Accounting Cycle : Final Accounts Without Adjustments — Practice Quiz

Cost price or Market price, whichever is LOWER

Step 1: The valuation of Closing Stock follows the accounting Principle of Conservatism (also called Prudence). Step 2: This principle states that accountants should not anticipate profits but should provide for all possible losses. Step 3: If the market price has fallen below cost, valuing stock at cost would overstate the asset and the profit — this would mislead users of financial statements. Step 4: Therefore, Closing Stock is always valued at Cost Price OR Market Price, whichever is LOWER. This ensures that no unrealised profit is recorded. Step 5: For example, if goods cost ₹50,000 but t

Capital Account

Step 1: After the Profit and Loss Account is balanced, the resulting Net Profit or Net Loss must be transferred to the owner's account. Step 2: In a sole proprietorship, the owner's account is called the Capital Account. Step 3: Net Profit increases the owner's investment in the business, so it is CREDITED to the Capital Account (Journal Entry: Profit and Loss A/c Dr. → To Capital A/c). Step 4: If there is a Net Loss, it DECREASES the owner's capital, so it is DEBITED to the Capital Account (Journal Entry: Capital A/c Dr. → To Profit and Loss A/c). Step 5: The updated Capital Account balance (

It is a statement, not an account

Step 1: Understanding the nature of a Balance Sheet is fundamental. It is important to know what makes it different from Trading and P&L Accounts. Step 2: A Balance Sheet is a STATEMENT, not an account. This means it does not have a Debit side or Credit side — instead it has an Assets side and a Liabilities side. Step 3: Because it is a statement (not an account), entries do NOT begin with 'To' or 'By' — this eliminates Option B. Step 4: Option A is wrong — a Balance Sheet is prepared at a PARTICULAR DATE (e.g., 'as at 31st March'), not for a period. The words 'as at' in the heading confirm th

Cash in Hand

Step 1: Marshalling of a Balance Sheet refers to the arrangement of assets and liabilities in a specific order. There are two methods: Order of Liquidity and Order of Permanence. Step 2: In the ORDER OF LIQUIDITY method, assets are arranged from MOST LIQUID to LEAST LIQUID. Liquidity means how quickly an asset can be converted into cash. Step 3: Cash in Hand is already cash — it is the most liquid asset possible. Therefore, it appears FIRST. Step 4: After cash, other current assets like Cash at Bank, Bills Receivable, Debtors, and Closing Stock appear. Fixed assets like Furniture, Plant, and L