Test: Preparation Of Journal Ledger Account - MCQ - 1 - Commerce MCQ

To answer the given multiple-choice question, let's analyze the options and determine the correct answer:
Q: Goods purchased on cash are recorded in the:
The correct answer is C: Cash book.
Explanation:
1. Purchases (journal) book: This book is used to record credit purchases, i.e., when goods are purchased on credit. It does not include cash purchases.
2. Sales (journal) book: This book is used to record credit sales, i.e., when goods are sold on credit. It does not include cash purchases.
3. Cash book: The cash book is used to record all cash transactions of a business, including cash purchases. It contains separate columns for recording cash receipts and cash payments. Cash purchases are recorded in the cash payment column.
4. Purchases return (journal) book: This book is used to record goods returned to the suppliers for various reasons. It does not include cash purchases.
Therefore, the correct option for recording goods purchased on cash is the Cash book.

Cash Book does not record transactions of Credit nature.
- Cash Book is a subsidiary book that records all cash transactions.
- It is used to record all cash receipts and cash payments.
- Cash transactions include both cash received and cash paid.
- Cash received is recorded on the debit side, while cash paid is recorded on the credit side of the Cash Book.
- However, Cash Book does not record transactions of Credit nature.
- Credit transactions are those where goods or services are received or provided on credit, without involving any immediate cash exchange.
- Examples of credit transactions include sales on credit, purchases on credit, and loans.
- Such transactions are recorded in other books like Sales Book, Purchases Book, and Journal.
- Cash Book is specifically designed to record only cash transactions.
- It provides a clear record of cash inflows and outflows and helps in maintaining cash control and cash management.
- By not recording credit transactions, Cash Book remains focused on cash transactions only.
- Therefore, the correct answer is option B: Cash Book does not record transactions of Credit nature.

Answer:
The correct answer is C: Posting.
Posting refers to the process of transferring entries from a journal to a ledger account. It is an essential step in the accounting cycle and helps in organizing and summarizing financial transactions.
Here is a detailed explanation of the process of posting:
1. Journal: The journal is a book where all financial transactions are initially recorded in chronological order. It contains a date, description of the transaction, debit and credit amounts, and the accounts affected.
2. Ledger: The ledger is a book or electronic system that contains individual accounts for each asset, liability, equity, revenue, and expense. It acts as a centralized record for all transactions.
3. Identifying entries: Each entry in the journal needs to be identified and transferred to the appropriate ledger account. This is done by analyzing the transaction and determining the accounts that are affected.
4. Transferring entries: The entries from the journal are then transferred or posted to the respective ledger accounts. The debit amount is recorded on the debit side of the account, and the credit amount is recorded on the credit side of the account.
5. Posting reference: In order to maintain a link between the journal and the ledger, a reference is made in the journal entry to indicate the ledger account to which it has been posted. This helps in easy cross-referencing and verification of transactions.
6. Summarizing: Once all the entries have been posted, the ledger accounts are summarized to determine the balances of each account. This information is then used for financial analysis, reporting, and decision-making.
In conclusion, posting is the process of transferring entries from a journal to a ledger account. It is an important step in the accounting process that helps in organizing and summarizing financial transactions.

Explanation:
Negative balance in the cash book indicates that there is more cash going out than coming in. This usually happens when expenses exceed the available funds or when there is an overdraft on the bank account.
Reasons for a negative balance in the cash book:
- Overdraft: An overdraft occurs when the account holder withdraws more money from the bank account than what is available. This leads to a negative balance in the cash book as the account is overdrawn.
Other possible reasons for a negative balance:
- Unrecorded expenses: If expenses are not properly recorded in the cash book, it can lead to a negative balance. This could happen if expenses are paid in cash but not accounted for in the cash book.
- Bank charges or fees: Banks may deduct charges or fees from the account balance, resulting in a negative balance.
- Reversal of deposits: If a previously deposited amount is reversed or deducted from the account, it can lead to a negative balance.
- Errors in recording transactions: Mistakes in recording transactions, such as duplicate entries or incorrect amounts, can also cause a negative balance.
Conclusion:
In summary, a negative balance in the cash book indicates an overdraft or more cash going out than coming in. It is important to identify the reasons for the negative balance and take appropriate actions to rectify the situation, such as depositing funds or addressing any errors in recording transactions.

Double Column Cash Book Records:
There are different types of double column cash books that can be used to record various types of transactions. These include:
A. All transactions:
- This type of double column cash book records all types of transactions, including cash, credit, and bank transactions.
- It provides a comprehensive overview of all financial activities of the business.
- The two columns in this cash book are typically used to record cash and bank transactions separately.
B. Only cash transactions:
- This type of double column cash book records only cash transactions.
- It is useful for businesses that primarily deal with cash and have minimal credit or bank transactions.
- The two columns in this cash book are used to record cash receipts and cash payments.
C. Only credit transactions:
- This type of double column cash book records only credit transactions.
- It is useful for businesses that have a significant number of credit transactions and minimal cash or bank transactions.
- The two columns in this cash book are used to record credit sales and credit purchases.
D. Cash and bank transactions:
- This type of double column cash book records both cash and bank transactions.
- It is commonly used by businesses that frequently deal with both cash and bank transactions.
- The two columns in this cash book are used to record cash receipts and payments, as well as bank receipts and payments.
In conclusion, the choice of which type of double column cash book to use depends on the nature of the business and the types of transactions it engages in. Each type of cash book provides a different level of detail and is tailored to specific financial recording needs.

