FINANCIAL ACCOUNTING

QUESTION BANK

B.COM 101

Long Questions

Que. 1. What do you mean by Accounting Standards? How accounting standards are formulated?
Explain the nature and scope of Accounting Standards in brief.

Que. 2. Journalise the following transactions in the books of Rama & Sons and post them into
ledger and prepare Trial Balance

3rd May : Cash deposited into bank 60,000

th
4 May : Loan given to Bhuvan 20,000
th
4 May : Paid cash to Veeru 20,000
th
5 May : Paid to Veeru by cheque 15,000
5th May : Cash received from Tarun 12,000
5th May : Took loan from Anush 15,000
6th May : Cheque received from Pranav 15,000
6th May : Paid to Intel Computers by cheque 17,000
6th May : Withdrew from bank 5,000
7th May : Withdrew from bank for office use 8,000
7th May : Cash received from Bhuvan on loan account 10,000
8th May : Withdrew from bank for personal use 1,000
8th May : Cash taken by proprietor for personal use 3,000
9th May : Bought furniture and paid by cheque 15,000
9th May : Paid to Anush by cheque on loan account 5,000
9th May : Brought additional capital of 25,000

Que. 3. Identify the steps in the accounting cycle and discuss the role of accounting records in an
organization.

Que. 4. Explain all the accounting concept and conventions in detail.

Que. 5. Explain the relationship of Accounting with other disciplines.

Que. 6. XYZ Enterprises purchased on 1.4.2001 certain machinery for Rs. 72,800 and paid
Rs.2,200 on its installation. On 1.10.2001 another machinery for Rs. 25,000 was acquired. On
1.4.2002, the first machinery was sold at Rs. 50,000 and on the same date a fresh machinery was
purchased at a cost of Rs. 45,000. Depreciation was annually provided on 31st March at 10% p.a.
on WDV. On 1.4.2003, however, the firm decided to change the method of providing
depreciation and adopted the method of providing depreciation @ 10% p.a. on the original cost,
with retrospective effect. You are required to Machinery Account.

Case Study Based Questions

Que. 1. The following entries have been passed by a student. You have to state whether these
entries are correctly passed. If not so, pass the correct Journal Entries.

S.No. Particulars Debit Credit

1 Cash Account Dr. 7,000
To Interest Account 7,000
(Being Interest Paid)
2 Mukesh Dr. 1,000
To Bank Account 1,000
(Being salary paid to Mukesh)
3 Repairs Account Dr. 1,000
To Charges Account 1,000
(Being charges paid for overhauling an
old machine purchased)
4 Cash Account Dr. 200
To Rakesh 200
(Being an amount of debt which was
written off as bad debt last year, is
received during the year)
5 Purchases Account Dr. 1,000
To Hari Account 1,000
(Being goods sold to Hari returned by
him)
6 Purchases Account Dr. 50,000
To Mahesh Account 50,000
(Being machinery purchased from
Mahesh)
7 Purchases Account Dr. 1,500
To Charity 1,500
(Being goods distibuted as charity)
8 Outstanding Salaries Account Dr. 12,000
To Ram Account 12,000
(Being salary due to Ram)
9 Municipal Account Dr. 2,000
To Cash Account 2,000
 (Being municipal taxes paid by cheque)
10 Purchases Account Dr. 10,500
To Gopi 10,000
To Cartage 500
(Being goods purchased from Gopi and
paid cartage)

Que. 2. Comment on any five (answer briefly explaining the basic concept involved):

(a) In accounting, all business transactions are recorded as having a dual aspect.

(b) Book-keeping and accounting are not synonymous terms.

(c) Measurement of business income requires matching revenue with related cost or expense.

(d) Depreciation is the process of apportionment of the cost of an asset over its useful life.

(e) Office Equipment purchased on credit will be recorded in Purchases Book.

(f) Trial Balance is a summary record of all assets and liabilities of business.

(g) Accounting records only transactions which are of a financial character.

(h) The convention of conservatism takes into account all prospective profits but leaves all
prospective losses.

(i) The term 'Current Liabilities' is used to denote those liabilities which are payable after a year.

(j) Accounting Standards are formulated by Accounting Standard Board of Institute of Chartered
Accountants of India.

Que.3. Enter the following transactions in the proper subsidiary books.

The following balances existed in the books of Sharma & Sons on 1st March, 2015:

Assets: Cash in hand Rs 50,000; Cash at Bank Rs. 55,000; Debtors (Kirti Rs. 45,000; Gaurav Rs.
25,000); Stock Rs. 1,60,000 and Machinery Rs. 2,00,000

Liabilities: Creditors: Anand & Co. Rs. 35,000.

The following transactions took place during the month of March:

2015

March 2 Deposited into Bank Rs. 15,000

March 4 Purchased from Kumar Chand goods of the list price of Rs. 35,000 at 10%
trade discount.

March 5 Returned to Kumar Chand goods worth Rs. 4,000.

March 7 Issued a cheque to Kumar Chand in full settlement of their account after
deducting cash discount @ 5%.

