VIVEKANADA VIDYALAYA MATRIC HR SEC SCHOOL

PANNAIKADU PIRIVU
KODAIKANAL

11 - STD TH

ACCOUNTANCY THEORY MATERIAL

(NEW
NEW EDITION – 2022 -23)

NAME : __________________________

REG NO : __________________________

PREPARED BY
P.VAHEESWARAN M.COM., M.PHIL. DCA., B.ED
PG ASSISTANT OF COMMERCE & ACCOUNTANCY
VIVEKANANDA VIDYALAYA MATRIC HR SEC SCHOOL
PANNAIKADU PIRIVU, KODAIKANAL MAIN ROAD,
DINDIGUL DISTRICT.

CELL: 9791324143

EMAIL: [email protected]

Prepared by P.VAHEESWARAN M.Com.,M.Phil.,DCA

M.Com.,M.Phil.,DCA.,B.Ed., Page 1
 CHAPTER – 1 INTRODUCTION TO ACCOUNTNG
I. CHOOSE THE CORRECT ANSWER
1. The root of financial accounting system is
(a) Social accounting (b) Stewardship accounting
(c) Management accounting (d) Responsibility accounting
2. Which one of the following is not a main objective of accounting?
(a) Systematic recording of transactions
(b) Ascertainment of the profitability of the business
(c) Ascertainment of the financial position of the business
(d) Solving tax disputes with tax authorities
3. Which one of the following is not a branch of accounting?
(a) Financial accounting (b) Management accounting
(c) Human resources accounting (d) None of the above.
4. Financial position of a business is ascertained on the basis of
(a) Journal (b) Trial balance (c) Balance Sheet (d) Ledger
5. Who is considered to be the internal user of the financial information?
(a) Creditor (b) Employee (c) Customer (d) Government

II VERY SHORT ANSWER QUESTIONS

1. Define accounting.
“The process of identifying, measuring, and communicating economic information
to permit informed judgements and decisions by users of the information”.
- American Accounting Association
2. List any two functions of accounting.
(i) Measurement

 Accounting works as a tool for measuring the performance of the business

enterprises.
 It also shows the financial position of the business enterprises.

(ii) Forecasting
With the help of the various tools of accounting, future performance and financial
position of the business enterprises can be forecasted.

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3. What are the steps involved in the process of accounting?
 Identifying the transactions and Journalizing
 Posting and balancing
 Preparation of Trial balance
 Preparation of Trading and Profit or Loss A/c
 Preparation of Balance sheet
4. Who are the parties interested in accounting information?
 Owners  Employees  Government
 Managements  Customers
5. Name any two bases of recording accounting information.
 Cash basis
 Accrual basis
 Mixed basis

III SHORT ANSWER QUESTIONS:

1. Explain the meaning of accounting.
Accounting is the systematic process of identifying, measuring, recording,
classifying, summarizing, interpreting and communicating financial information.
2. Discuss briefly the branches of accounting.
i) Financial Accounting
 It provides financial information to the users for taking decisions.
 It is concerned with identification, recording, classifying and summarising of
financial transactions and events.
ii) Management Accounting
 It is concerned with the presentation of accounting information in such
a way as to assist management in decision making and in the day-to-day
operations of an enterprise.
iii) Human Resources Accounting
 It is concerned with identification, quantification and reporting of investments
made in human resources of an enterprise.
3. Discuss in detail the importance of accounting.
(i) Systematic records
 All the transactions of an enterprise which are recorded in a systematic way
in the books of accounts.

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 (ii) Preparation of financial statements
 Results of business operations and the financial position of the concern can
be ascertained from accounting periodically
(iii) Information to interested groups
 Accounting supplies appropriate information to different interested groups
like owners, management, creditors, employees, financial institutions, tax
authorities and the government.
4. Why are the following parties interested in accounting information?
(a) Investors (b) Government
(i) Investors
 Persons who are interested in investing their funds in an organisation should
know about the financial condition of a business unit while making their
investment decisions.
(ii) Government
 The scarce resources of the country are used by business enterprises.
 Information about performance of business units in different industries helps
the government in policy formulation for development.
5. Discuss the role of an accountant in the modern business world.
(i) Record keeper
 The accountant maintains a systematic record of financial transactions.
 He also prepares the financial statements and other financial reports.
(ii) Provider of information to the management
 The accountant assists the management by providing financial information
required for decision making and for exercising control.
(iii) Legal Evidence:
 Accounting Records are generally accepted as evidence in courts of law and
other legal authorities.
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 CHAPTER – 2 CONCETUAL FRAMEWORK OF ACCOUNTING

