Accountancy
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Q.1. Distinguish between accounting and book- keeping.
Ans :
| Bookkeeping | Accounting |
| Bookkeeping deals with identifying and recording financial transactions only | Accounting refers to the process of summarising, interpreting and communicating the financial data of an organisation. |
| Data provided by bookkeeping is not sufficient for decision making. | Management can take important decisions based on the data obtained from accounting. |
| Not done in the case of bookkeeping | Financial statements are a part of the accounting process |
| No analysis is required in the bookkeeping. | Accounting analyses the data and creates insights for the business |
| The person concerned with bookkeeping is known as a bookkeeper | The person concerned with accounting is known as an accountant. |
Q. 2. Explain the advantages and limitations of accounting.
Ans : Advantages Financial Accounting.
- Maintenance of business records: All financial transactions are recorded in a systematic manner in the books of accounts so that there is no need to rely on memory. Human memory is limited by its very nature. Accounting helps to overcome this limitation.
- Preparation of financial statements: Systematic records enables the accountants to prepare the financial statements trading and profit & loss account to ascertain profit or loss during a particular accounting period and balance sheet to state the financial position of the business on a particular slate.
- Comparison of results: Systematic maintenance of business records enables the accountant to compare profit of one year with those of earlier years to know the significant facts about the change.
Limitation of Financial Accounting.
1. Records only monetary transactions: Financial Accounting records only those transactions which can be measured in monetary terms. It has no place for recording non-monetary or non-financial transactions, though these matters also have a significant Tole in affecting the soundness of the business.
2. No consideration of price level changes: Accounting accepts the cost concept and hence does not consider the change in the price level from time to This is a very serious limitation of Financial Accounting.
- Window dressing in Balance Sheet: When an accountant resorts to ‘window dressing’ in the Balance Sheet, the Balance Sheet cannot exhibit the true and fair view of the state of affairs of the business.
Q. 3. What is meant by business entity concept?
Ans : Business entity concept is one of the accounting concepts that states that business and the owner are two separate entities and therefore, should be considered separate from each other.
Q.4. Explain the convention of materiality.
Ans : convention of materiality states that items of small significance need not to be given strict theoretically correct treatment. There are many events in business which are insignificant in nature. Moreover, it is one of the most important accounting convention.
The cost of recording and showing in financial statement such events may not be well justified by the utility derived from that information. This convention unnecessarily burden the accountants in case they are not able to distinguish between material and immaterial events. The most important to note is that an item for a party can be immaterial however for another a material item.
Q.5. Define the following terms:
i. Capital
ii. Drawings
Ans : Capital : Capital is a broad term that can describe anything that confers value or benefit to its owners, such as a factory and its machinery, intellectual property like patents, or the financial assets of a business or an individual.
Drawings : Drawing, or sketching, is one of the fundamental types of art. Whether they are painters, sculptors, or digital artists, many artists will learn to draw as a fundamental artistic skill. But drawing is not just a precursor to other types of visual art; it is a recognized art form itself.
Q.6. Define liability, revenue & expense.
Ans : liability : A liability is something a person or company owes, usually a sum of money. Liabilities are settled over time through the transfer of economic benefits including money, goods, or services.
Revenue : Revenue is the money generated from normal business operations, calculated as the average sales price times the number of units sold. It is the top line (or gross income) figure from which costs are subtracted to determine net income. Revenue is also known as sales on the income statement.
Expense : An expense is the cost of operations that a company incurs to generate revenue. It is simply defined as the cost one is required to spend on obtaining something. As the popular saying goes, “it costs money to make money.”
Q. 7. What is an Accounting Equation?
Ans : The accounting equation states that a company’s total assets are equal to the sum of its liabilities and its shareholders’ equity.
This straightforward relationship between assets, liabilities, and equity is considered to be the foundation of the double-entry accounting system. The accounting equation ensures that the balance sheet remains balanced. That is, each entry made on the debit side has a corresponding entry (or coverage) on the credit side.
Q. 8. Define double entry system.
Ans : The double entry system mandates that every business transaction be recorded in at least two accounts. Furthermore, it requires that the total value of all debits entered in a transaction must batch the total value of all credits; otherwise, a journal entry is said to be out of balance. These rules are needed to ensure that a business always keeps its accounting equation properly balanced.
