Xi Acts Ca (2022 23)

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ACCOUNTANCY
CYCLES
ASSIGNMENT
XI
2022-23
Accounts XI – Curriculum Workbook 2022-23

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Assignment
Accounting
Class : XI
Ch- I : An Introduction to Accounting
1. Define Accounting, what do you understand by the phrases ‘in terms of money’ and ‘of financial character’ often
used in the definition of accounting?
2. Huge lossesoccured due to strike by employees will it be recorded. ?
3. Distinguish between :
i. capital and drawings
ii. debtors and creditors
iii. assets and liabilities
iv. expense and loss
v. cash transactions and credit transactions
4. Define the terms : B/R, B/P, Goods, Purchases
5. What are the objectives and limitations of accounting?
6. Who are the internal users of accounting information.
7. Who are the external user of accounting information.
HOTS
Give one word or phrase that describe the following:
l. Excess of assets over external liabilities.
2. Excess of assets over capital.
3. An economic event that relates to a business entity involving transfer of money or money’s worth.
4. Tangible objects or intangible rights of an enterprise which carry probable future benefits.
5. Assets which are held for the purposes of providing or producing goods or services and not for resale in the
normal course of business.
6. Assets which are held for their conversion into cash within an operating cycle the period of which normally
does not exceed 1 year.
7. Financial obligations of an enterprise other than owner’s funds.
8. Total amount of cash or goods or any other asset withdrawn by the proprietor or partner.
9. Person from whom the amounts are due for goods sold or services rendered on credit basis.
10. Person to whom the amounts are due for goods purchased or services availed of on credit basis.
11. The amount charged for the goods sold or services rendered.
12. Excess of revenue overexpenses.
13. Excess of expenses over revenue.
14. Any two branches of accounting.
15. Any two users of accounting information.

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16. Any two bases or systems of accounting.
17. on 1st April 2014, Mr. Jhunjhunwala was appointed as marketing manager of the firm with salary of Rs 50,000
per month. State whether this event will be recorded in books of accounts.
Answers
1. Capital
2. External liabilities/external equity
3. Business transaction
4. Assets
5. Fixed assets
6. Current assets
7. External liabilities
8. Drawings
9. Trade debtor
10. Trade creditor
11. Revenue
12. Net profit
13. Net loss
14. (a) Financial accounting (b) Cost accounting (c) Management accounting.
15. (a) Short-term creditors (b) Long-term creditors (c) Management.
16. (a) Cash basis (b) Accrual basis
17. No, the appointment is not a financial transaction. Hence not recieved.
Short and very short answer type Questions (with Answers)

Q1 What do you mean by Contingent Liabilities?
Q2 Where is Contingent Liabilities shown in final accounts of business?
Q3 What are steps of Accounting Cycle?
Q4 What do you mean by Fictitious Assets?
Q5 Define Working capital.
Q6 Explain step of Summarizing.
Q7 What are limitations of Accounting?
Q8 What are the informational needs of management ?
Q9 Distinguish between debtors and creditors.
Q10. What is the end product of financial accounting. ?

Answers
A1 Contingent Liabilities: - These are not real liabilities. Future event can only decide that whether it is a real liability
or not. Due to their uncertainty, they are termed as Contingent Liabilities.
Eg. -
1. Value of bill discounted

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2. Cases pending in court of law
3. Guarantee undertaken etc
A2 Value of Contingent Liability is not shown in balance sheet but it is clearly mentioned as a footnote outside the
balance sheet.
A3 Accounting Cycle
1. Identifying Financial Transactions
2. Recording
3. Classification
4. Summarising
5. Analysis and Interpretation
A4 Fictitious Assets: - Assets which do not have any physical form or a real value, they are not real assets on legal
and technical ground. Eg. — Preliminary Expenses, Heavy Advertising Expenditure.
A5 Working capital is the value of current assets over current liabilities.
Working capital =current assets -current liabilities.
A6 Summarizing
This is the process of re-grouping or summarizing the ledger accounts to help easy understanding of facts. This
involves listing of all accounts with their respective balances in one statement called ‘Trial Balance”. A trial
balance contains all accounts of a business. Thus it is a list of Assets, Liabilities, Capital, Incomes and Expenses.
This trial balance is further summarized by taking out all incomes and expenses into a ‘profit and loss account’
which indicates the result of business activity for the accounting period. The rest of the items in trial balance
which are assets, liabilities and capital along with the net result of profit and loss accounts are presented in a
statement called Balance Sheet. This is the statement of financial position of a business. The balance sheet
contains complete list of Assets, Liabilities, and Capital of the business.
A7 Limitations of accounting are:
1. Financial accounting is not absolutely exact

Accounting information is not necessarily exact. Lot of information presented in the books of account are based
on personal judgment. There cannot be absolute guarantee of accuracy when assumptions are based on personal
opinion.
2. Financial accounting does not show the exact worth of business

The values of most of the assets in the books are presented on the basis of their purchase price, which is known
as historic figures. Their present market values or realizable values are usually quite different. In other words the
books of accounts fail to show the exact value of assets or liabilities.
3. Problem of window dressing

Balance sheet figures are often modified to make it look better. This process conceals many weaknesses of the
business. Thus the accounting information becomes unreliable for accurate judgment.
A8 Management needs information regarding sales ,costs, profitability etc for planning,controlling & decision making

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etc.
A9 DEBTORS:-
The person who owes money to the firm mostly on account of credit sales of goods is called a Debtor.
If a business sells goods to a person on credit, that person will be called a Debtor.
CREDITOR:-
A person to whom the firm owes money on account of goods purchased on credit is called a Creditor.
If business purchases goods on credit from Mohan, then Mohan is a Creditor.
Eg Mohan sells goods on credit to Sohan
IN BOOKS OF MOHAN IN BOOKS OF SOHAN
Sohan is my Debtor Mohan is my creditor

A10 The END Product of financial accounting are the financial statements i.e profits & loss account and balance
sheet and reports which provides information of financial profitability & position.
III. OBJECTIVE TYPE QUESTIONS

Understanding Based Questions
1. Fill in the blanks:
(i) __________________is the art of recording monetary transaction in the books of accounts.
(ii) __________________ is the art of recording, classifying, summarising and interpreting the business
transactions.
(iii) _________________refers to the entire body of theory and practice of accounting.
(iv) Last step of accounting process or accounting cycle is __________________
(v) Incomplete double entry system is called _____________________
(vi) _____________________is a language of business.
Ans. (i) Book-keeping (ii) Accounting
(iii) Accountancy (iv) Communication to users
(v) Single Entry System (vi) Accounting
Select the correct answer:
(i) Creditors are users of accounting information. (internal/external)
(ii) Management is user of accounting information. (internal/external)
(iii) Book-keeping is art of of monetary transactions in the books of accounts. (recording/summarising)
(iv) is the limitation of accounting. (facilitates comparative study/based on personal judgement)
(v) is one of the external user to Accounting Information. (Employees/Bankers)
Ans. (i) external (ii) internal

(iii) recording (iv) Based on personal judgement
(v) Bankers

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3. Multiple Choice Questions (MCQs)
Select the correct alternative:
(i) We record in books of accounts.
(a) Financial transactions
(b) Non-financial transactions
(c) Both financial and Non-financial transactions
(d) None of these
(ii) Which of the following will not be recorded in books of accounts?

(a) Purchase of goods (b) Sale of asset
(c) Selection of staff (d) Expenses of firm
(iii) Which is the first step of Accounting Process?

(a) Classifying (b) Analysing and Interpreting
(c) Recording (d) Financial Statements
iv) Qualitative characteristics of Accounting Information are:

(a) Relevance (c) Comparability
(b) Reliability (d) All of these
(v) Which of the following is not the branch of accounting?

(a) Financial Accounting (b) Cost Accounting
(c) Book-keeping and Accounting (d) Management Accounting
vi). The objective of financial accounting is to ascertain ______ for a particular period
a) Profit/Loss
b) Debt only
c) Assets only
d) Accounts
vii). The main purpose of Balance sheet is to show_______

a) Creditors
b) Old Accounting Records
c) Financial Position
d) Assets and Capital
viii). Which of the following does not represents a business transaction?

a) Capital introduced in the business
b) Efficiency of Management

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c) Goods are sold on credit

d) Assets sold and money introduced in business
ix). Which one is not the step of accounting?

a) Interpretation
b) Recording in the book of accounts
c) Window Dressing
d) Classifying the recorded entries
x). Which of the following transactions will not be recorded in the books of account?
a) Purchased a LCD for personal use, paying the amount from personal bank account.
b) Purchased machinery for manufacture.
c) Purchased machinery for resale.
d) Paid salaries and wages.
xi) Assertion (A): Accounting information is used to compare the result of current year with the previous year to
analyse the changes.
Reason (R): Information must be available in time describes 'Qualitative characteristic understandability' in the
best manner
a. Both (A) and (R) are true and (R) is the correct explanation of (A).
b. Both (A) and (R) are true and (R) is not the correct explanation of (A).
c. (A) is true, but (R) is false
d. (A) is false, but (R) is true
xii) Assertion (A): Accounting ignores quantitative elements

Reason (R): Accounting is historical in nature
xiii) Assertion (A)- There should be complete and understandable reporting on the financial statements of all
significant information relating to the economic affairs of the entity.
Reason (R) - Such disclosure of material information will result in a better understanding of financial statements.
Ans. (i) a (ii) c (iii) c (iv) d (v) c (vi) a (vii) c (viii) b (ix) c (x) a (xi) c (xii) b (xiii) a

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1. Fill in blanks :
(i) The amount invested by the owner of the business is called __________________
(ii) A son to whom goods is sold on credit is called a ___________________
(iii) A peson from whom goods is bought on credit is called ________________
(iv) The amount withdrawn by the owner of the business for personal Loris called ________________
(v) Liabilities payable within a period of one year are _________________
(vi) Goods withdrawn by the proprietor of the business for personal use as called _____________
(vii) which have no physical appearance are known as ____________________
(viii) Assets which have physical appearance are known as ______________
(ix) Assets which are converted into cash within a period of one year a celled_____________assets.
(x) Bank overdraft is a current _______________
(xi) _________________Discount is never recorded in the books of accounts.
(xii) Maley received from sale of fixed asset is a _________________ receipt.
(xiii) Cost of installation of plant and machinery is a ______________ expenditure.
(xiv) When debtors are given some discount to induce them to make prompt payment is called
______________ discount.
(xv) ___________expenditure yields benefit over a long period of time to business entity.
Ans. (i) Capital (ii) Debtor (iii) Creditor
(iv) Drawing (v) Current (vi) Drawing
(vii) Intangible (viii) Tangible (ix) Current/Short term
(x) Liability (xi) Trade (xii) Capital
(xiii) Capital (xiv) Cash (xv) Capital
2. Select the correct answer :
(i) A person who owes money to a firm is called a debtor. / creditor.
(ii) Purchases refers to purchase of goods / assets.
(iii) A debtor is a person from whom money is to be received/ paid.
(iv) Stock is a part of current/fixed asset.
(v) Goodwill is a tangible/ intangible asset.
(vi) Purchase of machinery for a manufacturer is a capital/revenue expenditure.
(vii) Sale of fixed asset/goods is a revenue.
(viii) Excess of revenue over total expense is profit / loss.
(ix) Payment of salary to employee is a capital/revenue expenditure.
(x) A liability to pay arises from cash/ credit transaction.
(xi) Heavy advertisement incurred for launching a new product in the market is a revenue// deferred
revenue expenditure. .
(xii) Capital invested in the business by the proprietor is an internal /external liability.
(xiii) Excess of revenue over expense is a gain / income.
(xiv) A bill of exchange accepted by the buyer of goods is called bills payable/ bills receivable.
(xv) Reduction in the list price of goods at a fixed rate is called cash discount/ trade discount.

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Ans.
(i) creditor (ii) goods (iii) received
(iv) current (v) intangible (vi) capital
(vii) goods (viii) profit (ix) revenue
(x) credit (xi) Deferred revenue expenditure
(xii) Internal (xiii) Income (xiv) Bills Payable
(xv) Trade Discount
(i) Which of the following is not a Current Liability?
(a) Creditors (b) Bank Overdraft
(c) Term Loan (d) Short-term Loan
(ii) Which of the following is not a Current Asset?
(a) Debtors (b) Cash
(c) Computer (d) Marketable Security
(iii) Purchases usually refers ‘to:
(a) Purchase of Plant and Machineiy
(b) Purchase of Investment
(c) Purchase of Goods
(d) Purchase of Goods for resale
(iv) Which one is not a tangible asset?
(a) Computer (b) Stock
(c) Computer Software (d) Plant and Machinery
(v) A person to whom money is payable by the firm for purchase of goods is called:
(a) Debtors (b) Creditor (c) Supplier (d) None of these
(vi) A person from whom money is receivable by the firm for sale of goods is called:
(a) Debtor (b) Creditor (c) Supplier (d) None of these
(vii) Drawing refers to withdrawal of cash by the business entity for:
(a) Payment of salary to staff
(b) Payment for purchase of goods
(c) Payment to meet domestic expenses
(d) Payment of purchase of asset
(viii) Which of the following is not a intangible asset?
(a) Goodwill (b) Computer Software
(c) Patent (d) Computer
(ix) Which of the following is a capital expenditure?
(a) Repair of building

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(b) White-wash of building
(c) Carriage paid and wage paid for installation of plant
(d) None of these
(x) Which of the following is not a current liability?
(a) Salary Outstanding (b) Bills Payable
(c) Creditors (d) Bank Loan
(xi) Assertion (A) Prepaid expenses are a part of current assets.
Reason (R) Current assets involves assets which can be converted into cash within one year as well as assets for
which service or benefit will be available against these assets without further repayment.
xii) Assertion (A) “Expenses is the cost of the use of things or services for the purpose of generating revenue
Reason (R) “Income = Revenue - Expenses.”
xiii) Assertion (A): Purchase of Assets on credit will increase the Creditors of the firm.
Reason (R): List of creditors include only those to whom the amount is payable for credit purchase of goods.
c.(A) is true, but (R) is false
d.(A) is false, but (R) is true
xiv) Assertion (A): No account is opened in the name of the proprietor in the books of the firm.
Reason (R): Proprietor is represented by Capital account.
a.Both (A) and (R) are true and (R) is the correct explanation of (A).
b.Both (A) and (R) are true and (R) is not the correct explanation of (A).
c.(A) is true, but (R) is false
d.(A) is false, but (R) is true
Ans. (i) (c) ii (c) ii (d) (iv) (c) (v) (b) (vi) (a)
(vii) (c) (viii) (d) (ix) (c) (x) (d) (xi) (a) (xii) (b) (xiii) (c) (xiv) (a)
CASE BASED QUESTIONS
Mr. Manraj Singh commenced the business of trading with cash of Rs.10,00,000. Out of this amount he purchased
goods worth Rs.1,00,000. He further purchased furniture worth Rs.3,00,000, and goods worth Rs 2,00,000 on
credit from Mukesh. He also purchased a computer worth Rs40,000 for cash from Ajit and deposited Rs.2,00,000
cash in the bank. He also decided to use his old car worth Rs 2,00,000 for business purposes.

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He sold goods costing Rs.5,00,000 for Rs 700,000 in cash and goods costing Rs.2,00,000 for Rs.2,50,000on
credit.to Aman. Goods sold on credit for Rs 50,000 were returned being defective. He paid a salary of Rs10,000
to his workers and Rs.2,000 were yet to be paid.
You are required to answer the following questions on the basis of the above information: -
1 What is the Capital of business?
a. 11,00,000
b. 10,00,000
c. 12,00,000
d. 15,00,000
2 Who is debtor?
a Mr. Manraj Singh
b Mukesh
c Aman
d Ajit
3. Who is creditor?
a. Mr. Manraj Singh
b. Mukesh
c. Aman
d. Ajit
4. What are the net sales of business?
a 9,00,000
b. 7,00,000
c. 6,50,000
d. 5,50,000
5. What is the amount of fixed assets?

a.. 10,00,000
b. 3,00,000
c. 2,00,000
d. 3,40,000
Answers: i c, ii c, iii b, iv a, v d

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Ch- 2
Theory base of accounting
1. “Revenue earned and cost of earning that revenue should be properly identified for a period”. Explain this
statement.
2.
a) Does money measurement concept provide a complete picture of a business? Explain some of the
facts which this concept does not record in the books of accounts.
b) What is the need of accounting standard?
c) Capital is a liability for the business" Explain this statement with principle applied.
3. Write short notes on :
i. Dual aspect concept
ii. Seprate entity concept
iii. Accrual concept
iv. convention of disclosure.
4. “Every debit has got a credit and vice-versa”. Explain the significance of this statement.
5 Complete the following work sheet:
(i) If a firm believes that some of its debtors may ‘default’, it should act on this by making sure that all
possible losses are recorded in the books.
This is an example of the ___________ concept.
(ii) The fact that a business is separate and distinguishable from its owner is best exemplified by the
___________ concept.
(iii) Everything a firm owns, it also owns out to somebody. This co-incidence is explained by the
_________ concept.
(iv) The ___________ concept states that if straight line method of depreciation is used in one year,
then it should also be used in the next year.
(v) A firm may hold stock which is heavily in demand. Consequently, the market value of this stock may
be increased. Normal accounting procedure is to ignore this because of the ___________.
(vi) The management of a firm is remarkably incompetent, but the firms accountants can not take this
into account while preparing book of accounts because of ___________ concept.
6. Fill in the correct word:

1. Recognition of expenses in the same period as associated revenues is called ___________concept.
2. The accounting concept that refers to the tendency of accountants to resolve uncertainty and doubt
in favour of understating assets and revenues and overstating liabilities and expenses is known as
_______________.
3. Revenue is generally recongnised at the point of sale denotes the concept of _______________.
4. The _______________concept requires that the same accounting method should be used from one
accounting period to the next.
5. The_______________concept requires that accounting transaction should be free from the bias of
accountants and others.
7. Choose the Correct Answer.

1. During the life-time of an entity accounting produce financial statements in accordance with which basic
accounting concept:
(a) Conservation
(b) Matching

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(c) Accounting period
(d) None of the above
2. A concept that a business enterprise will not be sold or liquidated in the near future is known as :
(a) Going concern
(b) Economic entity
(c) Monetary unit
3) According to which accounting principle personal expenses of proprietor are recorded in drawings account.
a) Business Entity Concept

b) Money measurement
c) Prudence
d) Matching
Q4) Under which accounting principle quality of manpower is not recorded in the books of accounts
a) Accounting period
b) Accounting entity
c) Going concern
d) Money measurement
Q5) Principle which assumes that a business enterprise will not be liquidated in the near future
a) Prudence
b) Accounting period
c) Going concern concept
d) Accounting entity
Q6) Which accounting principle requires that life of a business be broken into smaller parts
a) Prudence
b) Going concern concept
c) Accounting period
d) Accounting entity
Q7) Under which accounting concept fixed assets are recorded at cost without considering the market price
(whether low or high).
a) Historical Cost Principle
b) Matching concept
c) Prudence concept
d) Revenue concept
Q8) Single Entry system ignores ______ of accounting.
a) Cost concept
b) Revenue concept
c) Matching concept
d) Dual aspect
Q9) Closing stock is valued at lower of cost or market price. Which concept of accounting is applied here
a) Matching concept
b) Prudence
c) Cost concept
d) Revenue concept
Q10) According to Principle of Conservatism
a) None of these
b) Recording is made of outstanding expenses
c) Depreciation is charged on assets
d) Provision is made for bad and doubtful debts

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Assertion and Reasoning
xi) Assertion (A): "According to business entity concept, business is treated as a unit separate and distinct
from its owners, creditors, managers and others."
Reason (R): "The owner of a business is always considered as distinct and separate from the business
owners. The proprietor is treated as a creditor of the business to the extent of capital invested by him in the
business."
xii) Assertion (A): "Every transaction has two aspects."

Reason (R): "Profit and Loss are two sides of a business."
xiii) Assertion (A): Accrual Basis of Accounting is more acceptable in business

Reason (R): In the Accrual basis of accounting, Prepaid and outstanding expenses are not adjusted. Similarly,
accrued income and income received in advance are not adjusted
Answers
5. (i) Prudence (ii) Seprate entity (iii) Dual aspect (iv) Consistency
(v) Conservatism (vi) Money measurement concept
6. 1. Matching 2. Conservatism 3. Revenue Realisation
4. Consistency 5. Objectivity
7. 1. (c) 2. (a) 3(a) ,4 (d) 5(c) 6(c) 7(a) 8(c) 9(b) 10(d) 11(a)
12 (c) 13 (c)

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Golu Plastic Ltd (GPL) is a leading plastic articles manufacturing company. It was listed on Indian stock market in
1999. The founders and promoters of the company hold the highest number of shares of the company, approximately
around 55%. All these founders belong to a single family. Unfortunately, all of them died in a car accident recently.
However, the company continued to exist and grow.ln the year 2004, the company imported multiple machines for
producing low - cost plastic sheets. The machines were recorded at the price prevailing in 2004 and have been
subjected to depreciation year on year based on written down value method. The depreciation is treated as a non-cash
expense while preparing the cash flow statement. When GST was implemented in 2017, it benefitted the company by
streaming the processes. A single rate of GST was charged on the supply of the goods and the process of filing was
very simple.
1. Which principle is highlighted in the line, "The machines were recorded at the price prevailing in 2004"?
(a) Full disclosure principle
(b) Conservatism principle
(c) Duality principle
(d) Historical cost principle
2. Which principle/concept is highlighted in the line," ... and have been subjected to depreciation year on year based
on written down value method?
(a) Full disclosure principle
(b) Business entity principle
(c) Consistency concept
(d) Accrual concept
3.Which principle is highlighted in the fact that the company continued even after death of the founders?
(a) Business entity principle
(b) Money measurement principle
(c) Duality principle
(d) Historical cost principle
Answers: 1 d, 2 c, 3 a
1. Why is it necessary for accountants to assume that business entity will remain a going concern?
2. When should revenue be recognised?

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3. Business is seprate from owners.Explain

4. What is limitation of Money measurement concept?
5. Explain Dual aspect of accounting.
6. According to which principle, a business transaction should be supported by documentary evidence?
Explain.
7. What do you mean by Historical Cost ?
8. Why we Match Revenue and Expenses ?

9. Supply the missing word/words in the following statements :
1. Recording business transactions on the basis of documents is to observe accounting concept of......
2. Treatment of capital in the books of the firm as liability observes the accounting concepts of......
3. The qualitative aspect of the business is not recorded in the books of accounts according to the
basic assumption of.......
4. According to Companies Act, every company must close its books of accounts on........of the year.
10. Explain Consistency principle?
11. Give examples that indicate the application of conservatism in accounting.
12. Sural Ltd Purchased shares for rs 50 lakh. at the end of the year the market values of such securities was
40 lakh. While preparing financial statement the company valued the securities at cost i.e at 50 lakh. Is it a
correct statement.
Answers
A1. Going Concern Concept
According to this concept, a normal business is to be viewed as an entity having indefinite life. We assume that
our business will go on for ever. This assumption helps to solve various accounting issues. For example, when
we calculate depreciation for an asset, we mainly consider the expected life of an asset rather than the market
value of that asset each year. This will give us a more or less accurate amount we spent by way of depreciation.
Minute variations in our estimate will automatically get corrected in future.
A 2. Revenue from sale should be recognized for the period in which the sale occurred. For example if goods are
sold in December and money received in January, it is considered as the income for December.
Revenue from services should be recognized for the period in which service is rendered. If the workers of a
cleaning company worked in the month of March and the company received payment in April, it is the income
for March not for April.
Revenue from use hiring out of firm’s assets should be recognized for the period of use of asset. For example
if a building is given for rent in January, but the rent was received in advance in December, it is considered the
income for January, not for December.
A 3. Business Entity Concept

According to this assumption a business unit should be understood as a separate entity apart from the
businessman. When the owner invests money into the business it should be assumed that the business owes
money to the owner. This is known as capital. Capital is the amount which a business owes to its owner. All
transactions of the business should be considered from the point of view of the business.
A 4. Money measurement concept restricts the scope of accounting to factors that are measurable in terms of
money. While we can record values of various assets and liabilities, we cannot record the level of satisfaction
of our customers and loyalty of our employees. We can say our customers are ‘happy’ or ‘very happy’. But

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we cannot write in our accounts how much our customers are happy, simply because “happiness” cannot be
measured in terms of money.
A 5. Dual Aspect Principle

This principle is the backbone of accounting. Every business transaction affects at least two aspects in a
business. When we buy goods, we get goods and pay cash. When we sell goods we give goods and get cash.
Accounting is much more than just buying and selling. Dual aspect involves in everything. Thus accounting job
is primarily to identify this dual aspect and record it accordingly.
A 6. Verifiable Objective Evidence

According to this principle, a business transaction should be supported by documentary evidence. No entry
shall be passed without its supporting documents. Objectivity means the document should contain facts in an
unbiased manner. Accounting should be done without favour or prejudice.
A7. Historical Cost

Historical cost is the cost at which an asset is originally acquired. This is the cost to be considered for accounting
purpose. The market value of the asset may fluctuate each year. The accountant need not readjust the value of
assets according to the change in market values.
A8. Matching Revenue and Expenses

Business is carried out with the intension of making profits. Profit is the excess of revenue over expenditure. It
is the net increase in assets due to business activity. To ascertain the profit for a period a businessman must
identify the revenue for a period, expenditure for a period and compare both. When his revenue is more than
the expenditure he has earned profit. Profit normally expand his asset position or wipe out the liabilities. If
profit is not taken out of the business it will result in increase of capital, because capital is the difference
between total assets and total liabilities.
A 9. 1. Objectivity 2. Business entity 3. Money measurement

4. 31st March
A 10. Consistency
A business should follow accounting rules consistently for a reasonable period to make accounting results
meaningful. Suppose the company keeps on changing the rate or method of depreciation every year, the item
of depreciation becomes confusing and meaningless. Consistency eliminates personal bias. We must follow
consistent rules year after year.
A 11. The following examples indicate the application of conservatism in accounting:

a. valuation of closing stock at cost price or market price whichever is less
b. creating provision for bad debts and discount on debtors, but not creating provision for discount on
creditors
c. not showing assets such as goodwill in the books
d. writing off fictitious assets from the books as early as possible
e. treating small capital expenditure as revenue item (principle of materiality is also involved here)
A12: No it is not correct treatment.The company has violated the principle of prudence according to which current
assets are valued at cost price or realisable value whichever is.

25
Chapter - 3 Accounting Equation
1. Indicate the correct alternative in each of the following cases :

(a) On sale of old equipment, owner equity would increase, decrease or remain unchanged.
(b) Withdrawals by the proprietor would :
i. reduce both assets and owner equity,
ii. reduce assets and increase liabilities, or
iii. reduce owner equity and incrase liabilities
(c) Purchase of Government Securities for cash would :
i. reduce assets,
ii. increase assets, or
iii. keep assets unchanged.
(d) The accounting equation is satisfied by :
i. capital=assets+liabilities.
ii. liabilities=capital-assets.
iii. capital=net assets.
(e) Both assets and owner’s equity (i.e., capital) would be increased by :
i. proprietor’s withdrawals
ii. purchasing a building on credit,
iii. retained earnings.
(f) purchase of equipment for cash :
i. increase total assets,
ii. keeps total assets unchanged,
iii. decreases total assets.
(g) An increase in one asset is accompanied by
(a) Decrease in another asset.
(b) increase in a liability.
(c) Increase in capital.
(d) All of these.
(h) Decrease in one liability may lead to

(a) Decrease in an asset.
(b) Increase in another liability.
(c) Either (a) or (b).
(d) None of these.
(i) Purchase of machine by cash means
(a) Decrease in asset and decrease in liability.
(b) Increase in asset and decrease in asset.
(c) Increase in asset and decrease in liability.
(d) Decrease in asset and increase in capital.
(j) Payment to a creditor means

26
(a) Increase in asset and decrease in liability.

(b) Decrease in asset and decrease in liability.
(c) Decrease in asset and increase in liability.
(d) Increase in asset and increase in liability.
Assertion and Reasoning.

(k) Assertion (A): Goods costing 10,000 have been sold for cash at 25% profit. This will the be increase assets
and liabilities by same amount in the Accounting Equation
Reason (R): Goods costing 10,000 have been sold for cash at 25% profit will Increase cash by 12,500; Decrease
stock by 10,000; and Increase capital by 2,500.
(l) Assertion (A): Rent outstanding will have zero net effect on right side of accounting equation [Use format Assets
= Liabilities + Capital)
Reason (R): Outstanding expense will be shown in the accounting equation as deduction from capital and as an
Outstanding Expense on the Liabilities side.
2. Show the accounting equation on the basis of the following transactions and present a balance sheet of the last
new equation balance :
Rs.
i. Mohan commenced business with 70,00
ii. Purchased goods on credit 14,000
iii. Withdrew for private use 1,700
iv. Purchased goods for cash 10,000
v. Paid wages 300
vi. paid to creditors 10,000
vii. Sold goods on credit for 15,000
viii. Sold goods for cash (cost price was Rs. 3,000) 4,000
ix. Purchased furniture for 500
3. (a) Show the accounting equation on the basis of the following transactions :
i. Parmanand & Co. started business with Rs. 20,000.
ii. Purchased goods on credit worth Rs. 5,000.
iii. Sold goods to G. Rai on credit costing Rs. 1,000 for Rs. 1,200.
(b) Show the accounting equation on the basis of following transactions :

27
i. Purchased timber from Kuldeep Kumar for cash Rs. 2,000 and credit Rs. 10,000.
ii. Paid to Kuldeep Kumar in full settlement Rs. 9,950.
iii. Paid rent in advance Rs. 480.
4. Develop accounting equation from the following transactions :
i. Mohan commenced business with cash 50,000
ii. Purchased goods for cash 30,000
iii. Purchased goods on credit 20,000
iv. Sold goods (cost Rs.10,000) for 12,000
v. Bought furniture on credit 2,000
vi. Paid cash to a creditor 15,000
HOTS
Q1. a. If the capital of a business is Rs. 2,40,000 and liabilities are Rs. 40,000, calculate the total assets of the
business. [Ans. Rs. 2,80,000.]
Hint. Assets = Liabilities + Capital .
b. 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
[Ans. I, IV, VIII.]
Q2. The position of a businessman on 30th June 1994 was as follows:— Cash Rs. 5,000; Debtors Rs. 20,000;
Machinery Rs. 60,000; Stock Rs. 25,000; Capital Rs. 75,000. Calculate his liabilities.
[Ans. Rs. 35,000.]
Hint. Liabilities = Assets - Capital
Q3. Why are the rules of debit and credit same for both liability and capital?
Ans. Because according to business entity concept capital is also treated as liability of the business.
Q4. What entry (debit or credit) would you make to {a) increase in revenue (b) decrease in expense, (c) record
drawings, (d) record the fresh capital introduced by the owner.
Ans. (a) Increase in Revenue : Credit
(b) Decrease in Expense : Credit
(c) Drawings : Debit in Capital Account
(d) Fresh Capital : Credit in Capital Account
Q5. If a transaction has the. effect of decreasing an asset, is the decrease recorded as a debit or as a credit? If the
transaction has the effect of decreasing a liability, is the decrease recorded as a debit or as a credit?
[Ans. Decrease in Asset will be recorded on credit side.
Decrease in Liability will be recorded on debit side.]

