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Ans: Transaction –An event which exchange or transfer value either in the form of money or goods or services
which are measured and expressed in terms of money. Some example of transaction are :-
Event –A bundle of financial activities or transactions of occurrence, happening, change or incident, which may
or may not bring any change in financial position of business concern.
“All transactions are event but all events are not transactions”.
Ans: The term debit and credit comes from the latin word ‘Debitum’ and ‘Credere’ respectively. There are two
sides of an account. The left side of the account is called debit and right hand side of the account is called credit.
In short Dr. stands for debit and Cr. credit. Receiving aspect means debit and Giving aspect means credit.
Ans: Debit Note - The document relating to causes of debit, which is sent to a person or concern who is debited
by another person or concern is called debit note.
Credit Note – The document relating to causes of credit which is sent to a person or concern who is credited by
another person or concern is called credit note.
These documents contains the information of particular of goods, price, rate of discount, name and causes of
return etc.
Ans: The golden rules of accountancy is invented by famous Lucus Paciolic in the year 1494 in his book Scripts De
Compuset which are as : - Golden Rules of Debit and Credit
(ii) Real Account : Debit what comes in, credit what goes out.
(iii) Nominal Account : Debit all expenses or losses, credit all incomes or gains.
a. Expenditure which is incurred for acquiring the a. Revenue expenditure is incurred for day-to-day expenses
property of a permanent nature. of business and its maintenance.
e. It increases the earning capacity of business e. It is incurred for maintaining the business and its assets.
f. Purchase of land, machinery and furniture are f. Wages, salary, rent, depreciation on assets are its
Ans: No balance sheet is not an account. It is a statement in which the details of assets and liabilities of business
concern are given. In the account debit and credit must be written but it is not found in balance sheet. It indicates
the financial position of the concern. It is prepared at the end of the year after preparation of trading and
profit&losss account. It is also called language of business.
Ans: Journal Proper is used to record all those transactions which are not recorded in special journals.
It is also known as ‘General Journal’. Transaction which are recorded in journal proper are as follows:-
(i) Opening Entries (ii) Closing Entries (iii) Adjustment Entries (iv) Transfer Entries (v) Rectification Entries
Ans: Sales day book is one of the most important part of special journal. It is used to record all the credit
transaction of sales of a firm. No cash is required in such books. Errors and omissions can be easily detected by
this book. That is why sales day book is maintained by business firm.
Ans: A consignment is process of sending or selling of goods from one place to another through agent on the
basis of commission. It is also known as commission business. The person who sends the goods is known as
consignor and the person who receives the goods is known as consignee. With the help of such type of business
consignor can sell more goods at far places indirectly.
Ans: Del Credere Commission:-An additional commission paid by consignor to consignee after ordinary
commission if the consignee undertakes to bear bad debts from credit sale is called del credere commission. It is
the credit insurance for consignor.
Ans: Recurring expenses:- Recurring expenses under consignment refer to those expenses which should be
ignored for the variation of closing stock by the consignee relating to present value and location of goods. For
example selling expense, warehouse expenses, insurance premium, go down rent and indirect expenses etc.
Non-recurring resources:- Non- recurring expenses under consignment refer to those expenses which should be
added for the valuation of closing stock by the consignee relating to present value and custom duty and clearing
charges, etc.
Ans:- It is necessary to calculate the present value of closing stock under consignment business. Because so many
expenses incurred by both the consignor and consignee. So it will increase the cost of unsold stock. It is valued as
follows:-
14. Why closing stock is valued at cost price or market price which ever is lower ?
Ans: The stock of goods remaining unsold at the accounting period is called closing stock. Generally in business
closing stock is valued at cost price because profit cannot be charged until they are sold. But sometime it is seen
that market price is lower than cost price. In such case closing stock is taken as market price considering the loss
to be incurred at the time of selling the goods. So, it is said that “closing stock is valued at cost price or market
price whichever is lower”.
Ans: A Proforma Invoice is a statement sent by consignor to consignee, in which details of goods like quality,
price of goods, commission and minimum sale price are given. It is not an invoice but looks like same. It is only
the invoice of information.
Ans: Accounts sales is a statement sent by consignee to consignor. It shows the details of goods sold, gross sales
proceeds, expenses of the consignee deducted from net sales, commission and balance due to consignor.
17. Write two difference between ‘Hire purchase and Instalment payment system’.
a. The ownership or title of the goods passes to the a. The ownership of goods passes to the buyer as
buyer only at the payment of last instalment. soon as the sale transaction is made.
b. The buyer does not have any right to dispose of the b. The buyer can dispose of the goods as he gets
Ans: A discount allowed by creditors to his debtors or amount receivable by creditors to encourage the prompt
payment. This type of payment is given for quick payment. There are two types of cash discount which are
recorded in the cash book. (A) Discount Allowed (B) Discount Received
Ans: Trade discount is a deduction by whole seller or manufacturer to his customer on list price or catalogue
price. Such discount is given for bulk purchasing or selling of goods. This type of discount is not recorded in the
cashbook.
