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(13) Finished goods sold to Mr.A for a cheque of Rs.80000. Here the
Journal entry is:
Bank Account
DR.80000
TO Sales Account
80000.
Why Mr.A account which is a PERSONAL account has been neglected
and not recorded in the above journal?
Because as per the above business event/transaction Mr.A is neither giving
LOAN to business nor receiving LOAN from business, therefore Mr.As
account has to be neglected since the question of application of golden rule
for personal account does not arise for this personal account
(14) What are the three types of accounts? Please explain their GOLDEN
rules.
(i)
PERSONAL Account
(ii) REAL Account
(iii) NOMINAL Account
(i) GOLDEN Rule for PERSONAL Account:
Debit the (LOAN) receiver (from business)
Credit the (LOAN) giver (to business)
(ii) GOLDEN Rule for REAL Account
Debit what comes in
Credit what goes out
(iii) GOLDEN Rule for NOMINAL Account
Debit all the expenses/losses
Credit all the incomes/gains/profit
(15) Capital account is credited because it is a PERSONAL Account
representing proprietor of business and proprietor is the LOAN giver
to business in the form of capital. True/False.
Ans: True
(16) Drawings account is debited because it is a PERSONAL Account
representing proprietor of business and proprietor is the LOAN
receiver from business since he has withdrawn cash/bank/asset
from business for his personal use. True/False
Ans: True
(17) Mention items that are shown on credit side of trading account.
Sales, Sales Return, Closing Stock, Gross Loss etc.
(18) Mention items that are shown on Asset side of Balance Sheet.
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Loan given to Mr.A, S.B.I Fixed Deposit, Mutual Fund, Equity Shares, Rent
DUE from tenant but not yet received by business, pre-paid rent PAID by
business to landlord, etc.
(19) Mention items that are shown on Liability side of Balance Sheet.
Capital, Net Profit, Loan received from Mr.B, Rent due but not yet paid by
business to landlord, pre-paid rent RECEIVED by business from tenant,
etc.
(20) Mention items that are shown on debit side of trading account.
Wages, Opening Stock, Purchase, Purchase return, oil, diesel & electricity,
etc
(21) Direct Income-Ledger accounts closing balance
goes/transferred to_____.
Trading A/c i.e. credit side of Trading a/c
(22) Indirect Income-Ledger accounts closing balance
goes/transferred to_____.
Profit and Loss A/c i.e. credit side of P & L
(23) Direct Expense-Ledger accounts closing balance
goes/transferred to_____.
Trading Account i.e. debit side of Trading A/c
(24) Indirect Expense-Ledger accounts closing balance
goes/transferred to_____.
Profit and Loss A/c i.e. debit side of P & L A/c
(25) Gross profit means______
Excess of Direct Income over Direct Expense
(26) Gross loss means_____
Excess of Direct Expense over Direct Income
(27) If Indirect Expense > (Gross Profit + Indirect Income), then there
surely exist NET LOSS. True/False
True
(28) If Indirect Income > (Gross Loss + Indirect Expense), then there
surely exist NET PROFIT. True/False
True
(29) Financial Status/position of a business is known from___.
Balance Sheet. i.e. Status of financial position of BUSINESS, i.e. statement of
liabilities(total LOAN taken) and Assets(Application of total Loan) is
prepared as on a particular date i.e.31-3-YYYY in India.
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(82) When a Ledger A/c has more credit total than that of debit total then
it implies that the Ledger A/c has credit balance as per accounting
language.True/False
True
(83) Normally, Asset Ledger A/c shows debit balance i.e. debit side total is
more than credit side total. True/False.
True, For example Cash Ledger A/c, Bank Ledger A/c
(84) Normally, Liability Ledger A/c shows debit balance i.e. debit side total
is more than credit side total. True/False.
False. (Ans: Liability Ledger A/c shows credit balance, for example, Capital
Ledger A/c, Loan from Mr.A a/c)
(85) Ledger A/cs Opening Balance is brought down as on ____, in Indian
context.
1-4-YYYY
(86) Ledger A/cs Closing Balance is carried down as on ____, in Indian
context.
31-3-YYYY
(87) Interest received on Fixed Deposit, is _____ for ABC Garments pvt.
Ltd, who are in garment business.
Indirect Income
(88) Interest paid on business loan taken from Axis Bank, is _____ for PQR
Interior Decorators Pvt. Ltd, who are in interior decoration business.
