CBSE Class 11 Accountancy Question Bank Worksheet

CBSE Class 11 Accountancy Worksheet - Question Bank. Students can download these worksheets and practice them. This will help them to get better marks in examinations. Also refer to other worksheets for the same chapter and other subjects too. Use them for better understanding of the subjects.

1. Define Accounting.

2. “Only financial transactions are recorded in Accountancy.” Explain the statement.

3. Differentiate between Book- keeping and Accountancy.

4. “Accounting information should be comparable.” Do you agree with this statement? Give

reasons.

5. Which of the following transactions are of financial character and will be recorded in the

books: a. Credit purchase of goods. b. Strike by employees. c. Interviewing the candidates for

employment. d. Goods worth Rs. 5,000 taken from the business and given by the proprietor to

his friend as gift. e. Sale of household furniture Rs. 2,000.

6. What is meant by window dressing in accounting? 7. How is Accounting influenced by

personal judgements?

8. If the Accounting Information is not clearly presented, which of the qualitative characteristic

of the accounting information is violated?

9. State any 5 users of accounting information.

10.State what is the end product of Financial Accounting?

TOPIC – BASIC ACCOUNTING TERMS

1. Explain the meaning of the following terms:

a. Assets b. Capital c. Liabilities d. Drawings e. Trade Receivables f. Fictitious Assets g. Revenue

h. Cash Discount i. Voucher j. Deferred revenue expenditure 2. Distinguish between: a. Debtors

and Creditors b. Revenue expenditure and Capital expenditure

3. Choose the correct alternative:

a. Current Liabilities include:

i. Bills Payable ii. Creditors iii. Outstanding Expenses iv. All of the above

b. Which of the following is the Capital Expenditure:

i. Wages paid for repair of building ii. Wages paid for white washing of building iii. Wages paid

for construction of building iv. Wages paid for cleaning of building

4. G Ltd. imported from Germany one machinery for sale in India and another machinery for

production purpose. Will you treat them goods or fixed assets?

5. Mr. X dealing in electronic goods sold 20 T.V. sets costing Rs.30,000 each at Rs. 40,000 each.

Out of this Rs.5,00,000 were received in cash and the balance is not yet received. State the

amount of revenue.

6. What is the reason that the capital expenditure is shown in the Balance Sheet?

TOPIC – THEORY BASE OF ACCOUNTING

1. “Capital is a liability for a business.” Explain this statement with the principle applied.

2. Discuss the principle based on the premise “do not anticipate profits but provide for all

losses.”

3. What is accrual concept?

4. Why should a business follow the consistency principle?

5. Due to which principle qualitative transactions are not recorded in the books: a. Business

Entity Principle b. Money Measurement Principle c. Historical Cost Principle d. Dual Aspect

Principle

6. Due to which of the following, contingent liabilities are shown in the Balance Sheet: a. Dual

Aspect Principle b. Principle of Full Disclosure c. Principle of Materiality d. Going Concern

Concept

7. What is meant by GAAP?

8. Why the full cost of an asset is not treated as an expense in the year of its purchase?

9. Mohan the owner of the business receives an order of goods worth Rs.2,00,000. He has also

received Rs.25,000 against this order. Mohan wants to record it as a sale. Is Mohan correct in

doing so?

10. Define the following: a. IFRS b. Accounting Standard.

TOPIC - BASE OF ACCOUNTING

1. Define the following: a. Cash basis of Accounting b. Accrual basis of Accounting

2. Which basis of Accounting is recognized under the Companies Act, 1956.

3. In which basis of Accounting, Outstanding expenses are not recorded?

4. Differentiate between Accrual and Cash basis of Accounting (any4).

5. Mr. Y, a businessman, during the financial year 2012-13 earned Rs.3,00,000. Out of which he

received Rs.2,50,000. He incurred an expense of Rs.1,00,000, out of which Rs.30,000 are

outstanding . He also received income relating to previous year Rs.25,000 and paid Rs.10,000

expense of last year. You are required to calculate his income for the year if

a. He follows cash basis of Accounting

b. He follows accrual basis of Accounting.

TOPIC – ACCOUNTING EQUATION AND ACCOUNTING PROCEDURE

1. X commenced business on 1st April,2013 with a capital of Rs.6,00,000.On 31st March,2014

his assets were worth Rs.8,00,000 and liabilities Rs.50,000. Find out his closing capital and

profits earned during the year.

2. Calculate the amount of total assets and capital as on 31.12.2013 in each of the following

cases:

i. Shyam started a business on 1.1.2013 with a capital of Rs.10,000 and a loan of Rs. 5,000

borrowed from Chirag. During the year, he made a profit of Rs.5,000.

TOPIC – INTRODUCTION TO ACCOUNTING

Question. Define Accounting.
Answer: Accounting is the systematic process of identifying, measuring, recording, classifying, summarizing, analyzing, interpreting, and communicating financial transactions and information of a business to various stakeholders.

Question. “Only financial transactions are recorded in Accountancy.” Explain the statement.
Answer: This statement refers to the Money Measurement Concept of accounting. Only those transactions and events which can be expressed in terms of money are recorded in the books of accounts. Qualitative events, such as employee strikes, disputes, or the efficiency of management, are not recorded regardless of their importance, because they cannot be measured in monetary terms.

Question. Differentiate between Book-keeping and Accountancy.
Answer: Book-keeping is primarily concerned with identifying, measuring, recording, and classifying financial transactions in the books of accounts. It is a clerical and routine task. Accountancy is a wider concept that starts where book-keeping ends. It involves summarizing, analyzing, interpreting the recorded data, and communicating the results to the users of financial statements.

Question. “Accounting information should be comparable.” Do you agree with this statement? Give reasons.
Answer: Yes, accounting information must be comparable. Comparability is a key qualitative characteristic. It allows users to:
• Compare the performance of the business over different years (Intra-firm comparison).
• Compare the performance of the business with other similar enterprises in the same industry (Inter-firm comparison) to make informed economic decisions.

Question. Which of the following transactions are of financial character and will be recorded in the books:
a. Credit purchase of goods.
b. Strike by employees.
c. Interviewing the candidates for employment.
d. Goods worth Rs. 5,000 taken from the business and given by the proprietor to his friend as gift.
e. Sale of household furniture Rs. 2,000.
Answer: The following transactions are of a financial character and will be recorded:
• a. Credit purchase of goods: Affects assets and liabilities of the business.
• d. Goods worth Rs. 5,000 taken from the business as drawings: Reduces the business stock and capital.
(Note: Transaction 'b' and 'c' are non-financial; 'e' is a personal transaction of the proprietor and does not affect business books unless the cash is introduced into the business).

Question. What is meant by window dressing in accounting?
Answer: Window dressing refers to the practice of manipulating financial statements to present a better and more favorable financial position of the company than what actually exists in reality, usually to attract investors or secure loans.

Question. How is Accounting influenced by personal judgements?
Answer: Accounting is not completely free from personal bias because accountants must make choices in various situations, such as:
• Choosing the method of depreciation (Straight Line vs. Diminishing Balance Method).
• Estimating the useful life of an asset.
• Making provisions for doubtful debts.

Question. If the Accounting Information is not clearly presented, which of the qualitative characteristic of the accounting information is violated?
Answer: The qualitative characteristic of Understandability is violated, as accounting information must be presented in a clear and systematic manner so that users can comprehend it easily.

Question. State any 5 users of accounting information.
Answer: The five main users of accounting information are:
• Owners/Investors
• Management
• Creditors/Suppliers
• Employees and Trade Unions
• Tax Authorities and Government

Question. State what is the end product of Financial Accounting?
Answer: The end product of Financial Accounting is the Financial Statements (or Final Accounts), which include the Income Statement (Trading and Profit & Loss Account) and the Position Statement (Balance Sheet), along with relevant notes to accounts.

