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Page 1 Short Answer Question Q.1 Give two basic purposes of the accounting equation. The solution for this question is as follows: The two basic purposes of the accounting equation are. (i) The accounting equation is always equal it ensures the accuracy in the recording of a business transaction. (ii) It helps in preparation of the balance sheet. Q.2 Which of the following equations are correct? I. Assets = Capital + Liabilities II. Assets = Capital – Liabilities III. Assets = Liabilities – Capital IV. Capital = Assets – Liabilities V. Capital = Assets + Liabilities VI. Liabilities = Capital + Assets VII. Liabilities = Capital – Assets VIII. Liabilities = Assets – Capital The solution for this question is as follows: Equations I, IV, VIII are the correct. Q.3 The position of a businessman on 30th June 1994 was as follows – Cash ?5,000, Debtor ?20,000, Machinery ?60,000, Stock ?25,000, Capital ?75,000. Calculate his liabilities. The solution for this question is as follows: Liabilities = Assets- Capital Liabilities = ?5,000 + ?20,000 + ?60,000 + ?25,000 – ?75,000 = ?1,10,000 – ?75,000 = ?35,000 Page 2 Short Answer Question Q.1 Give two basic purposes of the accounting equation. The solution for this question is as follows: The two basic purposes of the accounting equation are. (i) The accounting equation is always equal it ensures the accuracy in the recording of a business transaction. (ii) It helps in preparation of the balance sheet. Q.2 Which of the following equations are correct? I. Assets = Capital + Liabilities II. Assets = Capital – Liabilities III. Assets = Liabilities – Capital IV. Capital = Assets – Liabilities V. Capital = Assets + Liabilities VI. Liabilities = Capital + Assets VII. Liabilities = Capital – Assets VIII. Liabilities = Assets – Capital The solution for this question is as follows: Equations I, IV, VIII are the correct. Q.3 The position of a businessman on 30th June 1994 was as follows – Cash ?5,000, Debtor ?20,000, Machinery ?60,000, Stock ?25,000, Capital ?75,000. Calculate his liabilities. The solution for this question is as follows: Liabilities = Assets- Capital Liabilities = ?5,000 + ?20,000 + ?60,000 + ?25,000 – ?75,000 = ?1,10,000 – ?75,000 = ?35,000 Q.4 What entry (debit or credit) would you make to (a) increase in revenue (b)decrease in expense (c) record drawing (d) record the fresh capital introduced by owner. The solution for this question is as follows: (a) Increase in revenue: Credit (b) A decrease in expense: Credit (c) Record drawing: Debit in Capital Account (d) Record the fresh capital introduced by the owner: Credit in Capital Account Q.5 If a transaction has the effect of decreasing an asset, is the decrease recorded as a debit or credit? If the transaction has the effect of decreasing a liability, is the decrease recorded as a debit or credit? The solution for this question is as follows: (i) A decrease in Asset will be recorded on the credit side. (ii) A Decrease in Liability will be recorded on the debit side. Q. 6 Name the transaction that will (i) Decrease the assets and decrease the capital (ii) Increase the assets and increase the liabilities (iii) Increase the assets and decrease another asset (iv) Decrease the assets and decrease the liabilities The solution for this question is as follows: (i) Decrease the assets and decrease the capital – Drawings or expenses (ii) Increase the assets and increase the liabilities – Purchase of an asset on credit (iii) Increase the assets and decrease another asset – Purchase or sale of an asset in cash (iv) Decrease the assets and decrease the liabilities – Payment of a liability Page 3 Short Answer Question Q.1 Give two basic purposes of the accounting equation. The solution for this question is as follows: The two basic purposes of the accounting equation are. (i) The accounting equation is always equal it ensures the accuracy in the recording of a business transaction. (ii) It helps in preparation of the balance sheet. Q.2 Which of the following equations are correct? I. Assets = Capital + Liabilities II. Assets = Capital – Liabilities III. Assets = Liabilities – Capital IV. Capital = Assets – Liabilities V. Capital = Assets + Liabilities VI. Liabilities = Capital + Assets VII. Liabilities = Capital – Assets VIII. Liabilities = Assets – Capital The solution for this question is as follows: Equations I, IV, VIII are the correct. Q.3 The position of a businessman on 30th June 1994 was as follows – Cash ?5,000, Debtor ?20,000, Machinery ?60,000, Stock ?25,000, Capital ?75,000. Calculate his liabilities. The solution for this question is as follows: Liabilities = Assets- Capital Liabilities = ?5,000 + ?20,000 + ?60,000 + ?25,000 – ?75,000 = ?1,10,000 – ?75,000 = ?35,000 Q.4 What entry (debit or credit) would you make to (a) increase in revenue (b)decrease in expense (c) record drawing (d) record the fresh capital introduced by owner. The solution for this question is as follows: (a) Increase in revenue: Credit (b) A decrease in expense: Credit (c) Record drawing: Debit in Capital Account (d) Record the fresh capital introduced by the owner: Credit in Capital Account Q.5 If a transaction has the effect of decreasing an asset, is the decrease recorded as a debit or credit? If the transaction has the effect of decreasing a liability, is the decrease recorded as a debit or credit? The solution for this question is as follows: (i) A decrease in Asset will be recorded on the credit side. (ii) A Decrease in Liability will be recorded on the debit side. Q. 6 Name the transaction that will (i) Decrease the assets and decrease the capital (ii) Increase the assets and increase the liabilities (iii) Increase the assets and decrease another asset (iv) Decrease the assets and decrease the liabilities The solution for this question is as follows: (i) Decrease the assets and decrease the capital – Drawings or expenses (ii) Increase the assets and increase the liabilities – Purchase of an asset on credit (iii) Increase the assets and decrease another asset – Purchase or sale of an asset in cash (iv) Decrease the assets and decrease the liabilities – Payment of a liability Q.7 What will be the effect of the following on the accounting equation- (i) Purchased goods for ?20,000 form Mahesh on credit (ii) Sold goods to Suresh costing ?8,000 for ?10,000 in cash (iii) Paid wages ?500 (iv) Withdrew in cash for private use ?2,000 (v) Paid to creditors ?2,000 The solution for this question is as follows: (i) + Stock + Creditors (ii) +Cash – Stock + Capital (iii) – Cash – Capital (iv) – Cash – Capital (v) – Cash – Creditor Q.8 If the total asset of a business is ?2,00,000 and the net worth (capital) is ?1,50,000. Calculate creditors. The solution for this question is as follows: Creditor (Liabilities)= Assets – Capital = ?2,00,000- ?1,50,000 = ?50,000 Q.9 A business on 1st April 2011 with a capital of ?5,00,000. On 31st March 2012, his assets were worth ?7,80,000 and liabilities ?70,000. Find out his closing capital and profits earned during the year. The solution for this question is as follows: Closing Capital= Closing Assets-Closing liabilities = 7,80,000 – ?70,000 = ? 7,10,000 Profit = Closing Capital – Opening Capital ?7,10,000- ? 5,00,000= ?2,10,000 Page 4 Short Answer Question Q.1 Give two basic purposes of the accounting equation. The solution for this question is as follows: The two basic purposes of the accounting equation are. (i) The accounting equation is always equal it ensures the accuracy in the recording of a business transaction. (ii) It helps in preparation of the balance sheet. Q.2 Which of the following equations are correct? I. Assets = Capital + Liabilities II. Assets = Capital – Liabilities III. Assets = Liabilities – Capital IV. Capital = Assets – Liabilities V. Capital = Assets + Liabilities VI. Liabilities = Capital + Assets VII. Liabilities = Capital – Assets VIII. Liabilities = Assets – Capital The solution for this question is as follows: Equations I, IV, VIII are the correct. Q.3 The position of a businessman on 30th June 1994 was as follows – Cash ?5,000, Debtor ?20,000, Machinery ?60,000, Stock ?25,000, Capital ?75,000. Calculate his liabilities. The solution for this question is as follows: Liabilities = Assets- Capital Liabilities = ?5,000 + ?20,000 + ?60,000 + ?25,000 – ?75,000 = ?1,10,000 – ?75,000 = ?35,000 Q.4 What entry (debit or credit) would you make to (a) increase in revenue (b)decrease in expense (c) record drawing (d) record the fresh capital introduced by owner. The solution for this question is as follows: (a) Increase in revenue: Credit (b) A decrease in expense: Credit (c) Record drawing: Debit in Capital Account (d) Record the fresh capital introduced by the owner: Credit in Capital Account Q.5 If a transaction has the effect of decreasing an asset, is the decrease recorded as a debit or credit? If the transaction has the effect of decreasing a liability, is the decrease recorded as a debit or credit? The solution for this question is as follows: (i) A decrease in Asset will be recorded on the credit side. (ii) A Decrease in Liability will be recorded