Ans: When two or more than two transactions are recorded by means of one journal entries instead of several
journal entries, such single entry is termed as compound journal entries. It is note that all the transaction must be
in same date and the total of debit and credit will be equal. In all transaction there is one account must be either
in debit or credit.
Ans: ‘Trial balance’ is statement of debit and credit of various ledger. It is not a part of accounts. It is just a
working paper and used to satisfy the arithmetic accuracy. But it is very helpful for preparing final account of the
concern. So, trail balance is not indispensible.
Ans: A reserve which is not shown in the balance sheet by concern or company is called secret reserve. This type
reserve kept separately by the concern. The following are the methods of creating secret reserve :-
assets
Ans: Depreciation: It means permanent decline in the value of the assets due to wear and tear or form any other
causes like obsolescence or defluxion of time.
Amortisation: The process of writing off intangible assets like goodwill, patents and trademarks etc which
cannot be seen or touched is known as amortisation.
Ans: Balance Sheet is a sheet of balances because all the personal and real account appearing in the trial balance
comes in the balance sheet as the name of assets and liabilities. These are shown in the balance sheet in
systematic manner after the adjustment on a particular date. So, it is called ‘sheet of balances’.
Ans: The system of accounting under which both the aspect of a transaction are recorded in the books is called
‘Two fold aspect of transaction’. In accountancy transaction means transfer of money or money’s from one
person to another person or from one place to another place. A business transaction affects two aspects or parties
in the opposite direction. One party receives the benefit and other party gives the benefit. We cannot think of
giver without a receiver and vice-versa. The system of accounting which design to record the two fold aspect of
transaction. Is also known as ‘Double entry system’. It was first introduced by “Luca Pacioli” in the year 1494.
For example Rohit paid Rs. 500 to Aniket. Here, Aniket is the receiver and Rohit is the giver.
Ans: Real Account – Real Accounts are those accounts, which record the transactions relating to real things,
assets and properties. Example – Stock, Cash, Buildings etc.
Nominal Account – Nominal Accounts are those accounts, which record the transactions relating to losses or
expenses and incomes or gains. Example – Rent A/c, Interest A/c, Salary A/c etc.
1. The transactions relating to assets are recorded 1. The transaction relating to losses, expanses, inco-
2. The accounts are closed at the end of the acco- 2. The accounts are transferred to profit and loss
3. Only debit balance arrive in this accounts. 3. Both debit and credit balance arise in this account
5. Land & Building, Machinery, Cash and Bank 5. Wages, Salary and Commission etc are the exam-
6. Debit what comes in credit what goes out is the 6. Expenses or losses debit and incomes and gains
Ans: In a business concern all the financial statements are prepared with the help of ledger. For example Final
account is prepared with the help of trail balance. Trial balance is a statement of ledger.From the above
discussion, it is said that what is the use of journal in business concern. Because it is also laborious and
expensive. In spite of these, Journal entries is very necessary in business concern. It is very useful. Journal help
the business concern on following ways :--
1. There are less chances of errors. Because direct posting the transaction into ledger creates possibilities if
errors.
Ans: Journal Proper is used to record all those transaction which are not recorded in special journals. It is also
known as “General Journal”. It is the part of original entry.
The transactions which are recorded in Journal Proper are as follows :--
a. Opening Entries – The entry which is carried forward from previous year.
b. Closing Entries – The entry which are passed closed by transferring in Trading & P/L A.c. For example –
nominal account.
c. Transfer Entries – The entries by which the amount can be transferred from one account to another account.
d. Adjustment Entries – The entries which are passed to adjust outstanding or prepaid of expenses or incomes.
Ans: A book in which all the transaction of a firm or concern relating to money are recorded is called “Account”.
An Account is a summarised records of transactions relating to person, concern etc. For example - Cash paid to
wages will be recorded in Wages A/c and Cash A/c. In the accounting process accounts are divided into three
parts in generally by following ways :--
Nominal Account – Debit expenses or losses and credit incomes and gains.