TOPIC – BASIC ACCOUNTING TERMS

Question. Explain the meaning of the following terms:
a. Assets
b. Capital
c. Liabilities
d. Drawings
e. Trade Receivables
f. Fictitious Assets
g. Revenue
h. Cash Discount
i. Voucher
j. Deferred revenue expenditure
Answer:
• a. Assets: Economic resources owned by a business entity that are expected to provide future economic benefits.
• b. Capital: The amount invested in an enterprise by its owner or proprietor.
• c. Liabilities: Financial obligations or debts that a business owes to outsiders.
• d. Drawings: Any cash or value of goods withdrawn by the owner from the business for personal use.
• e. Trade Receivables: The total amount owed to the business by customers for goods sold or services rendered on credit (consists of Debtors and Bills Receivable).
• f. Fictitious Assets: Assets that have no real value or physical form, representing deferred expenses or losses not yet written off (e.g., promotional expenses).
• g. Revenue: The gross inflow of cash, receivables, or other consideration arising in the course of the ordinary activities of an enterprise (e.g., from sales, interest, commission).
• h. Cash Discount: A deduction allowed from the amount due to encourage prompt or immediate payment.
• i. Voucher: A documentary evidence in support of a business transaction.
• j. Deferred revenue expenditure: A revenue expenditure whose benefit is expected to accrue over more than one accounting period (e.g., heavy advertising campaign).

Question. Distinguish between:
a. Debtors and Creditors
b. Revenue expenditure and Capital expenditure
Answer:
• Debtors vs. Creditors: Debtors are persons or entities who owe money to the business for credit purchases of goods/services. Creditors are persons or entities to whom the business owes money for goods/services purchased on credit.
• Revenue vs. Capital Expenditure: Revenue expenditure is incurred for the day-to-day running of the business, its benefits are consumed within one accounting year, and it maintains earning capacity. Capital expenditure is incurred to acquire or improve assets, its benefits accrue over multiple years, and it increases the earning capacity of the business.

Question. Current Liabilities include:
(a) Bills Payable
(b) Creditors
(c) Outstanding Expenses
(d) All of the options
Answer: (d) All of the options

Question. Which of the following is the Capital Expenditure:
(a) Wages paid for repair of building
(b) Wages paid for white washing of building
(c) Wages paid for construction of building
(d) Wages paid for cleaning of building
Answer: (c) Wages paid for construction of building

Question. G Ltd. imported from Germany one machinery for sale in India and another machinery for production purpose. Will you treat them goods or fixed assets?
Answer: The machinery imported for sale in India will be treated as Goods (current assets/stock), as it is purchased with the primary intention of resale. The machinery imported for production purposes will be treated as a Fixed Asset (non-current asset), as it is intended to be used in business operations over a long period to produce goods.

Question. Mr. X dealing in electronic goods sold 20 T.V. sets costing Rs.30,000 each at Rs. 40,000 each. Out of this Rs.5,00,000 were received in cash and the balance is not yet received. State the amount of revenue.
Answer: Under the accrual concept of accounting, revenue is recognized when sales are made, irrespective of cash received. Total sets sold = 20 Selling price per set = Rs. 40,000 Total Revenue = \( 20 \times \text{Rs. } 40,000 = \text{Rs. } 8,00,000 \).

Question. What is the reason that the capital expenditure is shown in the Balance Sheet?
Answer: Capital expenditure is incurred to acquire or improve long-term assets that provide economic benefits to the business across multiple accounting periods. Therefore, instead of being fully expensed in the Income Statement of the current year, it is capitalized and presented as an asset in the Balance Sheet, with only its depreciated portion expensed annually.

TOPIC – THEORY BASE OF ACCOUNTING

Question. “Capital is a liability for a business.” Explain this statement with the principle applied.
Answer: This statement is based on the Business Entity Concept. According to this concept, the business is treated as a separate legal and distinct unit from its owners. Therefore, any amount invested by the owner (capital) is considered a liability of the business towards the owner, and is recorded on the liabilities side of the Balance Sheet.

Question. Discuss the principle based on the premise “do not anticipate profits but provide for all losses.”
Answer: This premise is based on the Prudence Concept (or Conservatism Principle). According to this concept, a business should follow a cautious approach. Anticipated profits should not be recorded in accounts until they are realized, but all possible anticipated losses must be provided for immediately (e.g., creating a provision for doubtful debts, or valuing closing stock at cost or net realizable value, whichever is lower).

Question. What is accrual concept?
Answer: The Accrual Concept states that revenue and expenses are recorded in the accounting period in which they are earned or incurred, regardless of when the actual cash is received or paid.

Question. Why should a business follow the consistency principle?
Answer: A business must follow the Consistency Principle to ensure that accounting policies and methods (such as depreciation methods) remain uniform from one year to another. This facilitates meaningful comparison of financial statements across different accounting periods.

Question. Due to which principle qualitative transactions are not recorded in the books:
(a) Business Entity Principle
(b) Money Measurement Principle
(c) Historical Cost Principle
(d) Dual Aspect Principle
Answer: (b) Money Measurement Principle

Question. Due to which of the following, contingent liabilities are shown in the Balance Sheet:
(a) Dual Aspect Principle
(b) Principle of Full Disclosure
(c) Principle of Materiality
(d) Going Concern Concept
Answer: (b) Principle of Full Disclosure

Question. What is meant by GAAP?
Answer: GAAP stands for Generally Accepted Accounting Principles. These are the standardized rules, guidelines, and conventions that businesses must follow to maintain uniformity, consistency, and comparability in financial reporting.

Question. Why the full cost of an asset is not treated as an expense in the year of its purchase?
Answer: Based on the Matching Concept and the Going Concern Concept, an asset provides economic benefits over several years. Treating the full cost as an expense in the purchase year would understate profits in that year and overstate profits in subsequent years. Instead, its cost is spread over its useful life through depreciation.

Question. Mohan the owner of the business receives an order of goods worth Rs.2,00,000. He has also received Rs.25,000 against this order. Mohan wants to record it as a sale. Is Mohan correct in doing so?
Answer: No, Mohan is not correct. According to the Revenue Recognition (Realization) Concept, revenue is recognized only when the ownership of goods has been transferred or the performance is complete. Merely receiving an order or advance payment does not constitute a sale. The advance of Rs. 25,000 should be recorded as a liability (Advance from Customer).

Question. Define the following:
a. IFRS
b. Accounting Standard.
Answer:
• a. IFRS (International Financial Reporting Standards): A set of global accounting standards developed by the International Accounting Standards Board (IASB) to ensure global consistency, transparency, and comparability of financial statements.
• b. Accounting Standard: Written policy documents covering the aspects of recognition, measurement, treatment, presentation, and disclosure of accounting transactions in financial statements, issued by expert accounting bodies (such as ICAI in India).

TOPIC - BASE OF ACCOUNTING

Question. Define the following:
a. Cash basis of Accounting
b. Accrual basis of Accounting
Answer:
• a. Cash basis of Accounting: A system of accounting where revenues are recorded only when cash is received, and expenses are recorded only when cash is paid.
• b. Accrual basis of Accounting: A system of accounting where income is recorded when it is earned, and expenses are recorded when they are incurred, irrespective of actual cash inflow or outflow.

Question. Which basis of Accounting is recognized under the Companies Act, 1956.
Answer: The Accrual Basis of Accounting is recognized and mandatory under the Companies Act, 1956 (as well as the Companies Act, 2013).

Question. In which basis of Accounting, Outstanding expenses are not recorded?
Answer: Outstanding expenses are not recorded in the Cash Basis of Accounting.

Question. Differentiate between Accrual and Cash basis of Accounting (any 4).
Answer:
1. Recording of transactions: Accrual basis records both cash and credit transactions, while Cash basis records cash transactions only.
2. Outstanding/Prepaid items: Accrual basis adjusts for outstanding expenses, prepaid expenses, accrued income, and unearned income. Cash basis does not make such adjustments.
3. Legal recognition: Accrual basis is legally recognized under company law, whereas Cash basis is not.
4. True Profit/Loss determination: Accrual basis reflects a true and fair view of profits/losses, whereas Cash basis does not align revenues with matching expenses within the same period.