Indirect expense. The core activity of the business is interior
decoration/design. And interest paid on business loan, does not form part
of its main/core business activity. Please note that the OBJECTIVE/PURPOSE
of trading a/c is to know the result from the main/core activity of business.
This helps the business to evaluate itself on the grounds of
economy/efficiency/productivity for its main/core activity (i.e. for its
interior decoration business activity/operation) and to improve upon( for its
interior decoration business activity/operation). Therefore
inclusion/recording of interest paid on business loan(i.e. an expense NOT
DIRECTLY related to core/main business activity/operation) as a direct
expense in trading a/c, devoid the purpose of trading account, as explained
above, hence should not be included.
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(89) Money invested in ICICI prudential discovery fund is ____ for business
and dividend received on ICICI prudential discovery fund is ____ for
business
Asset, Income. Investment done in mutual fund/fixed deposit/equity
shares/Post office Deposits etc. are assets(REAL A/C) and NOT income.
Interest received on fixed deposit, interest received on loan given to
external party, commission received due to some agency work done,
dividend received on equity shares, dividend received on mutual fund etc.
are incomes (NOMINAL A/C) and not asset.
(90) Loan taken is LOAN / LIABILITY / PAYABLES. Loan given is ____.
Asset, Loan given is RECEIVABLE, hence Asset.
(91) In the books of business CAPITAL is like LOAN taken from
proprietor, hence it is LOAN / LIABILITY for business in the books of
business. On the same lines Loan given by Business to Mr.A is
_______ for business.
Asset. All RECEIVABLES are Asset for business.
(92) Purpose of Profit and Loss A/c is to____
Know the TOTAL/OVERALL profit/loss. For example, Gross Profit from
trading account + ( +Indirect Income, - Indirect Loss, shown in Profit and
Loss Account).
(93) Recording of credit purchase and credit sale in accounting implies
that the business is following Accrual basis of accounting and not
Cash Basis accounting. True/False
True. Credit purchase/Credit Sale BELONGS TO that year during which it is
accrued/recognized and has to be recorded for that year independent of
IRRESPECTIVE of payment/receipt in terms of cash/bank has been done or
not. In accounting sense accrual means it has been recognized,
accounted for, it belongs to ,irrespective of actual CASH/BANK
receipt/payment. Even if the cash is received/paid during the next financial
year of the income/expense, still it belongs current financial year, hence this
income/expense has to be recorded for the current financial year and not
for the next financial year.
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For example, rent is due for this financial year but actually paid during next
financial year.
The journal for current/this financial year is as below
Rent A/c DR (Rent accrued for this/current financial year)
To Outstanding Rent(Due, not paid by business i.e. LOAN)
(NOTE: Though independent of cash receipt/payment, it has been rightly
recognized as monetary transaction due to its financial implications (i.e.
financial implications due to loan given/loan taken/value (monetary) of
finished goods sold/ value (monetary) of raw-material purchased etc.) in
accordance with the money-measurement concept/assumption of
accountancy)
(94) Cash basis accounting implies, only those transactions will be
recorded where the business receives cash and pay cash without any
scope for loan basis transactions. True/False
True and is opposite to accrual basis of accountancy. Please note that we
are supposed to follow accrual basis of accountancy and not cash basis of
accountancy. In cash basis accountancy, business can intentionally
postpone to receive the cash during the next financial year to avoid the
corporate tax for current year to that extent of current years income.
Therefore any government will not support cash-basis accounting method
for the purpose of collection of corporate tax.
(95) Recording of Credit Purchases and Credit Sales in accounting implies
that the business is following Accrual basis of accounting. True/False
True
(96) Purpose of Trading Account is to____
To know the result of main business activity, core business activity which is
derived from direct incomes and direct expenses recorded in trading
account. Profit and loss account records incomes/expenses from NONmain-activity-of-business activities. For example, ACC Cements Ltd. who are
in cement business, records dividend received on ICICI discovery mutual
fund in their profit and loss account as an income from NON-main-activityPage 13 of 25
of-business i.e. indirect income for ACC cements ltd and closing balance of
Dividend received on ICICI discovery mutual fund Ledger A/c goes to P & L
a/c.