Q.9. What is accounting voucher? Explain in brief different types of accounting vouchers.
Ans : A voucher in accounting is a document normally issued by the accounts payable department to authorise payments. It can also be termed as a memorandum of liability to any organisation. An accounting voucher can be seen as a written backup document for the payments done to the suppliers or creditors in any organisation for the business conducted with the party.
Types of accounting vouchers
1. Receipt Voucher
The bank or cash receipts are recorded through a receipt voucher. The receipt voucher is of two types, namely bank receipt voucher and cash receipt voucher. A cash receipt voucher is prepared for the amount received in cash.
2. Payment Voucher
The payment voucher is opposite to the receipt voucher. While receipt voucher poses the inflow of funds, payment voucher depicts the transactions that have an outflow of funds.
3. Journal Voucher
Journal vouchers are also known as transfer vouchers or non-cash vouchers. All the transactions that do not involve cash or bank transactions or inflow and outflow of amounts are passed through journal vouchers.
4. Sales Voucher
Any sales transaction for the goods and services is passed through a sales voucher. The sales voucher is prepared to record the cash and credit sales performed in the organisation.
Q.10. Explain the meaning of compound journal entries with an example.
Ans : A compound journal entry is an accounting entry in which there is more than one debit, more than one credit, or more than one of both debits and credits. It is essentially a combination of several simple journal entries they are combined for either of the following reasons.
An example of a compound journal entry is a payroll entry, where there is a debit to salaries expense, another debit to payroll taxes expense, and credits to cash and a variety of deduction accounts.
Q. 11. Why is journal called ‘book of original records’?
Ans : Journal is also called a book of original entry because the transactions taking place in a business are recorded for the first time in the journal. This information is further used to post the entries into different accounts of ledger, and eventually to prepare the financial statements of a business.
Q. 12. What is meant by a Cash Book? Explain the types of Cash Book.
Ans : Cash book is a special type of book that is only concerned with the recording of cash transactions of an organisation. It performs the dual role of both journal and a ledger for all the cash transactions taking place in a business organisation.
A cash book records all the cash receipts on the debit side and all the cash payments of the organisation on the credit side.
There are four types of cash books used for accounting purposes. Let us have a look at the types of cash books.
- Single column cash book: Single column cash book is also called a simple cash book. It presents entries for cash received (receipts) on the left side or debit side and cash payments on the righthand side or credit side.
- Double Column cash book: In a double column cash book, there is an additional column that is reserved for the discounts. Therefore, in a double-column cash book, also known as two-column cash book, the cash receipts and transactions are recorded in one column while the second column records discounts received and discounts provided.
- Triple column cash book: In a triple column cash book, the two columns are similar to the double column cash book. While the additional column is for bank transactions.
- Petty cash book: Petty cash book, as the name suggests, is for very small transactions that take place in an organisation. Such transactions can occur in a day and are repetitive in nature, which can put undue load on the general cash book.
Q. 13. State the meaning of a ‘Contra Entry’ with the help of an example.
Ans : A contra entry is recorded when the debit and credit affect the same parent account and resulting in a net zero effect to the account. These are transactions that are recorded between cash and bank accounts.
For example, a company withdraws cash from the bank account to meet its daily expenses and this entry is recorded as follows: cash Account is debited while the Bank account is credited.
Q.14. What is meant by a Bank Reconciliation Statement?
Ans : A bank reconciliation statement is a summary of banking and business activity that reconciles an entity’s bank account with its financial records. The statement outlines the deposits, withdrawals, and other activities affecting a bank account for a specific period. A bank reconciliation statement is a useful financial internal control tool used to thwart fraud.
Q.15. What is the need of preparing Bank Reconciliation Statement?
Ans : Vital to the preparation of the accounts of any individual or firm, a bank reconciliation is a preliminary and definitive step towards determining the accuracy of bank balance, stated in the pass book and cash book. When an accountant prepares a bank reconciliation statement, it helps in ensuring no discrepancy remains with respect to the bank balances appearing in the books of the individual and firm.
Q.16. What is meaning by Sales Returns Book. Draw its format .
Ans : Sales Return Book: Sometimes goods sold might be defective or of low quality, hence; the customer may return them. In such cases, goods that are sold and are returned by the customer or buyer are given goods recorded in the Sales Return Book.