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Q6. Which transactions 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.
[Ans. (I) Drawings or Expenses; (II) Purchase of an asset on Credit; (III) Purchase or Sale of an asset in Cash;
(IV) Payment of a liability.]
Q7. What will be the effect of the following on the Accounting Equation :-
1. Purchased goods for Rs. 20,000 from Mahesh on Credit.
2. Sold goods to Suresh costing Rs. 8,000 for Rs. 10,000 in cash.
3. Paid Wages Rs. 500.
4. Withdrew in cash for private use Rs. 2,000.
5. Paid to creditors Rs. 5,000.
[Ans. 1. + Stock + Creditors
2. + Cash - Stock + Capital
3. - Cash - Capital
4. - Cash - Capital
5. - Cash - Creditors]

1.
a) Surender Mohan started business on 1st JAn. 1998 with Capital of Rs. 1,50,000 and a loan of Rs. 40,,000
taken from Punjab National Bank. On 31st Dec. 1998 his assets were Rs. 3,00,000. Find out his Capital on
31st Dec. 1998 and profits made or losses incurred during the year 1998.
b) If in the above illustration, the proprieter had introduced additional capital of Rs. 25,000 and had withdrawn
Rs. 8,000 for personal purposes, find out the profit.
2. Show the Accounting equations on the basic of following transactions:
1. Madan started business with cash 1,50,000
2. Purchased goods on credit 14,000
3. Purchased goods for cash 11,000
4. Purchased furniture 1,500
5. Paid Rent 1,200
6. Withdrew for private use 1,700
7. Received Interest 1,100
8. Sold goods on credit (Cost Rs. 1,500) for 1,700
9. Paid to creditors 1,400
10. Paid salaries 1,200
A1. a) Closing Capital = Closing Assets - Closing Liabilities
= Rs. 3,00,000 - Rs. 40,000
= Rs. 2,60,000

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Profit = Closing Capital - Opening Capital

= Rs. 2,60,000 - Rs. 1,50,000
= Rs. 1,10,000
b) Profit = Closing Capital +Drawing - Additional Capital - Opening Capital

= Rs. 2,60,000 +Rs. 8,000 - Rs. 25,000 - Rs. 1,50,000
= Rs. 93,000
A2 S.N. Transaction Assets = Capital + liabilities

1. Mohan started business
with cash. 150,000 150,000 = 150,000 +0
New equation 150,000 = 150,000 +0
2. Purchased goods on credit for
Rs. 14,000 14,000 = 0 + 14,000
New equation 164,000 = 150,000 + 14,000
3. Purchased Goods for cash
Rs. 11,000 +1 1,000 - 11,000 = 0 +0
New equation 164,000 = 150,000 + 14,000
4. Purchased furniture for + 1,500 - 1,500 = 0 +0
Rs. 1,500
Net equation 164,000 = 150,000 +14,000
5. Paid Rent Rs. 1,200 -1,200 = -1,200 +0
New equation 162,800 = 1 48,800 + 4,000
6. Withdrew for private use
‘Rs. 1,700 -1700 = -1700 +0
New equation 161,800 = 147,100 + 14,000
7. Received Interest Rs. 1,100 +1,100 = 1,100 +0
New equation 162,200 = 148,200 + 14,000
8. Sold goods (cost Rs. 1,500)
for Rs. 1,700 +1700 - 1500 = 200 + 0
New equation 162,400 = 148,400 + 14,000
9. Paid to creditors Rs. 1,400 - 1,400 = 0 - 1400
New equation 161,000 = 148,400 + 12,600
10. Paid salaries Rs. 1,200 -1200 = -1200 + 0
Final equation 159,800 = 147,200 + 12,600
Unit -III

30
Pradhan Opticals is a spectacles shop in Lucknow. The shop procures the frames from a local frame manufacturing
firm. The shop arranges the lenses from Delhi as and when orders come in according to specifications by the customer.
After the pandemic, to boast the business further, it decided to enter into collaborations with hospital chains to provide
the black spectacles required after the cataract surgery. It shipped 20,000 units of Rs 5 each of such spectacles to the
local hospital. This transaction was on credit basis. However, the hospital returned 10,000 units as those units were
found to be defective. After 6 months, the hospital chain went bankrupt and the shop lost its money as bad debt. It
decided to stop the credit policy altogether so that it prevents losses in the future. At the end of the year, the company
was left with 1,00,000 worth of goods and no debtors. The company also had a creditor of raw materials of 20,000
and a creditor of a small machinery (not written off) ? 10,000.
1.What was the effect of 20,000 units shipped by the hospitals on the accounting equation? [Use format Assets =
Liabilities + Capital)
(a) 20,000) = (20,000) + 0
(b) (1,00,000) = (1,00,000) + 0
(c) (1,00,000) + 1,00,000 = 0 + 0
2.What was the effect of the return by the hospitals on the accounting equation? [Use format Assets = Liabilities +
Capital)
(a) (50,000) = (50,000) + 0
(b) 50,000 = 50,000 + 0
(c) (50,000) + 50,000 = 0 + 0
3. Bad debts by the hospital had impact on the capital and liabilities of the firm. (a) True
(b) False
(c) Partially true
(d) Can't say
Answers: 1 c, 2 a, 3 c

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Chapter - 4 Accounting Procedures (Rules of Debit and Credit)
1. Indicate whether the following statement are ‘True’ or ‘False’ :

i. bills payable account is a personal account.
ii. bank loan account is a personal account.
iii. capital account is a nominal account.
iv. drawing account is a nominal account.
v. a debit to an asset account is a decrease in the asset account.
2. Indicate the correct alternative in the following cases :
Q.1. Debit means

(a) an increase in asset.
(b) an increase in liability.
(c) an increase in the proprietor's equity.
(d) a decrease in asset.
Q.2. Credit means
(a) an increase in asset.
(b) an increase in liability.
(c) a decrease in liability.
(d) a decrease in proprietor's equity.
Q.3. Sale of goods to Ram for cash is debited to
(a) Ram.
(b) Cash A/c
(c) Sales A/c.
(d) None of these
Q.4. Withdrawal of cash from business by the proprietor is credited to

(a) Drawings A/c.
(b) Capital A/e
(c) Cash A/c.
(d) Profit and Loss A/c
Q.5. Bank account is a

(a) Personal Account.
(b) Real Account
(c) Nominal Account.
(d) None of these
Q.6. Drawings Account is a

(b) Real Account

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(d) None of these
Q.7. Goodwill account is a

(b) Real Account.
(d) None of these
Q.8. Which of the following accounts has a credit balance?

(a) Carriage Inward
(b) Discount Received
(c) Carriage Outward
(d) Discount Allowed
Q.9. Balance of Capital Account is shown as

(a) Capital Account.
(b) Liability Account
(c) Revenue Account.
(d) None of these.
Q10. Assertion (A): “When cash comes it is debited.”

Reason (R): “Cash is a Real Account.”
Q11. Assertion (A): Depreciation charged on Machinery is debited in Machinery account

Reason (R): Rule for an Asset Account is ‘Increases in assets are debits and decreases credit’.
3. Under what heading (personal, real or nominal) would you classify the following accounts :
(a) i. interest ii. accrued interest
iii. outstanding interest iv. prepaid interest
v. interest received in advance

33
(b) i. insurance ii. insurance unexpired
iii. insurance outstanding
(c) i. salary ii. salary outstanding
iii. salary prepaid.
HOTS
1. (i) Double entry accounting requires that :
(a) All transactions that create debits to asset accounts must create credits toliability or capital
accounts;
(b) A transaction that requires a debit to a liability account require a credit to an asset account;
(c) Every transaction must be recorded with equal debits equal total credits.
(ii) State different kinds of transactions that increase and decrease capital.
(iii) Does debit always mean increase and credit always mean decrease?
2. State the title of the accounts affected, type of account and the account to be debited and account to be
credited :
Rs
1. Bhanu commenced business with cash 1,00,000
2. Purchased goods on credit from Ramesh 40,000
3. Sold goods for cash 30,000
4. Paid salaries 3,000
5. Furniture purchased for cash 10,000
Answers
1. i. (c),
i (Capital increases by net profit and fresh capital introduced, decreases by drawings and net loss),
iii. (No),
2. 1. Cash account and capital account, Assets and Liabilities, Assest increase and capital increase.
2. Purchase account and Remesh account, Expenses and Liabilities, Expenses and Liabilities
increases.
3. Cash account and sales account, Assets and Revenues, Assets and Revenues increases.
4. Salaries account and cash account, Expense and Assets, Expenses increases Assets decreases.
5. Furniture account and Cash account, Asset increases Asset decreases.
1. Classify the following accounts into Real, Nominal and Personal accounts:
1. CashA/c 2. Salary A/c 3. Goods A/c
4. PN Bank A/c 5. Dividend Received A/c 6. Furniture A/c
2 Classify the following accounts into Assets,liabilities capital revenue, & Expense.
1. Purchases A/c 2. Sales A/c 3. Capital A/c
4. Drawings A/c 5. Ram’s A/c(supplier) 6. House Rent A/c
3. Classify the following according to Modern Approach
(i) Drawings

34
(ii) Cash
(iii) Outstanding Salary
(v) Depreciation
(v) Prepaid Insurance Premium
(vi) Loan
4. What are categories of accounts on the basis of Modern classification ?
5. What are the rules for debit and credit as per Modern classification ?
6. From the following decrease in the accounts, write down the side of account to be recorded alongwith the
nature of account
1. Cash withdrawn by the owner
2. Furniture A/c
3. Rent A/c
4. Interest A/c
5. Bills Receivable
6. Wages A/c
Answers
A1
Name of Item Type of Account
1. CashA/c Real A/c
2. Salary A/c Nominal A/c
3. Goods A/c Real A/c
4. PN Bank A/c Personal A/c
5. Dividend Received A/c Nominal A/c
6. Furniture A/c Real A/c
A 2 Name of Item Type of Account
1. Purchases A/c Expense A/c
2 Sales A/c Revenue A/c
3. Capital A/c Cpital A/c
4.. Drawings A/c Capital A/c(Decrease in Capital)
5. Ram’s A/c LiabilityA/c
6. House Rent A/c (Drawing A/c) Capital A/c
A3 Name of Item Type of Accounts
(i) Ram(Proprietor) Capital A/c
(ii) Cash Asset A/c
(iii) Outstanding Salary liabilityA/c
(iv) Depreciation Expense A/c
(v) Prepaid Insurance Premium Asset A/c

35
(vi) Loan LiabilityA/c
A 4. As per Modern classification also known as classification based on Accounting equation, Accounts are of the
following categories:
(a) Assets (b) Liabilities
(c) Capital (d) Expenses and
(e) Revenue (Incomes)
A 5. Following are the rules for debit and credit
(i) Assets Increase in assets Debit
Decrease in assets Credit
(ii) Capital Increase in capital Credit
Decrease in capital Debit
(iii) Liabilities Decrease in liabilities Debit
Increase in liabilities Credit
(iv) Revenue / Decrease in Revenue / Income Debit
Income Increase in Revenue / Income Credit
(v) Expenses Increase in Expenses Debit
Decrease in Expenses Credit
A 6. SI. No. Result of Decrease Nature of Account
1. Debit Capital A/c
2. Credit Assets A/c
3. Credit Expenses A/c
5. Credit Assets A/c

36
Chapter - 5 Origin of Transactions - Source documents and preparation of vouchers
1. What is a cash Memo?
2. What is an Invoice?
3. Define an Accounting Voucher.
4. What is a Pay-in slip.
5. Define cheque.
6. What is a Debit Note?
7. What is a Credit Note?
8. What is a source document? Explain various types of source documents?
9. What are Accounting Vouchers? What are different types of Accounting Vouchers?

1. What do you mean by source documents?
2. Name some source documents.
3. What is Cash Memo?
4. When is debit note used ?
5. When is credit note used ?
6. What is difference between Invoice or Bill ?
7. Write a note on Cheque?
8. When is Pay in Slip used ?
9. What do you mean by the term Voucher? What are its types?
10. What do you mean by Supporting vouchers?
Answers
A 1 Meaning of source documents: Documentary proof which is used for recording the trans actions is called source
documents.
A 2. Various types of source documents are:
1. Cash memo
2. Debit or credit Note
3. Cheques
4. Invoice
5. Pay in slip etc.
A 3. Cash Memo
Whenever there is a cash transaction whether it is for purchasing or for selling i.e., either goods are purchased for
cash or goods are sold for cash. The business receives cash memos or when the business purchases goods for
cash, the business gives cash memos where every detail regarding the cash transactions is given. Later on
recording of such transactions is done in the books of the business on the basis of such cash memos.
A 4 The purpose of issuing debit note is to prove that either the goods are returned to a supplier or an additional sum
is recoverable from a customer.
A 6 Credit Note when goods are received back from a customer, a credit note is issued giving him/her credit.
A 7 Whenever any transaction on credit takes place whether it is for purchase or sale of goods, this source document
is prepared. This is known as invoice in case of sale of goods whereas it is known as a bill in case of purchase of
goods. There are generally two copies of invoice or bill. One is sent to the customer other is retained for future

37
reference purposes. The following is the specimen of an Invoice.
A 8 It is a document in writing drawn upon a specified banker which is payable on demand. The person to whom it
is payable, name is generally given after ‘pay to... and amount is written in words as well as in figure.
A9 It is used for money is deposited with the bank. It also contains a counterfoil which is returned by the banker to
the customer. This counterfoil is used by the holder of account for future reference purposes.
A 10 A voucher may be defined as a written document in support of business transaction. It is a documentary evidence
of a transaction.
Types of Vouchers
1. Supporting Vouchers
2. Accounting Vouchers
a) Cash Vouchers
b) Non Cash Vouchers
A 11 The documents supporting business transaction are called supporting vouchers such as receipt of rent, cash
memo, counterfoils of pay in slips, credit memo.
MCQ
Q.1. Cash memo is prepared when goods are sold
(a) on credit.
(b) on cash.
(c) Both (a) and (b).
(d) None of these.
Q.2. Cash memo is a source voucher for purchaser of goods

(a) for cash purchases.
(b) for credit purchases.
(c) for credit sales.
(d) for cash sales.
Q.3. Invoice is a source voucher for seller of goods

(a) for cash sales.
(b) for credit purchases.
(d) for cash purchases.
Q.4. Invoice is a source voucher for purchaser of goods

(a) for cash purchases.
(b) for cash sales.
(d) for credit purchases.
Q.5. Accounting voucher is prepared from

(a) source voucher.
(b) Journal entry.
(d) None of these.
Q.6. If purchaser of goods returns them, he will prepare

(a) Credit Note.

38
(b) Debit Note.
(d) None of these
Q.7. If seller receives back the goods sold, he will prepare.

(a) Credit Note.
(b) Debit Note
(d) None of these.
Q.8. Voucher is prepared for

(a) Cash and Credit purchases.
(b) Cash and Credit sales.
(c) Cash received and paid.
(d) All of these.
Q.9. Cash Memo is

(a) a source voucher.
(b) an accounting voucher.
(c) neither (a) nor (b).
(d) both (a) and (b).
Q.10. Invoice is a source voucher for

(a) Cash purchases.
(b) Credit purchases
(c) both (a) and (b).
(d) neither (a) nor (b)
Q11. Assertion (A): Transfer Vouchers are prepared when depreciation charged on Machinery
Reason (R): Transfer Vouchers are prepared to record the non-cash transactions.
Q12. Assertion (A): If a customer returns goods previously invoiced, or the customer is allowed further discount, a
credit note is issued
Reason (R): Credit Note is made out evidencing that credit has been granted to a creditor.

39
Chapter -6 Journal & ledgers

1. What do you mean by journal?
2. In which accounts and on which side of such accounts would you expect to find the following items ?
(a) Rs. 500 paid for wages.
(b) Rs. 200 drawn by the properietor for his private expenses.
(c) Rs. 10,000 paid for a plot of land.
(d) Rs. 200 received as commission for affecting sale of another person’s property.
(e) Rs. 490 paid to G Gandhi in full sattlement of an account for Rs. 500 due to him two months hence.
(f) Rs. 500 received from J Joshi in part payment of money lent to him.
3. Indicate the alternative which you consider to be correct in each of the following cases :
(a) Salary paid to Tanvi is debited to :
i. Tanvi’s A/c ii. salary A/c iii. cash A/c
(b) Goods sold to Pankhuri for cash shall be debited to:
i. Goods or sales A/c ii. cash A/c iii. customer’s A/c
(c) Credit purchases for the month shall be debited to
i. purchases A/c ii. cash A/c iii. sales A/c
4. Journalise the following
(a) Commenced business with a cash Rs. 50,000
(b) Purchased funiture for cash Rs. 20,000
(c) Purchased goods for cash Rs. 15,000 and for credit Rs. 10,000.
(d) Bought Motor Cycle for personal use for Rs. 16,000 and the payment made out of business money.
(e) Received cash for a bad debt written off last year Rs. 100.
(f) X, a debtor of the firm, became, insolvent. A first and final payment of 60 paise in a rupee was received
from his offcial receiver towards his total dues of Rs. 200.
[Hint. (ii) rent in advance is to be debited. (v) bad debts recovered is to be credited.]
(g) Journalise the following :
i. goods worth Rs. 400 were given free as charity out of business.
ii. Goods costing 80,000 sold to Mohan for 1,00,000
iii. Charge interest on drawings Rs. 500.
iv. Distributed goods costing Rs. 2,000 as free samples for the promotion of sales.
v. Under a scheme of a Typewriter Co., an old typewriter was surrendered in exchange of a new one.
The typewriter co., charged Rs. 3,700 for the typewriter as against the price of Rs. 4,200.
(h) In a soap manufacturing Co., ten employees took 2 kilos of soap each during the month of August. The
cost price of the soap at Rs. 10 per kilo is adjusted against their wages.
[Hint. (i) Rs. 400 is debited to charity A/c and credited to purchases or goods a/c (iii) Rs. 500 is credited
to interest on drawings A/c (iv0 Rs. 2,000 is debited to sales promotion A/c (vi) Rs. 20 is debited to wages
A/c]
5. Journalise the following :

40
(a) Ram, who owed me Rs. 500, has failed to pay the amount. He pays me a composition of 25 paise in a
rupee.
(b) Received cash from Shyam for a bad debt written off last year Rs. 100.
(c) Paid rent in advance Rs. 500.
(d) Goods worth rs 50,000 and cash 20,000 were stolen by an employee.
(e) Purchased goods from Mohan on credit Rs. 700.
(f) Goods worth Rs. 500 given as charity.
(g) Received Rs. 975 from Harikrishan in full settlement of his account for Rs. 1,000.
(h) Received a first and final dividend of 60 paise in a rupee from the Official Receiver of Mr. Rjan who owed
us Rs. 1,000.
6. At the end of an accounting year, a trader finds that no entry has been passed in the books of account in respect
of the following transactions :
(a) Outstanding salary at the end of the year Rs. 200.
(b) Goods given as charity during the year Rs. 300.
(c) Stock-in-hand at the end of the year Rs. 20,000.
Journalise these transactions.
7. Give Journal Entries for the following :
(a) Purchased goods worth Rs. 50,000 from 5 & Sonsa at 15% trade discount and 2% cash discount for half
the value paid in cash, the balance due, promised after 10 days.
(b) Salaries Rs, 2,000, rent Rs. 1,000 and sundry expenses amounting to Rs. 1,500 paid by cheque.
(c) Received 50% of Rs. 2,000 owed by Laxman for bad debt written off last year.
(d) Goods worth Rs, 3,000 were taken by the owner from the business for personal use.
8. Give the necessary opening entry for the following :
Factory Building Rs. 5,000 ; Debtors Rs. 2,000 ; Bills Receivable Rs. 1,000 ; Bank Loan Rs. 2,000 ; cash and
bank balances Rs. 10,000; Amin account (Dr. balance) Rs., 2,000
9. Give the necessary entries for the following :
(a) Paid cash to Ambala on behalf of Babulal, Rs. 5,000.
(b) Paid into Bank as capital, Rs. 10,000.
(c) Jeevan became insolvent, A sum of 60 paise in a rupee wasd received in settlement. He owed Rs. 500.
(d) Goods worth 100,000 were destroyed by the fire Ins co admitted & paid claim for 60% amt.
(e) Rent and salary due Rs. 100 and Rs. 300, respectively.
(f) Interest on capital, Rs. 96.
(g) Bank charged interest, Rs. 50.
(h) Exchanged old furniture for new. Value of old furniture was Rs. 500 and that of new Rs. 750. Balance was
paid in cash.
(i) Withdrawn for domestic use goods worth Rs.750 and paid Rs.150 to Mahila Mandal as the monthly
subscription of properietor’s wife.
10. Journalise the following transactions

41
(a) Sri Ramakant was bankrupt and Rs.103 owed by him is written off as bad and irrecoverable.
(b) A contractor’s bill for extension of premises amounting to Rs.1,000 has been paid by cheque.
(c) Paid income tax Rs.160.
(d) Purchased goods on credit from Mr. Spring Rs.3,000 and sold half of them to Mr. Sumer for cash at a
profit of Rs.20% on cost. Returned the damaged goods to the supplier, Rs.200 (All transaction on the
same day.)
(e) A stationery dealer bought stationery worth Rs.980. Of this, material worth Rs.100 were taken for office
use. Rs.80 worth stationery was taken home by the proprietor for which the supplier was paid in cash and
for the balance a cheque was issued.
11. Record the following transactions in general journal and post them to ledger : (a) Commenced business with cash
of Rs.50,000. (b) Purchased suppliers on account Rs.16,000. (c) Paid rent for the month Rs.1,000. (d) Pur-
chased equipment for cash on Rs.6,000 (e) Paid miscellaneous expenses Rs.600. (f) Paid creditors on account
Rs.11,000. (g) Received Rs.1,200 as commission. (h) Received from cash sales Rs.12,000.
12. On December 1,1987, Akhil established an enterprise under the name Akhilsons. Transactions completed dur-
ing the month were as follows : (a) Started business with cash Rs.30,000 (b) Opened a business bank account
with a deposit of Rs.10,000 (c) Purchased sundry equipment for Rs.12,000 paying cash of Rs.5,000 and the
balance on account. (d) Purchased supplies for the office for cash Rs.500. (e) Paid creditors on account Rs.3,000
(f) Paid office rent for the month Rs.1,150 (g) Earned commission (in cash) Rs. 9,000 (h) Paid miscellaneous
expenses Rs. 250. (i) Paid travelling charges Rs.700. (j) Withdrew cash Rs.2,700.
13. The transaction for the month of March 1988, are shown in the following summarised form. give entries for the
transactions in general journal and post them to ledger. (a) Cash collected from customers Rs.4,500 (b) Postage
and stationery purchased during the year Rs.150. (c) An account payable was settled by giving a note Rs.3,750.
(d) Sales : Rs. 5,600 on account Rs.3,710 (e) Wages paid Rs.5,120 (f) Rent paid Rs.200 (g) Delivery expenses
paid in cash Rs.78 (h) Advertising bill paid Rs.280. (i) Rent revenue in cash Rs.2,200 (j) Purchased merchandise
: cash Rs.3,500, credit Rs.1,500 (k) Interest revenue Rs.350 (cash)
14. Journalise the following transactions and post them to ledger; (a) Cash sales Rs.10,000 (b) Paid income tax Rs.
1,900. (c) Paid for cartage and freight Rs. 350. (d) Cash purchases from Ram Sahai Rs.800. (e) Paid salary to
Jeevan Rs. 300. (f) Received interest from Naresh Rs. 100. (g) Cash sales to Ram Nath Rs, 1,300 (h) Credit
sales to Ramsons Rs. 5,800.
15. Post the following transactions to machinery account (1) Machinery purchased Rs. 70,000 (2) Machinery sold
Rs.4,800 (3) A part of machinery worth Rs. 400 broke away. (4) Machinery again purchased Rs.7,000 (5)
Machinery discarded Rs. 8,000.
16. Sri Ram Lal started business with the following :
Cash on hand Rs.200. Bank Balance Rs.2,000 Loan from Mrs. Ram Lal for goods supplied Rs.1,800, due from
Sham Lal Rs. 800 and Machinery Rs.10,000.
17. Give narration for each for the following entries :
(1) Cash a/c Dr. (2) Bank a/c Dr.
Modi a/c Dr. To cash a/c

42
To Sales a/c
(3) Drawing a/c Dr. (4) Machinery a/c Dr.
To Bank a/c To XY Co. a/c
(5) Devadas & Co. a/c Dr. (6) Cash a/c Dr.
To Commission a/c Discount a/c Dr.
To Ramdas a/c
(7) Purchase a/c Dr.
To Shivdas & Co. a/c (8) Cash a/c Dr.
Stock a/c Dr.
Furniture a/c Dr.
To Haridas Loan a/c
To Capital a/c
18. Point out what is wrong with the following journal entries. give the correct entries.
(a) Cash Account... Dr. 1,400
To Suresh Account ... 1,400
(Received from Suresh for goods sold to him for cash)
(b) Ramesh Account Dr. 900
To Cash Account ... 900
(Payment to Ramesh his salary for the month)
(c) Purchases Account... Dr. 500
To Mukesh Account ... 500
(Purchase of furniture from Mukesh)
(d) Mahendra Account... Dr. 1,000
To Sales Account 1,000
(Goods sold to Mahendra for cash)
(e) Commission Account.. Dr. 200
To Bharat Trading Co. 200
(Commission received from Bharat Trading Co.)
19. Match the two sides (there are only two more on ‘B’ side).
(A) (B)
(a) Purchase of tables and chairs by a (a) Commission a/c Dr.
furniture dealer (b) Cash a/c Dr.
(b) Salary paid to Ramesh (c) Drawings a/c Dr.
(c) Commission received (d) Rent a/c Dr.
(d) Rent payable (e) Ramesh a/c Dr
(e) Paid rent of the owner’s house (f) Cash a/c Cr.
(f) Loan advanced to Ramesh (g) Furniture a/c Dr
(h) Landlord A/c Cr.
(i) Goods a/c Dr.
20. Complete the following entries :

43
(i) ... ... ... Dr.
... ... ... Dr.
To Capital a/c
( Brought in business goods and cash as capital)
(ii) ... ... ... Dr.
To Sales a/c
(Cash sales to Narayan)
(iii) Cash a/c ... Dr
... ... ... Dr.
(Received Rs. 490 in full settlement of his a/c for Rs. 510)
(iv) Interest a/c ... Dr.
To ... ...
(Bank charged interest)
(v) Cash a/c ... ... Dr.
To ... ...
(Natin gave commission)
(vi) Cash a/c ... ... Dr.
To ... ...
(Received from Anant against his balance written off)
(vii) Rent a/c ... Dr
To Cash/ac
(Balance of rent Rs. 150 paid against Rs. 300; Rs. 150 being already paid as advance)
(viii) ... ... ... Dr.
To Shastri a/c
(cheque received from Shastri)
21. Journalise the following transactions and open only the personal accounts in the ledger for July 20XX :
1. Govind started his business with Cash Rs. 1,000, Goods Rs. 2,000 and Furniture Rs. 500.
5. Sold goods to Raghavan Rs. 600 and for cash Rs. 300.
9. Received from Raghavan on Account, Rs. 300.
12. Purchased goods from Mukundan, Rs. 900.
15. Paid Mukundan, Rs. 500.
20. Paid interest to Mukundan, Rs. 10.
31. Paid stationery charges Rs. 6, Salaries Rs. 25, and rent Rs. 15.
22. Rama, the businessman, entered into the following transactions with Krishna on the following dates. Draft the
ledger account of Krishna and balance the same for January, 2000
Rs.
1. Opening debt of Krishna to Rama 100
3. Sold goods to Krishna subject to 10% trade discount 1,00
8 Krishna returned goods 100

44
9 Sold goods to Krishna and received a bill accepted by him 200
10 Krishna became insolvent and Rama realised from his assets 850
23. Prepare Hasan’s personal account from the following transations and calculate the balance every month:
Rs.
Nov. 1 Bought goods from Hasan 308
10 Bought goods from Hasan 536
Dec. 1 Paid Hasan Cash 300
Discount allowed 8
10 Paid Hasan on account 500
23 Paid Hasan Cash 780
Discount allowed 8
24. Mr X started his business with Rs. 50,000 as his capital on 1/3/20.. out of which Rs. 30,000 were paid into
bank. His transactions for the month of March are as follows :
March 1 Purchased fittings for cash 10,000
5 Purchased goods for cash 8,000
8 Purchased goods from K. Babu 550
12 Sold to Kamal Krishan goods 1,50
13 Paid K Babu cash 500
Discount allowed 50
17 Drew from bank cash for office 2000
18 S Sen sold goods to us 1,500
19 Received from Kamal Krishan cash 1,000
Allowed him discount 50
20 Sold to Rash Bihari goods 2,000
28 Cash sales up to this date 700
31 Paid salary for the month 400
31 Paid rent for the month 250
31 Paid general trade expenses 100
31 Paid cash into bank 1,000
Journalise the above transactions and post them to Ledger.
HOTS
1. Choose the Correct Answer :
1. The ledger folio column of journal is used to:
(a) Record the date on which amount posted to a ledger account.
(b) Record the number of ledger account to which information is posted.
(c) Record the number of amounts posted to the ledger account.
(d) Record the page number of the ledger account.
2. The journal entry to record the sale of services on credit should include:
(a) Debit to debtors and credit to capital.

45
(b) Debit to cash and Credit to debtors.
(c) Debit to fees income and Credit to debtors.
(d) Debit to debtors and Credit to fees income.
3. The journal entry to record purchase of equipment for Rs. 2,00,000 cash and a balance of
Rs. 8,00,000 due in 30 days include:
(a) Debit equipment for Rs. 2,00,000 and Credit cash 2,00,000.
(b) Debit equipment for Rs. 10,00,000 and Credit cash Rs. 2,00,000 and creditors Rs. 8,00,000.
(c) Debit equipment Rs. 2,00,000 and Credit debtors Rs. 8,00,000.
(d) Debit equipment Rs. 10,00,000 and Credit cash Rs. 10,00,000.
4. When a entry is made in journal:
(a) Assets are listed first.
(b) Accounts to be debited listed first.
(c) Accounts to be credited listed first.
(d) Accounts may be listed in any order
5. If a transaction is properly analysed and recorded:
(a) Only two accounts will be used to record the transaction.
(b) One account will be used to record transaction.
(c) One account balance will increase and another will decrease.
(d) Total amount debited will equals total amount credited.
6. The journal entry to record payment of monthly bill will include:
(a) Debit monthly bill and Credit capital.
(b) Debit capital and Credit cash.
(c) Debit monthly bill and Credit cash.
(d) Debit monthly bill and Credit creditors.
7. Journal entry to record salaries will include:
(a) Debit salaries Credit cash.
(b) Debit capital Credit cash.
(c) Debit cash Credit salary.
(d) Debit salary Credit creditors.
2. Give Distinction between Journal and Ledger.
3. Select Right Answer:
1. How many sides does an account have?
(i) Two
(ii) Three
(iii) one
(iv) None of These
2. A purchase of machine for cash should be debited to:
(i) Cash account
(ii) Machine account
(iii) Purchase account
(iv) None of these
3. Cash withdrawn by the Proprietor should be credited to:
(i) Drawings account
(ii) Capital account
(iii) Profit and loss account
(iv) Cash account
4. Find the correct statement:
(i) Credit a decrease in assets
(ii) Credit the increase in expenses
(iii) Debit the increase in revenue

46
(iv) Credit the increase in capital
5. The book in which all accounts are maintained is known as:
(i) Cash Book
(ii) Journal
(iii) Purchases Book
(iv) Ledger
6. Recording of transaction in the Journal is called:
(i) Casting
(ii) Posting
(iii) Journalising
(iv) Recording
5. Assertion (A)- Journal is prepared from the voucher and ledger is prepared from the journal.
Reason (R)- Because voucher is evidence for each business transaction and without a journal, the ledger
cannot be prepared.
6. Assertion (A): Goods costing Rs 5,000, Market Price Rs 3,000 were given as a free sample is credited to
purchases account.at Rs 5,000
Reason (R): Purchases account is an expense account.