(97) Sale of business goods on credit basis is an example of accrual basis
of accounting. True/False
True (Though Cash is not received, it is recognized/belongs/accrued for
this/current year, hence recorded for this/current year)
(98) As per accrual basis of accounting, rent due for the current year but
not yet paid should not be accounted for/considered, as an expense
in P & L a/c for this/current financial year. True/False
False. Though this outstanding rent is not paid, it is actually recognized /
belonged / accrued for this/current financial year itself. Therefore the same
has to be recorded as an indirect expense in P & L a/c of that current year
itself and not in the future financial year during which the rent has been
actually paid.
(99) As per accrual basis of accounting, rent due for the current year but
not yet received during the current year should be accounted /
considered as an income for the current financial year itself.
True/False
True.
(100)Rent due from business-not yet paid, goes to _____ Account as an
indirect expense and also goes to _____ as a Liability (Payable).
P & L A/c, B/S. Since it is due for this current financial year, it is
recognized/belongs/accrued for this/current year and has to be recorded in
P & L as an indirect expense for this/current financial year. Though due, it
has not been paid by business. Till it is paid, it is liability (loan) for business
and shown in B/S.
(101)Rent due to business-not yet received, goes to _____ Account as an
indirect income and also goes to _____ as an Asset(Receivable).
P & L A/c, B/S. Since it is due for this current financial year, it is
recognized/belongs/accrued for this/current year and has to be recorded in
P & L as an indirect income for this/current financial year. Though due, it
has not been received by business. Till it is received, it is receivable (asset)
for business and shown in B/S.
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True. Here we are actually selling the asset and realising the profit. If we are
NOT selling the asset, then we are not realizing/earning profit, though the
market price is greater than book value.
(109) We book loss on sale of asset, if market value is less than book
value. True/False
True. Here we are actually selling the asset and incurring the loss. If we are
NOT selling the asset, then we are not incurring any loss, though the market
price is lesser than book value.
(110)Current Book Value = Historical Cost Accumulated Depreciation.
True/False
True. Historical cost means that cost at which the asset has been
acquired/purchased and is independent of current market price of the same
asset. Whenever we deduct total/accumulated depreciation till date, from
the historical cost(original cost of acquisition/purchase), we get the latest
book value in asset ledger account.
(111)Historical cost means original cost of an asset paid at the time of its
acquisition. True/False
True.
(112)Closing Stock as on 31-3-2012, becomes/is ______ as on 1-4-2012
Opening Balance. Please note that there exist a gap of only one day
between 31-3-2012 and 1-4-2012. 31-3-2012 is end of financial year 201112, whereas 1-4-2012 is beginning of financial year 2012-13, in Indian
context.
(113)Opening Stock and Closing stock represents Non-Business Goods.
True/False
False. They represent business goods i.e. raw materials in case of
manufacturing business, finished goods in case of trading business, etc.
(114)Outstanding rent from business means rent paid before its due date.
True/False
False. It is rent due but not yet paid by business to landlord. Since it is
due/accrued/recognized/belongs to current year, it has to be recorded as
an expense for current year in P & L Account and as a liability for current
year B/S.
(115)Outstanding rent from business is Liability and also it is
recognized/considered as an expense for current year i.e.it is an
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(116.3)
From the above 101.2s JOURNAL entries, we can conclude that Rent
A/c(NOMINAL) is different from Prepaid Rent A/c(REAL-asset, receivable
OR PERSONAL-related to third party)
(117) RECEIVABLE to business is an Asset, whatever, whatsoever.
True/False
True. RECEIVABLE means due but not received. It is like loan given to third
party but not yet received by business and is due to business from third
party, hence it is receivable for business from third party and is obviously
asset for business, whatever, whatsoever. For example, rent due to business
from third party is asset, since it is RECEIVABLE for business, THOUGH IT IS
ALSO INCOME for business, whatever, whatsoever. As an asset it goes to
Balance sheet as long as it is RECEIVABLE (once it is not RECEIVABLE, i.e.
once the payment is done by third party to business, then, from that
time/date, it is no more RECEIVABLE, hence should not be shown on asset
side of balance sheet) and as an indirect income it goes to P & L a/c (accrual
concept).