Ans: Bad debts :- The debts which cannot be realised from customer is called bad debts. It is also called
irrecoverable. Such loss is complete loss for the person or concern. Example :- A sold goods to B for Rs. 5,000. If
B fails to pay the money the amount of Rs. 5,000 will be called Bad debts for A and party B will be regarded as
bad debtors. The treatment of bad debts are as follows :--
To Debtors A/c
Ans: No, depreciation is not a source of fund because when we charge depreciation on assets, the amount of cash
is not affected. Depreciation is charge to write off the cost of an asset. Since depreciation is simply a book entry,
it has no outside connection. Just by passing the entry, it is not possible for business to generate a fund. No cash
is required for charging depreciation. So, depreciation is a non-cash expenses. So, it is clear that depreciation
does not create any type of funds. Since it is not a source of fund. With the help of charging depreciation, we
reduce the income of the concern and save income tax.
Ans: Straight line method :- The method of depreciation under which the amount of depreciation for every year
will be the same percentage on the cost of assets is called fixed method of depreciation. If this amount is point
out in graph paper than a straight line appears on the paper. So, it is also known as straight line method. When
the rate of depreciation is not given then the amount will be calculated as follows :--
This type of depreciation is suitable for those assets which will not need much repairs. For example – Patents,
Copyrights, Trademark, and household assets etc. The following points should be considered while charging
straight line method depreciation :--
Ans: In Business both cash and non-cash transaction take place. The book in which all non-cash transactions are
recorded is called ‘Special Journal’. The book in which special transactions are not recorded is called ‘General
Journal’. The difference between them are as follows :-
1. This book all those transaction which are not 1. In this book only special transaction are recoeded
2. All concerns have to keep their journal proper. 2. In case of small business, no need of this journal.
3. There is no need of total of the amount column. 3. There is need of total of the amount column.
4. Opening entries, Closing entries, Transfer entries 4. Purchase daybook and Sales daybook etc are exa-
5. Two aspect of transactions are recorded in general 5. Only one aspect of transaction are recorded in
Ans: Journal is the book of original entry in which transactions are recorded in order of date as soon as they take
place. The Journal has been derived from the French word ‘Jour’ meaning day. Therefore the journal means
daily record of business transactions.
Many people call Journal as ‘Book of original entry’, books of first entry because transaction are recorded in
journal originally or for the first time. At first transaction are recorded in journal and finally they are posted into
ledger accounts. It provides detail information with the help of narration. There is no chances omission of
recording of transactions and performs the functions historical records. A separate book is used for each kind of
transactions. So, Journal is also called “Books of original entry”.
Ans: Trial balance : A statement which is prepared on definite date to determine the equality of posted debits and
credits for the purpose of arithmetic accuracy is called trail balance. It is prepared for following needs :--
i) Checking arithmetic accuracy : According to double entry, the total of debits is equal to total of credit if
arithmetic errors does not occurs. So, when the both side of trial balance is agreed then it is clear that there is no
mistake relating to arithmetic point of view.
ii) Preparing financial statement : With the help of trial balance financial statement can be prepared.
iii) Locating errors : If the trial balance does not agreed, attempts are made to detect the errors and rectify those.
iv) Summarise the ledger account : It is also shows short form of ledger.
Ans: Cashbook :- A book if original entry in which all the cash transaction of concern are recorded is called
cashbook. It is used to record cash receipts and cash payments, deposits of cash in the bank, withdrawal of cash
from bank and discount. In debit side all receipts and credit side all payments are recoded.
Cashbook a journal or a ledger : Cash plays dual role as a book of original entry as well as ledger. It can be
explained under following two headings :--
*Cashbook as journal :-
*Cashbook as a ledger :-
3. Like ledger two separate ‘Dr. and Cr.’ and ‘To and By’ is required.
So, from the above discussion it is clear that cash book has both the feature of journal and ledger. So,
we can say that cashbook is a ‘Journalised Entry’.
14. What is del-credere commission ? Why it is given to consignee ?
Ans: Del – Credere Commission :- An additional commission paid by consignor to consignee after ordinary
commission if consignee undertakes to bear bad debts from credit sales is called del-credere commission. It is
credit instrument for consignor. Such commission is also given as a fixed percentage on total sales, otherwise
stated in the question. Once the del-credere commission is paid, the amount of bad debt will be born by
consignee. It is given to consignee on following basis :--
ii) The consignee has to also take the responsibility of selling all the goods sometimes.
Ans: A proforma invoice is a statement sent by consignor to the consignee. It shows the details of goods sold,
gross sales proceeds, expenses of consignee deducted from net sales, commission and balance due to consignor. It
is an essential document. It intends to let the consignee know about the quality and price of goods. The proforma
invoice is only the document utilise for getting the clearance from the customs authority. It also serves as
important evidence in case of any controversy regarding the quality.
16. What is an ‘Account sales’ ? Prepare an account sales with imaginary data.
Ans: Account Sale : Account sale is a statement sent by consignee to consignor. It shows the details of goods
sold, gross sales proceeds, expenses of the consignee deducted from net sales, commission and balance due to
consignor. The following are the data for account sale :--
Example :- On 1.9.2000 Ganguli & Co. of Kolkata consigned 500 cricket bats to Tendulkar & Co. of Mumbai.
