Very Short Answer Type Questions - Financial Statements: With Adjustments Commerce Notes | EduRev

Crash Course of Accountancy - Class 11

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Commerce : Very Short Answer Type Questions - Financial Statements: With Adjustments Commerce Notes | EduRev

The document Very Short Answer Type Questions - Financial Statements: With Adjustments Commerce Notes | EduRev is a part of the Commerce Course Crash Course of Accountancy - Class 11.
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Q1. What do you understand by Adjustment Entry?

Ans. Adjustment Entry is the entry passed to record expenses and incomes that relate to the accounting period but are yet to be paid or received.


Q2. Why is it necessary to pass the Adjustment Entries?

Ans. Accrual Concept is the fundamental accounting concept and requires that all expenses, whether paid or not and all incomes and gains whether received or not, should be accounted to ascertain correct profit or loss, assets and liabilities. They are recorded through the adjustment entries.


Q3. If Closing Stock is given outside the Trial Balance, where is it shown in the Final Accounts?

Ans. Closing Stock given outside the Trial Balance is shown on the credit side of the Trading Account and also on the assets aide of the Balance Sheet under the main head Current Assets.


Q4. If Adjusted Purchases and also Closing Stock arc given in the Trial Balance, where are the two accounts shown in the Final Accounts?

Ans. Adjusted Purchases are shown in the Trading Account on the debit side. Closing Stock is shown on the assets side of the Balance Sheet under the main head Current Assets.


Q5. What is meant by Outstanding Expenses?

Ans. Outstanding Expenses mean the expenses incurred but not yet paid.


Q6. How are Outstanding Expenses shown in the Final Accounts?

Ans. Outstanding Expenses are added to the relevant expense and shown either in the Trading Account or the Profit and Loss Account. They are also shown in the Balance Sheet on the Liabilities side under the main head Current Liabilities.


Q7. What is meant by Prepaid Expenses?

Ans. Prepaid Expenses are the expenses that have been paid but their benefit will not be exhausted in current accounting period but in the next year.


Q8. How are Prepaid Expenses shown in the Final Accounts?

Ans. Prepaid Expenses are deducted from the relevant expense and shown in the Trading Account or Profit and Loss Account. They are also shown in the Balance Sheet on the Assets side under the main head Current Assets.


Q9. What is meant by Unearned Income?

Ans. Unearned Income means income that has been received against which services are to be rendered or goods are yet to be sold.


Q10. How is Unearned Income shown in the Final Accounts?

Ans. Unearned Income is shown in the Balance Sheet on the Liabilities side under the main head Current Liabilities.


Q11. What is meant by Depreciation?

Ans. Depreciation is the fall in value of asset due to its use, efflux of time, technological changes and obsolescence.


Q12. What are the methods of calculating Depreciation?

Ans. Methods of calculating depreciation are Straight Line Method and Written Down Value Method.


Q13. What are the methods of recording Depreciation?

Ans. Methods of recording depreciation are:

(i) Depreciation being credited to respective asset account; and

(ii) Depreciation credited to Provision for Depreciation Account.


Q14. What is meant by Bad Debts?

Ans. Bad Debt is the amount due from the debtors which has become irrecoverable.


Q15. What is meant by Provision for Doubtful Debts?

Ans. Provision for Doubtful Debts means provision made against debts of the amount that are doubtful of recovery. It is calculated as a percentage of debtors.


Q16. What is meant by Provision for Discount on Debtors?

Ans. Provision for Discount on Debtors means provision made for discount that is likely to be allowed to the debtor s. It is calculated as a percentage of debtors.


Q17. Why is closing stock valued at lower of cost or realisable value?

Ans. It is based on the principle of prudence (or conservatism) according to which all anticipated losses should be taken into account, but all unrealized gains should be ignored.


Q18. What are outstanding expenses?

Ans. These are the expenses which have been incurred during the year but have been left unpaid on the date of preparing the final accounts.


Q19. What journal entry will be passed for outstanding salary?

Ans. Salary A/c Dr.

                           To Outstanding Salary A/c


Q20. What adjustment is made of outstanding expenses while preparing final accounts?

Ans. On the one hand, they will be added to the concerned expenses on the debit side of Trading or Profit and Loss Account and on the other hand, will also be shown on the Liabilities side of the Balance Sheet.


Q21. What is the need for providing outstanding expenses in final accounts?

Ans. Outstanding expenses are provided as per the accrual concept of accounting according to which all expenses for the year, whether paid or not, should be recorded.


Q22. What are prepaid expenses?

Ans. These are the expenses which have been paid in advance for the next period during the current period itself. In other words, benefit of such payments will be available in the next accounting period.


Q23. What journal entry will be passed for prepaid insurance?

Ans. Prepaid Insurance A/c Dr.

                                            To Insurance A/c


Q24. What treatment is made of prepaid expenses while preparing final accounts?

Ans. Prepaid Expenses on the one hand, will be deducted from the concerned expenses on the debit side of Trading or Profit and Loss Account and on the other hand, will also be shown on the Assets side of the Balance Sheet.


Q25. What is the need for providing accrued incomes in final accounts?

Ans. These are provided as per the accrual concept of accounting according to which all incomes earned during the year should be recognised, whether received or not.


Q26. Under which accounting concept provision is made for doubtful debts?

Ans. Prudence Concept. 


Q27. Provision for discount on debtors is made before making provision for doubtful debts. Do you agree?

Ans. No. Provision for discount on debtors is calculated after deducting provision for doubtful debts from debtors.


Q28. Goods worth Rs 1,00,000 were burnt by fire and a  claim of Rs 60,000 has been accepted by the Insurance Company. How it will be recorded in final accounts?

Ans. Rs 1,00,000 will be deducted from Purchases on the debit side of Trading A/c. Rs 40,000 will be shown on the debit side of Profit and Loss A/c and Rs 60,000 will be shown on the Assets side of the Balance Sheet.


Q29. Give two examples of revenue expenditure.

Ans.

(1) Purchase of Goods.

(ii) Salary, Rent etc.


Q30. What are deferred revenue expenditures?

Ans. There are certain expenditures which are revenue in nature but the benefit of which is likely to be derived over a number of years. Such expenditures are termed as 'Deferred Revenue Expenditures'. Such as heavy expenditure on advertisement.


Q32. Net profit of a firm before charging manager's commission is Rs 21,000. If the manager is entitled to 5% commission after charging such commission, calculate the commission payable to the manager.

Ans. Rs 1,000


Q33. Cost of obtaining licence to carry out business is a Capital Expenditure or Revenue Expenditure?  (Delhi 2010)

Ans. Capital Expenditure because it is taken only at the time of starting a business.

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