Account 1 Marks Question

Contingent Liability.

Operating Profit = Net Profit - Non Operating Income + Non Operating Expenses.

It will be treated as 'Sales' because ownership and risk have been transferred to the Buyer.

Creditors should be first.

Net Profit means the excess of all revenue over all expenses and losses of a business enterprise.

It is the excess of selling price of the goods over the cost of goods sold.

Closing stock is given inside the Trial Balance when the entry to incorporate the closing stock in the books has already been passed. It would imply that the Closing Stock must have been deducted out of Purchases Account. Hence, in such a case, Closing Stock will not be shown in the Trading Account but will appear on the Assets side of the Balance Sheet only.

Horizontal form.

Yes.

No, It is a violation of full disclosure principle because expenses and incomes should be shown separately in the Profit & Loss Account.

Provision for Discount on Creditors.

Trading Account is one of the financial statements which shows the result of buying and selling of goods and services of an accounting period.

Yes.

It shows the overall result of business operations i.e., net profit earned or net loss incurred during an accounting period.

Marshalling is the arrangement of assets and liabilities in a particular order in the balance sheet. There are two ways of marshalling:

1. Order of Liquidity.
2. Order of Permanence.

Cost of Goods Sold = Sales - Gross Profit
Alternate Answer
Opening Stock + Purchases + Direct Expenses - Closing Stock

Intangible Assets.

Gross Profit will increase.

Sales.

Two characteristics of a Balance Sheet are:

1. It is a statement and not an account. It has no debit or credit side. The headings of the two sides are ‘Assets' and 'Liabilities'.
2. It is prepared on a particular date and not for a particular period.

Contingent asset means a right or the possibility of an inflow of economic benefit to the firm in future. They are not shown in the financial statements because of convention of prudence.

Cash in hand should be first.

It will be shown on the assets side of Balance Sheet because it is Capital Expenditure.

They are shown as a footnote just below the Balance Sheet.

By preparing trading account we come to know the amount of Gross Profit or 'Gross loss'.

It refers to a statement of Assets and Liabilities of an enterprise on a certain fixed date.

1. Fixed Assets – Land, Building, Furniture, fixtures, and vehicles etc.
2. Current Assets – Cash, Bill Receivable, Debtors, Prepaid Expenses, Closing Stock etc.

The primary objective of financial statements is to communicate the meaningful information to different stakeholders in the business so that they can make informed decisions.

Grouping means showing the assets or liabilities of similar nature under a common heading and Marshalling means showing the assets and liabilities in a proper order.

A balance sheet is prepared to ascertain the financial position of an enterprise on a particular date. It shows liabilities on the left hand side and assets on right hand side.

1. Debit balance of Profit & Loss Account.
2. Advertisement Expenses not yet written off.

No. It does not show the financial position of the enterprise. It shows the financial performance i.e., profit or loss of an enterprise for a particular period.

Financial statements are those statements which provide information about the profitability and the financial position of a business. The term Financial Statements includes at least two statements which are:

1. Balance Sheet.
2. Trading and Profit & Loss A/c.

	Basis of Difference	Trial Balance	Balance Sheet
1.	Object	It is prepared to check the arithmetical accuracy of the books of accounts.	It is prepared to know the true financial position of the firm.
2.	Information about profit or loss.	It is not possible to have information about net profit or net loss from a trial balance.	Since net profit or loss is recorded in the Capital shown in Balance Sheet, it is possible to have the information about net profit or net loss from a Balance Sheet.

No. Profit and Loss Account is a periodic statement because it is prepared for a particular period whereas Balance Sheet is a point statement because it is prepared on a particular date.

Employees and trade unions: On the basis of financial statements they can judge as to how much bonus and increase in their wages is possible from the profits of the enterprise.