Q. 17. State the meaning of Purchases Returns Book. Also draw its format
Ans: A Subsidiary book or a Day book is a book of Original entry. Subsidiary books contains the records of similar transactions. An organization maintains six kinds of Subsidiary books. They are Cash book, Purchase book, Purchase Return book, Sales book, Sales return book, and Journal proper.
Q.18. Prepare Purchases Book of Electronics Bhiwani from the following transactions of :
2012
Jan. 03 Bought from Sun Electricals, Ghaziabad:
100 tube lights @ ₹ 40 each.
500 table fans @₹ 500 each.
Trade discount @10%
Jan. 11 Purchased goods from Ravi Electric Company, Amroha:
300 bulbs @ ₹ 10 each.
240 Irons @ ₹ 200 each
Trade Discount @ 15%
Jan. 15 Bought furniture from Modern Furniture House, Delhi:
10 chairs @ ₹ 1,200 each
3 tables @ ₹ 4,000 each
Jan. 20 Bought from Raftar Fans India, Delhi for cash:
28 Bought from Ram and Laxman Co., Delhi:
250 tube lights @ ₹ 45 each
Ans. Purchase journal
| Date | Invoice no. | Voucher no. | Particular (Name of supplier) | L.F. | Details | Total |
| 2012 3 Jan | Sun Electricals, Ghaziabad 100 tube lights @40 each 500 table fans @500 each Less: Trade discount @10% | 4000 |
2,28,600 | |||
| 11 Jan | Ravi Electronics co., Amroha 300 bulbs @ 10 each 240 iron @200 each Less: Trade discount@15% | 3,000 48,000 |
43,350 |
|||
| 28 Jan | Ram and Laxman co., Delhi 250 Tubelights @ 45 each | 11,250 | 11,250 | |||
| 31 Jan | Purchase A/c Dr. | 2,83,200 |
Q.19. Enter the following transactions in returns inward book of Balwant Singh.
2012
Sept. 07 Subhash and Sons, Kanpur returned goods being not according to sample ₹ 412,000.
Sept. 18 Allowance claimed by Gandhi & Co., Delhi on account of mistake in the invoice ₹ 1,000.
Sept. 21 Goods sold to Hari Ram Gopi Chand, Mumbai and returned by him being defective in colour 1,800.
Sept. 28 Goods returned to us by Kamal & Bros., Kerala worth ₹ 1,500 less 10% trade discount
Ans. Return Inward Journal
| Date | Credit note no. | Particular (name of customer) | L.F. | Details | Total |
| 7 sep | Subhash and Sons, Kanpur | 12000 | 12000 | ||
| 18 sep | Gandhi & co. Delhi | 1000 | 1000 | ||
| 21 sep | Hari Ram Gopi chand, Mumbai | 1800 | 1800 | ||
| 28 sep | Kamal & Bros., Kerala Less : Trade discount @ 10% | 1500 150 | 1,350 | ||
| 30 sep | Sales return A/c Dr. | 16,150 |
Q.20. What is meant by Ledger? Why is Ledger prepared.?
Ans. All transactions related to the head of the account are recorded in different books and the book in which all accounts are maintained is known as Ledger. It contains the complete set of accounts for a business entity and it is the principal Book of the double-entry accounting system. Each account is opened on a separate card.
Purpose of Ledger
- Quick information about various transactions: Ledger shows the relationship between the business enterprise and business transactions with the help of an account.
- Proper control over transactions: Separate ledger accounts are maintained for every type of transaction.
- Helpful in preparing Trial Balance: The final balance of all ledger accounts is shown in the Trial balance. which helps in ensuring that the books are arithmetically correct.
- Helpful in preparing Financial Statements: The financial statements of a business concern are prepared with the help of a trial balance which in turn is prepared by the balance of different ledger accounts.
Q. 21. Journalize the following transactions and post them into Ledger and balance the accounts :
| 2012 | Particulars | Amount (₹) |
| April 1 | Commenced business with cash | 1,00,000 |
| April 3 | Paid into Bank | 30,000 |
| April 5 | Purchased goods and paid by cheque | 5,000 |
| April 8 | Purchased goods and paid by cheque | 15,000 |
| April 14 | Purchased goods from Hari | 35,000 |
| April 18 | Cash sales | 32,000 |
Ans.
