Question 1 of 5
The accounting equation is based on which principle?
A. Matching Principle
B. Dual Aspect Principle
C. Revenue Recognition Principle
D. Cost Principle
A
Matching Principle
B
Dual Aspect Principle
C
Revenue Recognition Principle
D
Cost Principle
Why: The **Dual Aspect Principle** states that every transaction has a dual effect, meaning it impacts two accounts simultaneously. This principle is the foundation of the accounting equation **Assets = Liabilities + Equity**. For every debit, there is an equal credit, maintaining the balance of the equation. This ensures complete recording of financial transactions. Options A, C, and D refer to different principles not directly forming the basis of the accounting equation.[2]
Question 2 of 5
Financial Accounting deals only with those transactions which are:
A. Non-monetary in nature
B. Measurable in terms of money
C. Future-oriented
D. Qualitative aspects only
A
Non-monetary in nature
B
Measurable in terms of money
C
Future-oriented
D
Qualitative aspects only
Why: **Financial Accounting deals only with transactions measurable in terms of money.** This is a fundamental nature of financial accounting. Any event or transaction that cannot be expressed in monetary terms (however significant) is excluded from financial accounting records. For example, employee morale or brand reputation, though important, are not recorded as they lack monetary measurement. This limitation ensures objectivity but ignores non-quantifiable factors.[4][5]
Question 3 of 5
Which of the following is NOT a limitation of Financial Accounting?
A. Records only historical costs
B. Provides information about the whole concern only
C. Reveals department-wise profitability
D. Does not consider price level changes
A
Records only historical costs
B
Provides information about the whole concern only
C
Reveals department-wise profitability
D
Does not consider price level changes
Why: **Financial Accounting does NOT reveal department-wise profitability.** This is a key limitation as it provides aggregate information for the entire business, not segmented by departments, products, or processes. Management needs cost accounting for such analysis. Other options A, B, and D are actual limitations: it records historical costs, ignores inflation, and gives whole-concern data only.[4][5]
Question 4 of 5
Which of the following are accounting limitations?
(i) Accounting system records only historical events.
(ii) Accounting ignores the effect of inflation on the value of fixed assets.
(iii) Accounting information does not include the costs of pollution and employee accidental injuries.
A
Only (i)
B
Only (i) and (ii)
C
All of (i), (ii) and (iii)
D
Only (ii) and (iii)
Why: All three statements correctly identify key limitations of financial accounting. (i) Financial accounting records only historical transactions and does not provide real-time data[1][4]. (ii) It uses historical cost principle and ignores inflation effects on asset values[1][4]. (iii) It follows money measurement concept, excluding non-monetary factors like pollution costs and employee injuries[1][4]. Option C includes all three correct limitations.
Question 5 of 5
Which one of the following is a limitation of Financial Accounting?
A
It is based on certain accounting principles
B
It records qualitative information
C
It records only monetary items
D
It lacks double entry system
Why: Financial accounting records only monetary transactions due to the money measurement concept, ignoring qualitative aspects like employee morale or brand value[2]. Option A is a feature, not limitation. Option B is incorrect as it doesn't record qualitative info. Option D is wrong as it uses double entry system. Thus, C is correct.