I CHOOSE THE CORRECT ANSWER

1. The business is liable to the proprietor of the business in respect of capital
introduced by the person according to
(a) Money measurement concept (b) Cost concept
(c) Business entity concept (d) Dual aspect concept
2. The concept which assumes that a business will last indefinitely is
(a) Business Entity (b) Going concern
(c) Periodicity (d) Conservatism
3. GAAPs are:
(a) Generally Accepted Accounting Policies
(b) Generally Accepted Accounting Principles
(c) Generally Accepted Accounting Provisions
(d) None of these
4. The rule of stock valuation ‘cost price or realizable value’ whichever is lower is
based on the accounting principle of:
(a) Materiality (b) Money measurement (c) Conservatism d) Accrual
5. In India, Accounting Standards are issued by
(a) Reserve Bank of India (b) The Cost and Management Accountants of India
(c) Supreme Court of India (d) The Institute of Chartered Accountants of India

II VERY SHORT ANSWER QUESTIONS

1. Define book-keeping.
“Book-keeping is an art of recording business dealings in a set of books”.
- J.R.Batliboi.
2. What is meant by accounting concepts?
 Accounting concepts are the basic assumptions upon which accounting have
been laid.
 Accounting concepts are the results of broad consensus.

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3. Briefly explain about realization concept.
 It is an any change in value of an asset is to be recorded only when the business
realizes it.
 When assets are recorded at historical value, any change in value is to be
accounted only when it realizes.
4. What is “Full Disclosure Principle” of accounting.
 It states that information that would make a difference to financial statement
users in decision making should be disclosed in financial statement.
5. Write a brief note on ‘Consistency’ assumption.
It states companies should use the same accounting treatment for similar events
and transaction overtime.
III SHORT ANSWER QUESTIONS
1. What is matching concept? Why should a business concern follow
this concept?
 The matching principle states that expenses should be recognized and recorded.
 When those expenses can be matched with the revenues those expenses helped
to generate.
 The matches the revenues and expenses in a period.
 The matching principle recognizes expenses as the revenue recognition principle
recognizes income
2. “Only monetary transactions are recorded in accounting”. Explain
the statement.
 The monetary unit assumptions that all business transaction and relationship
can be expressed in terms of money monetary units.
 Money is the common denominator in all economic activity.
 That is why we assume that money is a good basis for comparing companies.
3. “Business units last indefinitely”. Mention and explain the concept
on which the statement is based.
 Business units last indefinitely – Going Concern Concept.
 It assumes that business will have a long life and not close or be sold in the
immediate future.
 Companies that are expected to continue are said to be a going concern.

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4. Write a brief note on Accounting Standards.
 It’s providing the framework and norms to be followed in accounting.
 So that the financial statements of different enterprises become comparable.
 It is necessary to standardize the accounting principles to ensure consistency,
comparability, adequacy and reliability of financial reporting.

 “Accounting standards are codes of conduct imposed by customs, law or

professional bodies for the benefit of public accountants and accountants
generally”
- Kohler

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 CHAPTER – 3 BOOKS OF PRIME ENTRY

I CHOOSE THE CORRECT ANSWER:

1. Accounting equation signifies
(a) Capital of a business is equal to assets
(b) Liabilities of a business are equal to assets
(c) Capital of a business is equal to liabilities
(d) Assets of a business are equal to the total of capital and liabilities
2. ‘Cash withdrawn by the proprietor from the business for his personal use’ causes
(a) Decrease in assets and decrease in owner’s capital
(b) Increase in one asset and decrease in another asset
(c) Increase in one asset and increase in liabilities
(d) Increase in asset and decrease in capital
3. A firm has assets of Rs.1,00,000 and the external liabilities of Rs.60,000. Its capital
would be
(a) Rs.1,60,000 (b) Rs.60,000 (c) Rs.1,00,000 (d) Rs. 40,000
4. The incorrect accounting equation is
(a) Assets = Liabilities + Capital (b) Assets = Capital + Liabilities
(c) Liabilities = Assets + Capital (d) Capital = Assets – Liabilities
5. Accounting equation is formed based on the accounting principle of
(a) Dual aspect (b) Consistency (c) Going concern (d) Accrual
6. Real account deals with
(a) Individual persons (b) Expenses and losses
(c) Assets (d) Incomes and gains
7. Which one of the following is representative personal account?
(a) Building A/c (b) Outstanding salary A/c
(c) Mahesh A/c (d) Balan & Co
8. Prepaid rent is a
(a) Nominal A/c (b) Personal A/c
(c) Real A/c (d) Representative personal A/c