(118) PAYABLES from business to third party is a Liability, whatever,
whatsoever. True/False
True. PAYABLE means due but not paid. It is like loan taken from third party
but not yet paid by business and is due from business to third party, hence
it is payable for business to third party and is obviously liability for business,
whatever, whatsoever. For example, rent due to third party from business is
liability, since it is PAYABLE for business, THOUGH IT IS ALSO EXPENSE for
business, whatever whatsoever. As a liability it goes to Balance sheet as
long as it is PAYABLE (once it is not PAYABLE, i.e. once the payment is done
by business to third party, then, from that time/date, it is no more PAYABLE,
hence should not be shown on liability side of balance sheet) and as an
indirect expense it goes to P & L a/c (accrual concept).
(119) Cash Based Accounting considers _______ type of transactions.
Cash based transactions considers only cash ( i.e. money based either in the
form of cash or bank ) based transactions and it wont allow recording of
CREDIT based transactions, since business is not receiving any money.
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Whereas Accrual Based Accounting records both cash (i.e. money either in
the form of cash or bank) as well as credit based transactions. Please
remember that Accrual Based Accounting is followed everywhere, since it
has been strongly / optimistically assumed that the debtor will repay the
amount in the near future and also it helps the top management to
understand the sales done by BUSINESS whether on cash basis or credit
basis.
(120) Accounting is done in the books of proprietor. True/False
False, Accounting is done in the books of Business and not proprietor.
(121)Enter JOURNAL for the following with
complete explanation
on application of golden rules (i.e. BASIS/LOGIC).
(121.1) Capital invested by proprietor by cash of Rs.90000
Cash A/c (REAL-asset, Dr. what comes in) DR. 90000
To Capital a/c (PERSONAL, Cr. the LOAN giver) 90000
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(NOTE: In above Journal the Dr. Total amount is equal to Cr. Total amount
as per the double entry concept)
(121.10) Sale of furniture (i.e. business goods for furniture business)
by ABC Furniture Ltd(i.e.BUSINESS) to Mr.F worth Rs.80000 with a final
agreed price of Rs.72000 by cheque.
Bank A/c(REAL-asset, Dr. what comes in) DR. 72000
Discount allowed a/c (NOMINAL, Dr. the loss) DR. 8000
TO Sales a/c(NOMINAL, Cr. the income) 90000
(NOTE: In above Journal the Dr. Total amount is equal to Cr. Total amount
as per the double entry concept)
(121.11)Given a loan of Rs.20000 by cheque to Mr.G
Mr. G a/c(PERSONAL, Dr. the LOAN receiver) DR.20000
TO Bank a/c(REAL, Cr. what goes out) 20000
(121.17) What would be the journal when the prepaid rent of Rs.8000
as per the above (121.16) is adjusted in December 2015 for financial year
2014-15?
Rent a/c (NOMINAL-expense actually accrued now for current financial year 2014-15) DR.8000
TO Prepaid rent a/c(REAL-asset- since adjusted against actual rent due that too on its due date, now it is no more RECEIVALBE
i.e. no more asset) 8000
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(121.19) What would be the journal for financial year 2014-15 when
the outstanding rent as per the above (121.18) is paid in cash of Rs.7000 in
April 2014?
Outstanding rent a/c(PERSONAL, Now adjusted against EARLIER loan given) DR.7000
TO Cash a/c (REAL-asset, Cr. what goes out) 7000
(NOTE: In above Journal the Dr. Total amount is equal to Cr. Total amount
as per the double entry concept)
(121.20) Land (which was purchased earlier for Rs.2,00000) has been sold to
Mr.I by ABC Furniture Ltd.(i.e. BUSINESS) for a cash of Rs.600000.
Cash a/c (REAL, Dr. what comes in)
DR. 600000
TO Profit on sale of four-wheeler a/c(NOMINAL-profit)
400000
TO Land a/c(REAL-asset, Cr. what goes out)
200000
(NOTE: In above Journal the Dr. Total amount is equal to Cr. Total amount
as per the double entry concept)
(122) Direct expenses refer to those expenses that are ____________
Directly related to main-core-direct business activity
(123) The purpose of trading account is to ______
It is to know the result of direct-main-core business activity from 1-4-yy to
31-3-yy i.e. to find out Gross Profit or Gross Loss
(124) Specify any four items are recorded in CREDIT side of Trading
Account?
Sales, Less: Sales Return, Closing Stock and Gross Loss
(125) Direct Expense > Direct Income, hence the result is______
Gross Loss(balance shown in credit side of trading account)
(126) Indirect incomes refers to those income that are ____________
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That are, NOT directly related to main-core business activity like rent
received, interest received etc. for manufacturing business
(127) Specify any four items are recorded in DEBIT side of Trading Account?
