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Basic Accounting Questions

1. What is Book-Keeping?
Ans: “Book-Keeping is the art of recording business transactions in a systematic
manner”.

2. What is accounting?
Ans: Accounting is the process of identifying, classifying and summarizing, in a
significant manner and in terms of money, transactions and events which are in partat
least, of financial character and interpreting the results thereof.

3. What is Accountancy?
Ans: Accountancy is theory and practice of accounting.

4. Who are the various parties interested in accounting information?

Ans: The various parties who are interested in accounting information are
A: Owners or shareholders. B: Investors. C: Debentures holders, D: Banks, E: Creditors
F: Customers, G: Management, H: Employees, I: Government, J: Stock Exchanges

5. What are Transactions?

Ans: Every financial change which occurs in your business is a transaction. It should be
in monetary terms.

6. What are Drawings?

Ans: It refer to cash, goods or any other asset withdrawn (taken away) by the
owner/proprietor from his business for his personal, private or domestic use.

7. What is Entity?
Ans: The term Entity means something having a separate existence. In business
enterprise having a separate entity or existence from that of owners of that enterprise.

8. What are the different types of accounting concept?

Ans: The different types of accounting concept are:
1. Money measurement concept. 2. Separate entity concept. 3. Going concern concept.
4. Cost concept. 5. Dual aspect concept. 6. Accounting Period concept. 7. Objective
evidence concept. 8. Realization concept. 9. Accrual concept. 10. Matching concept.

9. What is the Accounting equation?

Ans: Assets =Liabilities +Capital, or Assets-Liabilities = Capital or Assets-
Capital=Liabilities.

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Basic Accounting Questions

10. What are the different types of accounting conventions?

Ans: The different types of accounting conventions are
1. Convention of materiality.
2. Convention of consientency
3. Convention of disclosure.
4. Convention of feasilbity.
5. Convention of conservatism.
11. What is Double entry system?
Ans: The system of making two or double entries of equal value in two different
accounts in opposite sides in the books of each of the contracting parties is known as the
double-entry system of accounting.

12. What are the different kinds of accounts?

Ans: The different types of accounts can be classified as:
1. Personal account. 2. Real account. 3. Nominal account.

13. What is Personal account?

Ans; Personal accounts are the accounts of persons with whom a concern carries on
business. It may be Natural personal accounts, artificial personal accounts or
Representative personal accounts.
E.g.: Ram acc, Vijay bank acc, Outstanding Expenses.

14. What is Real account?

Ans: It is an account of properties, assets or things owned by a concern and in and with
which the business is carried on. It can be classified into accounts of tangible and
accounts of intangible assets.
E.g.: Machinery acc, Cash, goodwill etc.

15. What is Nominal account?

It is an accounts of the expenses and losses which a concern incurs, and incomes and
gains which a concern earns in the course of its business. These accounts are called
nominal accounts because they don’t really exist and they cannot be seen or touched.
E.g.: Salaries, wages, printing, postage etc.

16. What is Journal?

Ans: It is day book or a daily record. It is a book of original entry in which all the
transactions are first recorded in the occurrences (order of dates) from the source of
documents.

17. What is Narration?

Ans: It is a note given below the journal entry where the brief explanation about the
transactions will be written.

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Basic Accounting Questions

18. What is Ledger?
Ans: It is a book where transactions of the same nature are classified and grouped
together in one place in the form of an account.
In other words “The book in which a traders all transactions are recorded in a classified
permanent form is called ledger”.

19. What are Subsidiary books?

Ans: It a book of original entry maintained under the modern system of accounting for
recording first the various business transactions as and when take place.

20. What are the different types of Subsidiary books?

Ans: The different types of subsidiary books are
1. Purchase book 2. Sales book 3. Purchase return book 4.Sales return book.
5. Cash book 6. Bills receivable book 7. Bills payable book 8. Journal Proper.

21. What is Cash book?

Ans: It is a book of original entry wherein all cash transactions are recorded as and
when it takes place.

22. What are the different types of cash book?

Ans: The different types of cash book are
1. Simple cash book or Single column cash book.
2. Two column cash book. (Cash & Discount columns).
3. Three column cash book. (Cash, Bank & Discount columns).

23. What is Petty cash book?

Ans: It is an additional cash book, which is used for recording petty (i.e. small)
payments, such as postage and telegrams, coolly, cartage and carriage, sundry expense.

22. What are the different types of Petty cash book?

Ans: The different types of petty cash book are
1. Simple petty cash book.
2. Analytical petty cash book.
3. Imprest system petty cash book.

23. What is Bank reconciliation statement?

Ans: It is a statement prepared to reconcile the bank balance as per the cash book and
balance as per pass book.

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Basic Accounting Questions

24. Write any four reasons for the causes for disagreement between pass book balance
and cash book balance?
Ans: The four reasons for the disagreements are
1. Cheques issued and presented in the cash book but not presented for payment.
2. Cheques issued and cashed but not recorded for payment.
3. Bank charges recorded in the pass book only.
4. Interest on investment recorded in pass book only.

25. What is Journal proper?

Ans: It is used for recording only those transactions which cannot be recorded in any
other subsidiary book or special journal. It is generally used for recording the following
types of transactions:
1. Opening entries. 2. Rectifying entries. 3. Transfer entries.
5. Adjusting entries. 5. Closing entries.

