Accounting Fundamentals Quiz

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Questions and Answers

What happens to the trial balance when a compensating error occurs?

The trial balance needs to be redrafted.

The error must be corrected immediately.

The trial balance will be disturbed.

The trial balance will agree. (correct)

Which of the following transactions would not affect the trial balance?

Sale of goods to a customer.

Payment of salaries to employees.

Sold goods to B but debited D's account. (correct)

Purchased machinery for cash.

What is transferred to the suspense account when the trial balance does not agree?

Total assets value.

All errors encountered.

Total liabilities value.

Difference in books of account. (correct)

Which financial statements are joint stock companies legally required to prepare?

A set of financial statements. Signup and view all the answers

On which date did Mr. Y start his business with cash?

1 January Signup and view all the answers

What was the depreciation rate on machinery mentioned?

1% Signup and view all the answers

Which of the following is a hint for preparing the trial balance's credit side?

Income. Signup and view all the answers

What is the primary purpose of preparing financial statements for joint stock companies?

To evaluate profit and financial position. Signup and view all the answers

What is a primary purpose of marginal costing technique in management accounting?

To aid in critical decision-making Signup and view all the answers

Which statement differentiates management accounting from financial accounting?

Management accounting is focused on predictive information. Signup and view all the answers

What is one of the basic functions of financial accounting?

To publish financial statements for stakeholders Signup and view all the answers

Which type of analysis helps understand the trend of a company's profitability?

Financial analysis Signup and view all the answers

Which of the following statements is true regarding management accounting?

It assists in creating business strategies. Signup and view all the answers

What aspect is primarily indicated through ratio analysis?

Company financial strengths and patterns Signup and view all the answers

How does management accounting utilize financial accounting?

To inform business decisions through data Signup and view all the answers

Which of the following is NOT characteristic of financial accounting?

Provides real-time predictive insights Signup and view all the answers

What is the formula for calculating labor cost variance?

Actual labor cost - Standard labor cost Signup and view all the answers

Which component of labor variance increases when actual hours worked exceed standard hours?

Labor efficiency variance Signup and view all the answers

What does a favorable labor rate variance indicate?

Actual wages were lower than standard wages Signup and view all the answers

The material usage variance is calculated by which of the following?

Standard price x (Actual quantity - Standard quantity) Signup and view all the answers

In the calculation of labor variances, what does 'abnormal idle time' refer to?

Unused labor hours due to unexpected events Signup and view all the answers

What is indicated by a labor efficiency variance that is adverse?

More actual hours were required than standard hours Signup and view all the answers

What is the purpose of a budget?

To set financial goals for a future period Signup and view all the answers

How is the material price variance computed?

Actual quantity x (Actual price - Standard price) Signup and view all the answers

What is the primary purpose of a Management Information System (M.I.S.)?

To compile and maintain vital data required for planning Signup and view all the answers

Which technique is NOT commonly associated with management accounting analysis?

Time series forecasting Signup and view all the answers

What role does Management by Exception play in management accounting?

It identifies and highlights corrective measures for deviations. Signup and view all the answers

How does management accounting assist in organizational planning?

By utilizing accounting information for scientific decision making Signup and view all the answers

Which of the following is a key component of a communication system within management accounting?

Properly communicating plans to various levels of the organization Signup and view all the answers

What is the significance of internal audits in management accounting?

They provide a basis for evaluating divisional performance. Signup and view all the answers

What is the focus of Management by Objective in management accounting?

To ensure every manager performs functions aiming at organizational objectives. Signup and view all the answers

What is highlighted by management accounting when planning?

Deviations from established standards Signup and view all the answers

What is the primary purpose of maintaining proper books of accounts as mandated by the Companies Act?

To record all financial transactions accurately Signup and view all the answers

What is the time frame for submitting annual accounts at the annual general meeting?

Within six months from the accounting period end Signup and view all the answers

Which of the following classifications is NOT part of the company's assets as per the requirements for balance sheets?

Personal Assets Signup and view all the answers

Which term has been replaced in the balance sheet as per Schedule III?

Sources of Funds Signup and view all the answers

Where should the debit balance of the Profit & Loss account be shown according to the new rules?

As a negative figure under Surplus Signup and view all the answers

What significant change regarding the format of presentation was introduced in the new Schedule III?

Only vertical form is allowed Signup and view all the answers

Which of the following must be disclosed separately under the head 'Other Income' in the Profit & Loss Account?

Net gain/loss on foreign currency translation Signup and view all the answers

What significant change regarding Share Application Money has been made?

It is now shown separately under Shareholders Funds. Signup and view all the answers

What additional expense must be disclosed in the Employee benefit expense of the Profit & Loss Account?

Expense on account of Employee Stock Option Scheme (ESOP) Signup and view all the answers

Which of the following best describes the classification of liabilities as per the changes?