on the debit side. Q. 6 Name the transaction that will (i) Decrease the assets and decrease the capital (ii) Increase the assets and increase the liabilities (iii) Increase the assets and decrease another asset (iv) Decrease the assets and decrease the liabilities The solution for this question is as follows: (i) Decrease the assets and decrease the capital – Drawings or expenses (ii) Increase the assets and increase the liabilities – Purchase of an asset on credit (iii) Increase the assets and decrease another asset – Purchase or sale of an asset in cash (iv) Decrease the assets and decrease the liabilities – Payment of a liability Q.7 What will be the effect of the following on the accounting equation- (i) Purchased goods for ?20,000 form Mahesh on credit (ii) Sold goods to Suresh costing ?8,000 for ?10,000 in cash (iii) Paid wages ?500 (iv) Withdrew in cash for private use ?2,000 (v) Paid to creditors ?2,000 The solution for this question is as follows: (i) + Stock + Creditors (ii) +Cash – Stock + Capital (iii) – Cash – Capital (iv) – Cash – Capital (v) – Cash – Creditor Q.8 If the total asset of a business is ?2,00,000 and the net worth (capital) is ?1,50,000. Calculate creditors. The solution for this question is as follows: Creditor (Liabilities)= Assets – Capital = ?2,00,000- ?1,50,000 = ?50,000 Q.9 A business on 1st April 2011 with a capital of ?5,00,000. On 31st March 2012, his assets were worth ?7,80,000 and liabilities ?70,000. Find out his closing capital and profits earned during the year. The solution for this question is as follows: Closing Capital= Closing Assets-Closing liabilities = 7,80,000 – ?70,000 = ? 7,10,000 Profit = Closing Capital – Opening Capital ?7,10,000- ? 5,00,000= ?2,10,000 Q.10 On which side will the increase in the following account be recorded? Also, mention the nature of the account. 1. Cash 5. Proprietor’s Account 2. Machinery 6. Rent Received 3. Debtor 7. Salary Paid 4. Creditor 8. Interest Received The solution for this question is as follows: Properties Accounts Nature Cash Machinery Debtor Creditor Proprietor’s Account Rent Received Salary Paid Interest Received Debit Debit Debit Credit Credit Credit Debit Credit Asset Asset Asset Liability Capital Income Expenses Income Question 11 On which side will the increase in the following account be recorded? Also, mention the nature of the account. 1. Furniture 5. Salary Outstanding 2. Bank 6. Subash- a customer 3. Proprietor’s Account 4. Salary Paid The solution for this question is as follows: Properties Accounts Nature Furniture Bank Proprietor’s Account Salary Paid Salary Outstanding Subash- a customer Credit Credit Debit Credit Debit Credit Asset Asset Capital A/c Expenses Liability Asset Page 5 Short Answer Question Q.1 Give two basic purposes of the accounting equation. The solution for this question is as follows: The two basic purposes of the accounting equation are. (i) The accounting equation is always equal it ensures the accuracy in the recording of a business transaction. (ii) It helps in preparation of the balance sheet. Q.2 Which of the following equations are correct? I. Assets = Capital + Liabilities II. Assets = Capital – Liabilities III. Assets = Liabilities – Capital IV. Capital = Assets – Liabilities V. Capital = Assets + Liabilities VI. Liabilities = Capital + Assets VII. Liabilities = Capital – Assets VIII. Liabilities = Assets – Capital The solution for this question is as follows: Equations I, IV, VIII are the correct. Q.3 The position of a businessman on 30th June 1994 was as follows – Cash ?5,000, Debtor ?20,000, Machinery ?60,000, Stock ?25,000, Capital ?75,000. Calculate his liabilities. The solution for this question is as follows: Liabilities = Assets- Capital Liabilities = ?5,000 + ?20,000 + ?60,000 + ?25,000 – ?75,000 = ?1,10,000 – ?75,000 = ?35,000 Q.4 What entry (debit or credit) would you make to (a) increase in revenue (b)decrease in expense (c) record drawing (d) record the fresh capital introduced by owner. The solution for this question is as follows: (a) Increase in revenue: Credit (b) A decrease in expense: Credit (c) Record drawing: Debit in Capital Account (d) Record the fresh capital introduced by the owner: Credit in Capital Account Q.5 If a transaction has the effect of decreasing an asset, is the decrease recorded as a debit or credit? If the transaction has the effect of decreasing a liability, is the decrease recorded as a debit or credit? The solution for this question is as follows: (i) A decrease in Asset will be recorded on the credit side. (ii) A Decrease in Liability