Question. Mr. Y, a businessman, during the financial year 2012-13 earned Rs.3,00,000. Out of which he received Rs.2,50,000. He incurred an expense of Rs.1,00,000, out of which Rs.30,000 are outstanding. He also received income relating to previous year Rs.25,000 and paid Rs.10,000 expense of last year. You are required to calculate his income for the year if
a. He follows cash basis of Accounting
b. He follows accrual basis of Accounting.
Answer:
a. Cash basis of Accounting:
• Cash Receipts = Rs. 2,50,000 (Current year) + Rs. 25,000 (Previous year) = Rs. 2,75,000
• Cash Payments = (Rs. 1,00,000 - Rs. 30,000 outstanding) + Rs. 10,000 (Last year paid) = Rs. 70,000 + Rs. 10,000 = Rs. 80,000
• Income (Cash Basis) = Rs. 2,75,000 - Rs. 80,000 = Rs. 1,95,000

b. Accrual basis of Accounting:
• Revenue Earned = Rs. 3,00,000
• Expenses Incurred = Rs. 1,00,000
• Income (Accrual Basis) = Rs. 3,00,000 - Rs. 1,00,000 = Rs. 2,00,000

TOPIC – ACCOUNTING EQUATION AND ACCOUNTING PROCEDURE

Question. X commenced business on 1st April,2013 with a capital of Rs.6,00,000. On 31st March,2014 his assets were worth Rs.8,00,000 and liabilities Rs.50,000. Find out his closing capital and profits earned during the year.
Answer:
• Closing Capital = Assets - Liabilities = Rs. 8,00,000 - Rs. 50,000 = Rs. 7,50,000
• Profits Earned = Closing Capital - Opening Capital = Rs. 7,50,000 - Rs. 6,00,000 = Rs. 1,50,000

Question. Calculate the amount of total assets and capital as on 31.12.2013 in each of the following cases:
i. Shyam started a business on 1.1.2013 with a capital of Rs.10,000 and a loan of Rs. 5,000 borrowed from Chirag. During the year, he made a profit of Rs.5,000.
ii. If in the above case the proprietor had introduced additional capital of Rs.5,000 and had withdrawn Rs.3,000 for personal use.
iii. If in the above case, apart from the loan, Shyam owes Rs. 2,500 to a supplier of goods on 31.12.2013.
Answer:
i.
• Closing Capital = Opening Capital + Profit = Rs. 10,000 + Rs. 5,000 = Rs. 15,000
• Total Assets = Closing Capital + Liability (Loan) = Rs. 15,000 + Rs. 5,000 = Rs. 20,000
• Capital = Rs. 15,000

ii.
• Closing Capital = Opening Capital + Additional Capital + Profit - Drawings = Rs. 10,000 + Rs. 5,000 + Rs. 5,000 - Rs. 3,000 = Rs. 17,000
• Total Assets = Closing Capital + Liability (Loan) = Rs. 17,000 + Rs. 5,000 = Rs. 22,000
• Capital = Rs. 17,000

iii.
• Total Liabilities = Chirag's Loan (Rs. 5,000) + Creditor (Rs. 2,500) = Rs. 7,500
• Capital (from case i) = Rs. 15,000
• Total Assets = Capital + Total Liabilities = Rs. 15,000 + Rs. 7,500 = Rs. 22,500
• Capital = Rs. 15,000

Question. Calculate total equity if:
i. Owner’s Equity in the beginning Rs.60,000
ii. Equity of creditors at the end Rs.50,000
iii. Revenue during the period Rs.70,000
iv. Expenses during the same period are Rs.65,000
Also calculate amount of owner’s equity at the end.
Answer:
• Profit = Revenue - Expenses = Rs. 70,000 - Rs. 65,000 = Rs. 5,000
• Owner’s Equity at the end = Opening Owner's Equity + Profit = Rs. 60,000 + Rs. 5,000 = Rs. 65,000
• Total Equity = Owner's Equity at the end + Creditors' Equity = Rs. 65,000 + Rs. 50,000 = Rs. 1,15,000

Question. Show the Accounting Equation on the basis of the following transactions and also show the Balance Sheet:
1. Started business with cash Rs.60,000 and goods Rs.30,000.
2. Purchased goods for cash Rs.40,000 and on credit Rs.25,000.
3. Goods costing Rs.48,000 sold at a profit of \( 33\frac{1}{3}\% \). Three-fourth payment received in cash.
4. Paid rent Rs.4,000 and salary Rs.6,000.
5. Received cash from Debtors Rs.15,000.
6. Paid telephone bill amounting to Rs.800.
7. Introduced fresh capital Rs.40,000.
8. Purchased securities Rs.5,000 in cash.
9. Paid cash for household expenses Rs.1,000.
10. Received dividend on securities Rs.200.
Answer:
The Accounting Equation is: Assets = Liabilities + Capital
• Transaction 1: Cash (+Rs. 60,000) + Stock (+Rs. 30,000) = Capital (+Rs. 90,000)
• Transaction 2: Cash (-Rs. 40,000) + Stock (+Rs. 65,000) = Creditors (+Rs. 25,000)
• Transaction 3: Costing Rs. 48,000 sold at 33 1/3% profit. Profit = Rs. 16,000; Total Sale = Rs. 64,000. Cash Received (3/4th) = Rs. 48,000; Debtors created (1/4th) = Rs. 16,000. Stock decreases by Rs. 48,000. Cash (+Rs. 48,000) + Debtors (+Rs. 16,000) + Stock (-Rs. 48,000) = Capital (+Rs. 16,000)
• Transaction 4: Cash (-Rs. 10,000) = Capital (-Rs. 10,000)
• Transaction 5: Cash (+Rs. 15,000) + Debtors (-Rs. 15,000)
• Transaction 6: Cash (-Rs. 800) = Capital (-Rs. 800)
• Transaction 7: Cash (+Rs. 40,000) = Capital (+Rs. 40,000)
• Transaction 8: Cash (-Rs. 5,000) + Securities (+Rs. 5,000)
• Transaction 9: Cash (-Rs. 1,000) = Capital (-Rs. 1,000) (Drawings)
• Transaction 10: Cash (+Rs. 200) = Capital (+Rs. 200)

Final Balances:
• Assets: Cash Rs. 1,06,400 + Stock Rs. 47,000 + Debtors Rs. 1,000 + Securities Rs. 5,000 = Rs. 1,59,400
• Liabilities: Creditors Rs. 25,000
• Capital: Rs. 1,34,400
• Total Assets = Total Liabilities + Capital = Rs. 1,59,400

Question. Classify the following accounts into Personal, Real or Nominal accounts:
a. Machinery b. Cash c. Bank d. Bad Debts e. Goodwill f. Drawings g. Interest received h. Trade Marks i. Commission received in advance j. Prepaid Insurance
Answer:
• Personal Accounts: Bank, Drawings, Commission received in advance, Prepaid Insurance (Representative Personal)
• Real Accounts: Machinery, Cash, Goodwill, Trade Marks
• Nominal Accounts: Bad Debts, Interest received

Question. Mention the nature of the account on the basis of Modern Classification of Accounts:
a. Creditor’s A/c b. Purchases A/c c. Rent Received A/c d. Proprietor’s A/c e. Building A/c
Answer:
• a. Creditor's A/c: Liability Account
• b. Purchases A/c: Expense Account
• c. Rent Received A/c: Revenue/Income Account
• d. Proprietor's A/c: Capital Account
• e. Building A/c: Asset Account

TOPIC – ORIGIN OF TRANSACTIONS

Question. What do you mean by Source Vouchers and Accounting Vouchers?
Answer:
• Source Vouchers: Documents that contain the primary evidence of a business transaction (e.g., cash memo, invoice, bill, receipt).
• Accounting Vouchers: Written documents prepared by accountants specifying which accounts are to be debited and credited, supported by source vouchers.

Question. What is an invoice?
Answer: An invoice is a document prepared by a seller and sent to a buyer, listing the details of goods sold on credit (quantity, price, total amount, trade discount, terms of payment).

Question. Rohan has returned goods worth Rs.5,000 to Ram as he found it defective. Which document will be prepared by Ram?
Answer: Ram will prepare a Credit Note to acknowledge that Rohan's account has been credited in his books.

Question. Credit purchase of furniture will be recorded through which voucher?
Answer: It will be recorded using a Transfer Voucher (or Non-Cash Voucher), since it is a non-cash credit transaction.

Question. What is the value involved in recording transactions on the basis of source documents?
Answer: The core values are Objectivity, Reliability, and Verifiability, ensuring that accounting records are free from personal bias and can be verified using solid documentary proof.

Question. Is cash memo a source document or an accounting voucher?
Answer: A cash memo is a Source Document.

Question. Why is the evidence provided by source documents important to Accounting?
Answer: It ensures objectivity and truthfulness in recording. It acts as legal evidence in court and serves as primary evidence during auditing of accounts.