Journal Entries
| Date 2012 | Particulars | L.F. | Dr. (Rs). | Cr. (Rs) |
| April 1 | Cash A/c Dr. Capital A/c (Commenced business with cash) | 1,00,000 | 1,00,000 | |
| April 3 | Bank A/c Dr. Cash A/c (Cash paid into bank) | 30,000 | 30,000 | |
| April 5 | Furniture A/c Dr. Cash A/c (Furniture Bought) | 5,000 | 5,000 | |
| April 8 | Purchase A/c Dr. Bank A/c (Goods bought and paid by cheque) | 15,000 | 15,000 | |
| April 14 | Purchase A/c Dr. Hari A/c (Goods bought from a creditors) | 35,000 | 35,000 | |
| April 18 | Cash A/c Dr. Sales A/c (Goods sold) | 32,000 | 32,000 |
Ledger
Dr. Cash Account
| Date | Particulars | J.F. | Amount (Rs.) | Date | Particulars | J.F. | Amount (Rs.) |
| 2012 Apr. 1 Apr. 18 May 1 | To Capital A/c To Sales A/c To Balance b/d | 1,00,000 32,000 1,32,000 97,000 | 2012 Apr. 3 Apr. 5 Apr. 31 | By Bank A/c By Furniture A/c By Balance c/d | 30,000 5,000 97,000 1,32,000 |
Bank Account
| Date | Particular | J.F. | Account (Rs.) | Date | Particular | J.F | Amount (Rs.) |
| 2012 Apr. 3 May 1 | To Cash A/c To Balance b/d | |
30,000 30,000 15,000 | 2012 Apr. 8 Apr. 31 | By purchase A/c By Balance c/d | 15,000 15,000 30,000 |
Capital Account
| Date | Particular | J.F. | Amount (Rs.) | Date | Particulars | J.F. | Amounts (Rs.) |
| 2012 Apr. 31 | To Balance c/d | 1,00,000 1,00,000 | 2012 Apr. 1 May 1 | By Cash A/c By Balance b/d | 1,00,000 1,00,000 1,00,000 |
Furniture Account
| Date | Particulars | J.F. | Amount (Rs.) | Date | Particulars | J.F. | Amount(Rs.) |
| 2012 Apr. 5 May 1 | To Cash A/c To Balance b/d | 5,000 35,000 50,000 | 2012 Apr.31 | By Balance A/c | 5,000 5,000 |
Dr. Purchase Account Cr.
| Date | Particulars | J.F. | Amount (Rs.) | Date | Particulars | J.F. | Amount (Rs.) |
| 2012 Apr. 8 Apr. 18 | To Bank A/c To Hari | 15000 35000 50,000 | 2012 Apr.31 | By Trading A/c | 50,000 50,000 |
Hari Account
| Date | Particulars | J.F. | Amount (Rs.) | Date | Particular | J.F. | Amount (Rs.) |
| 2012 Apr. 31 May .1 | To Balance c/d To Balance b/d | 35,000 35,000 35,000 | 2012 Apr. 3 | By Purchase A/c | 35,000 35,000 |
Q.22. State the limitations of Trial Balance.
Ans. Among the few limitations of trial balance are
- it does not give the profit and loss information of the business
- Trial balance is used only by those organizations who follow double entry system of accounting.
- It cannot find the missing journal, ledger entries or the double entries made in the system.
- it does not ensure that all the transactions are recorded for the given accounting period.
Q.23. Prepare a Trial Balance of M/s Jai Jawan Jai Kisan Enterprises as on
31.12.2012 from the following balances.
| Account | Amount | Account | Amount |
| Cash in hand | 31,000 | Sales A/c | 76,000 |
| Cash at Bank | 12,000 | Opening Stock | 10,000 |
| Capital A/c | 80,000 | Rent A/c | 2,000 |
| Drawings A/c | 28,000 | Wages A/c | 6,000 |
| Debtors A/c | 20,800 | Carriage Inward A/c | 500 |
| Creditors A/c | 17,800 | Machine A/c | 1,500 |
| Purchases A/c | 62,000 | Closing Stock | 5,000 |
Ans. Trial Balance of M/s Jai Jawan Jai Kisan Enterprises As on 31.12.2012
Q.24. What are the objectives of providing depreciation?