7. Assertion (A): Debt written off as bad, when recovered subsequently, is credited to Debtors account.
Reason (R): Bad Debts recovered are credited as it is accounted as a gain.
8. Assertion (A): Wages paid for the installation of machinery is debited to wages account.
Reason (R): All the expenses incurred in the carriage and installation of fixed assets is debited to fixed assets
account.
9. Assertion (A): "Each ledger accounts is divided into two equal parts. The left-hand side is known as the debit
side and the right-hand side as the credit side." Reason (R): "As an account is in 'T' shape, therefore,
sometimes it is called 'T' account."

47
10. Assertion (A): "The book which contains a classified and permanent record of all the transactions of a business
is called the Ledger."
Reason (R): "Full details of transactions (Narration) are recorded in the book called Ledger."
Mr. Chand Singh commenced the business of trading in garments with Rs.1,00,000 as his initial investment. Out of
this amount, he paid Rs.8,00,000 for the purchase of garments and Rs.10,000 for furniture, and 10 % advance for
buying a computer worth Rs. 50,000. He paid into the bank Rs.5,00,000.
He also purchased garments on credit worth Rs.2,00,000. He sold these garments for cash worth Rs.5,00,000 for
Rs.7,00,000 and on credit costing Rs.2,00,000 for Rs.3,00,000 to Me. Amar.
He paid Rs.5000 as a Life insurance premium by cheque. Salary paid to Shyam (an mployee) Rs.5000 for the
same period. At the end of the period, a fire broke out in the office and furniture of Rs. 2,000 and a stock of
garments worth Rs. 1,00,000, market price Rs.1,20,000 was destroyed.
From the above information answer the following: -

(1) Journal entry for goods destroyed by fire.
a. Purchases A/c Dr. 1,00,000

To loss by fire A/c 1,00,000
b. Loss by fire A/c Dr. 1,00,000

To Purchases A/c 1,00,000
c. Purchases A/c Dr. 1,20,000

To stock A/c 1,20,000
d. Loss by fire A/c Dr. 1,00,000

To Purchases A/c 1,00,000
(2) Compound Journal entry for goods sold

48
a. Cash A/c Dr. 7,00,000
Amar’s A/c Dr. 3,00,000
To Sales A/c 10,00,000
b. Cash A/c Dr. 3,00,000
Amar’s A/c Dr. 7,00,000
c. Amar’s A/c Dr. 10,00,000
Cash A/c Dr. 10,00,000

(3) Which account is debited for fixed asset purchased?
a. fixed asset A/c

b. Machinery A/c
c. Cash A/c
d. Furniture A/c
(4) Which account is debited when Mr. Chand Singh paid the Life Insurance premium?
a. Mr. Chand Singh’s A/c
b. Life Insurance premium A/c
c. Drawing A/c
d. Cash A/c
Answers :
1b , 2b, 3d, 4c
7. Fill in the blanks:
1. Issued a cheque for Rs.8,000 to pay rent. The account to be debited is ............
2. Collected Rs. 35,000 from debtors. The account to be credited is ............
3. Purchased office stationary for Rs. 18,000. The account to be credited is ...........
4. Purchased new machine for Rs. 1,70,000 and issued cheque for the same. The account to be debited is
............
5. Issued cheque for Rs. 70,000 to pay off on of the creditors. The account to be debited is ............
6. Returned damaged office stationary and received Rs. 50,000. The account to be credited is ............
7. Provided services for Rs. 65,000 on credit. The account to be debited is ...........
ANSWERS
1. 1(d), 2(d), 3(b), 4(b), 5(d), 6(c), 7(a)

2. Distinction between Journal and Ledger
1. The Journal is the book of first entry (original entry); the ledger is the book of second entry.
2. The Journal is the book for chronological record; the ledger is the book for analytical record.

49
3. The Journal, as a book of source entry, gets greater importance as legal evidence than the ledger.
4. Transaction is the basis of classification of data within the Journal; Account is the basis of classification
of data within the ledger.
5. Process of recording in the Journal is called Journalising; the process of recording in the ledger is known
as Posting.
3. 1 (i), 2 (ii), 3 (iv), 4 (iv), 5 (iv), 6(iii).
4. 1. Rent 2. Debtors 3. Cash 4. Machine 5. Creditors 6. Office stationary 7. Debtors

1. What is journal ?
2. What is Opening entry ?
3. Pass the necessary Opening Entry on 1st March, 2005 in the Books of John & Co.
Rs
Cash in Hand 660
Cash at Bank 12,100
Stock in Trade 24,400
Furniture and Fitting 13,200
Sundry Debtors 29,040
Sundry Creditors 22,800
Bills Payable 6,600
4. Pass the opening entry in the books of Mahesh on 1st Jan. 2005 with the follow ing information:
Rs
Cash in hand 2,000
Cash at bank 14,000
Machinery 12,000
Furniture 2,500
Sundry debtors 15,000
Bills receivable 5,500
Sundry creditors 20,000
Bills payable 4,500
Bank overdraft 2,000
5. Journalise the following transactions in the books of Harpeet Bros :
(a) Rs. 1,000 due from Rohit are now a bad debts.
(b) Goods worth Rs. 2,000 were used by the proprietor.
(c) Charge depreciation @ 10% p.a. for two month on machine costing Rs.30,000.
6. Journalise
(a) Provide interest on capital of Rs. 1,50,000 at 6% p.a. for 9 months.
(b) Rahul become insolvent, who owed to Rs. 2,000 a final dividend of 60 paise in a rupee is received from

50
his estate
7. Prepare Journal from the following transactions given below :
(a) Cash paid for installation of machine Rs. 500
(b) Goods given as charity Rs. 2,000
(c) Interest charge on capital @7% p.a. when total capital were Rs. 70,000
(d) Received Rs. 1,200 of a bad debts written off last year.
8. Prepare Journal from the following transactions given below :
(a) Goods destroyed by fire Rs. 2,000
(b) Rent outstanding Rs. 1,000
(c) Interest on drawings Rs. 900
(d) Commission received in advance Rs, 7,000
(Goods given as Charity)
9. Journalise the following:- (8)
i) Birju who owned us Rs. 1000 is declared insolvent and 65 paise in a rupee is received as final dividend
from his estate.
ii) Sold goods to Kitty list price Rs. 2000, Trade discount 10% and cash discount 5% He paid the amount
on the same day and availed cash discount.
iii) Supplied goods costing Rs. 600 to Shakuntala, issued invoice at 10% above cost less 5% trade discount.
iv) Goods worth Rs. 10,000 were destroyed by fire.
10. What is Compound entry? Give an example of compound entry.
Answers
A 1. Journal : Journal is a book of original entry in which the transactions are recorded first of all as and when they
take place. The process of recording transactions in the journal is called journalizing.
A 2 Opening entries: Whenever balances of the previous year’s are carried forward to the new books of accounts.
This is done by means of a journal entry which is known as opening journal entry.
A 3. Opening Journal Entry Dr. Cr.
Date Particulars LF (Rs) (Rs.)
Cash in Hand A/c Dr. 660
Cash at Bank A/c Dr. 12,100
Stock in Trade A/c Dr. 24:400
Furniture and Fittings A/c Dr. 13,200
Sundry Debtors A/c Dr. 29,040
To Sundry Creditors A/c 22,800
To Bills Payable A/c 6,600
To Capital A/c 50,000
(Being opening entry in the new books with difference

51
between Assets and Liabilities = Capital)
A 4. Opening Journal Entry Dr. Cr.

Date Particulars LF. (Rs) (Rs)
Cash in Hand A/c Dr. 2,000
Cash at Bank A/c Dr 14,000
Machinery A/c Dr. 12,000
Furniture A/c Dr 2,500
Sundry debtors A/c Dr. 15,000
Bills Receivable A/c Dr 5,500
To Sundry Creditors A/c 20,000
To Bills Payable A/c 4,500
To Bank overdraft A/c 2,000
(Being opening entry in the new books
to capital)
A 5. Books of Harpreet Bros.

Journal Entries
Dr. Cr.
Date Particulars L.F. Amount Amount
(Rs.) (Rs.)
(a) Bad Debt A/c Dr. 1,000
To Rohit 1,000
(Rs. 1,000 due from Rohit becomes Bad Debt
being unrecoverable)
(b) Drawings A/c Dr. 2,000

To Purchases A/c 2,000
(Goods taken from business for use
by the proprietor)
(c) Depreciation A/c Dr. 500

To Machine A/c 500
(Depreciation charged on Machinery
@10% p.a for two months 30,000
A 6. Dr. Cr.

52
(a)Interest on Capital A/c Dr. 6,750
(Interest on Capital @ 6% p.a. for 9 months
provided 1.50,000
(b) Cash A/c Dr. 1200

Bad debt A/c Dr. 800
To Rahul 2000
(Compensation of 60 paise in rupee
received from offered receiver of Rahul)
A 7. Journal Entries
Dr. Cr.
(Rs.) (Rs.)
(a) Machine A/c Dr. 500
To Cash A/c 500
(Cash paid for installation of Machine)
(b) Charity A/c Dr. 2,000
To Purchase A/c 2,000
(c) Interest on Capital A/c Dr. 4,900
(Interest on Capital charges @ 7% p.a.
for year on Rs. 70,000)
(d) Bank A/c Dr. 1,200

To Bad Debt Recovered A/c 1,200
(Received for Bad Debt written off last year)
A8 Journal Entries
Dr. Cr.

(Rs.) (Rs.)
(a) Loss of goods by fire A/c Dr. 2,000

To Purchase A/c 2,000
(Goods destroyed by fire)
(b) Drawings A/c Dr. 900
To Interest on Drawing A/c 900
(Interest charged on Drawing)
Chapter - 7 Special Purpose Books I ( Cash Book)

53
QUESTIONS WITH GST
Qs 1. Pass the Journal entries for the following transactions:
(i) Purchased goods from Sanjiv of 40,000 plus IGST @ 12% at 10% Trade Discount and 2% Cash
Discount. Paid amount at the time of purchase itself.
(ii) Purchased goods from Vijay 40,000 plus IGST @ 12% at 10% Trade Discount and 3% Cash
Discount. Half of the amount paid at the time of purchase.
(iii) Sold goods to Anil for 20,000 plus CGST and SGST @ 6% each, allowed him at 10% Trade
Discount and 3% Cash Discount. Received half of the amount by cash and balance by cheque
within agreed time.
(iv) Sold goods to Ajay for 50,000 plus CGST and SGST @ 6% each at 10% Trade Discount and 2%
Cash discount. Half of the amount received by cheque within specified time.
(v) Sold goods costing 40,000 to Anil against a current dated cheque at a profit of 25% 1 on cost less
20% trade discount plus IGST @ 12%. Cash discount is allowed @ 2%.
Solution: JOURNAL
Date Particulars L.F. Dr. (Rs) Cr. (Rs)
(i) Purchases A/c ... Dr. 36,000

Input IGST A/c ...Dr. 4,320
To Cash/Bank A/c 39,514
To Discount Received A/c [2% (T 36,000) 806
(Being the goods purchased, paid IGST @ 12% at 10% Trade Discount
and 2% Cash Discount)
(ii) Purchases A/c ... Dr. 36,000

Input IGST A/c ...Dr. 4,320
To Vijay 20,160
To Cash/Bank A/c 19,555
To Discount Received A/c 605
(Being the goods purchased, paid IGST © 12% at 10% Trade Discount
and 3% Cash Discount, half of the amount paid)
(iii) Cash A/c ... Dr. 9,778

Bank A/c ...Dr. 9,777
Discount Allowed A/c ...Dr. 605
To Sales A/c 18,000
To Output COST A/c 1,080
To Output SGST A/c 1,080
(Being the goods sold, charged CGST and SGST © 6% each. Half the
amount received in cash and balance by cheque, allowed Trade
Discount © 10% and Cash Discount © 3%)
(iv) Ajay ... Dr. 25,200

Bank A/c ... Dr. 24,696
Discount Allowed A/c ... Dr. 504
To Sales A/c 45,000
To Output CGST A/c 2,700

54
(c) Rent A/c Dr. 1,000

To Rent outstanding 1,000
(Rent Outstanding)
(d) Bank A/c Dr. 7,000

To Commission received in advance A/c 7,000
(Commission received in advance)
A 9. Dr. Cr.
(i) Cash A/c Dr. 650

Discount A/c Dr. 350
To Capital A/c 1000
(Being 65 paise in a rupee is received as
final dividend from Birju)
(ii) Cash A/c Dr. 1710

Discount allowed A/c Dr. 90
ToKitty 1800
(Sold goods to Kitty list price Rs. 2000,
Trade discount 10% and cash discount 5%)
(iii) Shakuntla A/c Dr. 500

To SalesA/c 500
(Supplied goods costing Rs. 600 to Shakuntala,
issued invoice at 10% above cost less 5%
trade discount.)
(b) Loss by fireA/c Dr. 10,000

(Being Goods worth Rs. 10,000 were destroyed by fire)
A 10. Whenever a journal entry involves more than two accounts, it is called Compound Entry. In a compound
entry, there may be two or more accounts to be debited and only one to be credited or vice versa.
Example of Compound Entry:-
2001 Rs.
Jan. 1 Paid to Mohan Rs. 95 in full settlement of his account of Rs. 100
Jan. 5 Received from Ram Rs. 120 in cash and allowed him discount 10
Jan. 7 Paid Salary 500
Jan. 7‘ Paid Rent 300
Jan. 7 Paid Wages 100

55

(Being the goods sold, charged CGST and SGST © 6% each.
Allowed Trade Discount © 10% and Cash Discount © 2%. Half the amount received)
(v) Bank A/c ... Dr. ' 43,904

Discount Allowed A/c ... Dr. 896
To Sales A/c 40,000
To Output IGST A/c 4,800
(Being the goods sold by cheque, charging IGST © 12%)

56
Qs2. Journalise the following transactions in the books of Shiv Enterprises, Delhi:
(i) Purchased goods from Shyam & Co., Delhi of list price 25,000 at 20% trade discount and 3% cash
discount on value of goods. Paid CGST and SGST @ 6% each. Payment was made immediately and
availed cash discount.
(ii) Purchased goods from Sunder Agencies, Delhi of list price 20,000 at 25% trade discount and 2% cash
discount. Paid CGST and SGST @ 6% each. 50% of the payment was made immediately.
(iii) Purchased goods from Rama & Sons, Delhi of list price 50,000 at 20% trade discount and 3% cash
discount. Paid CGST and SGST @ 6% each. 75% of the payment was made immediately by cheque.
(iv) Sold to Ramesh & Co., Chandigarh goods of list price 40,000 at 15% trade discount and 3% cash discount
on Value (Cost) of goods. Charged IGST @ 12%. Ramesh & Co. paid the full amount by cheque and
availed cash discount.
(v) Sold to Rajat & Co., Chennai goods costing 10,000 at 25% profit, allowing 10% trade discount and 2½
cash discount. Charged IGST @ 12%. Rajat & Co. made 60% payment immediately.
(vi) Sold goods of list price 50,000 less 20% trade discount. Charged IGST @ 12%. Cash discount allowed
@ 2% against cheque payment.
Solution: JOURNAL
DATE Particulars L.f Dr Cr
(1) Purchases A/c Dr 20,000

Input CGST A/c Dr. 1,200
Input SGST A/c .... .... Dr. 1,200
To Cash A/c 21,800
(Being the purchases of goods and payment made against 3% cash discount)
(ii) Purchases A/c ... Dr. 15,000
Input CGST A/c ... Dr. 900
Input SGST A/c ...Dr. 900
To Cash A/c 8,232
To Sunder Agencies, Delhi 8,400
(Being the purchases of goods, 50% payment made immediately and availed 2% cash discount)
(iii) Purchases A/c ...Dr. 40,000

Input CGST A/c ...Dr. 2,400
Input SGST A/c ...Dr. 2,400
To Bank A/c 32,592
To Rama & Sons, Delhi 11,200
To Discount Received A/c 1,008
(Being the goods purchased, 75% payment made by cheque and availed 3% cash discount)
(iv) Bank A/c Dr 37,060

Discount Allowed A/c Dr 1,020

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To sales A/c 34,000

(Being the goods sold against cheque allowing 3% cash discount)
Qs 3 Record the following transactions in a Journal:Illustration 9 Record the following transactions in a Journal:
(i) Withdrew goods for personal use (Cost 5,000 + IGST @ 12%; Sale Price 6,600).
(ii) Goods costing 500 given as charity. These goods were purchased paying CGST and SGST @ 6% each.
(iii) A cheque for 5,000 received from Rajib was deposited into bank, returned dishonoured.
Solution: In the Books of ... JOURNAL
Date Particulars L.F. Dr. () Cr. ()

(i) Drawings A/c ... Dr. 5,600
To Input IGST A/c 600
(Being the goods withdrawn for personal use)
(ii) Charity A/c ...Dr. 560

To Purchases A/c 500
To Input CGST A/c 30
To Input SGST A/c 30
(Being the goods given as charity)
(iii) Rajib ...Dr. 5,000

To Bank A/c 5,000
(Being the cheque deposited into bank, returned dishonoured)
Qs 4 Journalise the following:

(i) Goods purchased for Z 5,000 were used by the proprietor for personal use.
(ii) 2,000 due from Hari are bad debts. (It is not subject to levy of GST.)
(iii) Goods uninsured of Z 3,000 (purchase cost) were destroyed by fire.
(iv) Goods worth Z 10,000 (purchase cost) damaged by fire and Insurance Company accepted
claim of 8,000 and cheque is received from the Insurance Company.
(v) Goods costing Z 500 given as charity (Sales Price 600).
(vi) Paid landlord T 1,500 for rent.
(vii) Sold household furniture for 15,000. It is not subject to levy of GST being personal asset of the
proprietor and not that of the firm. The proceeds were invested into business.
All transactions (except otherwise stated) are subject to levy of CGST and SGST @ 6% each.
Date Particulars L.F. Dr. (Z) Cr. (Z)

(i) Drawings A/c ... Dr. 5,600
To Input IGST A/c 300
(Being the goods used for domestic purpose CGST and SGST reversed)

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(ii) Bad debts a/c 2,000

To Hari A/c 2,000
(Being the Bad debts written off )
(iii) Loss of Stock by Fire A/c ...Dr. 3,360 .
(Being the goods destroyed by fire)
(iv) Insurance Company ...Dr. 11,200

(Being the insurance claim lodged with the Insurance Company, including CGST and SGST reversed)
Bank A/c ...Dr. 8,000

Profit and Loss A/c (Loss of Stock by Fire A/c) ...Dr. 3,200
To Insurance Company 11,200
(Being the insurance claim of Rs 11,200 accepted by theInsurance Company at Rs 8,000)
(v) Charity/Donation A/c ...Dr. 560

To Purchases A/c 500
To input SGST A/c 30
(Being the goods given as charity, CGST and SGST reversed)
(vi) Rent A/c ...Dr. 1,500

Input CGST A/c ...Dr. 90
Input SGST A/c ...Dr. 90
To Cash A/c 1,680
(Being the rent paid to landlord, CGST and SGST paid @ 6% each)
(vii) Cash A/c ...Dr. 15,000

(Being the sale of household furniture and the proceeds invested into the business)
Qs 5. Journalise the following transactions in the books of Rajan of Delhi:

(i) Paid 5,000 in cash as wages on installation of machinery.
(ii) Sold goods to Krishna of Delhi at the list price 20,000 less trade discount 10% add CGST
and SGST @ 6% each, and allowed cash discount 5%. He paid the amount immediately.
(iii) Sold goods costing 60,000 to Mohan of Kolkata issued invoice at 10% above cost less 5%
trade discount plus IGST @ 12%.
(iv) Goods valued at Z 2,500 distributed from stock as samples, as part of an advertising
campaign. These goods were purchased paying CGST and SGST @ 6% each.
(v) Anjan, a customer, to whom goods were sold, was allowed rebate of 2,000 because they
were of poor quality. These goods were sold charging CGST and SGST @ 6% each.
(vi) Sold goods costing 1,00,000 to Anil of Delhi at a profit of 25% on sales less 20% Trade Discount
plus CGST and SGST @ 6% each and paid cartage 250 (Not to be charged from customer).

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Solution Journal of Rajan
Particulars L.F. Dr. (Z) Cr. (Z)
(i) Machinery A/c* ...Dr. 5,000

To Cash A/c 5,000
(Being the wages paid In installation of a machinery)
(ii) Cash Nc (WN 1) ''' ...Dr. 19,152
Discount Allowed A/c ...Dr. 1,008
To Sales A/c ' 18,000
(Being the goods worth Z 20,000 sold, charged CGST and SGST @ 6%
each, allowed 10% trade discount and 5% cash discount)
(iii), Mohan ...Dr. 70.224
. '' To Sales A/c 62,700
(Being the goods supplied of Z 66,000 (i.e., Z 60,000 + 10% of Z 60,000
plus IGST @ 12%) allowed 5% trade discount (i.e., T 66,000 — Z 3,300))
(iv) Advertisement A/c ...Dr. 2,800
(Being the goods distributed as free samples, Input CGST and Input SGST reversed)
(v) Rebate A/c ...Dr. 2,000
Output CGST A/c ...Dr. 120
Output SGST A/c ...Dr. 120
To Anjan 2,240
(Being the rebate allowed, Output CGST and SGST reversed)
(vi) Anil ...Dr. 1,12,000
To Sales A/c (WN 2) 1,00,000
(Being the goods sold on credit, charging CGST and SGST © 6% each)
Cartage Outwards A/c ...Dr. 250
To Cash A/c 250
(Being the cartage paid)

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MCQ
1. What is the full form of GST?

A) Goods and Supply Tax
B) Goods and Services Tax
C) General Sales Tax
D) Government Sales Tax
2. GST was implemented in India from

A) 1st January 2017
B) 1st April 2017
C) 1st March 2017
D) 1st July 2017
3. In India, the GST is based on the dual model GST adopted in:
A) UK
B) Canada
C) USA
D) Japan
4. GST is a consumption of goods and service tax based on

A) Development
B) Dividend
C) Destiny
D) Destination
5. The number of structures in India’s GST model is?

A) 6
B) 4
C) 3
D) 5
6. The maximum rate for GST is?

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A) 28
B) 12
C) 18
D) 20
7. Taxes that are levied on any Inter-State purchase are?

A. IGST
B. CGST and SGST
C. SGST
D. SGST
8. GST rates applicable on goods and services are:

A) 0% 5% 12% 18% 26%
B) 0% 6% 12% 18% 28%
C) 0% 5% 12% 18% 28%
D) 0% 5% 12% 16% 28%
9. Taxes that are levied on any Intra-State purchase are?

A. IGST
B. CGST and SGST
C. SGST
D. SGST
10. What does “I” in IGST stands stand for?

A) Internal
B) Integrated
C) Internal
D) Intra

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1. “Sub-division” of journal into subsidiary books is a practical system of book-keeping. why/what is the need for
such a system.
2. Name 8 subsidiary books.
3. “Cash book is both Principal book and Subsidiary book. Comment
4. How will the following items be dealt with while preparing Bank Column Cash Book ?
i) Paid into Bank Rs.1,000.
ii) Withdraw from Bank for office use Rs.700.
iii) A Cheque of Rs.550 received from Mohan was paid into Bank the same day.
iv) Debit balance of cash-in-hand Rs.200.
5. Enter the following transactions in a Two-Column Cash Book and post it to ledger account :
2021 Rs.
1 April 1 ,Commenced business with cash 50,000
2. Deposited in Bank 40,000
3. Received cash from Mohan Rs. 950 in full settlement of a debt of Rs.1,000
4. Bought goods for cash 10,000
5 Bought goods by cheque 15,000
6 Sold goods for cheque Rs.10,000 and deposited in bank the same day.
Paid to Arun by cheque Rs.1,900 in full settlement of his account of Rs.2,000
20 .Drew from bank for office use 1,000
6. From the following particulars compile the Cash Book of Narinder Mohan with Cash and Bank Columns and
bring down the final balances :
March 1. Cash in hand 10,000
1 Cash at bank 5,000
2 Paid salaries 2,5000
9 Paid to Khaitan (cheque) 2,600
Discount allowed 200
15 Received from Morgan by cheque and deposited
directly into bank 4,000
16 Bought goods for cash 500
17 Deposited into bank cash 500
20 Paid Sundry creditors by cheque 700
7. Write Cash Book with Cash, Bank and Discount columns of M/s Dalal Company, Bombay, for the month of
Sept. 2000 and balance the same.
Sept. 1 Balance at Bank Rs.4,000
1 Balance in office Rs.1,000
3 Received from Kirti & Co. a crossed cheque for Rs.3,800 allowed them discount Rs.200
5 Issued a cheque to Anil Kumar for Rs.950 in full settlement of his account for Rs.1,000.
17 Mr. Dalal, partner in M/s. Dalal & Co., issued a cheque to his son to pay his college fees Rs.100.
19 Paid salary by cheque Rs.200 and in cash Rs.300.

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20 Paid for purchases by cheque Rs.200
25 Old machinery sold for cash Rs. 200
26 Received from Ajit against debt previously written off Rs. 150.
28 Deposited into bank Rs. 250.
30 Received from Ramakant a crossed cheque for Rs. 100.
8. Enter the following transactions of M/s.Pahade and Pahade in Cash Book with bank columns. Balance the Cash
Book as on 15th April, 2000.
April 1 Cash in hand 2,500
2 Received a cheque from Shankar on account and allowed him discount 5,000
3 Shankar’s cheque deposited into Bank 290
5 Purchased goods for cash 10
7 Paid on account to Roy & Company and received discount 30
9 Received from Sen a cheque in full settlement of his account Rs. 500 less 5% cash discount
12 Handed over Sen’s cheque to Sukhlal in full settlement of his account 490
13 Sold goods for cash 600
14 Withdraw from the bank for personal use 1,6000
15 Received cash Rs.130 and a cheque for Rs. 430 from Bijoy and allowed him discount 20
9. Enter the following transactions in a Cash Book with Cash and Bank columns and balance the same on 31st
Jan.2000.
Jan 1 Cash in hand Rs. 1,000 and at Bank 4,000.
4 Cash received from sale of Building 6,000
7 Deposited into bank Rs. 5,000
10 Paid to Pravin by cheque 2,470
12 Drew a cheque for Rs.50 to send M.O. to Kamat and paid in Cash M.O. Commission at 20 p. per
Rs. 10.
14 Bought 100 Defence Bonds of Rs.100 each at Rs. 98, amount paid by cheque.
16 Received repayment of Loan of Rs.3,000 and paid into Bank Rs.2,000
19 Drawn from Bank Rs.250 for proprietor and Rs.500 for office.
22 Paid landlord for : (a) Office Rent Rs.250 (b) Godown Rent Rs. 100, (c) Garrage Rent Rs. 50(Per-
sonal), (d) Residence Rent Rs. 150.
26 Bank charges as per Pass Book Rs. 5
31 Bank debits for interest and incidental expenses Rs. 15.
31 Paid salaries by cheques Rs. 800
10. From the following transactions write a cash book with necessary columns. Unless otherwise stated, cheques
received are immediately deposited in Bank Account,
July 1 Balance : Cash Rs. 500 : Bank Rs. 6,000 (Overdraft)
4 Received cheques for cash sales as per Cash Memo Rs. 3,890.
6 Received a crossed cheque drawn by Lucky Stores in favour of Novelty Stores, from Central
Stores, Rs. 1,850, against debt of Rs. 1,875.

