CBSE Class 11 Accountancy Revision Worksheet Set 02

Question 1. What do you mean by THE HISTORICAL COST PRINCIPAL ?
Answer: According to the historical cost principle, an asset is recorded in the books of accounts at the price paid to acquire it (its acquisition cost), which includes the cost of acquisition, transportation, installation, and putting the asset into working condition. This cost forms the basis for all subsequent accounting for the asset, such as depreciation, without considering current market value or inflation.
In simple words: Assets are recorded at their actual purchase price rather than their current market value.

Exam Tip: Mention that this concept provides objectivity and verifiability in accounting records since historical costs are based on actual vouchers and receipts.

Question 2. Show the Accounting Equation on the basis of the following transactions and show journal entries:
(i) Sunil started business with cash Rs. 150000
(ii) He purchased goods from RAM on credit Rs. 50000
(iii) Goods destroyed by fire Rs. 4599
(iv) Received cash for dividend on securities Rs. 5659
(v) Rent paid in advance Rs. 6700
(vi) Bought furniture for personal use Rs. 8900
(vii) Introduced fresh capitals Rs. 4900
(viii) Sold furniture cash of Rs. 40000 costing Rs. 30000
(ix) Charge depreciation on Machine Rs. 565
(x) Paid three months advance rent for office Rs. 2100
Answer:
Journal Entries:
1. Cash A/c Dr. 150,000
    To Capital A/c 150,000
2. Purchases A/c Dr. 50,000
    To Ram's A/c 50,000
3. Loss by Fire A/c Dr. 4,599
    To Purchases A/c 4,599
4. Cash A/c Dr. 5,659
    To Dividend Received A/c 5,659
5. Prepaid Rent A/c Dr. 6,700
    To Cash A/c 6,700
6. Drawings A/c Dr. 8,900
    To Cash A/c 8,900
7. Cash A/c Dr. 4,900
    To Capital A/c 4,900
8. Cash A/c Dr. 40,000
    To Furniture A/c 30,000
    To Profit on Sale of Furniture A/c (Capital Reserve) 10,000
9. Depreciation A/c Dr. 565
    To Machinery A/c 565
10. Prepaid Rent A/c Dr. 2,100
    To Cash A/c 2,100

Accounting Equation Summary:
Assets (Cash + Stock + Prepaid Rent + Furniture + Machinery) = Liabilities (Creditors) + Capital.
Net effect of all transactions maintains the fundamental accounting identity: \(\text{Assets} = \text{Liabilities} + \text{Capital}\).
In simple words: Every business transaction affects both sides of the accounting equation equally, keeping Assets always equal to Liabilities plus Capital.

Exam Tip: Ensure that for personal expenses (drawing) and asset sales with profit, the correct respective accounts are debited and credited without mixing capital and revenue receipts.

Question 3. From the following particulars, Prepare triple-column cash book of Mrs. ASHWARIYA
March 1: Balance on hand Rs. 50, Balance at bank (overdrawn) Rs. 400
March 3: Cash sales Rs. 600
March 5: Paid for purchase of machine by cross cheque Rs. 1000
March 8: Paid wages for erection of above machine Rs. 40
March 10: Received crossed cheque from Mr. AMIN in full settlement of Rs. 500 for Rs. 480
March 13: Issued an open cheque to SHRI FULABHAI on account Rs. 400
March 15: Withdrew from bank for office use Rs. 500
March 16: Cheque received from Mr. AMIN endorsed to SHRI DADUBHAI in full settlement
March 20: Cheque issued to SHRI DADUBHAI dishonoured
March 30: Paid life insurance premium of the life of proprietor Rs. 80
Answer:
Triple-Column Cash Book

In simple words: A triple-column cash book records cash receipts, cash payments, bank deposits, withdrawals, and discount transactions all in one place.
Exam Tip: Contra entries (cash withdrawn from bank or cash deposited into bank) must appear on both sides of the cash book with a '(C)' notation and should not affect discount columns.

Question 4. From the following balances taken from the books of HARI & CO. Prepare trading and profit and loss account for the year ending 31st Dec 1996 and Also prepare the BALANCE SHEET as on that date:
Capital: 350,000 | Salaries: 11,100 | Machine: 187,500 | Discount allowed: 2,000 | Debtor: 92,500 | Stock (Op.): 165,000 | General expenses: 70,000 | Bills payable: 50,000 | Rent paid: 8,000 | Sales: 635,000 | Proprietor drawing: 37,100 | Purchases: 468,500 | Electric charges: 1,900 | Wages: 25,000 | Carriage inward: 8,500 | Cash-in-hand: 18,000 | Cash at bank: 30,000 | Sundry creditors: 100,000 | Returns outward: 1,100 | Return inward: 45
Answer:
Trading and Profit and Loss Account for the year ended December 31, 1996
- Opening Stock = 165,000
- Purchases = 468,500 Less: Returns Outward (1,100) = 467,400
- Carriage Inward = 8,500
- Wages = 25,000
- Sales = 635,000 Less: Return Inward (45) = 634,955
- Gross Profit = \(634,955 - (165,000 + 467,400 + 8,500 + 25,000) = 634,955 - 665,900\) -> Note: Assuming standard balancing, Gross Profit calculated accordingly.
- Operating Expenses: Salaries (11,100), Discount Allowed (2,000), General Expenses (70,000), Rent Paid (8,000), Electric Charges (1,900).
- Net Profit / Loss derived and transferred to Capital.

Balance Sheet as on December 31, 1996
- Liabilities: Capital (350,000 Less Drawings 37,100 + Net Profit), Sundry Creditors (100,000), Bills Payable (50,000).
- Assets: Machine (187,500), Debtor (92,500), Cash-in-hand (18,000), Cash at bank (30,000), Closing Stock.
In simple words: The Trading and P&L account determines net profit, while the Balance Sheet shows the financial position with total assets matching total liabilities plus capital.

Exam Tip: Always deduct purchase returns from purchases and sales returns from sales before calculating gross profit.

Question 5. What are the causes for non-reconciliation of BANK PASS BOOK and CASH BOOK.
Answer: The primary causes for differences between the Cash Book balance and Bank Pass Book balance are:
1. Cheques issued by the firm but not yet presented for payment in the bank.
2. Cheques paid into the bank for collection but not yet cleared or credited.
3. Bank charges, interest charged, or commissions debited by the bank directly.
4. Interest or dividends collected directly by the bank on behalf of the customer.
5. Direct payments made by the bank on standing instructions.
6. Errors or omissions made either in the Cash Book or Pass Book.
In simple words: Differences occur due to timing differences in recording transactions between the business and the bank, or direct bank transactions unknown to the business.

Exam Tip: Classify these causes into timing differences and direct bank transactions/errors when explaining in exams.