Opening stock, Purchase, Less: Purchase Return, Wages, Gross Profit
(128) Net Profit is shown on ______ side of Profit and Loss Account
Debit side of Profit and Loss a/c since credit side total (indirect Income) is
more than the debit side total (indirect expense)
(129) Specify any four items are recorded in DEBIT side of Profit and Loss
Account?
Rent paid, commission paid, interest paid, net profit, photocopy charges
etc. for manufacturing business
(130) Gross Profit is shown on ______ side of Trading Account
Debit side of trading a/c since credit side's total DIRECT INCOME amount is
more than debit side's total DIRECT EXPENSE amount.
(131) Indirect Expenses > (Indirect Income + Gross Profit), hence the result
is______
For example, 100 > (50+30), hence the result is NET LOSS in P & L a/c
(132) Indirect expenses refer to those expenses that are ____________
That are, NOT directly related to main-core business activity
(132) Though the Purchase return ledger accounts closing balance has to be
transferred to CREDIT side of Trading A/c, we are transferring it to the DEBIT
side of trading account because _________
Though actually it has to go to the credit side of Trading a/c but we can
transfer it from that credit side of trading a/c to its debit side as a negative
value so that purchase return can be deducted from purchase since it is
more convenient to read and understand to all of us.
(133) Gross Profit is shown on ______ side of Profit and Loss Account
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In Trading a/c gross profit comes on its debit side but this gross profit when
transferred from trading a/c to profit and loss a/c it comes on the opposite
side of profit and loss a/c i.e. it comes on credit side of profit and loss a/c
(134) Specify any four items are recorded in CREDIT side of Profit and Loss
Account?
Interest received, commission received, profit on sale of land, dividend
received, Gross profit (which has been transferred from trading a/c), net
loss (as a closing balance of Profit and Loss a/c)
(135) (Indirect Expenses + Gross Loss) > Indirect Income, hence the result
is______
For example, (80+60) > 100, hence the result is NET LOSS in P & L a/c
(137) Commission paid ledger accounts closing balance is transferred to
______ because it is _____ for business
Profit and Loss A/c, Indirect Income
(138) Gross Loss is shown on ______ side of Trading Account
Credit side of trading account since direct expense(dr. side) is more than
direct income(cr. side)
(139) The closing balance of Loan given to Mr.B ledger account goes to
________ because it is ______ for business
Asset side of Balance Sheet, Asset-Receivable for business
(140) Trading account is _______ type of account. Profit and Loss account is
________ type of account.
Nominal, Nominal since they record Incomes, profit, gain and
Expenses/losses
(141) When closing balance of ledger1 Account has to be transferred to
Ledger2 Account then we have to transfer it to the __________ side of
Ledger2 Account.
Opposite side of Ledger2 a/c
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(152) Net Loss is shown on ______ side of Profit and Loss Account
Credit side of Profit and Loss a/c since debit side total(indirect expense) is
more than the credit side total(indirect income)
(153) Though the Sales return ledger accounts closing balance has to be
transferred to DEBIT side of Trading A/c, we are transferring it to the CREDIT
side of trading account because _________
Though actually it has to go to the debit side of Trading a/c but we can
transfer it from that debit side of trading a/c to its credit side as a negative
value so that Sales return can be deducted from Sales since it is more
convenient to read and understand to all of us.
(154) The closing balance of Loan taken from Mr.A ledger account goes to
________ because it is ______ for business
Liability side of balance sheet because it is a loan-liability for business
(155) Net Profit is shown on ________ side of Balance sheet because
________
Liability side of balance sheet because it is a loan-liability for business
towards the proprietor of business.
(156) Direct Expense > Direct Income, hence the result is______
For example, 100 > 80, hence the result is GROSS LOSS
(157) Give example for capital expenditure and revenue expenditure.
Answer: Purchase of long term fixed assets like plant and machinery,
building etc. are termed as capital expenditure whereas expenses incurred
such as rent, salary, electricity bill etc. are termed as revenue expenditure.
(158) Give example for capital income and revenue income.
Answer: Receipt of money from sale of long term assets like plant and
machinery, building etc. is termed as capital income whereas receipts from
normal business operations such as interest received, rent received, sales
revenue etc. are termed as revenue income.
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