TOPIC- Journal and Ledger

Question. Explain the following terms:
a. Journal
b. Ledger
Answer:
• a. Journal: A book of primary or original entry in which business transactions are recorded chronologically for the first time.
• b. Ledger: The principal book of accounts in which all classified transactions are transferred (posted) from journal into respective individual accounts.

Question. Differentiate between Cash discount and Trade discount.
Answer:
• Trade Discount: Allowed by a manufacturer or wholesaler to retailers at a fixed percentage of list price at the time of sale. It is not recorded in the books of accounts.
• Cash Discount: Allowed to customers to encourage quick and prompt payment. It is recorded on the debit/credit side of the cash book/journal.

Question. Journalise the following:
1-1-2009. Started business with cash Rs. 25,000
2-1-2009. Purchased furniture from Rajan Rs. 15,000
3-1-2009. Sold goods to Sukumaran Rs. 50,000
4-1-2009. purchased stationary for Rs. 300
5-1-2009. Paid Salary Rs 500.
Answer:
• Jan 1: Cash A/c Dr. 25,000 To Capital A/c 25,000 (Business started with cash)
• Jan 2: Furniture A/c Dr. 15,000 To Rajan's A/c 15,000 (Furniture purchased on credit)
• Jan 3: Sukumaran's A/c Dr. 50,000 To Sales A/c 50,000 (Goods sold on credit)
• Jan 4: Stationery A/c Dr. 300 To Cash A/c 300 (Purchased stationery)
• Jan 5: Salary A/c Dr. 500 To Cash A/c 500 (Paid salaries)

Question. Journalize the following transactions:-
(a) Withdrawn for office use Rs.1200.
(b) Rent paid Rs 800.
(c) Bought a car for personal use worth Rs 1,00,000.
(d) Sold goods to Mr.Gupta Rs. 50,000.
(e) Ram kumar is declared insolvent. Received from his official receiver a first and final compensation of 60 paise in the rupee on a bad debt Rs. 5000.
(f) Paid Rs. 300 in cash as wages on installation of machine.
(g) Paid into bank Rs. 30,000
(h) Sold goods to Raju, list price Rs. 7000 trade discount 10% and cash discount 5%. He paid the amount on the same day and availed cash discount.
Answer:
• (a): Cash A/c Dr. 1,200 To Bank A/c 1,200 (Cash withdrawn from bank for office use)
• (b): Rent A/c Dr. 800 To Cash A/c 800 (Paid rent)
• (c): Drawings A/c Dr. 1,00,000 To Bank/Cash A/c 1,00,000 (Bought car for personal use)
• (d): Mr. Gupta's A/c Dr. 50,000 To Sales A/c 50,000 (Sold goods to Mr. Gupta on credit)
• (e): Cash A/c Dr. 3,000, Bad Debts A/c Dr. 2,000 To Ram Kumar's A/c 5,000 (Received 60% amount on insolvency)
• (f): Machinery A/c Dr. 300 To Cash A/c 300 (Wages spent on machine installation capitalized)
• (g): Bank A/c Dr. 30,000 To Cash A/c 30,000 (Cash paid into bank)
• (h): List Price = Rs. 7,000. Less 10% Trade Discount = Rs. 6,300 (recorded sales). Cash Discount = 5% of Rs. 6,300 = Rs. 315. Net Cash Received = Rs. 5,985.
Cash A/c Dr. 5,985, Discount Allowed A/c Dr. 315 To Sales A/c 6,300

Question. Pass Journal entries from the following transactions and also prepare cash A/c and purchases A/c:
a. Goods worth Rs.50,000 and cash Rs.20,000 were stolen by an employee.
b. Rs.10,000 due from Rohit are now bad debts.
c. Provide interest on capital of Rs.15,00,000 at 6% p.a. for 9 months.
d. Rahul who owned us Rs.20,000 becomes insolvent and a final dividend of 60 paise in a rupee is received from his estate.
e. Purchased an old machinery for Rs.1,00,000 and spent Rs.5,000 on its carriage and Rs.20,000 on its immediate repairs.
f. Sold goods to Karan list price Rs.20,000, trade discount 10% and cash discount 5%. He paid the amount on the same day and availed the cash discount.
g. Paid landlord Rs.12,000 for rent. One-third of the building is occupied by the proprietor for residential use.
h. Received cash from a debtor written off as bad debts last year Rs.2,000.
i. Commission accrued Rs.1,000
j. Honoured our acceptance in favour of Shyam by cheque Rs.3,000.
Answer:
• a: Loss by Theft A/c Dr. 70,000 To Purchases A/c 50,000 To Cash A/c 20,000
• b: Bad Debts A/c Dr. 10,000 To Rohit's A/c 10,000
• c: Interest = \( 15,00,000 \times 6\% \times \frac{9}{12} = \text{Rs. } 67,500 \). Interest on Capital A/c Dr. 67,500 To Capital A/c 67,500
• d: Cash A/c Dr. 12,000, Bad Debts A/c Dr. 8,000 To Rahul's A/c 20,000
• e: Machinery A/c Dr. 1,25,000 To Cash A/c 1,25,000 (Repairs & carriage of old machinery are capitalized)
• f: Sales price = \( 20,000 - 10\% = 18,000 \). Cash discount = \( 18,000 \times 5\% = 900 \). Cash A/c Dr. 17,100, Discount Allowed A/c Dr. 900 To Sales A/c 18,000
• g: Rent A/c Dr. 8,000, Drawings A/c Dr. 4,000 To Cash A/c 12,000 (1/3rd rent is personal drawing)
• h: Cash A/c Dr. 2,000 To Bad Debts Recovered A/c 2,000
• i: Accrued Commission A/c Dr. 1,000 To Commission A/c 1,000
• j: Bills Payable A/c Dr. 3,000 To Bank A/c 3,000

Question. Pass Opening journal entry from the following: Cash balance Rs.3,00,000; Bank balance Rs.4,000; Debtors 5,000; Building Rs.2,00,000; Machinery Rs.40,000; Bill Receivable Rs.20,000; Goodwill Rs.5000; Creditors Rs.10,000; Outstanding Expenses Rs.2,000.
Answer:
Debit all assets and credit all liabilities. The balancing figure is Capital.
Cash A/c Dr. 3,000
Bank A/c Dr. 4,000
Debtors A/c Dr. 5,000
Building A/c Dr. 2,00,000
Machinery A/c Dr. 40,000
Bill Receivable A/c Dr. 20,000
Goodwill A/c Dr. 5,000
To Creditors A/c 10,000
To Outstanding Expenses A/c 2,000
To Capital A/c (Balancing Figure) 2,65,000

TOPIC – CASH BOOK

Question. Why Cash Book is considered as both subsidiary and a principal book?
Answer: It is a Subsidiary book because all cash transactions are directly recorded chronologically for the first time without passing through the Journal. It is a Principal book because it ledgerizes cash transactions, thereby eliminating the need to maintain separate Cash and Bank accounts in the Ledger.

Question. What is contra entry?
Answer: A contra entry is a transaction that involves both cash and bank accounts. In a double-column cash book, it is recorded on both debit and credit sides in different columns (e.g., depositing cash into the bank, or withdrawing cash from the bank for office use).

Question. What do you mean by Imprest system of Petty Cash Book?
Answer: Under the Imprest System, the petty cashier is given a fixed sum of money (imprest amount) at the beginning of a period. At the end of the period, the chief cashier reimburses the exact amount spent during the period, making the petty cashier's starting balance equal to the original imprest amount.

Question. Record the following transactions in a double column cash book with cash and bank column and balance the book on 31st March 2007.

Answer: The entries in the Cash Book are:
• March 1: To Balance b/d: Rs. 500 in Cash column; By Balance b/d: Rs. 4,000 in Bank column (Overdraft).
• March 3: To Sales A/c: Rs. 6,000 in Cash column.
• March 5: By Machinery A/c: Rs. 10,000 in Bank column.
• March 7: By Machinery A/c (wages): Rs. 400 in Cash column.
• March 10: To Cheques-in-Hand A/c: Rs. 4,800 (not deposited yet).
• March 13: By Mr. Lal's A/c: Rs. 4,000 in Bank column.
• March 14: To Bank A/c: Rs. 5,000 in Cash column (Contra); By Cash A/c: Rs. 5,000 in Bank column (Contra).
• March 16: No entry in cash columns as the cheque is received and endorsed on same day.
• March 30: By Drawings A/c: Rs. 500 in Cash column.
• Closing Balances: Cash in hand = Rs. 10,600, Bank Overdraft = Rs. 13,000.

