financial records.
Answer : The Dual Aspect Concept ensures the accuracy of financial records by recognizing that every transaction has two aspects—a debit aspect and a credit aspect. For every debit entry, there is an equal and opposite credit entry. This concept results in the Accounting Equation, which states that at any point in time, the assets of an entity must be equal (in monetary terms) to the total of the owner’s equity and outsider’s liabilities. Whenever a transaction is recorded, it is entered into two or more accounts to balance the equation. The equation remains balanced whenever a transaction takes place. For example, if Adi starts a business with ₹1,00,000 in cash and takes a loan of ₹50,000 from the bank, and these ₹1,50,000 are used to buy a factory, the equation will be: Assets = Liabilities + Capital, i.e., ₹1,50,000 = ₹50,000 + ₹1,00,000. This system helps maintain arithmetical accuracy, and the Trial Balance can be prepared to check the accuracy of accounts.
28. What adjustments are made under the Accrual Basis of Accounting when preparing financial statements?
Answer : Under the Accrual Basis of Accounting, adjustments are made for all outstanding and prepaid expenses, accrued incomes, and incomes received in advance while preparing financial statements. Outstanding Expenses are those expenses that have become due during the accounting period but have not yet been paid. Prepaid Expenses are those expenses that have been paid in advance. Accrued Income is income that has been earned during the accounting period but has not yet become due and, therefore, has not been received. Income Received in Advance is income that has been received before it has been earned, such as goods sold or services rendered. These adjustments ensure that revenues are credited to the period in which they are earned, irrespective of whether cash is received, and expenses are charged to the period to which they relate, regardless of whether cash has been paid.
Additional MCQs
1. Which concept treats business as separate from its owners?
A. Money Measurement Concept
B. Business Entity Concept
C. Going Concern Concept
D. Accounting Period Concept
Answer: B. Business Entity Concept
Q. What is the common denominator for recording transactions in accounting?
A. Goods
B. Services
C. Money
D. Time
Answer: C. Money
Q. According to which concept is a business assumed to continue indefinitely?
A. Dual Aspect Concept
B. Going Concern Concept
C. Accounting Period Concept
D. Business Entity Concept
Answer: B. Going Concern Concept
Q. Life of an enterprise is divided into smaller periods under which concept?
A. Business Entity Concept
B. Money Measurement Concept
C. Accounting Period Concept
D. Going Concern Concept
Answer: C. Accounting Period Concept
Q. Which equation represents the Dual Aspect Concept?
A. Assets = Liabilities – Capital
B. Assets = Capital – Liabilities
C. Assets = Liabilities + Capital
D. Liabilities = Assets + Capital
Answer: C. Assets = Liabilities + Capital
Q. Who first introduced the Double Entry System?
A. Luca Pacioli
B. Walter B. Meigs
C. Kohler
D. R.F. Meigs
Answer: A. Luca Pacioli
Q. Which system records both debit and credit aspects of a transaction?
A. Single Entry System
B. Double Entry System
C. Cash Basis System
D. Accrual Basis System
Answer: B. Double Entry System
Q. Under which basis are incomes recorded when earned, not when cash is received?
A. Cash Basis
B. Accrual Basis
C. Single Entry Basis
D. Historical Cost Basis
Answer: B. Accrual Basis
Q. Outstanding expenses are ignored under which accounting basis?
A. Accrual Basis
B. Cash Basis
C. Double Entry Basis
D. Matching Basis
Answer: B. Cash Basis
Q. Which principle requires personal judgements and estimates?
A. Cash Basis
B. Accrual Basis
C. Business Entity Concept
D. Money Measurement Concept
Answer: B. Accrual Basis
Q. Which concept ensures arithmetical accuracy through Trial Balance?
A. Business Entity Concept
B. Money Measurement Concept
C. Double Entry System
D. Going Concern Concept
Answer: C. Double Entry System
Q. What is the financial year in India according to the Accounting Period Concept?
A. January to December
B. April to March
C. July to June
D. Diwali to Diwali
Answer: B. April to March
Q. Which concept ignores qualitative transactions like employee honesty?
A. Business Entity Concept
B. Money Measurement Concept
C. Going Concern Concept
D. Dual Aspect Concept
Answer: B. Money Measurement Concept
Q. Which basis is suitable for professionals like lawyers and doctors?
A. Accrual Basis
B. Cash Basis
C. Double Entry Basis
D. Matching Basis
Answer: B. Cash Basis
Q. Which concept helps in determining profit or loss for a specific period?
A. Business Entity Concept
B. Accounting Period Concept
C. Going Concern Concept
D. Money Measurement Concept
Answer: B. Accounting Period Concept
Q. Which method is recognized by the Companies Act, 2013?
A. Cash Basis
B. Accrual Basis
C. Single Entry Basis
D. Historical Cost Basis
Answer: B. Accrual Basis
Q. What is the main disadvantage of the Double Entry System?
A. Simple process
B. Lengthy process
C. No adjustments
D. No expertise required
Answer: B. Lengthy process
Q. Which concept assumes that transactions are recorded in monetary terms?
A. Business Entity Concept
B. Money Measurement Concept
C. Going Concern Concept
D. Dual Aspect Concept
Answer: B. Money Measurement Concept
Q. Which basis does not follow the matching principle?
A. Accrual Basis
B. Cash Basis
C. Double Entry Basis
D. Historical Cost Basis
Answer: B. Cash Basis
Q. Which concept helps in preparing comparative financial statements?
A. Business Entity Concept
B. Accounting Period Concept
C. Going Concern Concept
D. Money Measurement Concept
Answer: B. Accounting Period Concept
Q. What is the primary purpose of the Going Concern Concept?
A. Record transactions
B. Assume indefinite operations
C. Measure profits annually
D. Ignore non-monetary events
Answer: B. Assume indefinite operations
Q. Which system provides a complete record of transactions?
A. Single Entry System
B. Double Entry System
C. Cash Basis System
D. Accrual Basis System
Answer: B. Double Entry System
Q. Which concept supports responsibility accounting?
A. Business Entity Concept
B. Money Measurement Concept
C. Going Concern Concept
D. Dual Aspect Concept
Answer: A. Business Entity Concept
Q. Which basis is preferred by accountants for scientific accuracy?
A. Cash Basis
B. Accrual Basis
C. Single Entry Basis
D. Historical Cost Basis
Answer: B. Accrual Basis
Q. Which concept ensures true financial position through adjustments?
A. Business Entity Concept
B. Money Measurement Concept
C. Accrual Basis Concept
D. Going Concern Concept
Answer: C. Accrual Basis Concept
25. What is the equation for the Dual Aspect Concept?
A. Assets = Liabilities – Capital
B. Assets = Capital – Liabilities
C. Assets = Liabilities + Capital
D. Liabilities = Assets + Capital
Answer: C. Assets = Liabilities + Capital