Balancing of Account
When it comes to accounting, balancing an account refers to ensuring that the total of debit entries equals the total of credit entries. This process is crucial in maintaining accurate and reliable financial records. Let's explore the meaning of balancing an account in more detail:
Difference in total of debit & credit:
- Balancing an account involves calculating the difference between the total debits and the total credits recorded in the account.
- If the total debits exceed the total credits, the account has a debit balance.
- If the total credits exceed the total debits, the account has a credit balance.
- The difference between the two sides is known as the balance.
Importance of Balancing an Account:
- Balancing an account is essential for accuracy and consistency in financial reporting.
- It ensures that all transactions are properly recorded and that there are no errors or discrepancies.
- Balancing an account allows for the identification of any mistakes or omissions in recording transactions.
- It provides a clear picture of the financial position of an individual or organization.
Steps to Balance an Account:
1. Gather all the transaction records for the account.
2. Separate the debit and credit entries.
3. Calculate the total debits and total credits separately.
4. Compare the totals to determine if they are equal or if there is a difference.
5. If there is a difference, review the entries and identify any errors or omissions.
6. Make the necessary adjustments to correct any discrepancies.
7. Re-calculate the totals and ensure they are now equal.
Conclusion:
Balancing an account is a critical process in accounting to ensure accuracy and reliability of financial records. By comparing the total debits and credits and making any necessary adjustments, accountants can maintain balanced and error-free accounts.

The owner investing personal cash in the business has an impact on the financial statements of the business. Let's analyze the effect on each financial element:
Assets:
- When the owner invests personal cash in the business, it increases the cash balance in the business. Thus, assets increase.
Liabilities:
- There is no direct impact on liabilities when the owner invests personal cash in the business. Liabilities represent the debts or obligations of the business to external parties, and this action does not involve any changes in liabilities.
Equity:
- Equity represents the owner's claim on the assets of the business. When the owner invests personal cash, it increases the owner's equity in the business, as the owner's investment is considered as additional capital in the business.
Based on the above analysis, the correct answer is:
Answer: D.
Assets: Increase, Liabilities: No Effect, Equity: Increase

The payment of a bank loan will have an effect on the assets and liabilities of a company. Let's break down the impact:
1. Assets:
- Bank loans are considered liabilities on the balance sheet, so when a loan is paid off, the corresponding liability decreases.
- However, the payment of the loan also affects the cash balance, which is an asset.
- Therefore, the impact on assets depends on how the loan is being paid off. If the payment is made using cash, the cash balance will decrease, resulting in a decrease in assets. If the loan is paid off using another asset, such as property or inventory, then the value of that asset will decrease.
2. Liabilities:
- When a loan is paid off, the liability associated with that loan decreases.
- This reduction in liabilities reflects the fact that the company no longer owes that amount to the bank.
Therefore, the correct answer is:
C.

Assets: Decrease, Liabilities: Decrease

Overall, the payment of a bank loan reduces both assets and liabilities on the company's balance sheet. The specific impact on assets depends on the source of funds used to make the payment.

Cash book is a Subsidiary journal.

A subsidiary journal is a special journal used to record specific types of transactions. In the case of a cash book, it is used to record all cash transactions.

Here is a detailed explanation:

Definition of a Cash Book:

• A cash book is a subsidiary journal that records all cash receipts and cash payments of a business.


• It serves as a bookkeeping record to track the inflow and outflow of cash.


• It provides a detailed record of cash transactions, which is essential for financial analysis and auditing purposes.

Characteristics of a Cash Book:

• A cash book is maintained by businesses of all sizes, from small organizations to large corporations.


• It is usually divided into two sides: the debit side for cash receipts and the credit side for cash payments.


• Each transaction is recorded with relevant details such as date, description, amount, and the accounts affected.


• The cash book is updated regularly, typically on a daily basis, to ensure accurate and up-to-date financial records.

Importance of a Cash Book:

• A cash book helps businesses monitor their cash flow and manage their finances effectively.


• It provides a clear overview of cash inflows and outflows, allowing businesses to track their revenue and expenses.


• It simplifies the process of reconciling bank statements by comparing the cash book balance with the bank balance.


• It serves as a source document for preparing financial statements, such as the income statement and balance sheet.


• It facilitates internal control and helps prevent fraud or misappropriation of cash.

Different Types of Journals:

• Subsidiary journals are specialized journals used for recording specific types of transactions, such as cash receipts, cash payments, sales, purchases, etc.


• A proper journal, on the other hand, is a general journal that records all types of transactions not covered by subsidiary journals.


• In the case of a cash book, it falls under the category of a subsidiary journal because it focuses solely on cash transactions.


• Other examples of subsidiary journals include sales journal, purchases journal, and payroll journal.

Therefore, based on the characteristics and purpose of a cash book, it can be concluded that it is a subsidiary journal specifically used for recording cash transactions.

Explanation:
In the Journal proper, only cash discount is recorded. This means that only discounts related to cash transactions are recorded in the Journal proper. Let's break down the options given and see why cash discount is the correct answer:
A: Total
- Total discount refers to the overall discount given on a transaction, including both cash and trade discounts. However, in the Journal proper, only cash discount is recorded, so this option is incorrect.
B: Cash
- Cash discount refers to the discount given to a customer for paying in cash or within a specified time period. This is the type of discount that is recorded in the Journal proper. Therefore, this option is correct.
C: Credit
- Credit discount refers to the discount given to a customer for purchasing on credit. This type of discount is not recorded in the Journal proper, so this option is incorrect.
D: Trade
- Trade discount refers to the discount given to a customer for various reasons such as bulk purchases, loyalty, or special promotions. This type of discount is not recorded in the Journal proper, so this option is incorrect.
Therefore, the correct answer is B: Cash. Only cash discounts are recorded in the Journal proper.