March 10 Sold to Dev, goods worth Rs. 40,000.

March 12 Received cash Rs. 30,000 and cheque Rs. 4,000 from Dev. The cheque
was sent to bank on the same day. Discount allowed Rs.500.

March 14 Purchased machinery from Ram & Co. on credit for Rs. 25,000.

March 16 Sharma withdrew goods for his personal use Rs. 10,000.

March 18 Sold to Anshul, goods valued Rs. 16,000.

March 19 Issued cheque to Ram & Co. Rs. 15,000.

March 20 Returned by Anshul goods worth Rs. 2,000.

March 21 Purchased goods from Govind for Rs. 40,000. Trade Discount 10%.

March 22 Accepted a bill drawn by Govind for Rs. 36,000 at 1 month.

March 27 Received from Anshul Rs. 10,000. Discount allowed Rs. 50.

March 27 Goods purchased for cash Rs. 30,000.

March 28 Withdrew from Bank Rs. 20,000.

March 29 Paid salaries by cheque Rs. 5,000.

March 30 Paid Rent Rs. 2,800.

March 31 Received commission in cash Rs. 1,600.

Difference Between

(a) Journal & Ledger

(b) Book Keeping & Accounting
(c) Trial Balance & Balance Sheet
(d) Revenue Expenditure & Capital Expenditure
(e) Cash Basis of Accounting & Accrual Basis of Accounting
 (f) Cash Discount & Trade Discount
(g) Straight Line Method of Depreciation and Written Down Value Method of Depreciation
(h) Revenue Receipt & Capital Receipt

Short Notes

(a)Advantages & Limitations of Accounting

(b) Users of Accounting

(c) Accounting Standards in India

(d) International Financial Reporting Standards & XBRL

(e) Deferred Revenue Expenditure

(f) Going Concern Concept

(g) Business Entity Concept

(h) Posting and Preparation of Trial Balance

MCQs

1. Which of the following statements is incorrect?

(a) Assets Liabilities = capital
(b) Assets Capital = Liabilities
(c) Liabilities + Capital = Assets
(d) Liabilities + Assets = Capital

2. Which of the following is NOT an asset:

(a) Debtors
(b) Cash Balance
(c) Building
(d) Loan from X

3. Which of the following is incorrect:

Options Assets Liabilities Capital

(a) 7850 1250 6600

(b) 8200 2800 5400

(c) 9550 1150 8200

(d) 6540 1120 5420

4. The accrual basis of accounting records revenues when they are:

 (a) Collected
(b) Earned
(c) Contracted
(d) Readily available for use

5. Which account is not a liability account?

(a) Accounts payable
(b) Accrued expenses
(c) Cash
(d) Notes payable

6. Asset accounts have what type of balance?

(a) Debit
(b) Credit
(c) Contra
(d) All of the above

7. Accounting is a language of-

(a)Business

(b) Books of Accounts

(c)Accountant

(d)None of these

8. The realization principle indicates that revenue usually should be recognized and
recorded in the accounting records:

(a) When goods are sold or services are rendered to customers.

(b) When cash is collected from customers.
(c) At the end of the accounting period.
(d) Only when the revenue can be matched by an equal dollar amount of expenses.

9. The matching principle:

(a) Applies only to situations in which a cash payment occurs before an expense is
recognized.
(b) Applies only to situations in which a cash receipt occurs before revenue is recognized.
(c) Is used in accrual accounting to determine the proper period in which to recognize
revenue

(d)Is used in accrual accounting to determine the proper period for recognition of expenses

10. We can say that the business is in profits, when:

(a) Assets exceed Expenditure

 (b) Income exceeds Liabilities

(c) Income exceeds Expenditure

(d) Income exceeds Liabilities

11. Profit from sale of assets is example for-

(a)Revenue Profit

(b)Capital Profit

(c)Loss

(d) None of these

12. Drawing account is

(a)Real

(b)Personal

(c)Nominal

(d)None of these

13. Goodwill account is

(a)Real

(b)Personal

(c)Nominal

(d)None of these

14. Anticipate losses not anticipate profits is -

(a)Going Concern

(b)Consistency

(c)Conservatism

(d)Business Entity

15. Salary Paid to ram is debited to-

(a)Salary
(b)Cash

(c)Ram

(d) All of these

16. Wages paid on installation of machinery is.Expenditure.

(a)Capital Expenditure

(b)Revenue Expenditure

(c)Deferred Revenue Expenditure

(d) all of these

17. Outstanding expenses and Prepaid expenses are shown onand side
of trial balance.

(a)Cr. And Dr.

(b)Dr. and Cr.

(c)Dr. and Dr.

(d)Cr. And Cr.