64
8 Received from Jain & Co. Rs. 200 in full settlement of the Bill for Rs. 210.
13 Bought machinery from Shroff Bros. and issued a cheque for Rs.6,200.
15 Received a cheque from Manoj & Co. for Rs. 1,500 and endorsed it to Kanoj & Co.
18 Bought from Rao Bros. goods Rs. 2,000. Trade Discount allowed 10%. Issued to them a cheque
dated 25-7-2000 in full settlement.
21 Paid postage and telegram charges Rs. 55.
22 Kanoj and Co. informed that the cheque of Manoj & Co. is dishonoured and that they have paid Rs.
2 as bank charges.
27 Sunder & Co. bought goods from us Rs. for 8,000 at 20% Discount and 3% Cash Discount terms,
and paid half the dues by cheque.
31 Paid cheque to Ali & Co. for 1,800 in settlement of their account Rs. 1,832.
11. Enter the following transactions in a Cash Book with Cash, Bank and discount columns :
1988
January Rs.
1 Muthu commenced business with 10,000
2 Remitted into current account with bank 9,000
6 Paid to Kannan by cheque Rs. 4,000 and was allowed discount Rs. 100 4,000
10 Cash Sales 4,000
11 Paid into bank 3,000
15 Manish paid into our bank account 1,000
19 Issued a cheque to Neelam for furniture purchased 2,000
20 Received from Nandan Rs. 500; Discount allowed 50
22 Withdraw from bank 200
25 Cash purchases paid by cheque 800
31 Paid salaries by cheque 1,200
12. Prepare a bank-column cash book from the following transactions and bring down the balance for the start of
next month :
2008
April Rs.
1 Cash in hand 2,500
1 Cash at bank 10,000
2 Paid into bank 1,000
5 Bought furniture and issued cheque 2,000
8 Purchased goods for cash 500
12 Received from Mohinder 980
Discount allowed 20
14 Cash Sales 4,000
16 Paid to Amarnath by cheque 1,450
Discount allowed 60
19 Paid into bank 400

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23 Withdraw from bank for private expenses 600
24 Received cheque from Patel 1,430
26 Deposited Patel’s cheque into the bank
28 Withdraw cash from bank for office use 2,000
30 Paid rent by cheque 800
13. Enter the following transactions of M/s Premier Trading Co. in Cash Book with bank column. Balance the Cash
Book as on 31st December, 2007 :
2007
Dec. Rs.
1 Cash in hand 4,000
1 Bank overdraft 1,000
3 Received a cheque from Ramlal on account 290
7 Ramlal’s cheque deposited into bank
10 Withdrew from the bank for office use 800
12 Paid bills payable by cheque 600
15 Bill receivable received from Chandulal 2,500
Discounted with the bank, the bank crediting the current account with 2,400
20 Issued a cheque for petty cash 100
25 Paid to Gupta by cheque 920
and discount received 30
28 Made cash sales 900
14. Prepare a bank-column cash book from the following particulars : 2000
Jan
1 Cash in hand Rs. 1,600 and at bank Rs. 10,000
4 Discounted a bill of Rs.5,000 for Rs. 4,950 through bank.
5 Bought goods for cheque Rs. 8,000
8 Bought goods for cash Rs. 200
10 Paid Rs. 6,000 by cheque for a bill drawn upon us.
12 Paid trade expenses Rs. 100
17 Paid into bank Rs. 1,000
18 Jones who owed us Rs. 200 becomes bankrupt, and paid us 50 P. in the rupee.
20 Received Rs. 100 from Govind and allowed him discount Rs. 2.
21 Paid Rs. 250 to Madan and he allowed us discount Rs. 5
22 Withdraw from bank Rs. 200.
24 Received Rs. 2,000 for a B/E from Ram Chandra and deposited the same into bank.
25 Withdraw from bank for private expenses Rs. 100.
26 Sold goods for cash Rs. 100
27 Received a cheque for goods sold Rs. 9,000

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28 Received repayment of a loan Rs.3,000 and deposited out of it Rs.2,500 in the bank.
15. Enter in a Cash Book with Bank Columns, the following transactions of a business, balance it on the last day of
the month and post it to Ledger.
2000
Sept Rs.
1 Commenced business with cash 50,000
1 Deposited in Bank 30,000
2 Cash sales for the day 5,000
2 Bank settles his debt of Rs.5,000
Less discount allowed Rs.40
10 Received from Sham Sunder 1,950
Discount allowed to him 50
12 Sundry cash purchases 1,500
15 Paid to S.Shankar 4,500
Discount Allowed 50
17 Withdraw for private expenses 2,500
19 Discharged the debt to T.Talwar for Rs. 5,000
He allowed a discount of 1%
23 Bansi, in settlement of his debt of Rs.3,000 pays the sum,
less discount Rs. 50
25 Bought goods for cash 7,500
27 Sold goods for cash 6,000
30 Monthly expenses paid 1,250
16. Prepare a Cash Book from the following particulars :

March1 Cash in hand Rs. 1,600 Cash at Bank Rs. 10,000
4 Discounted a bill for Rs. 5,000 at Rs. 4,950. The Bank gave credit for it.
5 Bought goods by cheque Rs. 8,000
8 Bought goods for cash Rs. 200.
10 Paid Rs. 5,000 by cheque for a Bill Payable
12 Paid Trade Expenses Rs. 100
17 Paid into Bank Rs. 1,000
18 Jones, whoe owed us Rs. 200, became bankrupt and paid us 50 paise per rupee.
20 Received Rs. 100 from Gobind and allowed him discount Rs. 2.
22 Withdrew from Bank Rs.200
23 Received Rs. 2,000 from Ram Chander and deposited the same into Bank.
25 Withdraw from Bank Rs. 100 for Private Expenses
26 Sold goods for cash Rs. 100
27 Deposited a cheque for goods sold Rs. 9,000.
28 Received the repayment of a loan of Rs.3,000 and deposited out of it Rs. 2,500 in the bank.

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17. Prepare a Bank Column Cash Book from the following particulars :
2000. Rs.
May 1 Cash in hand 15,000
Cash at Bank 80,000
5 Purchased goods from Sobti & Co., and the payment made by cheque 13,500
7 Purchased goods for cash from Sohan & Co.7,000
10 Discounted a Bill Receivable for Rs. 10,000 at 5% through Bank
12 Received a cheque form Pankhuri on account 15,000
13 Cash withdrawn for office use 10,000
15 Deposited into Bank Pankhuri’s cheque 15,000
16 Ayushi pays into our Bank A/c 4,500
17 Bank charges as per Pass Book 200
25 Interest allowed by the Bank 850
27 Honoured our own acceptance by cheque 4,000
28 Received a cheque for interest Rs. 500 from SRF Ltd.
and deposited the same into Bank
18. Enter the following transactions in the Petty Cash Book which is maintained on the Imprest system :
2000. Rs.
2 Received cheque for petty cash 1,000
Paid cartage on goods 50
Paid taxi fare 40
Postage and telegrams 60
3 Stationery purchased 30
Bus fare 10
Refreshment to customers 20
4 Wages to casual workers 100
Coolie charges 20
5 Purchased dusters for cleaning 30
Postage stamps 20
Revenue stamps 50
6 Bus fare 10
Taxi fare 30
Cartage on goods 40
7 Paid for repair of chairs 150
Sent subscription for “Aaj Kal” 60
19. Record the following transactions of Sri Hari in the proper books :
20.. Rs
Jan 1 Cash in hand 1,700
Jan 3 Goods purchased from Ram Lal 200
Jan 7 Goods sold to Santosh 400
Jan 9 Goods purchased from Vijay 500

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Jan 15 Goods Returned from Santosh 50
Jan 20 Goods Returned to Ram Lal Ahuja 25
Jan 21 Cash paid into Bank 200
Jan 22 Paid wages 20
Jan 23 Received from Harish Gupta 500
Jan 31 Paid for salaries 100
Jan 31 Furniture purchased from Vijay 200
[Ans. Cash in Hand Rs. 1,800 ; Purchases Book Rs. 700; Sales Book Rs. 400; Returns inward Book Rs. 50;
Returns Outwards Book Rs. 25 ; Total of ournal Rs. 200]
HOTS (Cash Book)

1. When the goods are purchased for cash, the entry will be recorded in :-
(a) Cash Book (b) Purchases Book
(c) Journal (d) Sales Book [Ans : (a)}
2. Following are some examples of contra transactions. State which of them are correct :
(a) Withdrew from bank for personal expenses.
(b) Deposited into bank.
(c) Amount withdrawn from bank for office use.
(d) Withdrew cash from bank for household expenses.
(e) Cheque issued for office use. [Ans : (b) (c) & (e)]
3. If the goods are sold for Rs. 15,500 and discount allowed Rs. 600, what amount will be recorded in cash
book :
(a) Rs. 16,100 (b) Rs. 600
(c) Rs. 14,900 (d) Rs. 15,500 [Ans : (c)]
4. When the cheque received and deposited on the same day, the amount will be recorded on which side :-
(a) Receipts side in cash column. {b) Payments side in cash column,
(c) Receipts side in bank column. (d) Payments side in bank column. [Ans : (c)]
5.Which of the following statements about cash is correct?

a) The business activities involve regular cash transactions
b) Cash is a current asset that can meet the immediate obligations of a business
c) Cash is universally accepted as a mode of payment
d) All of the above
6.Which of the following cashbooks is similar to a cash account?

a) Double column cashbook
b) Triple column cashbook
c) Petty cashbook
d) Single column cashbook
7.The credit side of a cashbook is ________:
a) The loss side
b) The receipt side
c) The profit side
d) The payment side

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8.Once you add a bank column to both sides of a single cashbook, it becomes a _______:
a) Petty cashbook
b) Double column cashbook
c) Triple column cashbook
d) None of the above
9.In a cashbook, a contra entry involves __________:

a) A cash account and a bank account
b) A cash account and a sales account
c) A cash account and a discount account
d) A bank account and a discount account
10. The transaction that does not affect a cashbook is ___________:
a) Cheque received from Mr B and deposited in the bank
b) Depreciation expense recorded for the year
c) Mobile charges paid from the online company's bank account
d) Cash paid to creditors for goods purchased from them
11. Assertions: Cash book is both journal as well as ledger.
Reason: Cash Account is prepared after Cash book.
d. (A) is false, but (R) is true [Ans : (c)]
12. Assertion (A): A contra entry is one which does not require posting to the ledger.
Reason (R): Contra entry involves cash and bank aspect and both these accounts are not prepared after
preparation of Cash book.
[Ans : (d)]
13. Assertion (A): Bank column of the cash book always shows a debit balance
Reason (R): Business can withdraw more than their bank balance in the current account and that is shown as bank
overdraft in the bank column of the cash book.

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[Ans : (b)]
Case based questions
From the above transactions answer the question

1.Transaction dated June 12 will be recorded on the which side of the Double column cash book and which column
a. Debit side, in the bank column
b. Credit side, in the bank column
c. Debit side, in the cash column
d. Not written
2.In transaction dated June 29, bank charges will be recorded on the _________ side & __________ column of
the Double column cash book
a. Debit, Bank
b. Debit, cash
c. Credit, Bank
d. Credit, Cash
3.How will the transaction dated June 23 be shown on the Debit side of the Double column cash book
a. We will write Rs 4000 in the cash column

b. We will write Rs 500 in the cash column
c. We will write Rs 500 in the bank column
d. We will write Rs 3500 in the bank column

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Answers : 1d,2c,3b
1 Briefly state how the Cash Book is both Journal and a Ledger.
2. Why Cash Book always shows Debit Balance ?
3. Distinguish between Cash Discount and Trade Discount.
4. What are the merits of Petty Cash Books and explain the Imprest System of Petty Cash?
5. What do you understand by Imprest amount in Petty Cash.
6. Prepare double column cash book from the following information for September 2005.
Rs.
Sep. 01 Cash in Hand 7,500
03 Paid Wages 200
05 Cash Sales 7,000
10 Goods deposited into bank 4,000
15 Goods purchased and paid by cheque 2,000
20 Paid Rent 500
25 Drew from bank for personal use 400
30 Salary paid 1,000
Answers
A1. The Debit side of Cash Book represents cash receipts and credit side represents the cash payments. Cash Book
serves the purpose of both journal as well as Ledger, that is why the Cash Book is called a Subsidiary Book
(Journal) and the Principal Book (Ledger). Cash Book is also prepared and balanced like Ledger Account. It is
treated as the Principal Book and there is no need to open the Cash Account
A 2. The Debit side of the Cash Book shows cash receipts and credit side shows cash payments. Cash Book always
shows the Debit Balance because payments cannot exceed the available cash. There is possibility of Cash Book
having no balance when receipts of cash are equal payments of cash. But there will never Be credit balance
because receipts will always be greater than the payment side showing the Debit Balance.
A 3. Trade discount is the discount allowed by the manufacturer to the wholesalers and retailers or by wholesalers to
retailers. Trade discount are not recorded in the books. They are used for determining the net price. They are
allowed to enhance sale.
Cash Discount is the discount allowed for prompt payment. This is recorded in the books of accounts.
Trade Discount Cash Discount

1. It is allowed when a certain quantity is purchased. 1. It is allowed when payment is made before a
certain date
2. It is not shown in the books of account 2 It is shown in Cash Book and a Discount

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Account is opened in the Ledger
3. It is allowed to sell the goods at the list price. 3. It is allowed to attract customers for prompt
payment.
A 4. Merits of Petty Cash Book
1. Savings of Time and Labour—As Chief Cashier is not required to deal with petty expenses, there is saving of
time and labour and he can concentrate on other important matters.
2. Facility in Posting—The totals of each small payments are recorded in the ledger. It facilitates ledger posting.
3. Less Possibility of Mistake and Fraud—The Petty Cash Book is checked periodically by the Chief ashler
hence there is less possibility of mistake and fraud.
4. Simple Methods—Recording and maintaining of Petty Cash Book is simple and can be handled by anybody.
A 5. Imprest System of Petty Cash
The Petty Cashier works on the Imprest System. Under this system, he is paid in advance a certain fixed mount
by the Main Cashier usually in the beginning of each month to make small payments. The amount paid him as an
advance is called Imprest System. The period may be a week or a fortnight or a month. At the end if the period,
he is given cash equal to amount spent so mat in the beginning of the next period he has the same mount (original
amount given as an advance to him). The word Imprest means, ‘Advance’ given to the person.
Example-Suppose the Petty Cashier is paid Rs. 200 on Jan 1, 2001. He has spent Rs. 170 during the month.
On 31st Jan. 2001, the Petty Cashier will be paid back Rs. 170 by the Chief Cashier so that on Feb. 1, 2001,
he should have Rs. 200 as an Imprest Amount. The Petty Cashier should keep record of the payments known as
voucher.
A 6.
Cash Book
Date Particulars LF, Cash Bank Date Particulars LF. Cash Bank
(Rs.) (Rs.) (Rs.) (Rs.)
2005 2005
Sep. 1 Balance b/d 7,500 Sep. 1 Balance b/d 3,500
Sep. 5 Sales 7,000 Sep. 3 Wages 200
Sep. 10 Cash c 4,000 Sep. 10 Bank c 4,000
Sep. 30 Balance c/d 1,900 Sep. 15 Purchases 2,000
Sep. 20 Rent 500
Sep. 25 Drawings 400

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Sep. 30 Salary 1,000
Sep. 30 Balance c/d 8,800
2005 14,500 5,900 14500 5900
Oct. 1 Balance b/d 8,800 Oct. 1 Balance b/d 1,900
Chapter - 8 Special purpose book II - other Books.

1. Where will you record the following transactions :
(a) Cash sales of goods
(b) Credit purchases of goods
(c) Goods purchased for cash
(d) Credit sales of goods
(e) Credit sales of assets
(f) Cash purchases of assets
(g) Credit purchases of assets
(h) Sale of furniture by Mohan & Sons, furnishers, Connaught Place
(i) Return of goods previously sold on credit
(j) Returns outward of goods.
2. Indicate the alternative which you consider to be correct.
(a) Purchases book records.....
(i) all purchases (ii) all cash purchases
(iii) all credit purchases (iv) all credit sales.
(b) Sales book records...
(i) sale of assets on credit (ii) sale of goods on credit
(iii) cash sales (iv) all credit sales.
(c) Purchases Return book records...
(i) return of goods purchased on credit (ii) return of assets purchased on credit
(iii) return of all things (iv) return of capital
(d) Sales Return book records....
(i) return of assets sold on credit (ii) return of goods sold on credit
(iii) return of all things (iv) return of capital
(e) Journal proper records...
(i) all transactions (ii) all cash transactions
(iii) all credit transaction (iv) all transactions not recorded in any subsidiary
books.
(f). A periodic total of the purchases book is posted to the _______
a) debit side of the purchases account
b) debit side of the sales account
c) credit side of the purchases account
d) credit side of the sales account

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(g). Sales book is used to record_____

a) all sales of goods
b) all credit sales of assets
c) all credit sales of goods
d) all sales of assets and goods
(h).the total of the sales book is posted periodically to the credit of ____
a) Sales account
b) Cash account
c) Purchases account
d) Journal proper
i. Purchases of-fixed assets on credit basis is recorded in_______
a) Purchases book
b) Sales book
c) Purchases returns book
d) Journal proper
j. Closing entries are recorded in _____

a) Cash book
b) Ledger
c) Journal proper
d) Purchases book
k Assertion (A): When a sales book is maintained, there is no need to open Sales Account in the ledger.
Reason (R): Sales book records only credit sales of goods.
l Assertion (A) "Cash purchases are not recorded in the purchases book since these will be recorded in the Cash
Book."
Reason (R): "All credit sales of goods are recorded in the sales book because cash sales are recorded in the Cash
book."

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3. Fill in blanks with appropriate words :

(a) Cash A/c always shows......balance.
(b) Purchases book always has.......balance.
(c) Sales book has........... balance.
(d) Return outward book has........ balance.
(e) Return inward book has......... balance.
4. Enter the following transactions in the purchases book :
2006
March 1 Purchased from Rajendra Bros., Mathura
500 tins Ghee @ Rs. 500 per tin
100 bags Sugar @ Rs. 900 per bag
Less : 10% Trade discount.
March 2 Bought of Bharat Stores, Bombay
20 bags Gram @ Rs. 300 per bag
15 bags Wheat @ Rs. 400 per bag
Less : 10% Trade discount.
March 30 Bought of Harish Kumar Gupta, Kaithal
10 bags Sugar @ Rs. 1000 per bag
30 tins Ghee @ Rs. 400 per tin.
5. Prepare a purchases book from the following transactions :
2006
July 1 Purchased from Ideal Furniture House, New delhi
120 chairs @ Rs. 150 per chair
50 Tables @ Rs. 400 per table
less 5% trade discount
July 10 Purchased from Bansal & Co., Bombay
150 desks @ Rs. 220 per desk
160 chairs @ Rs. 180 per chair
Less : 10% Trade discount
Julyt 25 Purchased from Salwan Furniture House, Calcutta
5 Sofa sets @ Rs. 3000 each.
6. B Bombaywala gives the following information about his business. You are required to record them in proper
subsidiary books and post them to ledger accounts. :
2008
May Rs.
1 Bought goods from Daruwala 1,200
2 Sold goods to Devidutt 870
2 Bought goods from Batliwala 1,350
3 Sold goods to Peepawala 950

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5 Returned goods to Batliwala being unapproved 80
8 Peepawala returned goods 20
11 Sold goods to Ahmedbhai 2,800
15 Ahmedbhai returned goods 120
17 Bought goods from Nariman 3,700
18 Unapproved goods purchased from Nariman returned with a debit note 370
24 Goods sold to Deshbandhu 1,300
25 Goods sold to Devidutt 280
27 Goods purchased from Daruwala 1,800
29 Goods sold to Peepawala 1,500
30 Peepawala returned goods 130
31 Goods returned to Daruwala 40
7. From the following transactions write the subsidiary of M/s Shnakar Stores and post them to the ledger. Only
concerned transaction be considered.
July 8 Bought from Beekay and Co. goods of the list price of Rs.5,000 at a trade discount of 20% bought per
invoice no. 7.
10 Sold to Gokhale & Co. half of the above goods at list price, per outward invoice No.21.
12 Accepted the order from Smart & Co. for the supply of goods worth Rs.1,800.
15 R.Kamat & Sons invoiced us goods worth Rs.1,750 per Inward Invoice No.8.
17 Sent our Debit Note no. 3 to Beekay & Co. for shopsoilded goods returned, Rs.300 net.
18 Ravi Shankar Bros. supplied us goods worth Rs.1,000 at a trade discount of 25% (Invoice No.9); paid
them Rs.200 as advance.
19 Smart & Co.cancelled their order.
19 Received a Debit Note from Gokhale and Co. for Rs.700, being the value of goods not included in our
parcel sent to them on 10th July.
20 Sent our Credit Note No.5 to Gokhale & Co.
20 Despatched to Mr. P.Savakar goods of Rs.900 (Invoice No.22)
22 Beekay & Co. accepted our D/N No.3 by sending a C/N for the amount.
23 Ravi Shankar Bros. had overcast their invoice by Rs.50. Hence, sent D/N No.4 for this excess amount.
24 Sent our order for goods worth Rs.2,950 to be supplied by Novelty Stores.
25 Received back damaged goods from Mr. P.Savakar, Rs. 100 Sent our C/N No.6.
26 Bought from Shetty & Co., stationery worth Rs.305 on credit.
31 Goods bought form sundry supplies as per their Cash Memos, Rs.3,500.
31 The monthly sales as per our Cash Memos No.42 to 235 amounted to Rs.10,850.

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HOTS
1. Multiple choice questions
(i) The source document used for recording entries in Purchase Book is :
(a) Invoice received (b) Credit notes sent out
(c) Invoice sent out (d) Debit notes received [Ans : (a)]
(ii) Purchases Book records
(a) All purchases
(b) All cash purchases
(c) All credit purchases of goods
(d) All credit purchases of assets other than goods [Ans : (c)]
(iii) The total of Sales Book is posted to
(i) Sales Account (b) Customers Account
(c) Purchase Account (d) Cash Account [Ans : (a)]
(iv) The Purchase Return Book is also known as
{a) Invoice Book (b) Return Outward Book
(c) Sales Day Book (d) Return Inward Book [Ans : (b)]
(v) Sales Return Book records
(a) Returns of fixed assets (b) Returns of dishonoured cheque
(c) Returns of goods sold on credit (d) Return of goods purchased on credit. [Ans : (c)]
(vi) Journal proper records
(a) All cash purchases
(b) Credit sale of goods and assets
(c) Transactions which do not find place in any of the subsidiary book
(d) Returns of goods purchased on credit [Ans : (c)]
(vii) The following is not considered a book of original entry :
(a) the Cash book (b) the Journal
(c) the Ledger & Balance Sheet (d) the Bills Payable Book [Ans : (c)]
2. Fill in the blanks.
(i) The Purchase Book is also known as________________.
(ii) If goods of the list price of Rs. 10,000 are purchased at 20% trade discount only Rs._____________
will be recorded in the purchase book.
(iii) Sales Book is used to record all_____________sales of goods.
(iv) Purchase Returns Books is used to record returns of goods purchased on______________.
(v) The total of Return Inward Book is posted to_______________account.
[Ans : (i) Invoice Book, (ii) Rs. 7,200 (iii) credit (iv) credit (v) Return Inward]

1. Name different types of Subsidiary Books.
2. What are Advantages of maintaining Subsidiary Books?
3. Prepare Purchases Return Book from the following details
2002
Ram Mohan & Sons, Kanpur
April 3 Returned 10 metres Silk @ Rs. 20 per metre
Less 10% Trade Discount

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April 13 Ramesh & Sons, Meerut
Returned 20 metres Velvet
@ Rs. 30 per metre
A4 The following are some of the transactions of M/s Kishore & Sons as per waste Book. Make out their sales
Book:
Sold to M/s Gupta & Verma on Credit:
30 Shirts @ Rs. 150
20 Trousers @ 300
Less – Trade Discount @ 10
Sold old furniture to M/s Sehgal & Co. on credit Rs. 800
Sold 50 shirts on credit to M/s Jain & Sons @ Rs. 150 each
Sold on credit to M/s Mathur & Jain :
10 Shirts @ Rs. 175
10 overcoats @ 1500
Less Trade Discount @ 10%
Answers
1. Types of Subsidiary Books: Main books are as follows:

1. Cash Book 8. Journal Proper
2. Purchase Book
3. Sales Book
4. Purchase Returns Book
5. Sales Returns Book
6. Bills Receivable Book
7. Bills Payable Book
2. Advantages of Subsidiary Books: Following are the main important advantages of subsidiary books:
I. Division of work—When subsidiary books are used, automatically there is division of work.
II. Maintenance of accurate record is possible.
III. Saving of time—If any transaction is to be located and subsidiary book are in use, it saves time.
IV. It minimises the chances of fraud.
3. Purchases Return Book
Date Particulars Debit Debit Amount
Note (Rs.) (Rs.)
2002
April 3 Ram Mohan & Sons, Kanpur
10 metre Silk @ Rs.20 per metre 200
Less 10% Trade Discount 20 180
April 13 Ramesh & Sons, Meerut
20 metres Valvet @ Rs. 30 per metre 600
April 30 Return Outward A/c Cr. 780

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4. Purchases Return Book
Date Particulars LF Details Amount
(Rs.) (Rs.)
M/s Gupta & Verma
30 shirts @ Rs. 150 4500
20 trousers @ Rs. 300 6000

Less: Trade Discount @ 10 105 9450
M/s Jain & Sons
50 Shirts @ Rs. 150 7500 7500
M/s Mathur & Jain
10 Shirts @ Rs. 175 1750
10 overcoats @ Rs.1500 15000
Less Trade Discount @ 10% 1675 15075

Sales A/c Cr. 222025
Case based questions
On the basis of the above transactions give the answer.

1. The total of sales book is Rupees __________

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a. 1075
b. 1425
c. 525
d. 550
2. The transactions of Jan ____________ are shown in cash book
a. 2,9,10
b. 2, 8, 9
c. 2,7,8
d. 2,8,10
3.The entries dated ___________ will be shown in journal proper.
a. Jan 7 & 10
b. Jan 6 &10
c. Jan 4 & 10
d. Jan 4,7 & 10
4.From the above transactions, ______ subsidiary books can be made
a. 5
b. 6
c. 7
d. 4
Answers :
1c , 2b, 3d, 4b

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Chapter - 9 Bank Reconciliation Statement
1. What is Bank Reconciliation Statement ? Why is the preparation of such a statement necessary ?
2. Give example of three such transactions which have been recorded in the Pass Book of a merchant, but not in
the Cash Book up 28th Feb 2014. Prepare his Bank Reconceliation Statement on that date and show how these
transactions will be dealt with.
3. Point out the suitable alternative :
i) Bank reconciliation statement may be prepared with the balance of....
a) Cash book b) pass book
c) either cash book or pass book d) cash book or pass book
ii) The debit balance of pass book is .....
a) plus balance b) minus balance
c) either plus or minus d) neither plus nor minus
iii) Pass book is...
a) the copy of banking transactions entered in the cash book
b) the copy of the customer’s ledger account maintained by the bank
c) the record of all cash transactions
d) the copy of firms receipts and payments
iv) If the statement is prepared from the balance of cash book, we shall finally find out the balance of.....
a) cheque book b) pay-in-slip
c) cash book d) pass book
v) Overdraft facilities are availale in...
a) current account b) saving bank account
c) recurring deposit account d) fixed deposit account
vi) Bank reconceliation statement is prepared by...
a) the customers of the bank b) bank
c) proprietor of the business d) tax authorities
vii) The bank balance is treated as plus balance if it is a balance of....
a) cash book b) credit balance of pass book
c) debit balance of cash book d) in the all above cases
4. Point out whether the following statements are True or False :
i) Bank column of the cash bok always shows a debit balance.
ii) Pass book and the statement of account are one and the same thing, because both of them are the copy of
customer’s ledger account maintained by bank.
iii) The debit balance of the cash book and the credit balance of pass book carry the same meaning.
iv) The balance of pass book is always plus.
v) The debit balance of the pass book means minus balance.
vi) If deposits exceed the withdrawls from the bank, cash book will show plus balance.
vii) Bank reconciliation statement can be prepared with, wither the balance of cash book or pass book.
5. While preparing bank reconciliation statement from the balance of cash book indicate whether the following

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items will be added or deducted :

i) Cheques debited in the cash book but not credited in the pass book.
ii) Cheques credited in the cash book but not debited in the pass book.
iii) Payment by debtors credited in the pass book but not debited in the cash book.,
iv) Payment of firm’s factory rent by the bank has been entered in the pass book but not in the cash book.
v) Debiting a cheque twice into the bank column of the cash book.
vi) Cheque deposited into the bank but not entered in the cash book.
vii) Cheques deposited in the cash but omitted to be banked.
6. Prepare a Bank Reconciliation Statement from the following particulars :
Bank overdraft as per cash book 8,000
Cheques deposited in bank but no entry was passed in the cash book 300
Cheque received but not sent to bank 1,000
Credit side of bank column cast short 100
Insurance premium paid directly by bank bank as per standing advice 500
Bank charges entered in cash book twice 10
Cheques returned back but no entry passed 400
Cheques ‘issued’ returned back on account of technical grounds 300
Bills directly collected by bank 2,000
Bank charges debited by bank 12
Cheques received entered twice 500
Bills discounted dishonoured 4,000
State which items will require adjustment in the book of account
7. Prepare a bank reconciliation statement from details given below and ascertain the balance as per Mr. Gani’s
cash book as on 31st Dec. 2014 :
i) Bank overdraft balance as per pass book Rs. 12,000
ii) Cheques issued to creditors amounting to Rs. 20,000 in the month of December, 2014 of which cheques
worth Rs. 3,000 presented to bank up to 31st Dec. 2014.
iii) A cheque of Rs. 6,000 received from Mr. Raj was deposited in the bank account in 25th Dec. 2014 but
no entry was passed in cash book. The same is collected and credited to Mr. Gani’s account on 27th Dec.
2014.
iv) A cheque of Rs. 2,000 received from Mr. Baria on 20th Dec. 2014 was recorded in the discount column
of cash book but was not banked.
v) The pass book showed that the bank had collected Rs. 4,000 as interest on Government Securities. The
bank had charged interest Rs. 500 and bank charge Rs. 200. There was no entry in cash book for the
same.
8. On 30th June, 1990 a trader had an overdraft of Rs. 5,500 as shown by the bank column of his cash book.
Cheques amounting to Rs. 1,500 had been paid to the bank but of these only Rs. 1,100 were credited in the pass
book upto 30th June 2015. He ad also issued cheques amounting to Rs. 3,500 out of which only Rs. 2,150
worth cheques had been presented for payment. It was also found that a cheque for Rs. 200 which he had
debited to bank account was not sent to bank all for collection through mistake. There is a debit in the pass book
of Rs. 10 for bank charge and Rs. 50 for interest. A customer of the trader had paid directly into his bank Rs.
1,000 for credit of his account but it was not shown in cash book. The bank paid trader’s insurance premium Rs.
250 as per instructions but this had not been recorded in the trader’s cash book.

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Prepare a bank reconciliation statement on 30th June, 2015 and show the balance, the bank pass book will
indicate on that day.
Jan 21. (a) Explain the reasons on account of which the balance as shown by the pass book does not
agree with the balance as shown by the bank column of the cash book.
b) The Bank Pass book of Mr. X showed an overdraft of Rs. 33,575 on 31st March, 2015. On going
through the pass book the accountant found the following :
i) A cheque of Rs. 1,080 credited in the pass book on March 28, being dishonoured is debited
again in the Pass Book on 1st April 2015. Thre was no entry in the cash book about the
dishonour of the cheque until 15th April.
ii) Bankers had credited his account with Rs. 2,800 for interest collected by them on his behalf,
but the same had not been entered in his Cash Book.
iii) Out of Rs.20,500 paid in by Mr. X in cash and by cheques on 31st March, cheques amount-
ing to Rs. 7,500 were collected on 7th April.
iv) Out of cheques amounting to Rs. 7,800 drawn by him on 27th March, a cheque for Rs.2,500
was encashed on 3rd April.
Prepare Bank Reconciliation Statement on March 31, 2015
9. Prepare Bank Reconciliation Statement from the following particulars and show the balance as per cash book :
i) Balance as per pass book on 31st December, 2015 overdrawn Rs. 10,000.
ii) Cheques drawn in the last week of 2015 but not cleared till 3rd January, 2015 Rs. 20,000.
iii) Interest on Bank overdraft not entered in the cash book Rs. 1,500.
iv) Cheuqes of Rs. 20,000 lodged in the bank in December, 2015 but not collected and credited till 3rd
January, 2015.
v) Rs. 100 insurance premium paid bu the bank under standing order has not been entered in the cash book.
10. The following are some of the causes of difference between the Cash Book and Pass Book Balances. If you
start with the Cash Book Balance in Bank Reconceliation Statement, will you add them or deduct? Write plus or
minus against each item :
a) Unpresented cheques.
b) Uncleared cheques
c) Cheques deposited in the current month but given a credit in the following month
d) A customer deposits directly into the bank the amount due by him
11. In April, 2014 Rajiv received the following statement from his bank :
RAJIV in account with Goodluck Bank
Date Particulars Payment Receipts Balance
2014 Rs. Rs.
March 1 Balance 8,650
8 Diwan Chand 120 8,530
12 Sundries 190 8,720
16 Sundries 2,310 11,030

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Sham Nath 980 10,050
22 Municipal Corpn. 1,100 8,950
26 Wages 750 8,200
28 Cheque unpaid 190 8,010
30 Bank Charges 70 7,940
April 1 Sundries 1,480 9,420
3 Gas Co. 560 8,860
5 Tara Chand 2,890 5,970
RAJIV’S Cash book for the month of March 2014 appeared as follows :
Date Particluars Bank Date Particulars Bank
2014 Rs. 2014 Rs.
March 1 To Balance b/d 8,650 March 5 By Diwan 120
11 To Thakur 190 Chand
15 To Lalita Pd. 2,310 12 By Sham Nath 980
30 To R.K.Verma 1,480 18 By Mun.Corpn. 1,100
23 By Gas Co. 560
25 By Wages 750
28 By Tara Chand 2,890
30 By Balance c/d 6,230
12,630 12,630
April 1 To Balnce b/d 6,230
You are required to prepare a Bank Reconciliation Statement as on 31st March, 2014
13. From the information given below, prepare the Bank Reconciliation Statement of Anand & Co. as on 31st
August, 2012.
a) Bank balance as per cash book... credit Rs. 11,930
b) Cheques for Rs. 19,230 were deposited in the bank during the last week of August 1987 out of which one
cheque for Rs. 8,200 was yet to be cleared and credited by the bank. Another cheque for Rs. 3,250 was
returned unpaid and the advice from the bank in this regard was received on 4th September, 2012.
c) Rs. 8320 debited by the bank September, 2012 represents the amount of cheques drawn by the firm in the
previous month.
d) A cheque for Rs. 3,000 debited by the bank on 19th August, 2012 was not issued by the firm. The bank
reversed the entry on 2nd September, 2012.
e) A cheque for Rs. 5,100 was deposited in the bank on 3rd August 2012. The Accountant of the firm,
however, posted the amount on the credit side of the cash book in the bank column.
f) Bank column on the debit side of the cash book was overcast by the Rs. 900 on 20th August 2012.
Q14.From the following particulars, prepare a Bank Reconciliation Statement as on 31st March 2004.
(1) Pass Book of Account Number 821 shows an overdraft of Rs. 47,980 on 31st March, 2004.
(2) A cheque debited in cash book but omited to be banked Rs. 2,500.
(3) A cheque credited in pass book but not recorded in cash book Rs. 4,250.