On 31.03.2001, Tendulkar & Co. forwarded an account sales :- (All bats are sold @ Rs.5,000)-Go down rent-
Rs.10,000
Net Proceeds
Gross proceeds –
Date:………….. Signature
Ans: Joint Bank Account :- Under the joint venture transactios, when the size of venture is large and there are so
many transactions made by partners then complete set of separate books of accounts may be maintained under
the double entry system. So, for the removal of problems relating to joint venture transactions, joint bank account
is maintained. It is opened for the better financial control of venture. The co-venturer operates this account
jointly by incurring expenses or receiving incomes of ventures. There are two column by the name of co-ventures
or more columns according to partners are opened. The co-venturer made the transactions and recoded by his
name in the joint bank account.
Ans: Consignment : A consignment is the process of sending and selling of goods from one place to another
place through an agent on the basis of commission.
Joint Venture : Joint Venture is a temporary partnership of more than one persons set up for a particular
business or venture.
business.
2. There are two parties in consignment known 2. There may be two or more than two partners in
3. Profits and losses are taken by consignor after 3.Profit and losses, shared by the co-venturer in
4. Funds for consignment is contributed by the 4. Fund for consignment is contributed by the
consignor. co-venturers.
5. There is one method of recording the transaction 5. There are three methods of recording transactions
6. Law of agency governs it. 6. The partnership act and contarct between parties
governs it.
7. All the risk of business is bear by consignor. 7. All the risk of venture bear by the co-venture in
an agreed ratio.
Ans: Cash basis of accounting is prepared by those concern whose most of the transaction are made in cash.
Under this system only cash related transaction are recorded.
Under the accrual basis of accounting all the transaction are recorded either made in cash or not.
1. This basis of accounting used by those concern 1. This basis of accounting used by those whose
whose most of the transactions are made in cash. most of the transactions are made cash & credit.
2. Non-trading organisation ascertain their income 2. Trading and manufacturing concern ascertin
and expenditure under this system. their profit and loss under this system.
3. It is very less expensive and time consuming process. 3. It is expensive process of accounting.
4. Under this method only few books or ledger are op- 4. Under this system many ledgers are opened.
-ened.
5. Accurate surplus or deficit figure cannot be ascerta- 5. Accurate profit and loss can be ascertained under
Ans: Reserves :- Reserve is a portion of profit which is set aside to meet a known or unknown necessity of
business. It is created at the time of preparation of final account.
Provisions :- A process of providing amount before determining the profit or loss of the concern for possible loss
or liability is known as provision.
Reserve Provision
1. Reserve arises only in case of profit does not arise 1. It is charged against profit. It is created before
2. Reserve strengthen the financial position of 2. Provision is to adjust the future loss of the conce-
business. -rn.
3. It is created for any unknown liability or loss. 3. It is created to meet specific loss or liabilities.
4. The amount of reserve may be used to declare 4. Provision can be used to declare dividend.
dividend.
5. Creation of reserve is not compulsory for the 5. Creation of provision is compulsory for the con-
concern. -cern.
6. It shows liabilities side of a balance sheet. 6. It is shown in profit and loss account and deduc-
Ans: General Reserve :- The reserve which is created out of the profits for general purpose or meet the any type
of losses liability is called ‘General Reserve’. It is created for strengthening the financial position of the business.
It is also called free reserve.
It is used for 1) Strengthening the financial position 2) To increase the working capital 3) Payment for any known
or unknown liabilities
Specific Reserve :- The reserves which is created out of profits for a specific purpose or special purpose is called
specific reserve. Example – Debenture sinking fund, purchasing of new machinery. It cannot be used for any
other propose. It is also called special reserve.
Ans: Trial Balance :- A statement which is created on definite date to determine the equality of posted debit and
credit ledger is called trail balance. Sometime trail balance does not disclose the errors which are as follows :-
i) Errors of omission :- Sometimes businessman or accountant forget forgot to record the transaction which do
not affect the trail balance.
ii) Errors of principle :- This type of errors arise due to mistakes regarding principle of account which do not
affect the trail balance.
iii) Compensating errors :- In this type of errors, one error is compensated by another error of an opposite nature
which do not affect the trial balance.
iv) Entries with wrong amount :- If transactions are recorded by wrong amount in the journal and also posted in
ledger then it do not affect the trail balance.
Ans: The Credit balance of trading account represents gross profits. It shows gross income of the owner. It is not
real profit of the owner. At the time of preparing profit and loss account, gross profit (if any) is brought to the
credit side of the profit and loss account.
c. It is essential for profit and loss account and also help to find out the net profit or loss of the concer.