26. What is Trial balance?

Ans: Trial balance is a statement prepared with the debit and credit balances of all the
ledger accounts to test the arithmetical accuracy of the books.

27. Where do show the above balances in Trial balance?

1. All Assets, all expense and prepaid items= Debit side.
2. All liabilities, all incomes and outstanding expenses= Credit side.
3. Purchase and Sales return or Return Inwards= Debit side.
4. Sales and Purchase returns or Return outwards= Credit side.

28. What is Errors in accounting?

Ans: It is an unintentional mistakes committed by the book-Keepers in the books of
accounts.

28. What are the different types of Errors?

Ans: The different types of errors.
1. Errors of omission.
2. Errors of Commission.
3. Errors of Principle.
4. Compensating Errors.

29. What is Rectification of errors?

Ans: Rectification of errors means the removal and correction of the errors or the
mistakes found in the books of accounts.

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Basic Accounting Questions

30. What is Suspense account?
Ans: It is an account which is opened when the trial balance does not tally and in which
the difference in the trial balance is entered to tally the trial balance.

31. What are Bills of exchange?

Ans: An instrument in writing, containing an unconditional order, signed by the maker,
directing a certain person, to pay on demand or at a fixed or determinable future, a
certain sum of money only, to or to the order of a certain person or the bearer of the
instrument.

32. Who are the parties in Bills of exchange?

Ans: The parties who are involved in the bills of exchange are;
1. Drawer 2.Drawee 3.Payee.

33. What is Trading account?

Ans: The Trading account is an account which shows merely the result of trading
(buying & selling of goods) called as Gross Profit or Gross Loss.

34. What are Final accounts?

Ans: It is a summary of ledger accounts organized in such manner as to show the profit
or loss of the business for the accounting year and to know the financial position of the
business at the end of the accounting of year.

35. What is Profit and loss account?

Ans: It is an account which shows the net profit or net loss of a business for a particular
trading period.

36. What is Balance sheet?

Ans: It is a list of all assets and liabilities of a business. Or it is a statement of assets and
liabilities prepared on the last date of the trading period is known as the “Balance
sheet”.

37. What is Contra entry?

Ans: All journals having cash effects in the bank account is termed as Contra entry.
E.g. =1. Cash withdrawn from bank Rs 5000.
Cash A/c Dr 5000
To Bank A/c5000.

2. Cash deposited in the bank Rs10000.

Bank A/c Dr 10000
To Cash A/c 10000.

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Basic Accounting Questions

38. What is Compound entry?
Ans: If we have more the one debit/credit in one single transaction, then it is known as
compound entry.
E.g. = Goods sold to A, B & C amounted to Rs5000, Rs 2000 & Rs3000.

A A/c Dr 5000
B A/c Dr 2000
C A/c Dr 3000
To Sales A/c10000.

39. Who is debtor?

Ans: A debtor is a person who owes money to the business. He owes money to the
business because he has received some benefit from the business. A debtor is a current
asset.

40. Who is creditor?

Ans: A creditor is a person to whom the business owes money. The business owes
money to him because he has given some benefit to the business. A creditor is a current
liability.

41. What is an Asset?

Ans: Assets refer to properties or things and rights of value owned by a business and
also amount due to the business from others.

42. What is Liability?

Ans: Liabilities refers to amount owed by a business to others. It can be further classifies
into long term liability and short term liability.

43. What is posting?

Ans: It is the act of transferring the transactions or entries from the journal or
subsidiaries books to ledger.

44. What is debit note?

Ans: Whenever goods are returned by a trader to supplier, a statement is prepared to
inform supplier that his account has been debited for the goods returned. This
statement is called as Debit note.

45. What is credit note?

Ans: Whenever goods are taken back from a customer or an allowance is granted to a
customer, a statement is prepared to inform the customer that is account has been
credited for the goods returned. This statement is called as credit note.

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Basic Accounting Questions

1. Classifications of the various accounts that is Personal, Real and Nominal.

Personal accounts

Capital acc Bank acc Loan acc

Prepaid Insurance acc Raju acc
Deposit acc Drawings acc
Mysore Trading stores acc Bangalore sports club acc
Bank Over Draft acc Book debts acc
Provision for bad debts & Provision for discount on
doubtful acc debtors acc
Outstanding wages acc Commission received in
advance acc
Debtors acc
National trading co acc
National bank acc
International Traders acc
National college acc
Provision for discount on
creditors acc
Trust acc

Rotary club acc Creditors acc

Real accounts

Machinery acc Furniture acc Fixtures acc

Land & Building acc Cash acc Plant
Goodwill acc Patents acc Copyright acc
Trademark acc Stock acc Investment acc
Loose tools acc Motors van acc Motor vehicle acc
Motor car acc Bills receivable acc Bills payable acc
Provision for depreciation
acc

Nominal accounts

Bad debts acc Salaries acc Wages acc

Stationery acc Discount acc Loss of goods by fire acc
Depreciation acc Postage acc Charity acc
Rent acc Interest acc Commission acc
Travelling expense acc Carriage Outwards Freight acc
Printing acc Sundry expenses acc Telephone charges acc
Electricity charges acc Income tax Insurance premium

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Basic Accounting Questions

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