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(4) Transfer of funds from A/c No. 950 to A/c No. 821 recorded by the bank but not entered in cash book Rs.
3,000.
(5) A dividend of Rs. 500 paid direct to the bank had not been recorded in the Cash Book.
(6) Bank column of the payment side of cash book was over cast by Rs. 250.
(7) A deposit of Rs. 7,000 on March 31, was not included in the Bank Pass Book.
(8) The bank has paid the annual subscription of Rs. 5,000 to the club on standing order.
(9) Interest on overdraft charged by bank was Rs. 500.
(10) Bank has wrongly debited his account by Rs. 2,500 instead of any other customer.
(11) In the pass book bank charges 1,250 was recorded twice while another bank charge of Rs. 850 was not
recorded in the cash book.
(12) Rakesh withdrawl Rs. 7,000 from bank for his personal use but not entered in Cash Book.
(13) Cheques of Rs. 3,500 was paid into Bank but dishonoured and no such information was received till 7, April.
(14) Bank has wrongly Debit A/c No. 821 instead of A/c No.- 812 with Rs. 4,000.
(15) A cash deposit of Rs. 250 was not recorded in the bank column of cash book.
(16) Dividends collected by the bank of Rs. 11 and subscription of Rs. 25 paid by it, were not recorded in cash book.
(17) One outgoing cheque of Rs. 500 was recorded twice in the Cash Book.
BANK RECONCILIATION STATEMENT
as on 31st March, 2004
15 .On 31st March 2006, the bank balance as per Reliance India’s Cash Book was Rs. 23,500 (debit). On comparing
the Cash Book with the Pass Book, following differences were found :-
(1) Cheques for Rs. 12,000 sent for collection have not been cleared by the bank.
(2) The following cheques were issued by the firm in March, 2006 and presented in April 2006. Ram Rs.
3,500; Shyam Rs. 2,200, Mohan Rs. 1,700.
(3) Bank has credited Rs. 750 for interest in the Pass Book but these are not recorded in the Cash Book.
(4) Cheque for Rs. 1,200 received from customer was recorded in the Cash Book in March 2006, but the
same was deposited into bank in April 2006.
(5) Insurance Premium of Rs. 2,500 paid directly by Bank under standing advise.
(6) Pass Book shows a debit of Rs. 125 for Bank Charges.
(7) Out of total cheques, amounting to Rs. 7,200 issued cheques amounting to Rs. 3,400 have been presented for payment
in March 2006, cheques in aggregating Rs. 2,500 were encashed in April 2006 and rest have not been collected at all.
(8) A customer deposited Rs. 3,000 directly into the bank.
(9) Bank has made the payment of Rs. 2,000 for club fees under standing order.
(10) A bill receivable for Rs. 700 previously discounted with the bank had been dishonoured but advise was
received on 1, April.
(11) Debit side of Cash Book (Bank Column) has been overcast by Rs. 250.
(12) The Bank has debited Rs. 50 as Bank charges and has credited Rs. 350 on account of Interest.
(13) Cheques amounting to Rs. 4,000 has been paid into Bank for collection but of these only Rs. 1,000 had been
credited in the pass book.
(14) A cheque of Rs. 200 drawn on his Saving Deposit Account (Personal Account) has been shown as drawn nn current
account. (Acheque of Rs. 200 drawn on saving deposit has been shown as drawn on current A/c in Pass Book)
(15) Cheque issued from personal account (Saving Account) of proprietor debited to firm’s account Rs. 6,000.
(16) Cheques deposited but not yet collected by Bank Rs. 3,600.
(17) A cheques deposited into Bank and collected but not recorded in the Cash Book Rs. 5,400.

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(18) A cheque from a customer dishonoured Rs. 2,800.
BANK RECONCILIATION STATEMENT
as on 31st March, 2006
HOTS
1. The bank pass book of the account holder is the copy of which account of account holder?
2. When the bank collects interest and dividend on behalf of the customer whether it is debited or credited in the
Pass book?
3. Who prepares bank reconciliation statement?
4. Name some direct payments made by the bank on behalf of the customers are made as per standing Instructions
of the customer.
5. Why is Bank Reconciliation Statement prepared?
6. When bank column of a cash book show debit balance, what does it means ?
7. If the bank has allowed interest to the customer, the entry is recorded in the which side of pass book?
8. A Bank reconciliation statement is prepared with which balance ?
9. What do you mean by Unfavorable bank balances?
10. If no balance as per cash book or pass book is given then whether we will assume it to be a negative balance or a
positive balance in bank reconciliation statement
11. When money is withdrawn then on which side of pass book is it recorded?
12. What is the entry in the case of bank charges?
13. What do you mean by Favorable Bank Balance?
14. Whether bank balance reduce or increase with wrong credit by the bank ?
ANSWERS
1 The bank columns in the cash book of the account holder

2 credited
3 Account holder in Bank
4 Insurance paid ,rent paid
5 To establish the causes for the difference between the bank balance as per cash book and pass book balance
6 There is positive balance
7 Credit
8 Either Passbook balance or Cash Book balance
9 Credit balance in cash book or Debit Balance in Pass Book(overdraft)
10 positive balance
11 debit
12 Bank charges A/c Dr.
To Bank A/c
13 positive balance
14 increase
1. What do you mean by Bank Reconciliaton Statement ?
2. List Causes responsible for the difference between the balances of Cash Book and Pass Book.
3. When is balance will be supposed to be plus in case of Bank Reconciliaton Statement ?
4. When is balance will be supposed to be minus in case of Bank Reconciliaton Statement ?
5. From the following particulars, prepare a bank reconciliation statement as at March 31, 2005.
(i) Balance as per cash book Rs. 3,200
(ii) Cheque issued but not presented for payment Rs. 1,800

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(iii) Cheque deposited but not collected upto March 31, 2005 Rs. 2000
(iv) Bank charges debited by bank Rs. 150
6. The cash book shows a bank balance of Rs. 7,800. On comparing the cash book with passbook the following
discrepancies were noted :
(a) Cheque deposited in bank but not credited Rs. 3000
(b) Cheque issued but not yet presented for payment Rs. 1,500
(c) Insurance premium paid by the bank Rs. 2,000
(d) Bank interest credit by the bank Rs. 400
(e) Bank charges Rs. 100
(f) Directly deposited by a customer Rs. 4000
7. The pass book of Mr. Mohit current account showed a credit balance of Rs. 20,000 on dated 3 December 31,
2005. Prepare a Bank Reconciliation Statement witb the following information.
(i) A cheque of Rs. 400 drawn on his Saving Account has been shown on Current Account.
(ii) He issued two cheques of Rs. 300 and Rs. 500 on of December 25, but only the Ist cheque was presented
Tor payment.
(iii) One cheque issued by Mr. Mohit of Rs. 500 on December 25, but it was not presented for payment
whereas it was recorded twice in the cash book.
8 Prepare Bank Reconciliation Statement.

(i) Overdraft shown as per Cash Book on December 31, 2005 Rs. 10,000.
(ii) Bank charges for the above period also debited in the Passbook Rs100
(iii) Interest on overdraft for six months ending December 31, 2005 Rs. 380 debited in the Pass book.
(iv) Cheques issued but not encashed prior to December 31, 2005 amounted to Rs. 2,150.
(v) Interest on Investment collected by the bank and credited in the passbook Rs. 600.
(vi) Cheques paid into bank but not cleared before December 31, 2005 were Rs. 1,100.
ANSWERS
A 1. Statement prepared with a view to find out the causes responsible tor the difference between the balance of
cash book and pass book and to reconcile the balance is known as Bank Reconciliation Statement
A 2. Causes responsible for the difference between the balances of Cash Book and Pass Book
1. Cheque issued or drawn but not yet presented for payment or debited in the.Pass Book or cashed by
customers.
2. Cheques debited or deposited or paid into the bank but not yet collected or cleared or credited by the
bank.
3. Cheques directly deposited by the debtors to our account in the bank.
4. Interest paid or allowed or credited or collected by the bank-
5. Interest on overdraft or interest charged or debited by the bank.
6. Payment made by the bank on our behalf.
7. Dishonour of cheques and bills.
8. Bank charges or collection charges.
9. Cheques entered into cash book but omitted to be banked.
10. Cheques paid into bank but omitted to be entered in the cash book.
11 Dividends and interest collected and credited by the bank.
A 3. The balance will be supposed to be plus in the following cases :

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(a) If the Cash Book shows debit balance.
(b) If the Pass Book shows credit balance.
(c) The balance of Cash Book or Pass Book if not specified.
A 4 .Balance will be supposed to be minus in the following cases:
(a) If the Cash Book shows credit balance
(b) If the Pass Book shows debit balance.
(c) Overdraft balance as per Cash Book or Pass Book.
A 5. Bank Reconciliation Statement as at March 31, 2005
Rs. Rs.
Particulars Plus Items Minus Items
Balance as per Cash Book 3,200
(i) Add cheque issued but not yet not presented for payment 1,800
(ii) Less cheques deposited but collected upto 31 March, 2005 2,000
(iii) Less Bank charges 150
5,000 2,150
Balance as per Pass Book 2,850
A 6. Bank Reconciliation Statement as at March 31, 2005

Particulars Rs. Rs.
Plus Items Minus Items
Balance as per Cash Book 7,800
(a) Less cheques deposited but not yet credited by Bank 3,000
(b) Add cheques issued but not presented for Payment 1,500
(c) Less Insurance Premium paid by Bank 2,000
(d) Add Bank Interest 400
(e) Less Bank Charges 100
(f) Add Direct Deposit 4,000
13,700 5,100
Balance as per Pass book 8,600
A 7. Bank Reconciliation Statement as at December 31, 2005
Particulars Rs. Rs.
Balance as per Pass Book 20.000
(i) Add : Cheque issued from Saving A/c shown in Current A/c 400
(ii) Less : Cheque issued but not presented for payment 500
(iii) Less : Cheque issued but not presented for payment
instead recorded twice in the Cash Book 1,000
20,400 1,500
Balance as per Cash book 18,900
A 8. Bank Reconciliation Statement as on December 31, 2005
Particulars Rs. Rs.

Overdraft as per Cash Book 10,000

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(i) Less : Bank charges 100
(ii) Less : Interest on overdraft 380
(iii) Add : Cheques issued but not encashed 2,150
(iv) Add : Interest in investment collected by bank 600
(v) Less : Cheques paid into bank but not cleared 1100
2,750 11,580
Balance as per Cash book 8,830
Chapter - 10 Depreciation, Provision and Reserves

1. Vichitra Industries purchased machinery at a cost Rs. 40,000 with an estimated life of ten years.
At the commencement of the third year, new/machinery costing Rs. 5,000 was added.
Depreciation was provided at 10 per cent according to the diminishing balance method.
Prepare the Machinery Account for five consecutive years from the date of the machinery’s purchase.
2. The following information relates to the business of Continental Enterprises for the year ended December 31,
2010:
(a) The debit balance on the Plant and Machinery Account on January 1, 2010, was Rs. 26,840.
(b) During the year 2010, three machines standing in the books at Rs. 1,286 were sold for Rs. 600.
(c) On April 1, 2010, new machines costing Rs. 5,880 were purchased and were installed by the manufacturer’s
workmen at an expenditure of Rs. 216 (i.e. wages Rs. 174 and materials Rs. 42).
(d) It is the practice of the business to write off 15 percent depreciation of all additions to the plant during a
year and 20 percent of all old plants.
Prepare the Plant and Machinery Account as it would appear on December 31, 2010.
3. Aroma Fabricators had bought machinery for Rs. 1,00,000 including therein a boiler worth Rs. 10,000 on
January 1, 2004.
The Machinery Account was, for the first four years, credited for depreciation according to the reducing balance
method at the rate of 10 per cent annum.
During the year 2008, the boiler became useless on account of damage to some of its vital parts. The damaged
boiler was sold for Rs. 2,000 which is credited to the Machinery Account.
Prepare the Machinery Account for the year 2008 in the books of Aroma Fabricators.
4. The balance of the Plant and Machinery Account in the books of Gunjan Electronics on July 1, 2014, was Rs.
3,80,000.
Depreciation has been regularly written off at the rate of 10 per cent per annum on written-down value basis.
On January 1, 2015, a new machine ‘A’ was purchased at a cost of Rs. 24,000 and another machine ‘B’ at a
cost of Rs. 30,000.
On the same date, machine ‘C’ which had cost Rs. 12,000 on January 1, 2009, was sold for Rs. 1,500 and a
machine ‘D’ which had cost of Rs. 1,200 on July 1, 1982, was scrapped without realising anything whatsoever.
The accounts were closed on June 30, every year.
Write up the Plant and Machinery Account for the year ending June 30, 1988, in the books of Gunjan Electron-
ics allowing the same rate of depreciation as in earlier years, making calculations to the nearest rupee.
5. Sarvpriya Plastics purchased a second hand plant on January 1, 1984, for Rs. 6,000 and immediately spends
Rs. 4,000 on its overhauling.
On July 1, 1984, the plant costing Rs. 5,000 was purchased.

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On July 1, 1986, the plant acquired on January 1, 1984, became obsolete and was sold off for Rs. 2,000. On
the same date, a new plant was purchased at a cost of Rs. 12,000.
Depreciation has been provided for annually on December 31, at the rate of 10 percent per annum on the
original cost of the asset.
Prepare the Plant Account as it would appear in the books of Sarvporiya Plastics for five years from 1984
making calculations to the nearest rupee.
6. Andhra Transport purchased five trucks of Rs. 2,00,000 each on April 1, 2011. The Comapany writes off
depreciation at the rate of 20 percent per annum on original cost and observes the calendar year as its account-
ing year.
On October 1, 2013, one of the turcks was involved in an accident and was completely destroyed. The
Insurance Company paid Rs. 90,000 in full settlement of the claim. On the same day, the Company purchased
a used truck for Rs. 1,00,000 and spent Rs. 20,000 on its overhauling.
Prepare the Truck Account for three years ending December 31, 2013, in the books of the Company.
7. A firm purchased on January 1, 2012, certain machinery for Rs. 58,200 and spent Rs. 1,800 on its erection. On
July 1, 2012, additional machinery costing Rs. 20,000 was purchased.
On July 1, 2014, the machinery purchased on January 1, 2012, became obsolete and was auctioned for Rs.
28,600 and, on the same date, new machinery costing Rs. 40,000 was bought.
Depreciation was provided for annually at the rate of 10 percent on the written-down value.
Give the Machinery Account as it would appear in the books of the firm at the end of each year from 1985 to
2015
8. A firm writes off 95 percent of the cost of machinery acquired over a period ten years by the straight line method,
leaving 5 percent as estimated scrap value. Full depreciation is written off even if the machinery is in use only for
part of a year.
On December 31, 10 2011, the original cost of the machinery in use was as follows :
Purchased in 2001 or earlier Rs. 1,20,000
Purchased in 2003 Rs. 40,000
Purchased in 2007 Rs. 30,000
On June 30, 2012, a machine which had cost Rs. 10,000 in 2000 was disposed of for R 900 and, on November
30, 2012, a machine acquired in 2012 at a cost of Rs. 15,000 was sold for Rs. 5,000. On the same date, new
machinery was acquired for Rs. 45,000.
Prepare the Machinery Acount for the year 2012 in the books of the firm, the account being closed every year
on December 31.
9. Kaushal Traders purchased a second hand machinery on 1st January, 1992 for Rs. 23,000 and spent Rs. 2,000
on its repairs. It was decided to depreciate the machienry at 20% every year on 31st December according to
diminshing balance method.
Prepare the Machinery Account from 1992 to 1994 and show Profit or Loss as it was sold on 31st Dec. 1994
for Rs. 10,800.
[Ans. Loss on sale Rs. 2,000]
10. If an asset was purchased for Rs. 50,000 on 1st January, 1992, what would be its book value three years after
it was depreciated according to the following methods :
i) Straight Line Method, and

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(ii) Written Down Value Method. The rate of depreciation is 10% per annum. Show your answer by a tabular
ledger account.
[Ans. Straight Line Method Rs. 35,000; Written Down Value Method Rs. 36,450]
11. The following balances appear in the books of X ltd as on 1st April 2010.
Machinery Account Rs 5,00,000
Provision for depriciation A/c 2,25,000
The machinery was depreciated at 10% p.a on the fixed instalment method. The accounting year being April to
march.
On 1st October 2010, a machinery which was purchased on 1st July 2007 For Rs 100,000 was sold for 42,000
and on the same date a fresh machinery was purchased for 2,00,000. Prepare the machinery account & provi-
sion for depreciation account for the year 2010-11.
HOTS
1. Why is Depreciation calculated?
2. For what type of assets is word Depletion used?
3. What is Amortisation?
4. What are the two main methods of Calculating Depreciation?
5. In which method the asset account appears as its original cost throughout its life?
6. Enumerate causes of Depreciation
7. What Journal entry would you pass for the sale of scrap on the expiry of life of the asset?
8. What is fixed instalment method of providing depreciation on assets?
9. Which is the most suitable method of charging depreciation on assets which require more and more repairs in the
later years ?
10. Accumulated depreciation account is shown on which side of balance sheet
11. What is the drawback of straight line method?
12. According to Fixed Instalment system depreciation is always charged on one balance. Which balance is that?
13. Find the amount of depreciation chargeable under the straight line method for the second year if amount for first
year is Rs 4000?
14. Under which method depreciation is calculated on book value rather then original cost?
15. Residual Value of the asset means ____________
16. Purchase value of a new machine is Rs 5000 and expenses on its erection are Rs 500 .Its estimated residual
value is Rs. 500 and estimated life is 10 years Depreciation for machine will be:
17. What is the formula of determining the annual depreciation under fixed installment method?
18. Depreciation Account is closed by transferring balance to which account?
19. The balance in the accumulated depreciation account is equal to the ------
20. Which asset does not depreciate?
21. What journal entry would be passed for the profit on the sale of fixed assets?
ANSWERS
1 To provide funds for replacement of assets

2 Wasting assets such as mines, oil wells
3 Amortization: the term 'amortisation' to describe what others would call 'depreciation' when writing down the
value of intangibles such as patents
4 Written down value method and Straight line method
5 Accumulated Depriciation
6 constant use, expiry of time,obsolescence

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7 Cash A/c Dr.
To Assets A/c
8 That the same amount of depreciation will be charged from year to year
9 Written down value method
10 Liability side of balance sheet
11 The value of asset reduces to 0 but it is still used in the business.
12 Cost Price of an asset
13 Rs 4000
14 Written down value method
15 Reduced value of the asset every year
16 Rs 500
17 Cost price of the asset + Expenses –residual value of asset/Expected life of the asset
18 Transfer to profit and loss account
19 Total Depreciation provided up-to-date.
20 Land and Building
21 Profit and Loss Account Dr.
To Assets A/c

1. Define Depreciation.
2. What are reserves ? Gives Examples.
3. What is Need of calculating Depreciation ?
4. What are Different Methods for providing Depreciation ?
5. What are the Features of depreciation?
6. What are the limitations of Straight Line Method?
7. What is the formula to calculate deprecation under straight line method ?
8. Give some examples of Provisions.
9. What is Written down Method and its advantages?
10. Distinguish between Capital Reserve and revenue reserve.
11. Distinguish between Capital Reserve and Reserve Capital.
12. What are secret reserves ? Give examples.
13. Distinhuish between Reserve and Surplus.
Answers
A 1. Depreciation is a fall in the value of an asset. In the words of Pickles, the founder father of accountancy, depreciation
is a permanent and continuing diminution in the quality, quantity or the value of an asset. Thus, depreciation is a
loss in the value of asset.
A 2. Depreciation must be provided because—

(i) it is required under the law,
(ii) in order to put the assets at the correct value, and
(iii) it is necessary for replacement of assets.
A 3. Different Methods for providing Depreciation are:
(i) Straight line/Fixed percentage/Original cost/Uniform method,
(ii) Diminishing value/Written down value/Reducing balance method.
A 4. Features of Depriciation are :
1) It is declined in the book value of fixed assets.

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2) It includes loss of value due to effluxion of time, usage or obsolescence.
3) It is continuing process.
4) It is an expired cost and hence must be deducted before calculating taxable profits.
5) It is non-cash expense.
A 5. Limitations of Straight line Method :
1) This method is based on the faulty assumption of same utility of the asset in different accounting years.
2) With the passage of time, work efficiency of the assets decreased and repair and maintenance expense
increases. Hence, under this method total amount charged against profit on account of depreciation and
repair taken together will not be uniform throughout the life of the asset, rather it will keep on increasing
from year to year.
A 6. Formula to calculate deprecation
= Cost - scrap value / expected useful life
A 7. Examples of Provisions :
i) Provision for deprecation
ii) Provision for bad doubtful debts
iii) Provision for taxation
iv) Provision for discount on debtors
v) Provision for repairs and renewals
A 8. Under this method, depreciation is charged on the book value of the asset. Since book value keeps on reducing
by the annual charge of depreciation, it is also known as reducing balance method. This method involves the
application of a pre-determined proportion/percentage of the book value of the asset at the beginning of every
accounting period, so that the amount of depreciation reduces year after year.
Advantages of Written Down Value Method :
· This method is based on a more realistic assumption that the benefits from assets do on diminishing with
the passage of time.
· It results into almost equal burden on profit or loss account of depreciation and repair expenses taken
together every year.
· Income Tax Act accepts this method for tax purpose.
· As a large portion of cost is written-off in earlier years, loss due to obsolescence gets reduced.
· This method is suitable for fixed assets, which lasts for long and which require increased repair and
maintenance expenses with passage of time.

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Q1. What kind of expense is freight outwards ?

Ans. It is an indirect expense.
Q2. What are adjusted purchases ?
Ans. Adjusted purchases = opening stock + Net purchases - closing stock.
Q3. What do you understand by the term ‘Revenue Expenditure’.
Ans. The account incurred on maintaining the earning capacity of the business, benefit of which is direct and will be
received in the same accounting year itself in which it was incurred is termed as revenue expenditure.
Q4. Give two examples of Revenue Receipts ?
Ans. a) Money received from customers.
b) Fees received from customers for services rendered in the ordinary course of business enterprise.
Q5. What is operating profit ?
Ans. Operating profit is the excess of operating revenue over operating expenses. it is the profit earned profit
enough the normal operating activities of the business concerns.
Operating profit = gross profit + operating incomes - operating expenses.
OR
Operating profit = Net profit + Non-operating
Expenses - Non-operating incomes.
OBJECTIVE TYPE QUESTIONS

HOTS (High Order Thinking Skill) Questions — marked (III)
1. Fill in the blanks with appropriate words :
(i) B/R discounted not yet due is a _____________
(ii) If closing stock is given in trial balance, it is shown on the ______________ side of _________________
(iii) Depreciation given in Trial Balance is shown on the side of _______________
(iv) Outstanding expenses are __________ in P & L A/c and shown on the side of Balance Sheet.
(v) Wages paid for installation of machinery is a ________________expenditure.
(vi) Life Insurance Premium is treated as ________________
(vii) Income Tax is treated as ______________
(viii) CGST and SGST ________________ set-off with each other as per GST Act.
(ix) Provision for discount is calculated after deducting ________________ from debtors.
(x) Unearned income refers to income received in ______________
Ans. (i) Contingent liability (ii) Assets, B/s (iii) debit, P&L A/c (iv) Debited, Liability (v) Capital (vi) Drawing (vii)
Drawing (viii) cannot be (ix) Provision for doubtful debts (x) advance.
2. Select the correct alternative to the followings:
(i) wages paid for the installation of Plant is a Revenue/Capital expenditure.
(ii) Input IGST is shown on the Assets/Liabilities side of Balance Sheet.
(iii) Prepaid Rent is a Nominal/Personal Account.
(iv) Bill discounted but not yet due is a Liability/Contingent liability.

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(v) Closing stock if given in the Trial Balance is shown in Trading A/c/ Balance Sheet.
Ans. (i) Capital, (ii) Assets, (iii) Personal, (iv) Contingent liability, (v) Balance Sheet.
3. Justify the following Statements:
(i) Goodwill is an intangible asset but not a fictitious asset.
Ans. Goodwill has a value and it can be sold so it is an intangible asset but not a fictitious asset.
(ii) Salary outstanding if given in Trial Balance is shown on the liability side of the Balance Sheet.
Ans. If salary outstanding is given in Trial Balance, it means it has already been adjusted in the salary and now, it is to
be shown only on the liability side of the Balance Sheet
(iii) The provision for discount on Debtors is computed after making provision for doubtful debt on Debtors.
Ans. After making provision for doubtful debts on Debtors, we come to know the debtors which are recoverable i.e.,
good debtors. Thus, provision for discount on Debtors is computed only on Debtors which are recoverable (i.e.,
good).
(iv) Balance Sheet is a Statement.
Ans. It is true that the Balance Sheet is a Statement and not an account. It is prepared on a particular date while an
account is prepared for a particular period.
(v) Deferred Revenue expenditure is an asset.
Ans. Deferred revenue expenditure is an expense incurred in the current
year but its benefit accrues to firm over a period of 3-5 years.
Thus, it is shown on the asset side of Balance Sheet and is gradually written off as per benefit derived during the year.
(i) Accrued Commission given in Trial Balance is:
(a) an expense (b) an income
(c) an asset (d) a liability
(ii) Depreciation given in Trial Balance will appear in:
(a) Dr. of Profit and Loss A/c
(b) Cr. of Profit and Loss A/c
(c) Deduct from Asset in Balance Sheet
(iii) In Balance Sheet, we show:
(a) Personal A/cs and Nominal A/cs
(b) Personal A/cs and Real A/cs
(c) Nominal A/cs and Real A/cs
(d) Real, Nominal and Personal A/cs
(iv) Closing Stock shown in Balance Sheet is valued at:
(a) Cost Price
(b) Market Price
(c) Realisable Value
(d) Cost or Market Price which ever is less
(v) Net Profit of a firm before the following adjustments was Z 46,000.
(i) Rent Outstanding Rs 8,000
(ii) Prepaid Salary Rs 12,000

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Net Profit after above adjustments will be:

(a) 42,000 (b) 50,000 (c) 26,000 (d) 66,000
(vi) Net profit of a firm before charging manager's commission is Rs 1,43,000. If manager is entitled to 10%
commission after charging his commission, his commission will be:
(a) Rs 14,300 (b) Rs 13,000
(c) Either Rs 14,300 or Rs 13,000 (d) Neither Rs 14,300 nor Rs 13,000
(vii) Heavy advertisement expenses incurred to promote a product will be treated as:
(a) Revenue Expenditure
(b) Capital Expenditure
(c) Deferred Revenue Expenditure
(d) Either (a) or (b)
(viii) Depreciation is charged on:
(a) Current Assets (b) Fixed Assets - Tangible
(c) Fixed Assets - Intangible (d) Wasting Assets
(ix) White wash charges Z 50,000 on a newly constructed office building is a:
(a) Revenue Expense
(b) Capital Expense
(c) Deferred Revenue Expenditure
(x) Following figures are given in Trial Balance:
Bad Debts Rs 700
Provision for Doubtful Debts Rs 1,100
Debtors . Rs 20,000
Adjustment: Create 5% provision for doubtful debts on Debtors. The amount debited to Profit and Loss A/c
will be:
(a) Rs 600 (b) 1,000 (c) Rs 800 (d) 1,700
(xi) In Trial Balance, Debtors given are Rs 21,000
Adjustments:
(i) Further Bad Debt Rs 1,000
(ii) Create provision for doubtful debt @ 5% on Debtors.
(iii) Create 5% provision for Discount on Debtors.
Provision for Discount debited to Profit and Loss A/c will be:
(a) Rs 950 (b) 1,000 (c) Rs 1,050 (d) Rs 998
(xii) A second-hand machine was purchased for Rs 40,000. It's overhauling expenses were Z 8,000 and carriage
and installation expenses were Rs 2,000. Depreciation on this machine © 10% p.a. for a complete year will be:
(a) Rs 4,000 (b) Rs 4,800
(c) Rs 5,000 (d) Either (a) or (b)
(xiii) Goodwill is a:
(a) Fictitious Asset (b) Tangible Asset
(c) Intangible Asset (d) Wasting Asset
(xiv) Income tax paid for a sole trader business is a:
(a) Revenue Expense (b) Capital Expense
(c) Personal Expense (d) Either (a) or (b)
(xv) Output IGST Payable A/c is a: (a) Asset (b) Liability (c) Revenue Expense (d) Capital Expense Arts.
(i) (c) (ii) (a) (iii) (b) (iv) (d) (v) (b) (vi) (b) (vii) (c) (viii) (b)
(ix) (b) (x) (a) (xi) (a) (xii) (c) (xiii) (c) (xiv) (c) (xv) (b)

