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The correct statements are (A), (B) and (D), as Journal is used to record Business Transactions in chronological order i.e., date-wise. For example, On 1 st January, 2024, Mr. A started the business with cash of $100,000. On 2 nd January, 2024, he purchased merchandise worth $5,000. On 3 rd January, 2024, He sold merchandise worth $10,000. These are the business transactions and these are entered in journal date-wise i.e., every business transaction is Journalized in journal in the order of date. No entry can’t be come first which is occurred lately i.e., first date entry will come first, then second one and so on. In this example, we record first entry in journal which occurred on 1 st January, 2024, that is debit the cash account and credit the capital account. The second entry will come next according to date which is here debit purchases account and credit cash account. Then, third entry to on 3 rd January, 2024, is to debit cash account with $10,000 and credit sales accou...

The correct choice is (D), as in Accounting Equation , the left side must be equal to credit side otherwise there are surely some errors, mistakes or frauds. Due to Dual Aspect Accounting Concept , every debit must be equal and opposite to credit. For every debit, there must be a credit in equal amount but in opposite side. Under such accounting system, an accounting journal entry must have atleast one debit account and one credit account with equal amount on opposite side. This basis is the foundation of Double Entry System . This system of Bookkeeping maintains a balance on both sides of accounting equation and such balance in accounts are shown in Balance Sheet which shows assets on left side or assets side while liabilities and shareholders’ equity on right side or liabilities & shareholders’ equity side. The option (A) is wrong, as if one account is credited then other must be debited, otherwise, it goes against the fundamental principles of dual aspect accounting conce...

The correct option is (a), as Assets are resources owned, managed and controlled by the company from which the company expect to get probable future economic benefits. For example, Cash is a Current Asset which is owned and controlled by the company to get future benefits i.e., cash is used to purchase merchandise for resale purpose in order to earn revenue by selling merchandise to customers on selling price. In case of Prepaid Rent , rent paid in advance to acquire property on rent in order to operate the business and ultimately, earns revenue from profitable activities conducting on rental property. Assets create value for the company’s business such as Goodwill , which is an Intangible Asset , create the value of the business in the minds of customers in the form business good name and reputation, customer satisfaction, brand identity and awareness, etc. Assets increase efficiency of operations as when most advanced tools are used to operate the business activities, it ...

The options 2, 3 and 5 are the correct choices as the Balance Sheet shows the financial position of Permanent Accounts , which Assets , Liabilities and Equity , at a specific time on a particular date. For example, at a time, assets such as cash in hand was at $50,000 on 9 A.M  on 31 st December, 2024. Suppose, at 5 P.M, the position of cash in hand was $30,000 on 31 st December,  2024. So, the monetary value of assets, liabilities and equity changes with the passage of time but the equality among assets, liabilities and equity remains throughout the accounting period. Such equality among assets, liabilities and equity represents Account Equation . So, a balance sheet also a representation of accounting position. Other options are incorrect as the balance sheet is not prepared for a period but for a specific time on a particular date of accounting period. Other Financial Statements such as Income Statement, Statement of Retained Earnings and Statement of Cash Flows ...

The correct choice of this multiple choice question is (C), as ratio analysis is used to express the relationship between items or accounts of Financial Statements. For example, Current Ratio is used to show the relationship between Current Assets and Current Liabilities . If the company has more current assets than its current liabilities then its business can easily meet daily expenses and pay short-term obligations to run the daily operations of the business and may earn revenue for the period. If the current ratio is more than 1, then the business can easily meet current liabilities. If it is less than 1, then the business is unable to meet its current liabilities with current assets. This is critical for the continuity and survival of the business as it may fail to carry on the business i.e., unable to pay its short-term debts necessary to run the business and as a result the business operations are stopped and business suffered the losses. If the current ratio is equal to 1, t...

The correct answer of this mcq is (e), as in Vertical Analysis each item / account in Income Statement or Balance Sheet is measured as percentage of base amount or figure. For example, in income statement, let’s say, the value of total revenues is the base amount and the each item in income statement is measured as a percentage of total revenues i.e., Cost of Sales / Total Revenues X 100. Similarly, on balance sheet, let’ s say, the value of total assets is the base amount, then each item on balance sheet is measured as a percentage of total assets i.e., Cash in Hand / Total Assets X 100. Financial condition shows the position of total assets, total liabilities and total shareholders’ equity (Balance Sheet) on specified date of time while financial performance is measured by matching total revenues and total expenses during the current accounting period and such matching of total revenues and total expenses is showed by income statement. The vertical analysis is very import...

In the Financial Statements , the bank overdrafts will be classified as Current Liabilities as the depositor withdrew more money than the balance he has on bank account. Any exceeding amount is a current liability for him to pay to the bank. For example, if the account holder has $5000 in the current account / checking account but he withdrew $6000, then $1000 is the current liability which is the exceeding amount i.e., Exceeding Amount = $6000 - $5000 = $1000. Actually, the bank provides the bank overdraft facility upto a limit to the account holder in case he needs more money than the amount deposited into his account. When the depositor deposited money into his account then this exceeding amount will be deducted from the deposited amount. For example, if the depositor deposited $5000 into the checking account, then the bank will deduct $1000 as a bank overdraft from the deposited money and remaining ($5000 - $1000) $4000 will be credited to depositor’s account. From the poin...

The correct answer of this mcq is (C), as Statement of Retained Earnings or Statement of Owner’s Equity is prepared after the preparation of Income Statement for the accounting period. It includes opening retained earnings, the ending retained earnings of previous accounting period, plus Net Income or minus Net Loss for the period, minus Dividend and final finding value is ending retained earnings of the current accounting period. The formula used for calculating closing retained earnings is given below: Closing RE = Opening RE + Net Income - Dividend Opening RE shows the portion of profits retained in the last accounting period. Net income or Net Profit is the difference between total revenues minus total expenses for the period. In case of net loss, the total expenses are greater than total revenues and in the year of loss, dividend is not distributed to shareholders. The value of Ending RE shows the changes in the value of RE from the previous accounting period. The company...

The correct option is b), as cash restricted for plant expansion, which is a long-term project as plant is a Non Current Asset or Fixed Asset , is specifically assigned and hold for more than one year. The cash is specifically restricted to plant expansion and it is not available to use for operating, investing and financing activities. Such cash must be distinguished from cash used for immediate needs such as used in operations to meet daily expenses to run the business effectively. Cash restricted for special purpose and not utilized for more than one year is categorized under Non Current Assets on Balance Sheet . On balance sheet, it must be distinguished from other cash used for immediate use or daily operations. Cash is a Current Asset but restricted cash can be a current asset (to be used within one year or one year) or Non current assets (not available for using more than one year). During the period of restriction, the cash is utilized only for that special project ...

The correct answer is b), as every Financial Statement whether it is an Income Statement , Statement of Owners’ Equity, Balance Sheet or a Cash Flows Statement , is required to start with the heading which contains the name of the company, the title which shows the name of the statement such as Income Statement, etc. and the specific date such as in case of Income Statement, Statement of Owners’ Equity and Cash Flows Statement “for 31 st December, 2024” and “As On 31 st December, 2024 for Balance Sheet. The place of business, where business operations are conducted, is not required in the heading of each financial statement. However, the name of place of the business is required in legal documents such as Memorandum of Association (MoM), Articles of Association (AoA) and Prospectus. The place of business is a registered and official address where the business is physically located. Unit of measurement is not usually required in the heading section. Type of ownership is not ...