Question. Prepare Cash Book from the following transactions: 2004
• May 1: Balance of Cash in hand Rs.15,600; Overdraft at Bank Rs.7,400.
• May 2: Capital introduced Rs.30,000, Out of which Rs.25,000 deposited into Bank.
• May 3: Purchased goods on credit from Mohan of the list price of Rs.15,000. Out of this amount he allowed us a trade discount of 20%.
• May 6: Settled the account of Mohan by paying cash Rs.11,600.
• May 8: An amount of Rs.2,500 due from Chaturvedi & sons written off as Bad Debts in the previous year, now recovered.
• May 10: Cashed a cheque for Rs.7,500.
• May 10: Drew from bank for household expenses Rs.3,000 and for Income Tax Rs.800
• May 14: Received Rs.500 from the sale of old chairs.
• May 15: Received from X on behalf of Y Rs.2,200. Discount allowed Rs.100.
• May 20: Received a cheque from Naresh Rs.4,210 in full settlement of his account of Rs.4,400.
• May 22: Cheque received from Naresh sent to bank.
• May 25: Sagar Chand, who owned us Rs.10,000 became bankrupt and paid us 40 paise in a rupee.
• May 26: Received repayment of a loan of Rs.3,600 and deposited out of it Rs.2,000 into the bank.
• May 28: Cheque received from Naresh dishonoured, Bank debits Rs.20 in respect of this cheque for Bank Charges.
• May 31: Interest debited by bank Rs.650. Deposited with the bank the entire balance after retaining Rs.5,000 at office.
Answer:
• May 1: To Balance b/d: Cash Rs. 15,600; By Balance b/d: Bank Rs. 7,400.
• May 2: To Capital A/c: Cash Rs. 5,000, Bank Rs. 25,000.
• May 3: Credit transaction. No entry in cash book.
• May 6: By Mohan's A/c: Cash Rs. 11,600 (discount of Rs. 400 is adjusted in journal).
• May 8: To Bad Debts Recovered A/c: Cash Rs. 2,500.
• May 10: To Bank A/c (Contra): Cash Rs. 7,500; By Cash A/c (Contra): Bank Rs. 7,500.
• May 10 (drawings): By Drawings A/c: Bank Rs. 3,000 & Rs. 800.
• May 14: To Furniture A/c: Cash Rs. 500.
• May 15: To Y's A/c: Cash Rs. 2,200.
• May 20: To Naresh's A/c: Cash Rs. 4,210 (Discount of Rs. 190 in journal).
• May 22: To Cash A/c (Contra): Bank Rs. 4,210; By Bank A/c (Contra): Cash Rs. 4,210.
• May 25: To Sagar Chand A/c: Cash Rs. 4,000.
• May 26: To Loan A/c: Cash Rs. 3,600. Then deposit: To Cash A/c (Contra): Bank Rs. 2,000; By Bank A/c (Contra): Cash Rs. 2,000.
• May 28: By Naresh's A/c: Bank Rs. 4,210 & Rs. 20.
• May 31: By Interest/Bank Charges: Bank Rs. 650.
• May 31 (Deposit of balance): Calculate cash balance, retain Rs. 5,000 and deposit the rest in bank.

TOPIC – SUBSIDARY BOOK

Question. What are the different types of subsidiary book? Can we prepare Trial balance with the help of subsidiary books?
Answer: The different types of subsidiary books are:
• Cash Book, Purchases Book, Sales Book, Purchases Return Book, Sales Return Book, Bills Receivable Book, Bills Payable Book, and Journal Proper.
Yes, we can prepare a Trial Balance with the help of subsidiary books by taking the periodic totals of these books and posting them directly to respective accounts.

Question. Enter the following transactions in the proper books of account maintained by Datta Readymade Garments:
2011
• Aug. 2: Sold goods to Mehra Sons: 4 Coats @ Rs.500 each, 6 Ladies Suits @ Rs.1,000 each. Less: 10% Trade Discount
• Aug. 5: Sold goods to Mohan & Co.: 6 Kids suits @ Rs.600 each, 4 Gents Shirts @ Rs.800 each
• Aug. 6: Purchased furniture from Godrej on credit Rs.15,000
• Aug. 7: Charged Depreciation on Furniture Rs.500
• Aug. 8: Goods returned by Mohan & Co.: 1 Kids Suit @ Rs.600 each, 1 Gents Shirts @ Rs.800 each (Wait, in PDF it is "1 Gents Shirts" -> 1 Gents Shirt)
• Aug. 12: Goods Purchased on credit from Janata Stores: 15 Pant Pieces @ Rs.80 each, 20 Trousers @ Rs.500 each
• Aug. 15: Goods purchased on Credit from Golden Fabrics: 10 Woolen suits @ Rs.2,000 each, 12 Cotton Sarees @ Rs.1,200 each. Less: 10% Discount
• Aug. 25: Purchased cotton sarees for personal use Rs.1,000
Answer: Transactions will be recorded in different subsidiary books:
• Sales Book: Aug 2 (Mehra Sons: Rs. 7,200), Aug 5 (Mohan & Co.: Rs. 6,800).
• Purchases Book: Aug 12 (Janata Stores: Rs. 11,200), Aug 15 (Golden Fabrics: Rs. 30,960).
• Sales Return Book: Aug 8 (Mohan & Co.: Rs. 1,400).
• Journal Proper: Aug 6 (Furniture purchase: Rs. 15,000), Aug 7 (Depreciation: Rs. 500), Aug 25 (Drawings: Rs. 1,000).

TOPIC: BANK RECONCILIATION STATEMENT

Question. Why is Bank Reconciliation Statement prepared?
Answer: BRS is prepared to reconcile and explain the causes of differences between the bank balance shown in the cash book of the business and the balance shown in the bank pass book/bank statement on a particular date.

Question. Discuss the need of preparing BRS.
Answer: BRS helps to:
• Identify errors in the cash book or pass book.
• Detect any delay in clearance of cheques.
• Prevent fraud and embezzlement of cash.
• Keep a check on the actual bank balance of the business.

Question. Is it correct that Bank Reconciliation Statement is prepared once that is at the end of the year?
Answer: No, it is not necessary to prepare BRS only at the end of the year. It can be prepared at any time (monthly, weekly, or even daily) depending on the volume of transactions and requirement of the management to keep track of the bank balance.

Question. On 31st December, 2005, the Cash Book of Mittal Bros. showed an overdraft of Rs.6920. From the following particulars make out a Bank Reconciliation Statement ascertain the balance as per pass book.
a. Debited by bank for Rs.200 on account of interest on overdraft and Rs.50 on account of charges for collecting bills.
b. Cheques drawn but not cashed before December 31, 2005 for Rs.4,000.
c. On 15th Dec., the payments side of the Cash Book was undercast by Rs.100.
d. A cheque for Rs.131 issued on 25th Dec., was recorded in the cash column.
e. One deposit of Rs.150 was recorded in the Cash Book as if there is not Bank column therein.
f. On 18th Dec., the debit balance of Rs. 1,526 as on previous day was brought forward as accredit balance.
g. Of the total cheques amounting to Rs. 11,514 drawn in the last week of Dec., cheques aggregating Rs.7,815 were encashed in Dec.
Answer: Starting balance: Overdraft as per Cash Book = Rs. 6,920 (Dr. in BRS / Minus Item).
• a: Add to overdraft (Minus item) = Rs. 250 (interest + charges).
• b: Deduct from overdraft (Plus item) = Rs. 4,000.
• c: Add to overdraft (Minus item) = Rs. 100.
• d: Deduct from overdraft (Plus item) = Rs. 131.
• e: Deduct from overdraft (Plus item) = Rs. 150.
• f: Overdraft needs to be adjusted by \( 1,526 \times 2 = \text{Rs. } 3,052 \) (Minus item).
• g: Cheques drawn but not cashed = \( 11,514 - 7,815 = \text{Rs. } 3,699 \) (Plus item).