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Chapter -11 Trial Balance, rectification of errors
1. Is trial balance a conclusive proof of the accuracy of the books of accounts ? Give examples in support of your
answer.
2. What is a suspense account ? When is it opened and how is it closed ?
3. Rectify the following errors : (1) Sale of goods Rs. 500 to Raman has been wrongly debited to Rehamn’s
account (2) Rs. 210 salary paid to Ram Chandra debited to his personal account (3) Total of the credit side of
discount column of cash book has been added short by Rs. 5 (4) Credit sale of Rs. 330 to Ashok Kumar has
been omitted to be recorded (5) Sale of goods to Borde Rs. 690 has been entered through purchases book.
4. Rectify the following errors :
A. i) Sales of Hari Rs. 143, posted to his account as Rs. 134.
ii) Sales to Hari Rs. 143, debited to his account as Rs. 134.
iii) Sales to Hari Rs. 143, credited to his account as Rs. 134.
iv) Sales to Hari Rs. 143, posted as Rs. 134.
B. i) Purchased goods from Y, Rs. 350, credited as Rs. 305.
ii) Purchased goods from Y, Rs. 350, credited to his account as Rs. 305.
iii) Purchased goods from Y, Rs. 350, posted as Rs. 305.
iv) Purchased goods from Y, Rs. 350, debited as Rs. 305.
C. i) Sales of the month of January, Rs. 9,455, posted as Rs. Rs. 9,545.
ii) Sales of the month of January, Rs. 9,455, credited as Rs. 9,545.
iii) Sales of the month of January, Rs. 9,455, debited as Rs. 9,545.
D. i) Received bill receivable from X Rs. 500, posted as Rs. 50.
ii) Purchased furniture from Mohan Bros. Rs. 504 on credit, debited as Rs. 540.
iii) Purchased furniture form Mohan Bros. Rs. 504 on credit, credited as Rs. 540.
iv) Discount allowed Rs. 54 to X, credited to his acocunt as Rs. 45.
v) Discount received Rs. 27 from Y, posted to his account as Rs. 29
vi) Purchased furniture on cash for Rs.1,000 was not posted.
5. Rectify the following errors and compare the results :
A. i) Purchased furniture on credit, debited to purchases account Rs. 250.
ii) Purchased furniture on credit, passed through the purchases book Rs. 250.
iii) Purchased furniture Rs. 250 on credit, recorded in the invoice book Rs. 205.
B. i) Purchased furniture on credit Rs. 250, credited as Rs. 25.
ii) Purchased furniture on credit Rs. 250, debited as Rs. 25.
C. i) Sold machinery Rs. 550, credited to sales account as Rs. 505
ii) Sold machinery Rs. 550, passed through the sales book.
iii) Sold machinery Rs. 550, passed through the sales book as Rs. 505.
D. i) Sold machinery on credit to K.Madan Rs. 1,550, debited as Rs. 1,505.
ii) Sold machinery on credit to K.Madan Rs. 1,550, credited as Rs. 1,505
6. 1. An amount of Rs. 2,500 spent for the extension of machinery has been debited to Wages Account.
2. Rs. 100 paid as cartage for the newly purchased furniture, posted to Cartage A/c.
3. A builder's bill for Rs. 5,000 for erection of a small cycle shed was debited to Repairs Account.
4. A cheque of Rs. 1,700 received from Shyam Sunder was dishonoured and had been posted to the debit

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side of 'Allowance A/c.'
5. Rs. 800 paid for the newly purchased 'Fan' posted to 'Purchase Account'
6. Rs. 4,000 the amount of sale of an old machinery has been credited to Sales Account.
7. Rs. 1,000 received from 'X' has been credited to Y's Account.
7. Rs. 2,000 paid for furniture purchased has been debited to Purchase Account.
2. Rs. 3,000 paid to Mohan Lal for salary were debited to his Personal Account.
3. Rs. 500 paid for proprietor's medical bill were debited to 'Sundry Expenses Account'.
4. Typewriter purchased for Rs. 7,500 has been wrongly passed through the Purchase Book.
8. Pass Journal Entries to rectify the following errors:-
1. Goods costing Rs. 1,000 have been purchased on credit from Sohan, but no entry has been made in
books, although the goods were taken into stocks.
2. Goods amounting to Rs. 4,000 have been sold on credit, but no entry has been made in the books.
3. No entry has been made for Purchase Return of Rs. 200.
4. No entry has been made for Sales Return of Rs. 450.
5. Goods purchased from Ramesh Chandra on Credit for Rs. 5,000 was recorded in purchase book as Rs.
500.
6. Sales of Rs. 600 to Siya Ram were recorded as Rs. 60 in the Sales Book.
7. Gods purchased on Credit from Pawan for Rs. 400 was recorded as Rs. 4,000 in purchase book.
9. There was a difference of Rs. 725 in a Trial Balance . It has been transferred to credit side of Suspense A/c.
Later on following errors were discovered. Pass the rectifying entries and prepare Suspense A/c:-
i) An amout of Rs. 375 has been posted on the debit side of commission acount instead of Rs. 275.
ii) Goods of Rs. 200 purchased from Sohan Lal has been posted to his account as Rs. 250.
iii) Total of sales Returns Book was overcast by Rs. 475.
iv) A credit amount of Rs. 50 was posted as Rs. 150 to the debit side of a personal account.
10. Give journal entries to rectify the following erors using Suspense Account, where necessary:-
1. A credit purchase of Rs. 2,800 was passed through the Sales Day Book.
2. Goods of the value of Rs. 2,000 returned by Mr. Gupta were enteed in the Sales Day Book and posted
therefrom top the credit of his account.
3. Rs. 2,600 stolen by an ex-employee stood debited to Suspenses A/c.
4. Rs. 3,000 received froma customer as an advance against order was credited to Sales A/c.
5. A sum of Rs. 800 written off as depreciation on Machinery, were not posted to Depreciation A/c.
6. Purchase of a Scooter was debited to conveyance account Rs. 16,000. Firm charges 10% depreciation
on vehicles.
7. Payment of Rs. 500 to Mohan and Rs. 600 to Sohan was made but Mohan was debited with Rs. 600 and
Sohan with Rs. 500.
11. Give rectifying entries for the following:-
1. A credit purchase of goods from Shyam amounting to Rs. 1,000 has been wrongly passed through the
'Sales Book'.
2. A credit sales of goods to Ram for Rs. 2,500 has been wrongly passde through the 'Purchase Book'

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3. A return of goods worth Rs. 500 by a customer were entered in 'Purchase Return Book'
4. A return of goods worth Rs. 1,100 to Mohan was passed through the Sales Return Book.
12. Pass Journal Entry to rectify the following.
a. Material from Store 5000 & wages Rs 2000 had been used in making tools & implements for use
in own factory, but no adjustments were made in the books.
b. Goods solds for rs 1240 and debited on 20th December to C,were returnedby him on 23rd and taken
into stock on31st dec, no entries being made in the books for return.
c. An Amount of rs 750 spent on the repars of an old machinery has been debited to repairs A/c
d. A cheque for rs 500 recieved from Ashok was dishonoured & has been posted to the debit of sales
return account.
e. An amount of rs 675 for a credit sale to Govind akthough correclty entered in the sales book has been
wrongly posted as 756.
13. Correct the following errors-
a Credit purchases of goods from Shyam amounting to Rs. 1000 has been wrongly passed through Sales
Book.
b. Return of goods worth Rs. 500 by customer were entered in Purchase return book.
c. Typewriter purchased for Rs. 7500 has been wrongly passed through Purchase Book.
d. An amount of Rs. 1200 spent on annual white washing was debited to Building A/c.
e. Cartage of Rs. 100 for newly purchased Furniture, passed to Cartage A/c.
f. Rs. 800 paid for Rent wrongly debited to Landlord’s A/c.
g. Goods purchased on credit from Pawan for Rs. 400 was recorded as Rs. 4000 in Purchase Book.
h. Sales of Rs. 600 to Siya Ram was recorded as Rs. 60 in Sales Book.
i. Bill for Rs. 820 received from Ramesh for repairs to Machinery was entered in Purchase Book as Rs.
720.
j. A cheque of Rs. 400 received from Shiv Prasad was dishonored and debited to discount A/c.
k. Purchase Book was undercost by Rs. 500.
l. Sales Book was overcast by Rs. 100.
m. Rs. 620 received from Mohan were posted to Dr. of his account.
n. A discount of Rs. 282 allowed to a customer has been credited to his account as 228.
o. Goods for Rs. 1200 returned to Kundan Lal, though entered in Return Book has not been posted to his
A/c.
p. Goods of Rs. 200 purchased from Sohan Lal have been posted to his A/c as Rs. 250.
q. Purchase of Scooter was debited to Conveyance A/c Rs. 16000, Firm charges 10% depreciation on
Vehicles.
r. Goods costing Rs. 1000 have been purchased on Credit from Sohan, but no entry has been made in
books, although goods were taken in stock.
s. Goods purchased from Ramesh Chandra on Credit for Rs. 5000 was recorded in Purchase Book as Rs.
500.
t. An amount of Rs. 600 due from Harish Bros. which has been written off as Bad Debt in previous year
was unexpectedly recovered and has been posted to the Personal A/c of Harish Bros.

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u. Bill of Rs. 820 received from Ramesh for repairs to Machinery was entered in Purchase Book as Rs. 720.
v Goods of the value Rs. 2000 returned by Mr. Gupta were entered in the Sales day Book and posted there
form to credit of his account.
w. Rs. 3000 received from customer as on advance against order was credited to Sales A/c.
q. Purchase of Scooter was debited to Conveyance A/c Rs. 18000. Firm charges 10% Depreciation on
Vehicles.
y. Cash Sale of Rs. 150 to B correctly entered in Cash Book was posted to Cr. of B’s personal A/c instead
of Sales A/c.
z. A sum of Rs. 375.40 P owned by Ravi has been included test of Sundry Creditors.
HOTS
1. Why is Trial Balance prepared?
2. What does trial balance verifies?
3. At which stage of Accounting does error of omission does occurs?
4. If a trial balance do not agree, where (name of account) will you enter the difference?
5. When the subsidiary books are wrongly casted what type of error is it?
6. Rectify the following error Credit Purchase from Ram debited to furniture a/c.
7. Amount paid for erecting a machinery should be debited to which account
8. Amount spent on addition of the building is debited to maintenance and repair account. What type of error is this?
9. Purchase book has been overcast by 10,000 resulting in excess debit of Rs. 10,000 in purchase account and sales
return book is undercast by Rs 10,000 resulting in short debit to sales return account it is a case of which type of
error?
10 Raj Hans Traders paid Rs. 25,000 to Preetpal Traders, But while posting to the ledger, Preetpal’s account was
debited with Rs. 2,500 only. Identify the kind of error of this case.
11. Credit sales to Mohan Rs. 10,000, not entered at all. It is an error of .............
12 (a) Cash received from Manoj posted to Saroj.
(b) Sales of an old car credited to sales account.
Which of the following is not an error of principle?
13. If the trial balance agrees, what does it implies ?
14. If suspense account does not balance off even after rectification of errors .What does it implies?
15. Is Trial balance an account, a statement, a subsidiary book or a principal book?
16. When is Trial balance prepared
17. What type errors is disclosed by trial balance?
18. Agreement of Trial balance is affected by One sided errors or Two sided errors .
ANSWERS
1 To obtain a summary of ledger accounts.
2 It verifies the Arithmetical accuracy of posting of entries from the Journal to the Ledger.
3 Recording
4 Suspense a/c
5 Error of commission
6 Purchases a/c Dr
To Furniture a/c
7 Machinery a/c
8 Error of principle
9 Compensatory error
10 Error of commission
11 Error of omission
12 (a) Cash received from Manoj posted to Saroj. Is not an error of principle

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13 There is no error in the books of accounts or There are chances of compensating errors in the books
14 There are some one sided errors in the books yet to be located.
15 a statement
16 After posting to ledger is complete and accounts have been balanced.
17 Error of commision
18 One sided errors

1. What do you mean by Suspense A/c ?
2. What is Utility of Suspense A/c?
3. How is Rectification of errors done before ledger accounts are closed ?
4. How is Rectification of errors done after final accounts are prepared?
5. Explain errors of omission and give two examples of such errors.
6. Explain errors of Commission and give two examples of such errors.
7. What is error of Complete Omission ?
8. Explain errors of Compensation and give two examples of such errors.
9. Explain errors of Principle and give two examples of such errors.
10. Rectify the following errors :
(i) Credit sale to Mohan Rs. 7,000 were recorded as Rs. 7,200.
(ii) Credit purchase from Rohan Rs. 9,000 were recorded as Rs. 9,900.
(iii) Goods returned to Rakesh Rs. 4,000 were recorded as Rs. 4,040.
(iii) Goods returned from Mahesh Rs. 1,000 were recorded as Rs. 1,600.
11. Rectify the following errors
(a) Sales book overcast by Rs. 700.
(b) Purchases book overcast by Rs. 500.
(c) Sales return book overcast by Rs. 300.
(d) Purchases return book overcast by Rs. 200.
12. Rectify the following
(a) Sales book undercast by Rs. 300.
(b) Purchases book undercast by Rs. 400.
(c) Return inwards book undercast by Rs. 200.
(d) Return outwards book undercast by Rs. 100.
Answers
A 1. Suspense Account
It is an imaginary account used as a temporary measure to rectify mistakes. Later on books of accounts are
checked, errors are located, rectifying entries are passed and Suspense Account is closed. It should be noted
that Suspense A/c is used to rectify those errors which have been located after the trial balance has been
prepared.
A 2. Utility of Suspense A/c.
(i) Suspense A/c enables timely preparation of final accounts
(ii) Suspense A/c facilities passing of rectifying entries.
(iii) Suspense A/c facilitate completion of trial balance Suspense A/c as such is the temporary panacea of all
accounting troubles.
A 3. Rectification of errors before ledger accounts are closed
Maintenance and auditing of accounts is a continuing process. If errors are detected before ledger accounts are

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closed, rectification of the error is made in the concerned account by debiting or crediting as per requirement.
Suspense A/c is not used for rectifying these types of error.
A 4. Rectification of errors after final accounts are prepared.
Errors discovered after preparation of final accounts are rectified in such a way, that profit or loss of the current
current year’s profit.
A 5. Errors of Omission : These errors are of clerical nature. These errors may be committed at the time of recording
or posting. At the time of recording, the wrong amount may be recorded in Journal which will be carried
throughout. These errors may also be committed at the time of posting i.e posting of wrong account or to the
wrong side of
account in the wrong account. These errors may or may not affect the agreement ot Trial Balance. For example
recording of wrong amount in subsidiary books, posting an amount to wrong account are two-sided errors and
do not effect the agreement of Trial Balance. Wrong totalling of subsidiary books posting wrong side of an
account are one-sided errors and affect the agreement of Trial Balance.
A 6. Errors of Commission : The errors of omission may be committed at the time of recording the transactions in the
books of original entry or while posting to the ledger. An omission may be complete or partial
A 7. Errors of Complete Omission : This kind of error may be committed when the transaction is requirec completely
omitted to be recorded in the accounts books. This error will not affect the trial balance and hence the trial
balance will tally.
Examples : Goods sold to X for Rs. 1,500 is not recorded in the books of original entry. There will be no
posting of the entry in the ledger. This will not affect the agreement of trial balance.
Errors of Partial Omission : This type of error arises when incomplete transactions are entered in the books of
original entry. For example, machinery purchased for Rs. 50,000 by issuing a cheque is recorded first in the
credit side of cash book in the bank column. Suppose it is not posted in the debit of machinery account, it is an
error of partial omission.
A 8. Compensation errors : These errors arise when two or more errors are committed in such a way the the net
effect of these errors on the debits and credits of accounts involved is nullified. These errors do not affect the
agreement of the trial balance.
Example No. 1. : If the total of purchase book is posted in the ledger as Rs. 1,000. instead of Rs.100 and at the
same time Rishi’s A/c is credited in the ledger as Rs. 1,000 instead of Rs. 100. As a result of these errors, there
is an excess credit of Rs. 900 in Rishi’s Account and an excess debit of Rs. 900 in Purchase Account. Thus two
errors nullify the effect of each other.
Example No. 2 : While posting on the debit side of Krishnan’s account, Rs. 10 are posted instead of Rs. 100
and while posting on the debit side of Sunil’s Account Rs. 100 are posted instead of Rs. 10 then these two
mistakes will nullify the effect of each other and inspite of errors in both the accounts the trial balance will tally.
Error of principle and two examples of such errors.
A 9. Error of Principle : It is that error which arises when the transaction is recorded ignoring the distinction between
the capital and revenue item. This error does not affect the Trial Balance.
Example No. 1. Rs. 1,500 wages for the construction of office is debited to Wages A/c. This error will increase
the figure of wages and reduce the figure of Building.
Example No. 2. Goods are sold to Ram on credit but Shyam’s Account is debited in place of Ram’s Account
in Ledger, the trial balance will tally inspite of error in both the account
A10
Journal
Date Particulars L.F. Dr. Cr.
Amount Amount

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(Rs.) (Rs.)
(i) Sales A/c Dr. 200
To Mohan 200
(Credit sales of Rs. 7,000 to Mohan recorded as Rs.7,200)
(ii) Rohan Dr. 900

To Purchase A/c 900
(Credit purchase from Rohan Rs. 9,000
recorded as Rs. 900 now conected)
(iii) Purchase Return A/c Dr. 40

To Rakesh 40
(Goods return Rs. 4,000 to Rakesh
recorded as Rs. 4040 now conected)
(iv) Mahesh Dr. 600
To Sales Return A/c 600
(Goods return Rs. 1000 fromMahesh
recorded as Rs. 1,600 now corrected )
A 11
Rectifying Journal Entries
(a) Sales A/c Dr 700
To Suspense A/c 700
(Overcasting of Sales Book corrected)
(b) Suspense A/c Dr. 500
To Purchase A/c 500
(Overcasting of Purchase Book corrected)
(c) Suspense A/c Dr. 300
To Sales Return A/c 300
(Overcasting of Sales Return Book corrected)
(d) Purchase Return A/c Dr 200
- To Suspense A/c 200
(Overcasting of Purchase return Book corrected)
A 12 Rectifying Journal Entries
(a) Suspense A/c Dr. 300
To Sales A/c 300
(Undercast of Sales Book corrected.)
(b) Purchase A/c Dr. 400

To Suspense A/c 400
(Undercast of Purchase Book corrected
(c) Return Inward A/c Dr. 200

To Suspense A/c 200
(Undercast of Return Inward Book corrected)

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(d) Suspense A/c Dr. 100
To Return Outward A/c 100
(Undercast of Return Outward Book corrected. )

Understanding Based Questions — marked (M)
1. Fill in the blanks with appropriate words :
(i) Rectifying entries are passed in ______________
(ii) Undercasting of PurChases Book will be corrected by ______________ Purchases A/c.
(iii) Bought plant debited to purchases A/c is an error ________________
(iv) Bought goods from Ram 250 is recorded as 520. It is an error of _______________
(v) If a transaction is omitted to be recorded in the Books of accounts, it is an error of ____________
(vi) Disagreement of Trial Balance confirms ____________ in the books of accounts.
(vii) 1,000 spent as repair on purchase of second hand plant will be debited to ______A/c.
(viii) Carriage paid on purchases of goods will be charged to __________ A/c.
(ix) Carriage paid on purchases of plant will be debited to __________A/c.
(x) Goods bought from Ram 1,200 is posted to Mohan A/c is an error of ____________
(xi) If suspense A/c has debit balance, it will be shown on __________side of
(xii) Cash received from Ram 1,200 and Mohan 1,500 is credited to Ram 1,500 and Mohan 1,200. The
rectifying entry will be ____________
[Ans. (i) Journal Proper, (ii) Debiting (iii) Principle (iv) Commission
(v) Omission (vi) errors (vii) Plant (viii) carriage (ix) plant (x) commission
(xi) Asset , Balance Sheet (xii) Ram (Dr.) 300, Mohan (Cr) 300]
2. Select the correct alternative :
(i) Repair charges on purchase of second hand plant will be debited to repair / plant A/c.
(ii) Error of principle is disclosed / not disclosed by Trial Balance.
(iii)500 recovered from Ram whose account was written off last year will be credited to Ram / Bad debt / Bad debt
recovered A/c.
(iv) Errors of Principle affects one / two accounts
(v) Sales of furniture be credited to sales A/c/Furniture A/c.
(vi) Payment of Income Tax will be debited to Income Tax A/c/Drawing A/c.
(vii) Payment of sales tax will be debited to Sales Tax/Drawing A/c.
(viii) Wages paid for installation of plant should be debited to wages/ plant A/c.
(Ans. (i) Plant (ii) not disclosed (iii) B.D. recovered A/c (iv) Two (v) Furniture (vi) Drawing A/c (vii) Sales tax A/c
(viii) Plant]
3. Multiple Choice Questions (MCQs) Select the correct alternative:
(i) An amount of 4,000 spent on the installation of plant as wages to Ram should be debited to:
(a) Plant A/c (b) Wages A/c (c) Installation A/c (d) Ram's A/c
(ii) Rent paid by cheque 4,000 was credited to Rent A/c as 400. While rectifying, Rent A/c be debited by
: (a) 4,000 (b) 4,400 (c) 3,600 (d) 400
(iii) Goods worth 3,000 was destroyed by fire, it should be credited to:

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(a) Loss by Fire A/c (b) Purchases A/c (c) Sales A/c (d) Purchases Return A/c
(iv) Sale of office computer to Mohan for Cash should be credited to:
(a) Cash A/c (b) Computer A/c (c) Mohan's A/c (d) Sales A/c
(v) Bought goods from Gopal 2,500 was recorded in his account as 5,200. Now Gopal's account should be
debited with: (a) 5,200 (b) 2,500 (c) 2,700 (d) 7,700
(vi) Bought goods from Amar 3,000 was recorded in the sales book. While rectifying the entry, Amar account be:
(a) Debited by 3,000 (b) Credited by 3,000 (c) Debited by 6,000 (d) Credited by 6,000
(vii) Goods returned by Sohan 500 was recorded in the purchases book. Now, Sohan account be:
(a) Debit by 500 (b) Credit by 500 (c) Credit by 1,000 (d) Neither Debit nor Credit Sohan's A/c
(viii) Sale of 540 to Raja was credited to him 450. While rectifying. Raja be:
(a) Dr. 540 (b) Dr. 450 (c) Dr. 990 (d) Cr. 540
Ch-12 Financial Statement of Sole Proprietorship(Without Adjustments)
1. Classify the following under personal, real and nominal accounts :

(i) Trading Account
(ii) Profit and Loss Account
(iii) Purchases Account
(iv) Sales account
(v) Bills receivable and bills payable accounts
(vi) Discount Account
(vii) Unexpired Insurance Account
(viii) Reserve for Doubtful Debts
(ix) Reserve for Discount on Debtors
(Nominal - i, ii, vi, viii, ix; Real - iii, iv, v ; Personal - vii)
2. Ascertain cost of goods sold from the following figures :
Opening stock Rs. 3,700
Purchases 20,800
Closing stock 2,500
Ans (Rs. 22,000)
3. Ascertain cost of goods sold from the following figures :
Opening stock Rs. 8,500
Purchases 30,700
Direct expenses 4,800
Indirect expenses 5,200
Closing stock 9,000
Ans (Rs. 35,000)
4. Ascertain purchases from the following figures :
Cost of goods sold Rs. 80,700

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Opening stock 5,800

Closing stock 6,000
Ans (Rs. 80,900)
5. Calculate gross profit from the following figures :
Cost of goods sold Rs. 70,800
Sales 1,30,200
Ans (Rs. 59,400)
6. Ascertain gross profit from the following figures :
Rs. Rs.
Opening stock 5,570 Warehouse wages paid 1,400
Purchases 13,816 Import charges 250
Sales 15,248 Closing stock 8,880
Purchase returns 390
Returns inwards 524
(Gross profit Rs. 2,958)
7. Identify the following as either current assets, plant and equipment accounts, current liabilities, long-term liabili-
ties, owner equity items, intangible assets, or other long lived asset items :
(a) Cash (b) Bank (c) Land
(d) Bills receivable (e) Mahendra (supplier) (f) Bills payable
(g) Mortgage (h) Goodwill (i) Stock in-trade
(j) Accured wages and salaries payable (k) Naresh (customer) (l) Office supplies
(m) Prepaid advertising (n) Accrued interest (o) Office furniture
(p) Trade mark (q) Patent rights (r) Machines
(s) Kishore’s capital (t) Buildings
[Current assets : (a), (b), (d), (i), (k), (l), (m), (n); plant and equipment : (o), (r); current liabilities : (e), (f), (j);
long-term liabilities : (g); owner's equity; (s) : intangible assets : (h), (p), (q); other long-lived assets : (c), (t)]
8. The assets of a firm total Rs. 20,000; the liabilities Rs. 3,000. The claims of the owner are ..............
(Rs. 17,000)
9. The assets of a firm total Rs. 70,000; the owners’ equity Rs. 50,000. The claims of outside equity are ......
(Rs. 20,000)
10. Calculate gross profit from the following information :

Rs. Rs.
Opening Stock 15,000 Wages 6,000
Net Purchases 25,000 Discount 4,000
Net Sales 40,000 Carriage outward 3,000
Closing Stock 7,000
(Hint : Gross profit = Net sales - Cost of goods sold) [Ans. Gross profit = Rs. 1,000]
11. Calculate Gross profit and cost of goods sold from the following information :
Net sales Rs. 1,00,000

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Gross profit is 25% on cost. [Ans. Gross profit = Rs. 20,000 ; Cost of goods sold = Rs. 80,000]
12. S. Kumar & Sons close their financial books on 31st December. Stock taking takes about two weeks. In
1995, the value of closing stock thus arrived at was Rs. 25,000. During the two weeks in which stock taking
took place purchases made were Rs. 1,000 and sales totalled Rs. 4,000. The firm makes a gross profit of
30% on sales. Ascertain the value of closing stock on 31st December, 1995.
[Ans. The value of closing stock = Rs. 26,800]
13. Opening stock Rs. 5,000 ; sales Rs. 16,000 ; carriage inward Rs. 1,000 ; sales returns Rs. 1,000; Gross profit
Rs. 6,000, purchases Rs. 10,000; and purchases returns Rs. 900. Calculate the closing stock and the cost of
goods sold.
[Ans. Closing stock = Rs. 6,100 ; Cost of goods sold = Rs. 9,000]
14. The following information of an accounting year is given :
Opening capital Rs. 60,000, Drawings Rs. 5,000, capital added during the year Rs. 10,000 and closing capital
Rs. 90,000. Calculate profit or loss for the year.
[Ans. Profit for the year = Rs. 25,000]
15. Prepare a Trading account from the following information :
Debit Credit
Rs. Rs.
Opening Stock 28,000
Purchases and Sales 42,000 58,000
Returns Inward and Outward 2,000 3,000
Import duty 7,000
Export Duty 2,000
Stores consumed 5,000
Closing stock was valued at Rs. 8,000
[Ans. Gross Loss = Rs. 15,000]
16. Prepare the Trading account of Kumar from the following balances for the year ending March 31, 1996.
Rs. Rs.
Opening Stock 15,800 Sales Return 200
Purchases 16,000 Wages 6,500
Sales 30,000 Carriage 300
Purchases Returns 300 Closing Stock 16,000
[Ans. Gross Profit = Rs. 7,500]
17. From the following information extracted from the books of Rustamji, prepare Trading Account for the year
ending March 31, 1996.
Rs. Rs.
Sales 50,000 Office expenses 2,000
Sales Return 150 Octroi 5,000
18. Compute from the information given below the amount of liabilities and capital the end of the year ;
January 1, 20.... December 31, 20....
Assets ? Rs. 45,000
Liabilities Rs. 7,000 ?