Ans. Depreciation helps the company to earn revenue from an asset, while expensing a part of the cost – for every year the asset is used. Depreciation applies to all tangible and fixed assets like machinery, furniture, office buildings, vehicles etc. The main objectives of providing depreciation are :
- To ascertain the true and fair profits – If depreciation is not accounted, then the fixed assets will be over valued in the balance sheets.
- To make arrangements for the asset replacement – if depreciation is provided, net profit will be reduced and the cash equivalent to the change for depreciation – will accumulate and fund for the asset replacement.
- Depreciation is allowed to be deducted to avail tax benefits and comply with legal provisions.
- Ascertaining the accurate cost of production.
Q.25. Ajay Kumar and Company purchased machinery for ₹ 20,000 on April 1, 2007. The Machinery is depreciated at 10% per annum on the straight line method. On October 1, 2010, the machinery was sold for ₹ 8,000. Give the Machinery Account if books are closed on March 31 every year.
Ans. Cost of Machinery = Rs. 20,000
Rate of Depreciation = 10%
Annual Depreciation will be 10% of Rs. 20,000 = Rs. 2,000
Calculation of loss of sale of plant :
Book value of plant sold on 1 st April 2010 = Rs. 14,000
Depreciation for 6 months till 1 st October 2010 = Rs. 1,000
Q.26. What is meant by Reserve Fund?
Ans :
- When a business is in a profitable state and it has a large amount of profit, then some part of the profit is kept aside.
- The amount that is kept aside from the business profit is known as a reserve.
- But sometimes an amount from the profit is kept aside and later on, it is invested in something outside the business.
- The amount from the profit that is invested outside the business is known as a reserve fund.
Q.27. Give the meaning of reserves.
Ans :
- When a business is in a profitable state and it has a large amount of profit, then some part of the profit is kept aside.
- The amount that is kept aside from the business profit is known as a reserve.
- But sometimes an amount from the profit is kept aside and later on, it is invested in something outside the business.
- The amount from the profit that is invested outside the business is known as a reserve fund.
Q.28. What do you mean by term financial statements?
Ans. Financial statements are explained as reports that are prepared that helps in knowing the results of a company’s financial position. The reports or statements that are usually prepared are known as trading account, profit and loss account and Balance sheet.
Q.29. State the objectives of preparing financial statements.
Ans. Financial statements are explained as reports that are prepared that helps in knowing the results of a company’s financial position. The reports or statements that are usually prepared are known as trading account, profit and loss account and Balance sheet.
Q. 30.Write short notes on :-
a) Outstanding Expenses
b) Prepaid Expenses
Ans. Outstanding Expenses : Financial statements are explained as reports that are prepared that helps in knowing the results of a company’s financial position. The reports or statements that are usually prepared are known as trading accounts, profit and loss accounts and Balance sheets.
Prepaid Expenses : Financial statements are explained as reports that are prepared that helps in knowing the results of a company’s financial position. The reports or statements that are usually prepared are known as trading accounts, profit and loss accounts and Balance sheets.
Q.31. From the following information of M/s Bhanumati Traders you are required to prepare Trading Account, Profit & Loss Account and Balance Sheet as on 31st March 2012.
Ans. The Trading Account, Profit & Loss Account, and the Balance Sheet are as shown below :
Adjustments
Outstanding wages as on 31 March 2012 ₹ 2,500
Outstanding Salaries ₹ 700
Prepaid Insurance ₹ 400
Closing stock ₹ 44,000
Ans.
Q.32. Explain the components of computer.
Ans. The term computerised accounting system is explained as maintenance of accounting records and data in a computerized form with the help of computers. There are software’s that process the accounting information and results ultimate outcomes.
- An input unit is one from which data is entered.
- The CPU is the heart of computer or the brain.
- An output unit is one where the input is converted into readable form.
Q.33. Why is computerized accounting needed? Explain.
Ans. The term computerised accounting system is explained as maintenance of accounting records and data in a computerized form with the help of computers. There are software’s that process the accounting information and results ultimate outcomes.
Q.34. Write any four features of Tally.
Ans. The term computerised accounting system is explained as maintenance of accounting records and data in a computerized form with the help of computers. There are software’s that process the accounting information and results ultimate outcomes. Tally is such an accounting software that helps in maintaining all the quantifiable transactions of a business.