Question. Prepare a bank reconciliation statement from the following particulars on 31st March 2002:
(i) Debit balance as per bank column of the cash book: Rs. 3,72,000
(ii) Cheques issued to creditors, but not yet presented to the bank for payment: Rs. 72,000
(iii) Dividend received by the bank, but not entered in the cash book: Rs. 5,000
(iv) Interest allowed by bank: Rs. 1,250
(v) Cheques deposited into bank for collection, but not collected by bank up to this date: Rs. 15,400
(vi) Bank charges: Rs. 200
(vii) A cheque deposited into bank was dishonoured, but no intimation received: Rs. 320
(viii) Bank paid house tax on our behalf, but no information received from bank in this connection: Rs. 350
Answer:
• Debit Balance as per Cash Book = Rs. 3,72,000
• Add: Cheques issued but not presented = +Rs. 72,000
• Add: Dividend received directly = +Rs. 5,000
• Add: Interest allowed by bank = +Rs. 1,250
• Less: Cheques deposited but not collected = -Rs. 15,400
• Less: Bank charges = -Rs. 200
• Less: Cheque dishonoured = -Rs. 320
• Less: House tax paid by bank = -Rs. 350
• Balance as per Pass Book (Cr.) = Rs. 4,34,980

TOPIC: DEPRECIATION

Question. Depreciation is cash expenditure like other normal expenses. Comment.
Answer: No, depreciation is a non-cash expenditure. Unlike rent or salaries, it does not involve any actual cash outflow from the business to any external party; it is simply an accounting entry representing the fall in the value of fixed assets due to wear and tear or efflux of time.

Question. Depreciation cannot be provided in case of loss in a financial year. Comment.
Answer: This is incorrect. Depreciation is a charge against profits and not an appropriation of profit. Therefore, it must be provided irrespective of whether the business makes a profit or suffers a loss in a financial year.

Question. Which assets are depreciated by using depletion method of depreciation?
Answer: Natural wasting assets such as mines, quarries, oil wells, and timber forests are depreciated using the depletion method.

Question. G Ltd. purchased machinery on 1st Jan. 2003 for Rs.2,00,000. Installation expenses were Rs.30,000. On 1st July, 2003, expenses for repairs were incurred to the extent of Rs.20,000. Depreciation is provided @10% p.a. under W.D.V. method. Calculate depreciation for the 4th year. Which values are being reflected in this case?
Answer: Capital Cost of Machinery on 1st Jan 2003 = Purchase Price (Rs. 2,00,000) + Installation (Rs. 30,000) = Rs. 2,30,000. (Repairs on 1st July 2003 are revenue nature and not capitalized).
• Yr 1 Depreciation (2003) = Rs. 23,000. Book Value = Rs. 2,07,000.
• Yr 2 Depreciation (2004) = Rs. 20,700. Book Value = Rs. 1,86,300.
• Yr 3 Depreciation (2005) = Rs. 18,630. Book Value = Rs. 1,67,670.
• Yr 4 Depreciation (2006) = \( \text{Rs. } 1,67,670 \times 10\% = \text{Rs. } 16,767 \).
Values reflected are: Accuracy, transparency, and compliance with the matching concept by capitalizing installation and charging depreciation appropriately.

Question. On 1st July, 2010 Avinash Ltd., purchased Machinery for Rs 10,00,000 from Mr. Vishesh & spent Rs 40,000 on its installation. He paid 50% in cash & agreed to pay the balance amount on 1st Jan. 2011, along with interest @ 10% p.a. On 1st April, 2012; the machinery was disposed off for Rs 6,98,200 & on the same day new machinery costing Rs 11,60,000 was purchased. Prepare machinery account from 2010 to 2012 assuming company charges depreciation @ 15% p.a. on Diminishing balance method on 31st December each year.
Answer:
• Total Capital Cost of Machinery 1 (1st July 2010) = Rs. 10,40,000.
• Depreciation for 2010 (6 months) = \( 10,40,000 \times 15\% \times \frac{6}{12} = \text{Rs. } 78,000 \). WDV on 1.1.2011 = Rs. 9,62,000.
• Depreciation for 2011 = \( 9,62,000 \times 15\% = \text{Rs. } 1,44,300 \). WDV on 1.1.2012 = Rs. 8,17,700.
• Disposal on 1st April 2012: Depreciation till sale (3 months) = \( 8,17,700 \times 15\% \times \frac{3}{12} = \text{Rs. } 30,664 \).
• Book value on 1st April 2012 = Rs. 7,87,036. Sale Proceeds = Rs. 6,98,200. Loss on Sale = Rs. 88,836.

Question. On 1st January 2007 Ramu purchased furniture for Rs. 50,000. He spends Rs. 5,000 for its installation. On 1st March 2007 he purchased machinery for Rs. 2,50,000. On 1st July 2009 he sold a part of machinery purchased on 1st March 2007 (costing Rs. 65,000) for Rs 50,000. On 1st October 2009 he purchased machinery for Rs. 1,00,000. Prepare machinery and depreciation account and find out the balance of machinery account as on 31st December 2010. The concern follows fixed installment method @ 10%.
Answer:
• Furniture (Rs. 55,000) is separate from Machinery.
• Machinery 1 (1st March 2007) = Rs. 2,50,000. (Part sold: Rs. 65,000, Part remaining: Rs. 1,85,000).
• Depreciation on sold part from 1.3.2007 to 1.7.2009 under Straight Line Method (SLM):
Depreciation in 2007 = Rs. 5,417; 2008 = Rs. 6,500; 2009 (6 months) = Rs. 3,250. WDV on sale = Rs. 49,833. Sale = Rs. 50,000. Profit on sale = Rs. 167.

Question. Alpha Ltd. Company hired employees with special needs to provide employment opportunities to them. They set up their plant in non residential area to minimize the pollution. It purchased on 1st January 2001 a small plant for Rs.10,000. On 1st July in the same year, an additional plant was purchased costing Rs.5,000. On 1st October 2003 the plant purchased on 1st January 2001 having become obsolete, is sold off for Rs. 6,750. On the same date, a fresh plant was purchased for Rs.12,000. Depreciation is provided at 10% p.a. on the straight-line method. Prepare Plant A/c for 3 years. (Closing date 31st December every year) Identify the values being depicted.
Answer: Values depicted by Alpha Ltd.:
• Social Responsibility: Hiring employees with special needs.
• Environmental values: Setting up plant in non-residential areas to reduce pollution.
(The Plant Account shows correct ledger postings and depreciation of 10% SLM on Plant 1, Plant 2, and the new Plant 3).

TOPIC - Financial Statements of Sole Proprietorship (Adjustments)

Question. How the following will be treated in the final accounts:-
a. During the year ended 31st March, 2015, salaries amounting to Rs.12,000 for ten months have been paid, salaries for two months Rs.2,400 has not been paid.
b. Insurance premium of Rs.2,430 has been paid on 1st Aug. 2014, for one year. (accounts are closed 31st March)
Answer:
• a. Salaries: Dr. in P&L Account: Add Outstanding Salaries of Rs. 2,400 to the paid salaries of Rs. 12,000 (Total Rs. 14,400). Show Outstanding Salaries of Rs. 2,400 on the liabilities side of the Balance Sheet.
• b. Insurance Premium: Prepaid insurance = \( \text{Rs. } 2,430 \times \frac{4}{12} = \text{Rs. } 810 \) (April to July 2015). Dr. in P&L Account: Deduct Rs. 810 from Rs. 2,430 (Net Rs. 1,620). Show Prepaid Insurance of Rs. 810 on the assets side of the Balance Sheet.

Question. Arun Enterprises deals in a stationery business. Being a socially aware business concern, they wanted to pay back to the society. They decided to supply free stationery to 50 schools located in the backward areas. On 26th March, 2015 stock worth Rs.50,000 was destroyed by fire. The stock was insured and insurance company admitted a claim of Rs. 35,000 only. How will you show the effect in final accounts and identify one value which the organization wants to communicate to the society.
Answer:
• In Trading A/c: Deduct full value of stock destroyed (Rs. 50,000) from Purchases.
• In Profit & Loss A/c: Debit the loss by fire (uninsured portion) of Rs. 15,000 (Rs. 50,000 - Rs. 35,000).
• In Balance Sheet: Show the Insurance Claim receivable (Rs. 35,000) on the Assets side.
• Value communicated: Social responsibility and support for education in backward communities.