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Capital Rs. 30,000 ?
Investments by the owner during the year Rs. 5,000
Withdrawals by the owner during the year Rs. 2,000
Net Income for the year Rs. 3,200
[Ans. Liabilities Rs. 8,000 ; Capital Rs. 36,200]
19. The Goods/Trading A/c of B. Beri for the month of January, 19.. shows a Gross Profit of Rs. 54,000. Find his
net profit by preparing a Profit and Loss Account from the following particulars :
19.. Jan. Rs.
31 Rent 1,000
31 Salary 5,700
31 Stationery 250
31 Discount (Cr.) 350
[Ans. Net Profit Rs. 47,400]
20. Sham Bihar commenced business on Jan, 1, 19.. with a capital of Rs. 1,00,000 of which he paid Rs. 80,000
into bank. He took an office and godown at a rent of Rs. 24,000 per annum.
His transactions for the month were as follows :
19.. Jan Rs.
1 Bought of Walaiti Ram goods 5,200
1 Bougth of Ram Chand goods 3,000
1 Bought of Tek Chand goods 5,000
1 Paid rent for the month
3 Insured stock and paid premium 100
4 Returned goods to Walaiti Ram 1,200
6 Sold goods to Babu Ram 2,500
9 Bought of Prem Chand Goods 8,800
12 Sold goods for cash 2,100
13 Sold to Janaki Parshad goods 3,200
14 Returned goods to Prem Chand 1,000
15 Sold goods for cash to Chandu Lal 2,200
17 Paid to Walaiti Ram cash deducting Rs. 50 discount 3,900
18 Sold goods to Ram Nath 3,650
20 Received cash from Babu Ram allowing discount Rs. 20 2,480
21 Paid travelling expenses 2,500
21 Withdrew for private expenses 5,000
22 Paid Ram Chand, deducting Rs. 30 2,970
23 Paid Tek Chand, deducting Rs. 50 4,950
24 Ram Nath returned goods 400
25 Received from Janaki Pershad Discount allowed to him 3,160
27 Sold to Babu Ram goods 5,500
28 Paid sundry expenses 500

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30 Babu Ram returned goods 500

31 Paid salaries 2,500
Stock on hand on Jan, 31, 19..
Enter the foregoing transaction in proper books and prepare a Trial Balance, afterwards drawing up a Profit
and Loss Account and Balance Sheet.
[Ans : Cash Balance Rs. 5,470; Discount - Dr. Rs. 60, Cr. Rs. 130; Purchases Book Rs. 22,000; Sales Book
Rs. 14,850; Returns Inwards Book Rs. 900; Returns Outwards Book Rs. 2,200; Trial Balance Rs. 1,10,070.
Gross Profit Rs. 5,000; Net Loss Rs. 2,530; Final Capital Rs. 99,470; Balance Sheet Rs. 1,00270]
21. Complete the following sentences by choosing the correct alternative :
(i) Outstanding Expenses are : (a) nominal accounts (b) properties (c) personal accounts.
(ii) Income earned but not received is : (a) an asset, (b) a nominal account, (c) a liability.
(iii) Pre-paid insurance appears in ; (a) P & L account, (b) List of assets, (c) Trading account.
(iv) Interest on Drawings is deducted from : (a) Drawings, (b) Net profit, (c) Capital.
(v) Depreciation is a : (a) loss, (b) asset, (c) income.
(vi) Interest on capital is : (a) additional capital, (b) expense to business (c) liability.
(vii) Reserve for Doubtful Debt is deducted from S. Debtors : (a) in the ledger, (b) in the Balance Sheet only,
(c) in the net profit.
[Ans. (i) c; (ii) a; (iii) b; (iv) c; (v) a; (vi) b; (vii) b]
22. Classify the following between Capital and Revenue giving reasons for the same :
(a) Rs. 5,000 spent towards additions to the machinery.
(b) Repairs for Rs. 1,000 necessitated by negligence.
(c) Rs. 500 spent to remove a wornout part and replace it with a new one.
(d) Rs. 100 wages paid in connection with the erection of a new machinery.
(e) Old machinery of book value of Rs. 7,500 wornout, dismantled at a cost of Rs. 1,000 and scrap realised
for Rs. 100.
(f) Second-hand motor-car purchased for Rs. 10,000 and spent Rs. 1,000 for repairs immediately.
(g) Employees State Insurance premium Rs. 600 paid.
(h) Insurance claim of Rs. 5,000 received from the insurance company for loss of goods by fire of Rs. 6,000.
23. State with reasons whether the following are Capital or Revenue expenditure :
(a) Expenses incurred in connection with obtaining a license for starting the factory were Rs. 10,000.
(b) Rs. 1,000 paid for removal of stock to a new site.
(c) Rings and pistons of an engine were changed at a cost of Rs. 5,000 to get fuel efficiency.
(d) Rs. 2,000 spent as lawyer’s fee to defend a suit claiming that the firm’s factory site belonged to the plaint
if. The suit was not successful.
(e) Rs. 10,000 were spent on advertising the introduction of anew product in the market, the benefit of which
will be effective during four years.
(f) A factory shed was constructed at a cost of Rs. 1,00,000. A sum of Rs. 5,000 had been incurred in the
construction of temporary huts for storing building material.
[Hint. For (d) Rs. 1,05,000 will be treated as capital expenditure]
24. Calculate operating profit from the following -

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Net profit- 5,00,000
Dividen recieved 6,000
Loss on sale of furniture 12,000
Loss by fire 50,000
Salaries 1,20,000
Interest on loan from bank 10,000
Rent recieved 24,000
Donation 5,100
Ans - Op Profit 5,47,100
25. Ascertain the values of closing stock from the following -

Opening Stock 1,20,000
Purchases 9,30,000
Sales 15,60,000
Rates of Gross Profit 40% on sales.
Ans- Closing stock 1,14,000
HOTS
1. What are Financial Statements?
2. What is a Trading Account?
3. What is Gross Profit?
4. What is a Profit and Loss Account?
5. What is Net Profit?
6. What is a Balance Sheet?
7. Give two characteristics of a Balance Sheet.
8. Write one difference between a Trial Balance and a Balance Sheet.
9. “Profit and Loss Account shows the financial position of the enterprise”. Do you agree?
10. “Profit and Loss Account is a point statement whereas a Balance Sheet is a period statement.’’ Do you agree?
11. “Under the liquidity approach, assets which are most liquid are presented at the top of the balance sheet’’. Do
you agree?
12. When does closing stock appear inside the Trial Balance?
13. Rearrange the following assets in order of liquidity :—
(i) Debtors (ii) Bills Receivable
(iii) Goodwill (iv) Closing Stock
(v) Prepaid insurance (vi) Cash in hand
(vii) Short-term Investments (viii) Loose Tools

111
(ix) Cash at bank (x) Plant

14. Prepare Profit and Loss Account for the year ended 31st December. 1993 from the following particulars :—
Rs. Rs.
General expenses 1.200 Gross profit 76.900
Charity 300 Carriage Outwards 2.000
Office Lighting 500 Office Expenses 1.600
Law Charges 580 Fire insurance Premium 1,800
Advertisement 1.420 Telephone Expenses 1,350
Bank charges 120 Establishment Expenses 250
Commission 700 Miscellaneous Expenses 710
Rent. Rates and Taxes 3.000 Discount Received 620
Interest on investments 1,200 Traveller’s salary 6.000
Sundry Receipts 600 Repair 430
Indirect Expenses 210 Commission 200
Printing and Stationery 150
15. Calculate the amount of gross profit operating profit and net profit on the Basis of the following balances
extracted from the books of M/s Rajiv & Sons for the year ended March 31, 2005.
Rs
Net Sales 11,00,000
Net Purchases 6,00.000
Direct Expenses 60,000
Administration Expenses 45,000
Selling and Distribution Expenses 65.000
Loss due to Fire 20.000
Closing Stock 70.000
ANSWER
1. Financial statements are those statements which provide information about the I profitability and the financial
position of a business. The term ‘Financial -Statements’ includes at least two statements which are : (i) Balance
Sheet; (ii) Trading and Profit & Loss A/c.
2. Trading Account is one of the financial statements which shows the result of buying and selling of goods and
services of an accounting period.
3. It is the excess of selling price of the goods over the cosi of goods sold.
4. It shows the overall result of business operations i.e., netprofit earned or net loss incurred during an accounting

112
period.
5. Net Profit means the excess of all revenue over all expenses and losses of all business enterprise.
6. It refers to a statement of Assets and Liabilities of an enterprise on a certain fixed date.
7. Two characteristics of a Balance Sheet are:
(i) It is a statement and not an account. It has no debit or credit side. The headings of the two sides
are ‘Assets’ and ‘Liabilities’.
(ii) It is prepared on a particular date and not for a particular period.
8. Balance sheet is final account of company and depicts ‘Assets’ and ‘Liabilities’ and trial balance is summary of
all ledgers.
9. No. It does not show the financial position of the enterprise. It shows the financial performance i.e., profit or loss
of .an enterprise for a particular period.
10. No. Profit and Loss Account is a periodic statement because it is prepared for a particular period whereas
Balance Sheet is a point statement because it is prepared on a particular date.
11. Yes.
12. Closing stock is given inside the Trial Balance when the entry to incorporate the closing stock in the books has
already been passed. It would imply that the Closing Stock must have been deducted out of Purchases Account.
Hence, in such a case, Closing Stock will not be shown in the Trading Account but will appear on the Assets
side of the Balance Sheet only.
13. (vi); (ix); (ii) (vii); (i); (iv); (v); (viii); (x); (iii)]
14. Net Profit Rs. 57-200.
Hint:— Interest on Investments is an. income.
15. Gross Profit Rs. 4,60,000, Operating Profit Rs. 3,50,000; Net Profit Rs. 3,30.000.
Chapter - 13 Adjustments in Preparation of Financial Statement
1. The following trial balance in extracted from the books of a merchant on 31st December, 1988 :
Debit ( Rs.) Credit ( Rs.)
Furniture and fittings 640
Motor vehicles 6,250
Buildings 7,500
Capital Account 12,500
Bad debts 125
Provision for bad debts 200

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Sundry debtros and creditors 3,800 2,500
Stock on Jan. 1, 1988 3,460
Sales and Purchases returns 200 125
Advertising 450
Interest (on bank overdraft) 118
Commission 375
Cash 650
Taxes and insurance 1,250
General expenses 782
Salaries 3,300
34,000 34,000
The following adjustments are to be made :
(a) Stock in hand on 31st December, 1988 was Rs. 3,250.
(b) Depreciate buildings @ 5%, furniture and fittings @ 10%, and motor vehicles @ 20%.
(c) Rs. 85 is due for interest on bank overdraft.
(d) Salaries Rs. 300 and taxes Rs. 120 are outstanding.
(e) Insurance amounting to Rs. 100 is prepaid.
(f) One-third of the commission received is in respect of work to be done next year.
(g) Write off a further sum of Rs. 100 as bad debt and provision for bad debts is to be made equal to 10 per
cent on sundry debtors.
Prepare a trading and profit and loss account for the year ending 31st December, 1988 and a balance sheet as
on that date.
[Gross profit Rs. 9,690; Net profit Rs. 1,551 ; Balance sheet total Rs. 20,031]
2. From the following Trial Balance of M/s. Ram & Sons, prepare Trading and Profit and Loss Account for the
year ending on 31st December 1987, and the Balance Sheet as on that date :
Dr. Cr.
Rs. Rs.
Purchases 21,750
Discount allowed 1,300
Wages 6,500
Salaries 2,000
Travelling expenses 400
Sales 35,000
Commission 425
Carriage inwards 275
Administration expenses 105
Trade expenses 600
Interest 250
Building 5,000

114
Furniture 200
Debtors 4,250
Capital 13,000
Creditors 2,100
Cash 7,045
50,100 50,100
Stock on 31st December 1987, was Rs. 6,000. Depreciate building by 20%. Create a provision for bad debts
at 10% on debtors Outstanding wages Rs. 475.
[Gross Profit Rs. 12,000; Net Profit Rs. 5,495, Balance Sheet total Rs. 21,070]
3. Prepare Final Accounts from the following as on December 31, 1987.
Extracts of Balances
As on 31-12-1987
Debit Balances: Rs. Rs.
Drawings 15,000 Cash in hand 1,400
Goodwill 30,000 Sundry Debtors 45,000
Land & Buildings 60,000 Repairs 1,800
Plant and Machinery 40,000 Printing and Stationery 500
Loose Tools 3,000 Bad Debts 1,200
Bills Receivable 2,000 Advertisements 3,500
Stock 1st Jan. 1987 40,000 Sales returns 2,000
Purchases 51,000 Furniture and fixtures 1,200
Wages 20,000 General expenses 5,250
Carriage inwards 1,200 Credit Balances :
Carriage outwards 1,500 Bills Payable 13,800
Coal and gas 5,600 Capital 2,03,000
Salaries 4,000 Sundry Creditors 30,000
Rent, rates and taxes 2,800 Purchase Returns 2,650
Discount allowed 1,500 Sales 1,15,000
Cash at Bank 25,000
Adjustments :
(a) Closing stock on 31st December 1987 was Rs. 60,000.
(a) Depreciate Plant and Machinery at 5%. Loose Tools at 15% and Furniture and Fittings at 5%.
(c) Provide 2½% for discount on Sundry Debtors @ 5% for Bad and Doubtful Debts.
(d) Outstanding wages Rs. 1,500 and Rent, Rates etc. Rs. 850.
[Gross Profit Rs. 56,350 ; Net Profit Rs. 28,370 ; Balance Sheet total Rs. 2,61,770]
4. Anupam had elementary knowledge of books-keeping. He prepared his Final Accounts showing a net profit of
Rs. 625 and the total of Balance Sheet prepared by him was Rs. 90,000. But he totally ignored the following
adjustments in the preparation of Final Accounts :
(i) Closing stock of goods Rs. 5,000.
(ii) Goods donated Rs. 500 and lost by fire Rs. 600.

115
(iii) Prepaid insurance Rs. 900 and Advance payment of salary to Munim Rs. 1,000.
(iv) Outstanding wages Rs. 100 and Rent due for 3 months at the rate of Rs. 1,200 per annum.
(v) Depreciation on the following assets :
(a) 7½% on Machine valued at Rs. 15,000.
(b) 2½% on Building valued at Rs. 20,900.
(vi) Bad Debts to be written off Rs. 750 and a Reserve for Bad Debts to be created at 5% on Debtors (shown
by Anupam Rs. 21,750).
(vii) 2% Reserve for discount on Debtors.
(viii) Interest accrued Rs. 600, Interest due Rs. 300.
Show by way of a suitable statement his real net profit or net loss, after making the necessary adjustments and
also find out the total of his Balance Sheeet after such adjustments, as a student of Book-keeping.
[Real Net Profit Rs. 1,178.50 ; Balance Sheet total (after adjustments) Rs. 91,953.50]
5. From the following Trial Balance, extracted from the books of Mr. Nair, prepare a Trading and Profit and Loss
Account for the year ended 31st December, 1987 and a Balance Sheet as on that date.
Dr. Cr.
Rs. Rs.
Nair’s Capital acount 1,80,000
Nair’s drawing account 12,960
Land 50,000
Plant and Machinery 28,540
Furniture 2,500
Carriage inwards 8,740
Wages (Manufacturing) 42,940
Salaries 9,340
Bad debts provision 3,940
Sales 1,82,460
Sales return 3,520
Bank charges 280
Coal, Gas and Water 1,440
Rates and Taxes 1,680
Discount Account (balance) 240
Purchases (Adjusted) 61,460
Bills receivable 2,540
Trade expenses 3,980
Sundry debtors 75,600
Sundry creditors 24,340
Stock, 31st December 1987 58,780
Apprentice premium 2,000
Fire insurance 980
Cash at Bank 26,000

116
Cash in Hand 1,280
Bad debts 420
3,92,980 3,92,980
Charges depreciation on Land at 2½%, on Plant and Machinery at 10% and on Furniture at 10%. Make a
provision of 5 per cent on the Sundry Debtors for Bad debts. The Bank has intimated that cheque for Rs. 800
received from a customer has been dishonoured. The customer is in difficulties and it is expected that he would
be able to pay 60% of the claims on him.
Carry forward the following unexpired amounts :
Fire insurance Rs. 250 ; Rates and taxes Rs. 480 ; Apprentice premium Rs. 800.
Trade expenses amounting to Rs. 430 have no yet been paid. Wages include Rs. 500 spent on the installation of
new machinery on 1st January, 1987. Allow 5 per cent interest on capital but not on drawings.
[Gross profit Rs. 64,860 ; Net profit Rs. 36,356 ; Balance sheet Rs. 2,37,966]
6. Shri Raju commenced business on January 1, 1995 in a rented premises. He paid 3 months’ rent as advance to
the landlord.
On the 31st December, 1995 the following were his ledger balances :
Rs. Rs.
Capital 1,00,000 Building 1,10,000
Cars and Vans 60,000 Loan from Bank 40,000
Interest 23,750 Purchases 3,00,000
Sales 4,50,000 Sundry Debtors 70,000
Cash in Hand 100 Bank Overdraft 25,000
Salaries 12,000 Printing & Stationery 2,000
Advertisement 11,000 Travelling expenses 5,000
Freight Inward 3,000 Freight Outward 500
Sales Tax Outstanding 3,000 Sundry Creditors 10,000
Rent and advance 2,400 Rent paid 8,000
Miscellaneous charges 10,250 Drawings 10,000
Prepare Raju’s Trading and profit and loss account for the year and his Balance sheet as at December 31, 1995,
after taking into account the following further information :
(a) Closing stock on December 31st was Rs. 50,000.
(b) A provision is to be made for doubtful debts at 2½% of sundry debtors.
(c) During the year, new building was constructed which was ready for occupation on 1st November. The
business was shifted on the same dya to the new premises and notice was given to the landlord regarding
vacation of premises by January 31, 1996.
(d) Cars and vans are to be depreciated at 20% for one year.
(e) Building is to be depreciated at 2½ per annum.
[Ans. Gross Profit = Rs. 1,97,000 ; Net Profit = Rs. 1,06,400 ; Total of the Balance Sheet = Rs. 2,74,400]
7. Sanjiv started business on 1st January, 1992 with a capital of Rs. 30,000. The following trial balance was drawn

117
up from his book at the end of the year :
Debit Rs. Credit Rs.
Drawings 4,500 Capital 40,000
Plants and Fixtures 8,000 Sales 1,60,000
Purchases 1,16,000 Sundry Creditors 12,000
Carriage Inward 2,000 Bills Payable 9,000
Returns Inward 4,000
Wages 8,000
Salaries 10,000
Printing & Stationery 800
Advertisement 1,200
Trade Charges 600
Rent and Taxes 1,400
Bills Receivable 5,000
Investments 15,000
Discount 500
Cash at Bank 16,000
Cash in hand 3,000
2,21,000 2,21,000
The value of stock as on 31st December, 1992 was 26,000. You are required to prepare his Trading and Profit
and loss account for the year ended 31st December, 1992, and Balance sheet as on that date after taking the
following facts into account :
(a) Interest on capital is to be provided at 6% per annum.
(b) An additional capital of Rs. 10,000 was introduced by Sanjiv Sodhi on 1st July, 1992.
(c) Plant and fixtures are to be depreciated by 10%.
(d) Salaries outstanding on 31st December, 1992 amounted to Rs. 500.
(e) Accrued interest on investments amount to Rs. 750.
(f) Rs. 500 are bad debts and a reserve for doubtful debts is to be credited at 5 per cent of the balance of
debtors.
[Ans. Gross profit = 56,000 ; Net profit = Rs. 37,125 ; Total of Balance Sheet = Rs. 96,225]
Note : Interest on capital will be calculated on 30,000 for full year and on 10,000 for 6 months.
8. The following Trial Balance is extracted from the books of a merchant on 31st December, 19....
Debit Credit
Rs. Rs.
Furniture and fitting 640
Motor Vehicles 6,250
Buildings 7,500
Capital Account 12,500
Bad Debts 125

118
Provision for Bad Debts 200
Sundry Debtors and Creditors 3,800 2,500
Stock on January 1, 19.. 3,460
Sales and Purchases Returns 200 125
Advertising 450
Interest Account 118
Commission 375
Cash 650
Taxes and Insurance 1,250
General expenses 782
Salaries 3,300
34,000 34,000
(a) Stock in hand on 31st December 19.. was Rs. 3,250.
(b) Depreciate building @ 5% ; furniture and fittings @ 10% and motor vehicles 20%.
(c) Rs. 85 is due for interest on bank overdraft.
(d) Salaries Rs. 300 and taxes Rs. 100 is prepaid.
(e) Insurance amounting to Rs. 100 is prepaid.
(f) One-third of the commission received is in respect of work to be done next year.
(g) Write off further Rs. 100 as bad debts and provision for bad debts is to be made equal to 5% on sundry
debtors.
[Ans. Gross Profit = Rs. 9,690 ; Net Profit = Rs. 1,736 ; Total of the Balance Sheet = Rs. 20,216]
9. From the following Trial balance extracted from the books of MMN, prepare a Trading and profit and loss
account for the year ended 30th September, 1994 and a Balance Sheet as on that date :
Dr. Cr.
Rs. Rs.
MMN’s Capital Account 90,000
MMN’s Drawing Accounts 6,480
Land and Bui9lding 14,270
Plant and Machinery 1,250
Furniture and Fixtures 4,370
Carriage Inwards 21,470
Wages 21,470
Salaries 4,670
Provision for Bad Debts (1st Oct., 1993) 2,470
Sales 91,230
Sales Returns 1,760
Bank Charges 140

119
Coal, Gas and Water 840
Rates & Taxes 120
Discount Account (balance) 42,160
Purchases 8,460
Purchase Returns 1,270
Bills Receivable 1,990
Trade Expenses 37,800
Stock (1st Oct., 1993) 500
Apprentice Premium
(Received from an Apprentice in factory)
Fire Insurance 490
Cash at Bank 13,000
Cash in hand 850
2,04,950 2,04,950
Charge depreciation on land and buildings account at 2½ ; on plant and machinery at 10% and on furniture and
fixtures account at 10%. Make a provision of on the sundry debtors for bad debts (carry forward the following
unexpired amounts :
(i) Fire insurance Rs. 125.
(ii) Rates and taxes Rs. 240
(iii) Apprentice premium Rs. 400
Charges 5% interest on capital but not on drawings. The value of stock on 30th September, 1994 was agreed at
Rs. 29,390.
[Ans. Gross Profit = 37,180 ; Net profit = Rs. 18,538 ; Total of the Balance Sheet = Rs. 1,19,128]
10. On 31st December, 1993, the following Trial Balance was extracted from the books of Mohan.
Rs. Rs.
Capital 30,000
Drawings 5,000
Debtors and Creditors 10,000
Loan 10,000
Interest on Loan 300 9,500
Cash 2,000
Provision for Bad Debts 700
Stock (1-1-93) 4,800
Motor Vehicles 10,000
Bank 2,500
Land and Building 12,000
Bad Debts 500
Purchases and Sales 64,000 1,10,000

120
Returns 6,000 1,500
Carriage Outward 2,500
Carriage Inward 4,000
Salaries 4,000
Rent and Insurance 2,000
Advertising 2,500
Discount 500
General Expenses 4,400
B/R and B/P 4,000 2,000
Rent received 300
1,64,500 1,64,500
Prepare trading account and profit and loss account for the year ended 31st December, 1993 and Balance Sheet
as on that date after taking into account the following :
(a) Depreciate land and building at 3¼% and motor vehicles at 20%.
(b) Salaries outstanding Rs. 200.
(c) Prepaid insurance Rs. 200.
(d) Provision for bad debts is to be maintained at 5% on debtors.
(e) Stock on 31st December, 1993 was value at Rs. 7,000.
[Ans. Gross profit = 34,700 ; Net Profit = 10,700 ; Total of Balance Sheet = Rs. 57,400]
11. Prepare Trading Profit and Loss account for the year ended 31st December, 1995 and a Balance Sheet as on
that date from the following Trial Balances :
Dr. Cr.
Rs. Rs.
Capital 10,000
Cash 1,500
Purchases and sales 12,000 15,000
Returns 1,000 2,000
Establishment expenses 2,200
Taxes and insurance 500
Bad debts and bad debts reserve 500 700
Debtors and creditors 5,000 2,000
Commission 2,000
Deposits 4,000
Opening Stock 3,000
Drawings 1,400
Furniture 600

121
B/R and B/P 3,000 2,500

34,700 34,700
Adjustments :
(i) Salaries Rs. 100 and taxes Rs. 200 are outstanding but insurance Rs. 50 is prepaid.
(ii) Commission Rs. 100 received in advance for next year.
(iii) Interest Rs. 210 is to be received on deposits and interest on bank overdraft Rs. 300 is to be paid.
(iv) Bad debts reserve is to be maintained at Rs. 1,000.
(v) Depreciate Furniture by 10%.
(vi) Stock on 31-12-1995 is Rs. 4,500.
[Ans. Gross Profit = Rs. 5,500 ; Net Profit = Rs. 2,000 ; Total of Balance Sheet = Rs. 17,800]
12. The following balances were extracted from the books of Shri Krishan Kumar on 31st December, 1992.
Dr. Cr.
Rs. Rs.
Capital 24,500
Drawings 2,000
General expenses 2,500
Buildings 11,000
Machinery 9,340
Stock (1-1-92) 16,200
Power 2,240
Taxes and Insurance 1,315
Wages 7,200
Charity 105
Bad Debts 550
Bank Overdraft 11,180
Sales 63,360
Purchases 47,000
Scooter 2,000
Bad Debts Provision 900
Commission 1,320
Trade Expenses 1,780
Bills Payable 3,850
Cash 100
1,09,610 1,09,610
(a) Stock on 31st December, 1992 was valued at Rs. 23,500

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(b) Write off a further bad debts of Rs. 160 and maintain the provision for bad debts at 5% on sundry debtors.
(c) Provide 2% for discount on sundry creditors.
(d) Depreciation machinery at 10% and scooter by Rs. 240.
(e) Provide Rs. 750 for outstanding interest on Bank overdraft.
(f) Prepaid insurance is to the extent of Rs. 50.
(g) Provide Manager’s commission of 10% on the net profit after charging such commission.
Prepare a final accounts for the year ended 31st December, 1992 giving effect to the above adjustments.
[Ans. Gross profit = Rs. 16,220 ; Net profit = Rs. 9,000 ; Total of the Balance Sheet = Rs. 50,630]
13. The following balances were extracted from the books of Modern Traders on 31st March, 1993 :
Rs. Rs.
Capital 85,000 Sales 1,20,000
Drawings 5,000 Postage and Telegram 800
Plant & Machinery 40,000 Bad Debts 400
Accumlated depreciation 9,000 Provision for B/D 800
Stock on 1-4-1992 15,000 Discount received 400
Purchases 82,000 Rent received 1,200
Sundry Debtors 20,600 Insurance 700
Furniture 5,000 Salaries 20,000
Freight inward 2,000 Wages 1,300
Carriage Outward 500 Cash in hand 6,200
Rent, Rates & Taxes 4,600 Cash at Bank 25,500
Printing & Stationery 800 Reserve Fund 5,000
Prepare final accounts for the year ended 31st March, 1993 after taking into account the following :
(a) Stock on 31st December was valued at Rs. 15,000.
(b) Outstanding wages Rs. 500.
(c) Provision for doubtful debts is to be maintained at 5 per cent of the debtors.
(d) Prepaid insurance was Rs. 100.
(e) Provide depreciation on plants and machinery at 10% and on furniture at 5%.
HOTS
1. EXTRACTS OF TRIAL BALANCE
st
as on 31 December, 1993
Dr.(Rs.) Cr. (Rs.)
Rent Received 3,900
Adjustment :—Rent received but not earned Rs. 300. Show effect in final accounts.

123
as on 31st December, 1993
Dr. (Rs.) Cr. (Rs.)
Loan from bank @ 12% p. a. 10,000
Adjustment:— Interest on Loan is due for the whole year. Show effect in final accounts.
Dr.(Rs.) Cr.(Rs.)
Bad-Debts 800
Adjustment:—Write off further Bad-debts Rs. 1,000. Show effect in final accounts.
Dr. (Rs.) Cr.(Rs.).
Debtors 60,000
Adjustment:— Create a provision for Bad and Doubtful Debts @ 5% on Debtors.Show effect in final accounts.
5. Why is closing stock valued at lower of cost or realisable value?

6. What are outstanding expenses?
7. What journal entry will be passed for outstanding salary?
8. What adjustment is made of outstanding expenses while preparing final accounts?
9. What is the need for providing outstanding expenses in final accounts?
10. What are prepaid expenses?
11. What journal entry will be passed for prepaid insurance?
12. What treatment is made of prepaid expenses while preparing final accounts’
13. Under which accounting concept provision is made for doubtful debts?
14. Provision for discount on debtors is made before making provision for doubtful debts. Do you agree?
15. 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?
16. What are deferred revenue expenditures?
17. Give an example of capital expenditure treated as revenue expenditure.
18. State with reasons whether each of the following statements is true or false?
1 A Profit and Loss Account is a point statement whereas a Balance Sheet is period statement.
2 Outstanding Wages given in the Trial Balance are transferred to Trading Account.
3 Closing Stock given in the Trial Balance is shown only in the Balance Sheet.

124
4 Goodwill is a fictitious asset.

5 Sales Tax paid is deducted from sales on the credit side of Trading Account.
6 Balance Sheet is an account.
7 The provision for discount on debtors is calculated after deducting the provision for doubtful debts from
debtors.
8 Any expenditure intended to benefit the current period is revenue expenditure.
9 Repairs to second hand machinery before it is pul to use are capitalised.
10 Deferred Revenue Expenditure is current year’s revenue expenditure to be paid in later years.
19. From the following Trial Balance of Mr. Alok, prepare Trading and Profit & Loss Account for the year ending
31st March, 1989, and a Balance Sheet as on that date :—
Dr. Balances Rs. Cr. Balances Rs.
Drawings 5,275 Capital 59,700
Bills Receivable 4,750 Loan at 8% p.a. 10,000
(on 1.4.1988)
Machinery 14,400 Commission Received 2,820
Debtors (including X for Creditors 29,815
dishonoured Bill of Rs. 1,000) 30,000 Sales 1,78.215
Wages 20,485
Returns Inward 2,390
Purchases 1,28,295
Rent 2,810
Stock (1.4.1988) 44,840
Salaries 5,500
Travelling Expenses 945
Insurance 200
Cash 9,750
Repairs 1,685
Interest on Loan 500
Discount Allowed 2,435
Bad-Debts 1,810
Furniture 4,480
2,80,550 2,80,550

125
(i) Stock in the shop on 31st March, 1989 was Rs. 64,480.
(ii) Half the amount of A’s Bill is irrecoverable.
(iii) Create a provision of 5% on other debtors,
(iv) Wages include Rs. 600 for erection of new Machinery.
(v) Depreciate Machinery by 5% and Furniture by 10%.
(vi) Commission includes Rs. 300 being Commission received in advance.
ANSWERS
1. Adjustment Entry :— Drawings A/c Dr 300
To Interest on Drawings A/c 300
PROFIT & LOSS A/C
Dr.Amount Cr.Amount
By Interest on Drawings 300
BALANCE SHEET
Liabilities Amount Assets Amount
Rs. Rs.
Capital 50.000
Less : Drawings 8,000
42,000
Less: Interest
on Drawings 300 41,700
2. Adjustment Entry :—
Interest on Loan A/c Dr. 1,200
To Outstanding Interest A/c 1,200
(Outstanding interest on Loan)
3. Adjustment Entry :—
Bad-debts A/c Dr. 1,000
To Sundry Debtors A/c 1,000
(Further Bad-debts written off)
4. Adjustment Entry-
Profit & Loss A/c Dr. 3000

126
To Provision for bad and doubtful debts A/c 3000
5. It is based on the principle of prudence (or conservatism) according to which al! anticipated losses should be
taken into account, but all unrealized gains should be ignored.
6. These are the expenses which have been incurred during the year but have been left unpaid on the date of
preparing the final accounts.
7. Salary A/c Dr.
To Outstanding Salary A/c
8. 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.
9. 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.
10. These are the expenses which have been paid in advance for the next penod during the current period itself. In
other words, benefit of such payments will be available in the next accounting period.
11. Prepaid Insurance A/c Dr.
To Insurance A/c
12. 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.
13. Prudence Concept.
14. No. Provision for discount on debtors is calculated after deducting provision for doubtful debts from debtors.
15. 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.
16. 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.
17. Wages include Rs. 10,000 spent on the installation of New Machine : In order to rectify the mistake, Rs. 10,000
will be deducted from Wages and added in Machinery.
18.1 False : A profit and loss account is a period statement because it depicts the results of operations of whole
period. Balance Sheet is a point statement because it reflects the financial position of an enterprise at a specified
point of time.
2 False : Outstanding Wages given in trial balance means that they have already been added in the wages. Hence,
they will be shown only on the liability side of Balance Sheet.
3 True : When closing stock is given in trial balance it denotes that it has already been deducted out of Purchases
given in Trial Balance. Hence, it will be shown only on the assets side of Balance Sheet.
4 False : Goodwill is an intangible asset and not a fictitious asset. The reason is that it has a value and can be sold
for a price.
5 True : Sales include the amount of Sales tax collected from customers at the time of sale. Hence, sales tax when
paid to the government is deducted from sales on the credit side of Trading Account.
6 False : Balance Sheet is a statement and not an account. It has no debit or credit sides. It is only a statement

127
showing the financial position of the firm on a particular date.
7 True : The reason is that the discount will be allowed only to those debtors who will make prompt payment.
Hence, provision for discount is calculated on good debtors arrived at after deducting the provision for doubtful
debts.
8 True : The benefit of revenue expenditure is received during the current year itself and it does not result in the
acquisition of capital asset which may increase the earning capacity of the business in future.
9 True : All expenses incurred on an asset before it is put to use are capital expenditure.
10 False : Deferred Revenue Expenditure is paid in the Current Year but the benefit of it is likely t o
be derived over a number of years.
19.G.P. Rs. 47,285; N.P. Rs. 30,472; B/S Total Rs. 1,25,312,
Hint :— Provision for Doubtful Debts will be calculated on Rs. 29,000.
short and very short answer type Questions (with Answers)
1 The following figures were extracted from the Trial Balance of AB Ltd. as on 31.03.08.
Particulars Debit (Rs.) Credit (Rs.)

Balance Balance
Debtors 45,000
Bad Debts 2,000
Further bad debts are Rs. 1,000. Pass journal entry and show the items in the final accounts.
Ans.
Date Particulars Debit (Rs.) Credit (Rs.)
Bad debts a/c Dr. 1,000
To Debtors a/c 1,000
(Being bad debts w/off)
Profit & Loss A/c

for the year ended 31.03.08
Dr. Cr.
Particulars Amt. (Rs.) Particulars Amt. (Rs.)
Bad debts 2,000
+ Additional + 1,000
Bad debts _______ 3,000
Balance Sheet As on 31.03.08
Liabilities Amt. (Rs.) Assets Amt. (Rs.)

