Accounting & Auditing
Accounting Principles and Concepts
A source document mainly provides:
A. Evidence of a transaction
B. Future market prices
C. Audit opinion
D. Dividend policy
Correct Answer: A
Invoices, receipts and similar documents provide documentary evidence for accounting entries.
Accounting & Auditing
Accounting Principles and Concepts
Which concept is violated if owner's household electricity is recorded as business electricity expense?
A. Business entity concept
B. Going concern concept
C. Consistency concept
D. Matching concept
Correct Answer: A
Personal expenditure of the owner must be separated from business expenditure.
Accounting & Auditing
Accounting Principles and Concepts
Revenue expenditure is normally charged to:
A. Statement of profit or loss for the period
B. Share capital
C. Revaluation reserve only
D. Owner's drawings
Correct Answer: A
Revenue expenditure relates to current-period operations and is normally expensed.
Accounting & Auditing
Accounting Principles and Concepts
Capital expenditure generally provides benefit:
A. Only in the current day
B. Over more than one accounting period
C. Only when cash is received
D. Only to creditors
Correct Answer: B
Capital expenditure typically creates or improves a long-term asset with benefits beyond the current period.
Accounting & Auditing
Accounting Principles and Concepts
Which is an external user of financial statements?
A. Production manager
B. Chief accountant
C. Existing shareholder
D. Sales supervisor
Correct Answer: C
Shareholders are external users who rely on financial statements for decision-making.
Accounting & Auditing
Accounting Principles and Concepts
Which user is an internal user of accounting information?
A. Tax authority
B. Investor
C. Management
D. Supplier
Correct Answer: C
Management is an internal user; investors, suppliers and tax authorities are external users.
Accounting & Auditing
Accounting Principles and Concepts
A transaction increases cash and capital by the same amount. This illustrates:
A. Dual aspect
B. Prudence
C. Materiality
D. Consistency
Correct Answer: A
An increase in cash (asset) is matched by an increase in equity under dual aspect.
Accounting & Auditing
Accounting Principles and Concepts
Which concept supports recording drawings separately from business expenses?
A. Business entity
B. Going concern
C. Materiality
D. Matching
Correct Answer: A
Owner withdrawals are separated because the owner and business are distinct accounting entities.
Accounting & Auditing
Accounting Principles and Concepts
The cost principle is most closely associated with:
A. Recording assets at acquisition amount
B. Recording assets at future value
C. Ignoring purchase price
D. Recording only liabilities
Correct Answer: A
Cost-based measurement starts from the consideration paid to acquire an asset.
Accounting & Auditing
Accounting Principles and Concepts
Faithful representation requires information to be broadly:
A. Complete, neutral and free from material error
B. Profitable, secret and timely
C. Conservative in every case
D. Cash-based only
Correct Answer: A
Faithful representation seeks completeness, neutrality and freedom from material error.
Accounting & Auditing
Accounting Principles and Concepts
Which is a qualitative characteristic of useful financial information?
A. Relevance
B. Secrecy
C. Complexity
D. Permanence
Correct Answer: A
Relevance helps financial information influence users' economic decisions.
Accounting & Auditing
Accounting Principles and Concepts
Revenue recognition is primarily concerned with:
A. When revenue should be recognized
B. Where cash is deposited
C. Who audits the accounts
D. How inventory is stored
Correct Answer: A
Revenue recognition determines the appropriate period in which income is recognized.
Accounting & Auditing
Accounting Principles and Concepts
The accounting period concept is used because:
A. A business must close after one year
B. Performance is measured for artificial reporting periods
C. Cash must be counted daily
D. Assets must be sold annually
Correct Answer: B
The life of a continuing business is divided into reporting periods to measure performance and position.
Accounting & Auditing
Accounting Principles and Concepts
Which equation correctly represents the accounting equation?
A. Assets = Liabilities + Equity
B. Assets + Liabilities = Equity
C. Assets = Revenue - Expenses
D. Equity = Assets + Liabilities
Correct Answer: A
The basic accounting equation is Assets = Liabilities + Owner's Equity.
Accounting & Auditing
Accounting Principles and Concepts
The dual aspect concept is the foundation of:
A. Bank reconciliation
B. Accounting equation
C. Cash budget
D. Audit sampling
Correct Answer: B
Every transaction has at least two effects, reflected in Assets = Liabilities + Equity.
Accounting & Auditing
Accounting Principles and Concepts
The historical cost principle generally records an asset initially at:
A. Expected selling price
B. Original acquisition cost
C. Replacement cost
D. Liquidation value
Correct Answer: B
Historical cost is based on the amount paid or consideration given to acquire an asset.
Accounting & Auditing
Accounting Principles and Concepts
Under the money measurement concept, which item is normally NOT recorded in accounts?
A. Cash balance
B. Employee skill and morale
C. Inventory purchased
D. Trade receivable
Correct Answer: B
Qualitative factors such as employee morale cannot normally be measured reliably in monetary terms.
Accounting & Auditing
Accounting Principles and Concepts
The business entity concept assumes that:
A. Business and owner are separate for accounting purposes
B. Business and owner are legally always separate
C. Only companies prepare accounts
D. Owner's personal expenses are business expenses
Correct Answer: A
Accounting treats the business as a separate accounting entity from its owner.
Accounting & Auditing
Accounting Principles and Concepts
Which accounting principle requires transactions to be recorded on the basis of objective evidence?
A. Objectivity principle
B. Consistency principle
C. Matching principle
D. Materiality principle
Correct Answer: A
Reliable and verifiable evidence supports objective recording of transactions.