18. Business and Businessman are different-

(a)Business Entity Concept

(b) Going Concern Concept

(c)Materiality Concept

(d)None of these

19. Outstanding Salary account is

(a)Real

(b)Personal

(c)Nominal

(d)None of these

20. Commission account is

(a)Real

(b)Personal

(c)Nominal

(d)None of these

21. Salary outstanding to ram is debited to-

(a)Salary

(b)Cash

(c)Ram

(d) Salary Outstanding

22. Interest on Capital is shown on side of Trial Balance.

(a)Debit

(b) Credit

(c)Both

(d)None of these

23. Preliminary expenses are-

(a)Capital Expenditure

(b) Revenue Expenditure

(c) Deferred Revenue Expenditure

(d) All of these

24. Carriage paid on installation of machinery is.Expenditure.

(a)Capital

(b)Revenue

(c)Deferred Revenue

(d) all of these

25. According to money measurement concept

(a) All transactions and events are recorded.
(b) All transactions and events which can be estimated in money terms are recorded in books of
accounts.
(c) All transactions and events which can be measured in money terms are recorded in books of
accounts.
(d) None of the above.

26. Which of the following will not be recorded in the books of accounts?

(a) Sales of goods

(b) Payment of salary
(c) Quality of staff
(d) Recovery of bad debts.

27. Which is the last step of accounting as a process of information?

(a) Recording the transaction
(b) Preparation of financial statement
(c) Communicating the information
(d) Analyses and interpretation of information.
28 Which of the following is not a business transaction?

(a) Purchase of goods for resale amounting to Rs.50000/-

(b) Paid salaries and wages Rs. 10000/-
(c) Paid rent for office Rs.5000/-
(d) Purchased LCD for personal use.

29. According to the going concern concept, a business is viewed as having

(a) A limited life
(b) A very long life
(c) An indefinite life
(d) None of these.

30. X ltd follows the Written Down Value Method of depreciating machinery year after year due
to

(a) Comparability
(b) Convenience
(c) Consistency
(d) All of the above

31. Under the cash basis of Accounting expenses are recorded

(a) On payment
(b) On being Incurred
(c) None of these
(d) When half of the payment is made

32. Bank Overdraft is

(a) Short Term Liability

(b) Long Term Liability

(c) Contingent Liability

(d) Short Term Asset

33. A withdrawal of cash from business by the proprietor should be credited to:
(a) Drawings Account
(b) Capital Account
(c) Cash Account
(d) Profit & Loss Account

34. A ledger is called a book of:

(a) primary entry
(b) secondary entry
(c) final entry
(d) none of the above

35. The journal entry to record sale of service on credit should include
(a) debit to cash and credit to debtors.
(b) debit to fees income and credit to debtors.
(c) debit to debtors and credit to fees income.
(d) none of the above

36. Business transactions are recorded

(a) In chronological order

(b) Weekly
(c) At the end of the month
(d) None of the above

37. A compound Journal entry

(a) has equal debits and credits
(b) only debit balances
(c) only credit balances
(d) none of the above

38. Discount not recorded in books of accounts is:

(a) Trade discount

(b) Cash discount
(c) Quantity discount
(d) None of the above

39. If Ram has sold goods for cash, the entry will be recorded in:

(a) Cash book

(b) sales book
(c) Journal Proper
(d) Return inward book

40. If the debit as well as the credit aspects of a transaction is recorded in the cash book itself, it
is called:

(a) an opening entry

(b) a compound entry
(c) a transfer entry
(d) a contra entry

41. The following is not a book of original entry:

(a) The journal

(b) The cash book
(c) the ledger
(d) the Sales book

42. A sales of goods to ram for cash is debited to

(a) Ram
(b) cash A/c
(c) sales A/c
(d) None of the above

43. A ledger account is prepared from

(a) Events

(b) Transactions
(c) Journal

(d) All of the above

44. During the life time of an entity, accounting produces financial statements in accordance with
which basic accounting concept-

(a) Matching Concept

(b) Conservatism Concept

(c) Accounting Period Concept

(d) Cost Concept

45. According to which of the following concept, in determining the net income from business,
all costs which are applicable to the revenue of the period should be charged against that revenue

(a) Matching Concept

(b) Money Measurement Concept

(c) Cost Concept

(d) Dual Aspect Concept

46. The Sales Return Book records

(a) The return of goods purchased

(b) Return of goods sold

(c) Return of anything sold

(d) All of the above

47. The total of Sales Book is posted to

(a) The credit of the Sales Account

(b) The credit of Purchase Account

(c) The credit of Trial balance

(d) The debit of Trial balance

48. The total of Purchase Book is posted to

(a) The credit of the Purchase Account

(b) The debit of Purchase Account

(c) The credit of Trial balance

(d) The debit of Trial balance

49. The prime entry for the acquisition of a cash book, ledgers and a journal for Rs.2,40,00,000
from W.Smith Ltd, on credit would be in the:

(a) Cash Book

(b) Journal

(c)Purchase Book

(d) Sales Book

50. The amount paid by a business as premium on the owner's life insurance is accounted as:

(a) Debit Capital account and credit Cash account

(b) Debit Drawings account and credit Cash account
(c) Debit Insurance account and credit Cash account
(d) Debit Insurance account and credit Accruals account