Current Liabilities and Non Current Liabilities Signup and view all the answers

What is a primary objective of cost accounting?

Operational planning and control Signup and view all the answers

How must similar unit measurements be handled in financial statements according to the revised regulations?

Once a unit measurement is used, it should be uniform across statements Signup and view all the answers

According to I.C.M.A.London, what does cost accounting primarily focus on?

Ascertainment of cost and decision-making Signup and view all the answers

What is NOT a classification for investments according to the balance sheet requirements?

Investment in personal assets Signup and view all the answers

What change was made in the presentation of information according to the revised Schedule VI?

The concept of schedules has been eliminated. Signup and view all the answers

Which component of liabilities is now shown separately under 'Long term Borrowings'?

Deferred payment liabilities and loans & advances from related parties Signup and view all the answers

Study Notes

Introduction to Management Accounting

Management accounting is a powerful tool for managers to improve efficiency and profitability.
It helps in establishing, coordinating and administering company plans.
Companies use it to analyze deviations from standards for corrective actions, fixing responsibilities and evaluating divisional performance.
It's essential for protecting business assets and understanding both external and internal business environments.
The main purpose is to utilise accounting data to solve business problems, making scientific decisions.

Definition

Management accounting combines management and accounting, enhancing managerial efficiency by providing necessary information and facts.
According to Cost and Management Accounts, London - Management Accounting presents professional knowledge and abilities to provide accounting insights for policy formulation, planning, and control for businesses.
The Institute of Chartered Accountants of England and Wales defines it as the form of accounting that enables efficient business conduct.
R.N. Anthony defines it as concerned with accounting information valuable to management.
The International Federation of Accountants (IFAC) describes it as the process of identification, measurement, accumulation, analysis, preparation, interpretation, and communication of financial and operating information.

Objectives

Explain the scope of Management Accounting.
Distinguish between:
- Management Accounting and Financial Accounting
- Management Accounting and Cost Accounting
- Management Accounting and Financial Management

Financial Accounting vs Management Accounting

Financial accounting is governed by statutory frameworks (Companies Act, Income Tax Act) while management accounting does not have statutory requirements.
Financial accounting's main function is recording business transactions to prepare and publish financial statements for internal and external use.
Management accounting prepares management information system (MIS) reports for management decision-making and control.
Financial accounting reports are made available as and when required by the act, while management accounting reports are as and when needed by management.
Financial accounting reports are detailed and accurate but slow, while management accounting ones are fast and approximate.
Financial accounting provides information for the whole company, but management accounting provides segment-specific information.
Financial accounting formats are standardized, while management accounting is tailor-made for management's needs.

Cost Accounting vs Management Accounting

Cost Accounting is concerned with the ascertainment, allocation, distribution, and accounting aspects of costs.
Management accounting is concerned more with the impact and effect of costs.
Cost accounting uses accounting data as a base for Management accounting techniques.
Management accounting (compared to Cost) uses economic and statistical data alongside costing and is concerned with overall business operations, planning, decision-making, and control.
Management accounting techniques include marginal costing, break-even analysis, budgetary control, and various ratio analyses, which are broader than the focus on cost accounting.

Cost Accounting vs. Management Accounting

Cost accounting is primarily concerned with short-term planning.
Management accounting considers both short and long-term planning.
Cost accounting assists management functions but doesn't evaluate management performance.
Management accounting assists in management functions and also evaluates performance.
Cost accounting is more historical, focusing on the past.
Management accounting is more predictive, anticipating future trends.
A cost accounting system can work independently of a management accounting system, but a management accounting system relies on a cost accounting one.

Forms of Business Organization

Proprietary Concern
Partnership Firm
Private Limited Company
Public Limited Company
Trust
Non-trading organization

Accounting Principles

Accounting principles are rules followed by organizations to report financial information.

Users of Accounting Information

Internal Users (Owners, Management, Employees)
External Users (Creditors, Investors, Customers, Tax authorities, Researchers, General Public)

Cost Components

Prime Cost: (Direct Material) + (Direct Labor) + (Direct Expenses)
Direct Material = (Raw material) + (Bought Outs) + (Primary Packing Material)
Direct Expenses = Expenses for a particular job/product/process
Overheads: (Indirect Material) + (Indirect Labor) + (Indirect Expenses)
Cost Classification is element-wise, function-wise, or behaviour-wise (Fixed, Variable, Semi-variable).
Decision Centers: Cost, Revenue, Profit, Investment.
Classifications of Overheads (Element-wise, Function-wise, Behavior-wise)

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Description

Test your knowledge on key concepts in accounting, including trial balances, financial statements, and management accounting. This quiz covers various principles and techniques that are essential for both students and professionals in the field of accounting.