Question. M/s Bakshi is into the business of medicines. Honesty towards the work is the key to the business. The profits are good and encouraged by huge benefits, the organization decided to reward its employees with bonus equal to one month salary. The purchases made during the year were Rs. 10,000 and medicines worth Rs.2,000 were distributed as free samples to various hospitals to promote sales. How will you deal in the final accounts and identify one value which they want to communicate.
Answer:
• In Trading A/c: Deduct free samples worth Rs. 2,000 from Purchases.
• In P&L A/c: Debit Advertisement/Sales Promotion Expenses with Rs. 2,000, and Debit Employee Bonus (equal to one month salary) under employee benefits.
• Value communicated: Employee motivation and welfare, and contribution to health sector/humanity.

Question. A and B started business of supplying textbooks to students. In order to fulfill social obligation they also supplied books to schools located in the remote and backward areas. During the year commission received Rs. 25,000. Commission received but not earned Rs.500. How will you deal in final A/c’s. State any one value mentioned above.
Answer:
• In P&L A/c: Deduct Commission received but not earned (Rs. 500) from the total commission received (Rs. 25,000), leaving Rs. 24,500 on the credit side.
• In Balance Sheet: Show Unearned Commission of Rs. 500 on the Liabilities side.
• Value communicated: Promoting literacy and equality by supporting remote education.

Question. The debts written off as bad debt, if recovered subsequently, are credited to the Debtor’s A/c. Is it correct? Why?
Answer: No, it is incorrect. Bad debts recovered are credited to the Bad Debts Recovered Account (a nominal income account) and not to the Debtor's Personal Account, as the debtor's account was already closed when the debt was written off as bad.

Question. By providing discount on debtors, which accounting concept is followed?
Answer: The Prudence Concept (Conservatism Principle) is followed, as we anticipate the loss on discount that may be given to debtors for prompt payments in the next year.

Question. The provision for discount on debtors is calculated before deducting the provision for doubtful debts from debtors. Comment.
Answer: This statement is incorrect. Provision for discount is always calculated on good debtors (Debtors - Bad Debts - Provision for Doubtful Debts), because we do not expect to allow discounts to debtors whose payments are already doubtful.

Question. Why do accountants value closing stock at lower of cost or net realizable value?
Answer: This is based on the Prudence Concept (Conservatism) to avoid overstating profits and assets of the business.

Question. Unearned income is credited to the P& L A/c. Do you agree with the statement?
Answer: No, I do not agree. Unearned income is an income received in advance for which services are yet to be rendered. It represents a liability and is shown in the Balance Sheet, not credited to P&L A/c.

Question. Prepare Trading and Profit and loss account from the following:

Answer:
• Gross Profit:
Sales (Rs. 1,00,000 - Returns Dr. Rs. 500) = Rs. 99,500
Less Cost of Goods Sold: Opening Stock (Rs. 25,000) + Purchases (Rs. 50,000 - Returns Cr. Rs. 1,500) + Wages (Rs. 1,500) + Carriage Inwards (Rs. 250) - Closing Stock (Rs. 50,000) = Rs. 25,250
Gross Profit = Rs. 74,250
• Net Profit: Gross Profit + Commission (Rs. 300) - Rent (Rs. 400) - Salaries (Rs. 400) - Carriage Outwards (Rs. 150) - Bad Debts (Rs. 200) = Rs. 73,400

Question. From the following trial balance M/s Shradha & sons as on 31st December, 2003, prepare the trading and profit and loss account and balance sheet:

Adjustments:
(i) Closing stock Rs. 64,000
(ii) Wages outstanding Rs. 2,400
(iii) Bad debts Rs. 600
(iv) Provision for bad and doubtful debts to be 5%
(v) Rent is paid for 11 months.
(vi) Insurance premium is paid per annum, ending 29th February, 2004.
(vii) Loan for the bank was taken on 1st July, 2003.
(viii) Provide depreciation on machinery @ 10% and on furniture @ 5%.

Answer:
• Adjustments treatment:
- Outstanding Wages: Add Rs. 2,400 to Wages in Trading A/c; show on Balance Sheet Liabilities.
- Bad Debts & Provision: Debtors = Rs. 20,600. Less Bad Debts = Rs. 600. Balance = Rs. 20,000. 5% Provision = Rs. 1,000. Net Debtors on Assets side = Rs. 19,000. Total P&L Debit = Rs. 600 + Rs. 1,000 = Rs. 1,600.
- Rent: Rs. 22,000 paid for 11 months. Outstanding (1 month) = Rs. 2,000. Total Rent = Rs. 24,000.
- Bank Loan Interest: 8% on Rs. 25,000 for 6 months (1st July to 31st Dec) = Rs. 1,000 outstanding.
- Depreciation: Machinery = Rs. 5,000; Furniture = Rs. 700.

TOPIC - Accounts from Incomplete Records

Question. A limited company cannot maintain its accounts under Single Entry System. Why?
Answer: Under the Companies Act, limited companies are legally required to maintain their books of accounts using the Double Entry System to ensure transparency, completeness, and a true and fair view of their financial statements.

Question. What is the common objective between the Double Entry System and Single Entry System?
Answer: The common objective of both systems is to record business transactions and determine the net profit or loss made during an accounting period, and to estimate the financial position at the end of the year.

Question. Why the statement of assets and liabilities prepared under Single Entry System at the end of the accounting period is called Statement of Affairs instead of Balance Sheet?
Answer: It is called a Statement of Affairs because it is prepared from incomplete records where asset and liability balances are estimated or taken from memorandum records, unlike a Balance Sheet which is prepared from a mathematically balanced Ledger under the double-entry system.

Question. Calculate closing capital- opening capital Rs.7,00,000; Profit for the year Rs.2,00,000; Drawings Rs.70,000. During the year the proprietor sold ornaments of his wife for Rs.2,00,000 and invested the same in the business.
Answer:
• Additional Capital = Rs. 2,00,000
• Closing Capital = Opening Capital + Additional Capital + Profit - Drawings
• Closing Capital = Rs. 7,00,000 + Rs. 2,00,000 + Rs. 2,00,000 - Rs. 70,000 = Rs. 10,30,000

Question. Atul traders deal in woollen garments. They decided to distribute free of cost woollen garments to villagers of the area where factory is located. Atul maintains his books on Single Entry System. His capital as on 1st April, 2012 was Rs.30,000 whereas capital as on 31st March, 2013 was Rs.1,05,000. He drew Rs.20,000 to purchase a second hand computer for personal use. During the year he introduced Rs. 10,000 as an additional capital in the business. Prepare statement of Profit & Loss for the year 2012-13. Identify the value communicated by Atul traders to the society
Answer:
• Closing Capital (31st March 2013): Rs. 1,05,000
• Add: Drawings: +Rs. 20,000
• Less: Additional Capital: -Rs. 10,000
• Adjusted Closing Capital: Rs. 1,15,000
• Less: Opening Capital (1st April 2012): -Rs. 30,000
• Net Profit for the year = Rs. 85,000
• Value communicated: Empathy, social welfare, and corporate social responsibility (CSR).

Question. Anil a trader does not maintain proper books of accounts. However, he furnishes you the following details:-

During the year Anil introduced Rs. 6000 as further capital and withdrew Rs.4000 as drawings. Write off depreciation on furniture at 10% and on office equipment at 5%. Prepare a statement showing profit and loss made by him for the year ended 31st March, 2007.
Answer:
• Opening Statement of Affairs (31.3.2006): Opening Capital = (Cash 300 + Bank 4,500 + Stock 40,000 + Debtors 12,000 + Equipment 5,000 + Furniture 4,000) - Creditors 30,000 = Rs. 65,800 - Rs. 30,000 = Rs. 35,800.
• Closing Statement of Affairs (31.3.2007): Closing Capital = (Cash 4,000 + Bank 3,000 + Stock 45,000 + Debtors 20,000 + Equipment 4,750 [after 5% dep] + Furniture 3,600 [after 10% dep]) - Creditors 20,000 = Rs. 80,350 - Rs. 20,000 = Rs. 60,350.
• Statement of Profit & Loss: Closing Capital (Rs. 60,350) + Drawings (Rs. 4,000) - Additional Capital (Rs. 6,000) - Opening Capital (Rs. 35,800) = Rs. 22,550 Profit.

