• The accounting process starts with the recording of transactions in the form of journal entries.
• The recording is based on double entry system. This book or register called journal is the book of first or original entry.
• Next step is to post the entries in the ledger covered in the next unit.
Ques 1: The rent paid to landlord is credited to
(a) Landlord's account.
(b) Rent account.
(c) Cash account.
Ques 2: In case of a debt becoming bad, the amount should be credited to
(a) Trade receivables account.
(b) Bad debts account.
(c) Cash account.
Ques 3: A Ltd. has a ₹ 35,000 account receivable from Mohan. On January 20, Mohan makes a partial payment of ₹ 21,000 to A Ltd. The journal entry made on January 20 by A Ltd. to record this transaction includes:
(a) A credit to the cash received account of ₹ 21,000.
(b) A credit to the Accounts receivable account of ₹ 21,000.
(c) A debit to the cash account of ₹ 14,000.
Ques 4: Which financial statement represents the accounting equation - Assets = Liabilities + Owner's equity:
(a) Income Statement
(b) Statement of Cash flows
(c) Balance Sheet.
Ques 5: Which account is the odd one out?
(a) Office furniture & Equipment.
(b) Freehold land and Buildings.
(c) Inventory of materials.
Ques 6: The debts written off as bad, if recovered subsequently are
(a) Credited to Bad Debts Recovered Account
(b) Credited to Trade receivables Account.
(c) Debited to Profit and Loss Account.
Ques 7: In Double Entry System of Book-keeping every business transaction affects:
(a) Two accounts
(b) Two sides of the same account.
(c) The same account on two different dates.
Ques 8: A sale of goods to Ram for cash should be debited to:
Ques 1: Write short note on classification of accounts.
Ans: Accounts are broadly classified into assets, liabilities and capital. The basic accounting equation specifies broad categories, which are as follows:
(i) Assets: These are resources controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise, namely cash, stock of goods, land, buildings, machinery etc.
(ii) Liabilities: These are financial obligations of an enterprise other than owner's equity namely long term loans, creditors, outstanding expenses etc.
(iii) Capital: It generally refer to the amounts invested in an enterprise by its owner(s), the accretion to it or a reduction in it. Since capital is affected by expenses and incomes of revenue nature, there are two more categories of accounts, namely expenses and incomes. The difference between incomes and expenses are taken into capital account.
Expenses: These represents those accounts which show the amount spent or even lost in carrying on operations.
Incomes: These represent those accounts which show the revenue amounts earned by the enterprise.
However, traditionally accounts are classified as follows:
(i) Personal Accounts: These accounts relate to persons, institutions, debtors or creditors.
(ii) Impersonal Accounts: These represent accounts which are not personal. These can be further sub-divided as follows:
Real Accounts: These accounts relate to assets of the firm but not debt e.g. accounts relating to land, buildings, cash in hand etc.
Nominal accounts: These accounts relate to expenses, losses, gains, revenues etc.
Ques 2: Distinguish between Real account and nominal account.
Ans: A real account is an account relating to properties and assets, other than personal accounts of the firm. Examples are land, buildings, machinery, cash, investments etc. Nominal accounts relate to expenses or losses, incomes and gains. Examples are: wages, salaries, rent, depreciation etc. The net result of all the nominal accounts is reflected as profit or loss which is transferred to the capital account. Nominal accounts are therefore, temporary. The real accounts are shown in the balance sheet along with personal accounts.
Ques 1: Show the classification of the following Accounts under traditional and accounting equation approach:
Ques 2: Pass Journal Entries for the following transactions in the books of Gamma Bros. (i) Employees had taken inventory worth ₹ 1,00,000 (Cost price ₹ 75,000) on the eve of Deepawali and the same was deducted from their salaries in the subsequent month.
(ii) Wages paid for erection of Machinery ₹ 18,000.
(iii) Income tax liability of proprietor ₹ 1,17000 was paid out of petty cash.
(iv) Purchase of goods from Naveen of the list price of ₹ 2,00,000. He allowed 10% trade discount, ₹ 5,000 cash discount was also allowed for quick payment.
Note: i. Here wages paid on erection of machinery have been capitalised therefore machinery account has been debited directly instead of wages being recorded as an expenditure.
ii. The students may also note that trade discount is allowed on the list price of goods. It is deducted to find out the invoice amount of the goods to be recorded in the books. Cash discount is a discount allowed in case of early payments to the seller. The entry is made in the books of accounts for cash discount.
Ques 3: Calculate the missing amount for the following.
Ans: (a) 12,50,000
These have been solved using the Accounting Equation: Assets = Capital + Liabilities
Ques 4: Show the effect of increase = (+), decrease = (-) and no change=(0) on the assets of the following transactions:
a. Purchased office furniture, payment to be made next month.
b. Collected cash for repair services
c. Goods sold on credit.
d. With drawl of cash by the owner for personal use.
e. Hired an employee as sales manager of the north wing.
f. Returned goods worth ₹ 50,000.
g. One of our debtor agreed to pay his dues to Mr. C who is a creditor of the company with the same amount being due to him.
h. Entered into an agreement with Mehta & Co. to purchase all raw materials from their company from next year. Also give reasons for your answers.
Ques 5: Following is the information provided by Mr. Gopi pertaining to year ended 31st March 2017. Find the unknowns, showing computation to support your answer:
Ans: Trade Receivable Balance (B) = Sales- Amount received during the year
= ₹ (15,55,000 - 15,00,000)
= ₹ 55,000.
Since, we know Assets = Capital + Liabilities
Therefore, balance of assets is also ₹ 14,15,000
So, total assets:
Computation of Closing Capital (D):
So, Loan amount (C) = Total Liabilities and capital - Closing Capital - Trade Payables
= ₹ (14,15,000 - 10,65,000 - 1,00,000)
= ₹ 2,50,000