Accounting Concepts, Financial Statements, GST Basics & Auditing — Practice

Question 1

State the three rules of debit and credit for personal, real and nominal accounts.

Accepted Answer

For personal accounts, debit the receiver and credit the giver. For real accounts, debit what comes in and credit what goes out. For nominal accounts, debit expenses and losses and credit incomes and gains.

Question 2

A firm has current assets of 6 lakh rupees, inventory of 2 lakh rupees and current liabilities of 3 lakh rupees. Find its current ratio and quick ratio.

Accepted Answer

Current ratio = 6 / 3 = 2:1. Quick assets = 6 - 2 = 4 lakh rupees, so quick ratio = 4 / 3, about 1.33:1. Both meet the common benchmarks of 2:1 and 1:1, so short-term liquidity is comfortable.

Question 3

Explain the going concern and matching concepts.

Accepted Answer

The going concern concept assumes the business will continue operating, so assets are valued for use and not for forced sale. The matching concept requires that expenses be matched with the revenues they help to earn in the same period, using accrual accounting, so that profit is measured fairly.

Question 4

Describe the three parts of a cash flow statement.

Accepted Answer

Operating activities cover the day-to-day business such as receipts from customers and payments to suppliers. Investing activities cover the purchase and sale of long-term assets and investments. Financing activities cover raising and repaying capital and borrowings, and paying dividends. Together they show how cash was generated and used, which profit alone cannot show.

Question 5

Explain the structure of GST in India.

Accepted Answer

GST replaced most indirect taxes from 1 July 2017 under the 101st Constitutional Amendment. It is a destination-based, multi-stage tax with credit for tax paid on inputs. CGST and SGST are levied on intra-state supplies, and IGST on inter-state supplies and imports. The GST Council under Article 279A decides rates and rules, and rates were simplified in 2025.

Question 6

Distinguish social audit from performance audit.

Accepted Answer

Social audit is a community-based verification of whether a programme's benefits and spending match records, for example through Gram Sabha audits under MGNREGA. Performance audit is done by professional auditors such as the CAG and tests a programme's economy, efficiency and effectiveness. One is participatory and local, the other technical and institutional.

Question 7

Discuss the objectives and types of audit, including government audit. (~150 words)

Accepted Answer

An audit is an independent examination of accounts to form an opinion on whether they give a true and fair view. Objectives are to express that opinion, detect errors and fraud and check compliance with law. Types include statutory audit, compulsory for companies under the Companies Act, 2013; internal audit by the organisation's own staff; cost audit; and tax audit under the Income-tax Act. Government audit is done by the Comptroller and Auditor General under Articles 148-151 as financial, compliance and performance audit, with reports laid before Parliament or the state legislature and examined by the Public Accounts Committee. An audit programme lists the procedures to be followed, supported by working papers. Public administration also uses social and efficiency audits.

Question 8

Discuss the benefits and risks of computerised accounting for a government department. (~150 words)

Accepted Answer

Computerised accounting posts vouchers to ledgers automatically and produces trial balances, financial statements and returns on demand. Benefits for a department include speed, fewer arithmetical errors, real-time reporting, easier reconciliation and better audit trails, which support transparency and timely payments. Integration with systems such as the Public Financial Management System helps track funds to the last mile. Risks include unauthorised access, data loss, wrong master data and dependence on a few trained staff. Safeguards are access controls, regular backups, segregation of duties, staff training and periodic system audit. Properly managed, computerisation improves accountability, but it does not replace internal control and human judgement.

Practice — Accounting Concepts, Financial Statements, GST Basics & Auditing

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