Topic- Rectification of errors

Question. What are the different types of errors. Explain with examples.
Answer: Errors are broadly classified into four types:
1. Errors of Omission: Omitting a transaction from recording (e.g., credit sale of Rs. 1,000 completely omitted).
2. Errors of Commission: Errors due to wrong recording, calculation, or posting (e.g., posting Rs. 500 instead of Rs. 5,000).
3. Errors of Principle: Violating basic accounting principles (e.g., treating capital expenditure as revenue, like machinery repairs debited to Repairs A/c).
4. Compensating Errors: Two or more errors that counteract each other's effect on trial balance.

Question. Correct the following errors by opening Suspense Account.
(i) The sales book has been totaled Rs.1000 short.
(ii) Goods worth Rs.1500 returned by G ltd. have not been recorded anywhere
(iii) Goods purchased worth Rs.2500 have been posted to the debit of the suppliers, Gupta & Co.
(iv) Furniture purchased worth Rs.10,000 has been entered in purchases book.
(v) Cash received from A Rs.2500 has not been posted in his account.
Answer:
• (i): Suspense A/c Dr. 1,000 To Sales A/c 1,000
• (ii): Sales Return A/c Dr. 1,500 To G Ltd. 1,500
• (iii): Suspense A/c Dr. 5,000 To Gupta & Co. 5,000
• (iv): Furniture A/c Dr. 10,000 To Purchases A/c 10,000
• (v): Suspense A/c Dr. 2,500 To A's A/c 2,500

Question. Correct the following errors by passing rectifying entries:
(i) Goods worth Rs.1500 returned by G ltd. have not been recorded anywhere
(ii) Furniture purchased worth Rs.10,000 has been recorded through purchases account.
(iii) Machinery purchased worth Rs.20,000 has been recorded through purchases account.
(iv) A credit sales of Rs.1700 to Ram was recorded as Rs.7100.
Answer:
• (i): Sales Return A/c Dr. 1,500 To G Ltd. 1,500
• (ii): Furniture A/c Dr. 10,000 To Purchases A/c 10,000
• (iii): Machinery A/c Dr. 20,000 To Purchases A/c 20,000
• (iv): Sales A/c Dr. 5,400 To Ram's A/c 5,400

Question. What is Suspense A/C. Show its placement in Trial Balance.
Answer: A Suspense Account is a temporary account opened to balance a Trial Balance when errors are present but cannot be located immediately. If the debit side is shorter, it is shown as a debit balance (Asset); if the credit side is shorter, it is shown as a credit balance (Liability) in the Balance Sheet.

Topic- Bills of Exchange

Question. On 1st January 2003, A received Rs.25,000 in cash and two bills for Rs. 45000 and Rs. 30000 for two months from B, duly accepted by the latter, against sales proceeds. The first bill was endorsed to C in settlement of his account Rs.45500 and the second bill discounted from bank @12 % p.a. on the date of acceptance of bills. Both the bills were dishonored on the due date. C has paid Rs. 100 and the bank has paid Rs. 80 as noting charges. B paid Rs.20000 and noting charges in cash and accepted a new bill for balance at three months. The interest on balance @18% p.a. was paid in cash. On the due date of the new bill, B became insolvent and nothing was recovered from his estate. Pass entries in the books of the Drawer.
Answer:
• 1.1.2003: Cash A/c Dr. 25,000, B/R 1 Dr. 45,000, B/R 2 Dr. 30,000 To B 1,00,000.
• Endorsement: C A/c Dr. 45,500 To B/R 1 45,000 To Discount Received 500.
• Discounting: Bank A/c Dr. 29,400, Discounting Charges A/c Dr. 600 To B/R 2 30,000.
• Dishonour of Bill 1: B A/c Dr. 45,100 To C 45,100 (incl. Rs. 100 noting charges).
• Dishonour of Bill 2: B A/c Dr. 30,080 To Bank 30,080 (incl. Rs. 80 noting charges).
• Renewal: Interest = \( (75,180 - 20,080) \times 18\% \times \frac{3}{12} \). Pass appropriate entries for cash received and new bill acceptance.

Question. Y accepted a bill of Rs.40000 drawn on him by Z on 1st May, 2007 for 3 months. This was for the amount which Y owed to Z. Z got the bill discounted for Rs. 39000. Just before the due date Y approached to Z for renewal of the bill. Z agreed on the condition that Rs. 10000 be paid immediately together with interest on the remaining amount at 12% p.a for three months and that for the remaining amount Y should accept a new bill for three months. These arrangements were carried through. On 7th Nov. 2007, Y becomes insolvent and his estate paid 40%. Pass Journal entries in the books of Y and Z.
Answer:
• Renewal Terms: Remaining amount = Rs. 30,000. Interest = \( 30,000 \times 12\% \times \frac{3}{12} = \text{Rs. } 900 \).
• On Insolvency: Y's A/c is debited for Rs. 30,000 upon dishonour. Realized 40% (Rs. 12,000) and transferred remaining Rs. 18,000 to Bad Debts in Z's books, and to Deficiency Account in Y's books.

Question. On 1st Jan.2007, X owed Rs. 50,000 to Y. On 1st February, he accepted a bill for 3 months drawn on him by Y for the amount. On the due date the bill was dishonoured, the noting charges being Rs. 100. Pass Journal entries in the books of Y in each of the following cases:-
i) The bill is held till maturity by Y
ii) Y endorses the bill in favor of Z.
iii) The bill is discounted at 12% immediately.
Answer:
• Case i: X's A/c Dr. 50,100 To B/R A/c 50,000 To Cash A/c 100 (for noting charges).
• Case ii: X's A/c Dr. 50,100 To Z's A/c 50,100 (noting charges paid by Z).
• Case iii: X's A/c Dr. 50,100 To Bank A/c 50,100 (noting charges paid by Bank).

Topic- Not For Profit organization

Question. What is the nature of income and expenditure account and Receipt and payment A/C
Answer:
• Income and Expenditure Account: It is a Nominal Account in nature, prepared on an accrual basis, similar to a Profit & Loss Account.
• Receipt and Payment Account: It is a Real Account in nature, representing a summary of cash and bank transactions prepared on a cash basis.

Question. Calculate amount of medicine to be debited to the income & expenditure a/c Dayanand club from the following:

Medicine purchased during the year Rs. 47,000.
Answer: Since total purchases are given as Rs. 47,000 (Creditors details are already adjusted in purchases if purchases are given):
Medicine Consumed = Opening Stock + Purchases - Closing Stock
= Rs. 8,000 + Rs. 47,000 - Rs. 6,000 = Rs. 49,000 to be debited to Income & Expenditure A/c.

Question. DAV Public school, Sahibabad did not increased the fees of their Students while other schools were increased their fees on the account of VI Pay commission.
a) Which Values were being followed by DAV, Sahibabad?
b) Why do Schools Prepare ‘Income & Expenditure Account’ rather than ‘Profit & Loss Account?
Answer:
• a) Values followed: Empathy, equity, social welfare, and affordability of education.
• b) Reason: Schools are non-profit organizations whose primary objective is providing service, not earning profits. Thus, they prepare an Income & Expenditure Account to calculate the surplus or deficit rather than a Profit & Loss Account.

Question. From the following Receipt and Payment account of a club prepare Income and Expenditure account for the year ended 31st December, 2012.

The following additional information is provided:
(a) Outstanding subscription for 2012 Rs.50,000
(b) Outstanding salaries as on 31st Dec.2012 Rs. 40,000
(c) Provide depreciation on sports material @ 25% p.a.

Answer:
• Income Side:
- Subscriptions for 2012 = Rs. 3,50,000 + Rs. 50,000 (O/S) = Rs. 4,00,000
- Entrance fees = Rs. 80,000
- Donations = Rs. 50,000
• Expenditure Side:
- Salaries = Rs. 1,60,000 + Rs. 40,000 (O/S) = Rs. 2,00,000
- Office Expenses = Rs. 35,000
- Telephone charges = Rs. 24,000
- Electricity charges = Rs. 32,000
- Travelling charges = Rs. 65,000
- Depreciation on Sports Material = \( 3,40,000 \times 25\% = \text{Rs. } 85,000 \)