will be recorded on the debit side. Q. 6 Name the transaction that will (i) Decrease the assets and decrease the capital (ii) Increase the assets and increase the liabilities (iii) Increase the assets and decrease another asset (iv) Decrease the assets and decrease the liabilities The solution for this question is as follows: (i) Decrease the assets and decrease the capital – Drawings or expenses (ii) Increase the assets and increase the liabilities – Purchase of an asset on credit (iii) Increase the assets and decrease another asset – Purchase or sale of an asset in cash (iv) Decrease the assets and decrease the liabilities – Payment of a liability Q.7 What will be the effect of the following on the accounting equation- (i) Purchased goods for ?20,000 form Mahesh on credit (ii) Sold goods to Suresh costing ?8,000 for ?10,000 in cash (iii) Paid wages ?500 (iv) Withdrew in cash for private use ?2,000 (v) Paid to creditors ?2,000 The solution for this question is as follows: (i) + Stock + Creditors (ii) +Cash – Stock + Capital (iii) – Cash – Capital (iv) – Cash – Capital (v) – Cash – Creditor Q.8 If the total asset of a business is ?2,00,000 and the net worth (capital) is ?1,50,000. Calculate creditors. The solution for this question is as follows: Creditor (Liabilities)= Assets – Capital = ?2,00,000- ?1,50,000 = ?50,000 Q.9 A business on 1st April 2011 with a capital of ?5,00,000. On 31st March 2012, his assets were worth ?7,80,000 and liabilities ?70,000. Find out his closing capital and profits earned during the year. The solution for this question is as follows: Closing Capital= Closing Assets-Closing liabilities = 7,80,000 – ?70,000 = ? 7,10,000 Profit = Closing Capital – Opening Capital ?7,10,000- ? 5,00,000= ?2,10,000 Q.10 On which side will the increase in the following account be recorded? Also, mention the nature of the account. 1. Cash 5. Proprietor’s Account 2. Machinery 6. Rent Received 3. Debtor 7. Salary Paid 4. Creditor 8. Interest Received The solution for this question is as follows: Properties Accounts Nature Cash Machinery Debtor Creditor Proprietor’s Account Rent Received Salary Paid Interest Received Debit Debit Debit Credit Credit Credit Debit Credit Asset Asset Asset Liability Capital Income Expenses Income Question 11 On which side will the increase in the following account be recorded? Also, mention the nature of the account. 1. Furniture 5. Salary Outstanding 2. Bank 6. Subash- a customer 3. Proprietor’s Account 4. Salary Paid The solution for this question is as follows: Properties Accounts Nature Furniture Bank Proprietor’s Account Salary Paid Salary Outstanding Subash- a customer Credit Credit Debit Credit Debit Credit Asset Asset Capital A/c Expenses Liability Asset Very Short Questions Q.1 What is an accounting equation? The solution for this question is as follows: An accounting equation is an accounting formula which indicates that a company’s assets are always equal to the total of liabilities and capital. Q.2 Give fundamental accounting equation. The solution for this question is as follows: Assets = Liabilities + Capital Q.3 If the capital of a firm is ?5,00,000 and outside liabilities are ?2,00,000. Evaluate total assets of the company. The solution for this question is as follows: Total Assets ?7,00,000 Q.4 If total assets of a company are ?10,00,000 and capital is ?4,00,000. Calculate creditors The solution for this question is as follows: Creditors ?6,00,000 Q. 5 ‘X’ commenced business on April 1st 2013 with a capital of ?6,00,000. On 31st March, 2014 his assets were worth ?8,00,000 and liabilities ?50,000. Find out his closing capital and profits earned during the year. The solution for this question is as follows: Closing capital ?7,50,000, profit ?1,50,000 Q. 6 What is debit? The solution for this question is as follows: When an amount is entered on the left-hand side of an account, it is a debit and the account is said to be debited. Q.7 What is credit? The solution for this question is as follows: When an amount is entered on the right-hand side of an account, it is a credit and the account is said to be credited. Q.8 Why are the rules of credit and debit same for both capital and liabilities? The solution for this question is as follows: The rules of credit and debit are same for both capital and liabilities because the business entity concept capital is also treated as liability of a firm. Q.9 Name the side on which increase in capital is recorded. The solution for this question is as follows: Credit sideRead More
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