Debtors 45,000
-Additional 1,000

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bad debts 44,000
2 The profit earned by the firm before allowing the manager’s commission is Rs. 55,000 and the manager is
entitled to a commission of 10% on Net Profit after charging such commission. Give the journal entry.
Ans.
Managers commission a/c Dr. 5,000
To O/s manager’s commission 5,000
(being commission due to manager)
Profit & Loss A/c Dr. 5,000

To manager’s commission 5,000
(being commission charged)
Working Notes :
3 Extract of Trial Balance

Particulars Debit (Rs.) Credit (Rs.)
Balance Balance
Interest on loan 20,000

Loan @ 10% p.a. 3,00,000
Loan was taken on 01.04.09 give necessary entry and show how it will appear in fixed accounts.
Ans. Interest on loan A/c Dr. 10,000
To outstanding interest a/c 10,000
Profit & Loss A/c

Dr. Cr.
Interest on loan 20,000
+o/s interest 10,000 30,000
Balance Sheet
Liabilities Amt. (Rs.) Assets Amt. (Rs.)

Loan @ 10% p.a. 3,00,000
Interest on loan o/s 10,000
4. Rent paid Rs. 18,000 & 60% of the rent paid was in respect of factory icon will it be treated in Final a/cs of the
business.
Ans. a) Rent to the extent of Rs. 10,800 (60% of actual) to be debited to trading a/c.
b) Rent to the extent of Rs. 7,200 (40% of actual) to be debited to profit & loss a/c.
5. What are contingent liabilities ? Give example.
Ans. These are those liabilities which are not certain at the time of preparing Balance Sheet. They may or may not
occur.
Example :
i) Liability in respect of bill discounted
ii) claims against the business enterprise not acknowledged as debts.

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6 How would you treat heavy loss due to earthquake or flood ?
Ans. Deferred Revenue Expenditure.
7 What are fictitious assets.

Ans. These are those assets which are to be shown in the balance sheet because of the fact that these showa debit
balance and are yet to be written off through profit & loss account.
Example : preliminary expenses, deferred revenue expenditure.
8 How do you treat interest accrued on investments when given in the trial balance ?
Ans. It is shown only on the assets side of the balance sheet.
9 How will a cloth manufacturer treat cloth used for personal use Rs. 1,500.
Ans. It shall be treated as drawings.
10 Is sales tax collected an expense ?
Ans. No Sales Tax collected is a liability.
11 Give the adjusting entries when interest on drawings is charged @ 12% p.a. and drawings are Rs. 12,000.
Ans. a) Capital a/c Dr. 720
To interest on drawings 720
(being interest on drawings charged)
b) Interest on drawings a/c Dr. 720

To Profit & Loss a/c 720
(being interest on drawings
transferred to P & L A/c)

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Mid Term Examination

ACCOUNTANCY
Time : 3 hrs. M. Marks : 80
General Instructions :
(a) This question paper contains 32 questions.
(b) All questions are compulsory.
(c) All parts of a question should be attempted at one place.
(d) Whenever necessary, show your workings clearly.
1. State any two limitations of accounting. (1)

2. Which statement shows the financial position of any business? (1)
3. Explain briefly investors as a user of accounting information. (1)
4. The proprietor has withdrawn goods from the business for his personal use. Is it compulsory to record it in the
books of the firm? Give reasons stating the concept. (1)
5. Goods costing Rs. 40,000 are sold at a loss of 25%. Half the payment is received in cash. How will this
transaction effect the Accounting Equation? (1)
6. Indicate whether the following transactions would increase, decrease or have no impact on owner's equity :-
(a) Purchased goods on credit
(b) Goods given as charity. (1)
7. Bought goods from Ratnakar for Rs. 8,000 for cash and paid carriage charges Rs. 800. Journalise. (1)
8. What is a simple Jounal entry? (1)
9. Balance the following ledger on 31st March 2019 :
SHYAM ACCOUNT
Dr. Cr
Date Particulars F Rs. Date Particulars F Rs.
06.3.19 Purchase Return 8,000 1.3.19 Purchase A/c 1,00,000
26.3.19 Cash A/c 20,000
31.3.19 Bank A/c 30,000
31.3.19 Discount received A/c 2,000
10. Distinguish between Journal and Ledger on the basis of 'Nature of Book'. (1)
11. Specify the nature of accounts from the following :
(a) Machinery A/c (b) Salary outstanding A/c (1)
12. Where will increase in following accounts be recorded?
(a) Purchases A/c (b) Interest received A/c (1)
13. Debit side of cash book represents ______ and credit side of cash book represents ______. (1)

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14. Purchase of stationary on credit by Rama Stationers shall be recorded in which book; when the business main-
tains proper books of accounts. (1)
15. Give an example each of direct and indirect expenses. (1)
16. Calculate closing stock from the following information :
Opening Stock Rs. 5,000; Sales Rs. 16,000; Carraige inwards Rs. 1,000; Sales Return Rs. 1,000; Gross Profit
Rs. 6,000; Purchase Rs. 10,000; Purchase Returns Rs. 700. (1)
17. Give two examples of non current liabilities. (1)
18. From the following figures; calculate operating profit :
Net Profit Rs. 1,00,000
Rent received Rs. 10,000
Gain on sale of machine Rs. 15,000
Interest on loan Rs. 20,000
Donation Rs. 2,000
Insurance premium Rs. 3,000 (1)
19. What will be the amount to be shown in P & L Account if insurance premium paid is Rs. 1,000 and prepaid
insurance is Rs. 300/-. (1)
20. What will be the treatment of following items in the financial statements; if these are shown in trial balance;
(a) Pre received income (b) Closing stock (1)
21. Define the following with example :
(a) Discount (b) Bad Debts
(c) Trade Receivables (3)
22. (i) Everything a firm owns, it also owes it out to somebody. This coincidence is explained by which concept?
(1)
(ii) Rama purchased a machine on 1st April, 2017 for Rs. 50,000. Depreciation at the rate of 20% was
charged on machine for two years. From 1st April, 2019 the rate of depreciation was reduced to 10%. No
mention of this change was made in the financial statement or notes there to . Explain the accounting
assumption which has been violated. (2)
OR
(i) What is meant by GAAP? (1)
(ii) Complete the following :
(a) If a firm believes that some of its debtors may 'default', it should act on this by making sure that all
possible losses are recorded in the books. This is an example of — concept.
(b) A firm may hold stock which is heavily in demand. Consequently, the market value of this stock may
increase. Normal accounting
procedure is to ignore this because of the _______.
(c) The fact that a business is separate and distinguishable from its owners in best exemplified by the
_______ concept.
(d) A comapany incurs a heavy amount of Rs. 15,00,000; on publicity through TV and Radio. It wishes

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to spread the expenditure over a
period of 5 years. This is possible because of - principle. (2)
23. Journalise the following transactions in the books of Laxman for the month of
January 2019 (show your workings clearly)
Jan 1 Started business with cash Rs. 80,000; goods Rs. 30,000 and furniture Rs. 40,000.
Jan 3 Bought goods from Arun of the list price Rs. 25,000 at a trade discount of 20%.
Jan 5 Returned goods to Arun of the list price Rs. 2,000.
Jan 7 Settled the account of Arun by paying cash under a discount of 4%.
Also prepare Arun's Account. (4)
24. Fill the missing information in the following analysis of transactions : (4)
Accounts Nature of How

Transactions Dr. (Rs.) Cr. (Rs.)
Involved Account affected
Dinesh started ______
______ Asset ______
business with cash ______
Capital ______ Increased
Rs. 1,00,000
Withdrew cash Rs. 12,000
Asset Increased
12,000 for personal ______
Asset ______
use 12,000
8,000
Amyah Liability ______
Paid Amyah by ______
Bank ______ ______
cheque Rs. 8,000
4,900
Interest ______ ______
Paid interest on loan ______
______ Asset ______
Rs. 4,900
25. From the following cash account; you are required to ledger post to : (4)
(a) Sales Account (b) Ram's Account
(c) Wages Account (d) Furniture Account
Also balance these accounts on 31.01.2019.
Dr. Cr
Date Particulars F Rs. Date Particulars F Rs.
01.01.19 Balance b/d 10,000 03.01.19 Purchase A/c 3,000
07.01.19 Sales A/c 1,000 05.01.19 Wages A/c 50
17.01.19 Shyam's A/c 2,000 10.01.19 Ram A/c 1,000
15.01.19 Interest A/c 100
18.01.19 Furniture A/c 2,000
20.01.19 Bank A/c 200
31.01.19 Balance c/d 6,650
13,000 13,000
01.02.19 Balance b/d 6,650
26. From the following information, prepare a trading account for the year ending 31st March 2019 :
Rs. Rs.

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Opening Stock 20,000 Purchases Return 18,000
Purchases 1,40,000 Carriage inwards 5,000
Sales 2,38,000 Power and Fuel 4,000
Wages 15,000 Donations 1,200
Sales Return 10,000 Rent received 1,500
Stock on 31st March 2019 was Rs. 25,000. (4)
27. Prepare Purchases book and Sales Return Book from the following details for the month of February 2019 :-
2019
Feb 1 Purchased from Ambika Stationery ;
10 Dozen Note Book @ Rs. 120 per dozen
32 Registeres @ Rs. 25 per register
Trade Discount @ 10%
Feb 4 Sold to Raman Stationery ;
40 dozen pens @ Rs. 50 per dozen
20 dozen pencils @ Rs. 50 per dozen
Trade discount @ 10%.
Feb 5 Raj Stationery purchased from us ;
20 packets printing paper @ Rs. 250 per packet
15 packets drawing sheets @ Rs. 200 per packet
Trade discount @ 10%
Feb 9 Goods returned to Ambika Stationery;
6 Dozen Note Books @ Rs. 120 per dozen
16 Registered @ Rs. 25 register.
Feb 12 Bought from Kaneel Stationery;
20 packets wax cryaons @ Rs. 130 packet
5 dozen pencil colors @ Rs. 80 dozen
Trade discount @ 10%
Feb 13 Goods returned by Raman Stationery;
7 dozen pens @ Rs. 50 per dozen
3 dozen pencils @ Rs. 50 dozen
Feb 16 Goods returned by Raman Stationery;
2 packets wax crayons @ Rs. 130 per packet
3 dozen pencil colors @ Rs. 80 per dozen.

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Feb 18 Goods returned by Raj Stationery
4 packets printing paper Rs. 250 per packet
OR
Explain all subsidiary books with their format including two examples each. (4)
28. Journalise the following transactions :
2019
May 5 Purchased building for Rs. 2,50,000 issuing cheque, however, brokerage charges 2% and registration
charges Rs. 10,000 paid in cash.
May 13 Received cheque from Amit for Rs. 51,000 in full settlement of his
account of Rs. 52,000 and cheque was deposited in the bank on
May 16.
May 17 Paid insurance premium of building Rs. 2,000 and life insurance premium Rs. 5,000 by cheque.
May 20 Goods destroyed by fire costing Rs. 5,500 but insurance company
admitted claim of Rs. 4,000 only. (6)
29. Record the following transactions in a cash book with cash and bank column and balance the same on April '30
:-
2019
April 1 Balance of Cash Rs. 8,000; Bank balance (credit) Rs. 14,500.
April 3 Received cheque from Ram for Rs. 17,000.
April 5 Cheque received from Ram deposited in the bank.
April 7 Sold goods for cash Rs. 7,000.
April 9 Bought goods from Sohan of the list price Rs. 10,000 less 10% trade discount and 2% cash discount.
April 11 Paid salary Rs. 3,000 and rent Rs. 2,000.
April 13 Issued a cheque to Amar for Rs. 2,500.
April 17 Received cheque from customer, Amit for Rs. 8,000 and deposited in bank.
April 19 Withdrew cash from bank Rs. 500.
April 25 Bank allowed interest Rs. 200.
April 30 Deposited cash in bank after keeping a balance of Rs. 1,150. (6)
30. From the following balances of Raymonds Saree; prepare a Balance Sheet as at 31.03.2019 in order of liquidity.
Particulars Rs. Particulars Rs.
Plant and Machinery 2,00,000 Bills Receivable 40,000
Furniture 1,00,000 Bills Payable 25,000
Land and Building 4,00,000 Closing stock 1,00,000
Cash in hand 70,000 Loan from bank 30,000
Bank Overdraft 50,000 Investments 1,40,000

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Debtors 2,50,000 Capital 8,00,000
Creditors 1,60,000 Net profit 2,80,000
Drawings 45,000
Calculate therefrom :
(i) Current Assets
(ii) Fixed Assets
(iii) Current Liabilities (6)
31. From the following Journal, make various ledger accounts, balance the same as on 30th April & Draft a trial
balance as on 30.04.2019 :- (8)
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)

2019
April 1 Cash A/c Dr. 10,000
(Being the amount invested by Ramesh in the
business as capital)
2019
April 2 Bank A/c Dr. 7,000
To Cash A/c 7,000
(Being the amount paid into bank)
2019
April 3 Purchase A/c Dr. 500
To Cash A/c 500
(Being the goods purchased for cash)
2019
April 4 Cash A/c Dr. 100
To Bank A/c 100
(Being the cash withdrawn from bank)
2019
April 13 Krishna Dr. 150
To Sales A/c 150
(Being the goods sold to Krishna on credit)
2019
April 20 Purchases A/c Dr. 225
To Shyam 225
(Being the goods bought from Shyam on credit)
2019
Discount Allowed A/c 5
To Krishna 150
(Being the cash received from Krishna and allowed
him discount)
2019
April 28 Shyam Dr. 225
To Cash A/c 215
(Being the cash paid to Shyam and Discount
received)
2019
To Sales A/c 800
(Being the goods sold for cash)
2019
April 30 Rent A/c Dr. 50
Salaries A/c Dr. 100
To Cash A/c 150
(Being the amount paid for rent and salary)
Total 19,300 19,300

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OR
JOURNAL
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)

2019 Cash A/c Dr. 30,000
Jan 1
Stock A/c Dr. 36,000
Lal Chand Dr. 7,600
Mukesh Khanna Dr. 16,200
Furniture A/c Dr. 8,000
To Ghanshyam 6,000
To Vinod 8,000
To Capital A/c (Balance figure)
83,800
(Opening entry recorded in Journal)
2019 Office Equipment A/c Dr. 7,500
Jan 2
To Cash A/c 7,500
(Typewriter purchased for cash)
2019 Cash A/c Dr. 19,000
Jan 4
Discount Allowed A/c Dr. 1,000
To Sales A/c 20,000
(Goods sold for cash and 5% cash
discount allowed)
2019 Gopal Seth Dr. 10,000
Jan 6
To Sales A/c 10,000
(Goods sold to Gopal Seth on credit)
2019 Sales Returns A/c Dr. 1,500
Jan 8
To Gopal Seth 1,500
(Goods returned by Gopal Seth)
2019 Purchases A/c Dr. 27,000
Jan 12
To Arun 12,000
To Varun 15,000
(Goods purchased from Arun and
Varun)
2019 Arun Dr. 12,000
Jan 13
To Cash A/c 11,400
(Arun's Account settled after
deducting 5% for cash discount)
32. The following are the balances extracted from the books of Raghunath Ji as on 31st March, 2018. From these
balances, prepare his Trading and Profit and Loss Account and Balance Sheet as at that date :

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Dr. Cr
Balance Balance
(Rs.) (Rs.)
Purchases 40,000
Sales 86,000
Discount 400
Sales Return 6,000
Building 50,000
Debtors 16,000
Salaries 2,400
Office Expenses 1,200
Wages 10,000
Purchase Return 4,000
Interest 800
Travelling Expenses 400
Fire Insurance Premium 800
Machinery 20,000
Carriage on Purchases 700
Commission 400
Cash in hand 2,300
Rent and Taxes 1,800
Capital 62,000
Creditors 10,800
1,64,000 1,64,000
Adjustments :-
(i) Closing stock was valued at Rs. 16,000. (market value Rs. 17,000)
(ii) Wages Rs. 2,000 and Salaries Rs. 1,200 are oustanding.
(iii) Rent for two months at the rate of Rs. 500 per month is pre-paid.
(iv) Depreciate Building by 5% and machinery by 10%.
(v) Interest accrued Rs. 200. (8)
OR
From the following balances, prepare Trading and Profit and Loss Account for the year ended 31st March,
2019 and Balance Sheet as at that date after considering the adjustments given below :
Particulars Rs. Particulars Rs.
Debit Balances Patents 10,000

138
Cash in hand 1,500 Salaries 14,000
Cash at Bank 7,000 General Expenses 3,000
Purchases 70,000 Drawings 10,000
Returns Inward 600 Debtors 40,000
Wages 10,400 Credit Balances
Power and Fuel 7,000 Sales 1,20,000
Carriage Outward 3,000 Returns Outward 700
Carriage Inward 4,000 Capital 80,000
Opening Stock 12,000 Creditors 60,000
Building 40,000 Bills Payable 6,600
Machinery 35,000 Rent 200
Adjustments :
(i) Closing Stock on 31st March, 2019 is Rs. 16,000.
(ii) Machinery to be depreciated @ 10% p.a. Depreciate Patents @ 20% p.a.
(iii) Salaries amounting to Rs. 4,000 were unpaid.
(iv) Rent accured Rs. 300.
(v) Prepaid wages Rs. 400. (8)

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MID TERM EXAMINATION

ACCOUNTANCY-SOLUTIONS-SET A

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MID-TERM
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DELHI PUBLIC SCHOOL
VASANT KUNJ
MID TERM EXAMINATION
ACCOUNTANCY XI
(UNSOLVED)
1. External users of accounting information are:
(a) Researchers
(b) Government
(c) Potential Investors
(d) All of the above. (1)
2) Which of the following is not an objective of accounting?
(a) To provide information about the assets, liabilities and capital of the enterprise.
(b) To provide information about the private assets and liabilities of the proprietor.
(c) To maintain records of the business.
(d) To provide information regarding the profit and loss of the enterprise. (1)
Q. Choose the correct answer( from Q3-Q6)
3. Purchase of machinery by a manufacturer is capital / revenue expenditure. (1)
4. Sale of fixed asset /goods is a revenue. (1)
5. A liability to pay arises from cash /credit transactions. (1)
6. Reduction in the list price of the goods at a fixed date is called cash discount / trade discount. (1)
7. Give two examples of current liabilities. (1)
8.Classification of accounts involves –
(a) Preparing Trial Balance
(b) Entering business transactions in Subsidiary books
(c) Grouping of transactions at one place.
(d) Preparing Statement of Profit and loss account (1)
9. Which of the following is not a long term liability?

(a) Creditors
(b) Term loan
(c) Debentures
(d) Debtors (1)
10. All types of accounts are balanced at the end of the year. True or False? (1)
11. This concept deals with when to recognise the costs that are associated with the recognised revenue. Identify
the concept.
a. Materiality principle b. Consistency Principle
c. Accrual Concept d. Matching principle (1)
12. For every debit there is a credit of equal amount in one or more accounts and vice-versa. Identify the
accounting concept/principle. (1)
a. Accrual Concept b. Going Concern
c. Dual Aspect Principle c. Matching Principle
163
13. Mukul commenced business on 1st April 2020 with a capital Rs.90,000 and a loan of Rs.30,000. He
introduced additional capital of Rs.15,000 and withdrew Rs.7000 for his personal use. He earned a profit
of Rs. 18,000 for the year ending 31st March 2021. Calculate the closing capital. (1)
a. 1,61,000 b. 1,16,000 c. 2,16,000 d. 1,46,000
14. A debtor paid Rs.12400 in full settlement of his dues of Rs.13000. How will it effect the capital?
a. Increase by Rs.600 b. Decrease by Rs.600 c. Increase by 900 d. No Change (1)
15. Bad debt Recovered Account is credited to ________. (1)

a. Bad Debt Account b. Debtor A/c c. Cash account d. Creditor Account
16. Recording the transactions in the Journal is called : (1)

1. Casting 2. Posting 3. Recording 4. Journalising
17. Salary paid to Ram will be debited to Ram’s Personal Account . True or False ? (1)
18.Narration is not necessary for cash transactions . True / False ? (1)
19. Net Sales during the year 2020 was Rs.6,00,000. Gross Profit is 20% of Cost of goods sold. Find out Gross
Profit .
a. 1,00,000 b. 1,20,000 c. 4,80,000 d. 1,50,000 (1)
20. Expenditure which increases the earning capacity of a fixed asset is a :

a. Capital Expenditure b. Revenue Expenditure
c. deferred Revenue Expenditure d. None of the above (1)
21. a) Calculate gross profit when :
1. Total purchases during the year are Rs.8,00,000
2. Returns outward Rs.20,000
3. Direct Expenses Rs.60,000
4. 2/3 of the goods are sold for Rs.6,10,000
b) Show the marshalling of assets in balance sheet in the order of liquidity. (2+1)
22. Classify the following expenses under direct expense and indirect expense. (3)
1. Salaries and wages 4. Packing expenses
2. Power 5. Trade Expenses
3. Freight inward 6. Audit fees
OR
Differentiate between Trading Account and Profit & loss account (3)
23. Pass journal entry of the following transaction on 1 January 2019 and post to respective ledger accounts.
Sanchi had the following account balances on the first day of the accounting year-
Land and Buildings Rs 5,82,350
Plant and Machinery Rs.3,85,630

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Priya (dr) Rs. 20,860

Stock Rs 86590
Outstanding Salary Rs. 6580 (4)
Q24. Correct the following trial balance and find out the total. (4)
Trial balance
Particulars Dr Amt Cr Amt
Land Building 1,00,000
Purchases 20,000
Sales 50,000
Sales returns 5000
Cash 8000
Purchases returns 2000
Wages 2000
Salaries 16000
Closing Stock 6000
Capital 1,50,000
Ram (creditor ) 5000
Furniture 50,000
25. Journalise the following transactions in the books of Aparna ltd. assuming CGST @9%, SGST @9% and IGST
@18% (4)
i) Purchased goods from Nisha for Rs.50,000 from outside the state.
ii) Paid Rs.4000 as telephone charges within the state.
iii) Sold goods to Hari for Rs.40,000 within the state.
iv) Sold goods to Manish for Rs.30,000 outside the state.
26. Mr Sunrise started a business for buying and selling a stationary with Rs.5,00,000 as an initial
investment of which he paid 1,00,000 for furniture, Rs.2,00,000 for buying stationery items. He
employed a sales person and clerk. At the end of the month he paid Rs.5000 as their salaries. Out of
the stationary bought, he sold some stationery for Rs.1, 50, 000 for cash and some other stationery
for Rs.1,00,000 on credit basis to Mr.Ravi. Subsequently, he bought stationery items of Rs.150000
from Mr.Peace. In the first week of next month, there was a fire accident and he lost Rs.30000
worth of stationery. A part of furniture which costed Rs.40,000 was sold for Rs.45,000. From the above
Answer the following:-

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1. What is the amount of capital with which Mr. Sunrise started business?
2. What are the fixed assets he bought?
3. What is the value of the goods purchased?
4. Who is the debtor? What is the amount receivable from him?
5. What is the total amount of expenses and loses incurred?
6. Who is the creditor and state the amount payable to him? (4)
Q27. (a) M/s Ghanshyam Traders has a loyal and dedicated work force. The owner of the firm wants to reflect this
in the books of accounts . Give your opinion.
(b) Accountant of a firm discourages the making of provision for discount on creditors (an anticipated income ) but
prefers to make provision for discount on debtors (an anticipated expense). Which principle of accounting is
followed? (2+2)
OR
(A) According to one of the Accounting Assumptions , method of depreciation once chosen and applied, should be
applied consistently year after year. Identify the concept and explain.
(B) A company shows its assets at undervalued cost in its Balance sheet . Which principle is ignored by the
company. Explain (2+2)
28. Show accounting equation is satisfied in the following cases. Also prepare Balance sheet (6)
(i) Ajay commenced business with cash Rs.40,000 and goods Rs.20,000
(ii) Sold half the goods at a profit of 25% to Ram
(iii) Bought goods from Rakesh Rs.25000 and paid 20% in cash
(iv) Returned goods to Rakesh worth Rs.8,000
(v) Salary due Rs.2000 but 1/5 the still unpaid.
29. Journalise the following transactions :- (6)
(a) Goods costing Rs.5000 were lost by fire. Insurance company accepted and paid 90% of the claim.
(b) Sumit who owed us Rs.4000 is declared insolvent and paid 40 paise in a rupee.
(c) Bought goods from Trisha for Rs.2,00,000 at 5 % cash discount and 10% trade discount . Half of the amount
paid by cheque at the time of purchase.
(d) Goods costing Rs.800 were used by the owner in making furniture to be used at his home.
OR
Journalise the following transactions :- (6)
(i) Goods sold to Manish costing Rs.30,000 at a Trade Discount of 10% and paid cartage of Rs.300 (not to be
charged from the customer)
(ii) Goods costing Rs.12420 were lost by fire. Insurance company accepted and paid 60% of the claim.
(iii) Goods purchased of list price of Rs.40,000 from Sohan less 20% trade discount and 5% cash discount and
paid 70%.
(iv) Interest on 12% Bank loan is due for 1 month (12% Bank Loan = Rs.20,000)
30. (a) Rectify the following journal entries assuming that narration of each entry is correct
(1) Purchases A/c ..... Dr 10,200

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To CashA/c 10,200
(bought goods for Rs. 10,000 and paid carriage Rs. 200)
(2) Machinery A/C....... Dr 15,000

Wages A/c ........ Dr 3,000
Carriage A/c ........ Dr 1,000
To cash A/c 19,000
( bought machine and paid installation charges and carriage)
(3) Drawing A/C............. Dr 3,000
To sales A/c 3000
(withdrew goodsof Rs. 2500 for Rs. 3000 for personal use)
(b) Differentiate between Cash Discount and Trade Discount (3+3)
31. (a) Following balances appeared in the books of Ram & Shyam on January 1, 2012:- (8)
Assets: Cash in hand ?30,000; Stock ? 36,000; Lal Chand ?7600; Mukesh ? 16200; Furniture ? 8,000.
Liabilities: Ghanshyam ? 6,000; Vinod ?8000.
Following transactions took place during Jan 2013:-
Jan 2 Purchased Typewriter for ?7500
Jan 4. Sold goods to Gopal Seth for ? 10,000
Jan 6 Gopal Seth returned goods for ?.1500
Jan 15 Paid cash to Ghanshyam in full settlement ?5,800
Jan 20 Paid wages and salaries ? 20,000
Post the above transactions in Ledger and prepare Trial Balance.
OR
Post the following transactions in the ledger and prepare trial balance (8)
1/1/2020 Cash a/c 18000
Due from Mohan Rs.8400
Due to Smith 6500
3/1/2020 Bought goods from Amit Rs.5000
5/1/2020 Paid salary Rs.4000 and rent Rs.2000
6/1/2020 Paid Amit Rs.6500 and Discount Received Rs.200
10/1/2020 Mohan paid in cheque 80% of the dues in full settlement of his account
32. With the help of the following balances of Mr.Sunil, prepare Trading account and Profit and loss account for the
year ending 31st March 2020 and prepare Balance Sheet as at that date. (8)

167
Particulars Amt Particulars Amt
Debit Balance Discount on Sales 1,500
Opening Stock 4,000 Office Expense 7,200
Retruns from Customers 7,000 Audit Fees 3,500
Purchase 85,000 Insurance 4,5000
Wages and Salaries 6,000 Cash in Hand 12,000
Rent and Taxes 2,000 Drawings 4,000
Salries and Wages 1,800 Credit Balance
Sundry Debtors 35000 Capital 45,200
Interest 3,500 Purchasee Return 7,000
Postage and Telegram 6,400 Sales 1,50,000
Cash at Bank 7,800 Sundry creditors 22,000
Investment 20,000 Discount on Purchase 2.000
The Closing Stock 31st march 2020 was valued at Rs.7860
OR
With the help of the following balances of Mr.Sunil, prepare Trading account and Profit and loss account for the year ending 31st
March 2020 and prepare Balance Sheet as at that date. (8)
Particulars Cr Dr
Capital 50,000
Drawings 10,000
Debtors and Creditors 24,000 15,000
Bank Loan ...... 10,000
Interest on Loan 300
Cash in Hand 3,000
Dividend on shares ......... 1.000
Wages 6,000
Bank 7,500
Carriage Outward 4,500
Carraige inward 5,000
Salaries 12,000
Rent 8,000
Bad Debts 600
Purchase and Sales 60,000 1,31,000
Returns 1500 1,000
Advertising 4500 .......
Discount 500 2,600
Insurance 2,000 .........
Bills Receivables and Bills Payble 10,000 8,000
Commission ....... 5,400
Closing Stock 15,000
2,25,000 2,25,000

168
ACCOUNTANCY
ANNUAL EXAMINATION(2020-21)
M.M-80

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1

Accounts XI – Curriculum Workbook 2022-23

Accounts XI – Curriculum Workbook 2022-23

Accounts XI – Curriculum Workbook 2022-23

Accounts XI – Curriculum Workbook 2022-23

Accounts XI – Curriculum Workbook 2022-23

Accounts XI – Curriculum Workbook 2022-23

Accounts XI – Curriculum Workbook 2022-23

Accounts XI – Curriculum Workbook 2022-23

Ch- I : An Introduction to Accounting

Accounts XI – Curriculum Workbook 2022-23

Short and very short answer type Questions (with Answers)

Q8 What are the informational needs of management ?

Q9 Distinguish between debtors and creditors.

Q10. What is the end product of financial accounting. ?

Accounts XI – Curriculum Workbook 2022-23

A7 Limitations of accounting are:

1. Financial accounting is not absolutely exact

2. Financial accounting does not show the exact worth of business

3. Problem of window dressing

Accounts XI – Curriculum Workbook 2022-23

Sohan is my Debtor Mohan is my creditor

III. OBJECTIVE TYPE QUESTIONS

Ans. (i) external (ii) internal

Accounts XI – Curriculum Workbook 2022-23

(ii) Which of the following will not be recorded in books of accounts?

(iii) Which is the first step of Accounting Process?

(c) Recording (d) Financial Statements

iv) Qualitative characteristics of Accounting Information are:

(v) Which of the following is not the branch of accounting?

vii). The main purpose of Balance sheet is to show_______

viii). Which of the following does not represents a business transaction?

Accounts XI – Curriculum Workbook 2022-23

c) Goods are sold on credit

ix). Which one is not the step of accounting?

xii) Assertion (A): Accounting ignores quantitative elements

Accounts XI – Curriculum Workbook 2022-23

Accounts XI – Curriculum Workbook 2022-23

Accounts XI – Curriculum Workbook 2022-23

Accounts XI – Curriculum Workbook 2022-23

5. What is the amount of fixed assets?

Accounts XI – Curriculum Workbook 2022-23

6. Fill in the correct word:

7. Choose the Correct Answer.

Accounts XI – Curriculum Workbook 2022-23

a) Business Entity Concept

Accounts XI – Curriculum Workbook 2022-23

xii) Assertion (A): "Every transaction has two aspects."

xiii) Assertion (A): Accrual Basis of Accounting is more acceptable in business

Accounts XI – Curriculum Workbook 2022-23

CASE BASED QUESTIONS

Accounts XI – Curriculum Workbook 2022-23

3. Business is seprate from owners.Explain

8. Why we Match Revenue and Expenses ?

A 3. Business Entity Concept

Accounts XI – Curriculum Workbook 2022-23

A 5. Dual Aspect Principle

A 6. Verifiable Objective Evidence

A7. Historical Cost