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9. Withdrawal of cash from business by the proprietor should be credited to
(a) Drawings A/c (b) Cash A/c (c) Capital A/c (d) Purchases A/c
10. In double entry system of book keeping, every business transaction affects
(a) Minimum of two accounts (b) Same account on two different dates
(c) Two sides of the same account (d) Minimum three accounts
II VERY SHORT ANSWER QUESTIONS
1. What are source documents?
 Cash receipt  Debit note  Pay – in – slip
 Invoice  Credit note  Cheque
2. What is accounting equation?
 It is the foundation for the double entry nook keeping system.
 For each transaction the total debits equal the total credits.
 Assets = Capital + Liabilities
3. Write any one transaction which
a) Decreases the assets and decreases the liabilities
b) Increases one asset and decreases another asset
a). Withdraw cash from bank for personal use
b). Purchased furniture for full cash
4. What is meant by journalizing?
 Recording of business transaction in the journal is known as Journal Entry.
 The process of recording the transaction in journal is called as journalizing
5. What is real account?
All accounts relating to tangible and intangible properties and possessions are
called real accounts.
6. How are personal accounts classified?
 Natural account
 Artificial account
 Representative account
7. State the accounting rule for nominal account.
 Debit all expenses and losses
 Credit all income and gains

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8. Give the golden rules of double entry accounting system.
Personal A/c = Debit the Receiver
Credit the Giver
Real A/c = Debit what comes in
Credit what goes out
Nominal A/c = Debit All expenses and Losses
Credit All income and gains
III SHORT ANSWER QUESTIONS
1. Write a brief note on accounting equation approach of recording
transactions.
 The relationship of assets with that of liabilities to outsiders and to owners in
the equation form is known as accounting equation.
 Under the double entry system of book keeping, every transaction has two fold
effect, which causes the changes in assets and liabilities or capital in such a
way that an accounting equation is completed and equated.
Capital + Liabilities = Assets
 Accounting equation is a mathematical expression.
 This is based on the dual aspect concept of accounting..
 Therefore, under this approach, accounts are classified into (i) Asset account,
(ii) Liability account, (iii) Capital account, (iv) Revenue account (v) Expense
account.
2. What is an Account? Classify the accounts with suitable examples.
Account – meaning:
It is the individual record of an asset, a liability, a revenue, an expenses or
capital , in summarized manner.
Classification of accounts:
(i) Personal account: Account relating to persons is called personal account.
 Natural person’s account
 Artificial person’s account
 Representative personal accounts
(ii) Impersonal accounts: All accounts which do not affect persons are called
impersonal accounts.
(a) Real account: All accounts relating to tangible and intangible properties
and possessions are called real accounts.
 Tangible real accounts

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  Intangible real accounts
(b) Nominal account:
The accounts relating to expenses, losses, revenues and gains are called
nominal accounts.
3. What are the three different types of personal accounts?
(a) Natural person’s account:
 Natural person means human beings.
 Example: Vinoth account, Malini account.
(b) Artificial person’s account:
 Artificial person refers to the persons other than human beings recognized by
law as persons.
 Example: BHEL account, Bank account.
(c) Representative personal accounts:
 These are the accounts which represent persons natural or artificial or a
group of persons.
 Example: Outstanding salaries account, Prepaid rent account.
4. What is the accounting treatment for insurance premium paid
on the life of the proprietor?
Date Particulars LF Debit Credit
Drawings a/c Dr xxx
To Cash/bank a/c xxx
(Being insurance premium paid on
the life of the proprietor)

5. State the principles of double entry system of book keeping.

 In every business transaction, there are two aspects.
 The two aspects involved are receiving aspect and giving aspect.
 These two aspects involve two accounts; at least one debit and one credit.
 If one account is debited the other account must be credited.
6. Briefly explain about steps in journalizing.
 Analyze the transactions and identify the accounts which are involved in the
transaction.
 Classify the above accounts under Personal account, Real account or Nominal
account
 Apply the rules of debit and credit for the above two accounts.

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  Find which account is to be debited and which account is to be credited.
 Record the date of transaction in the date column.
 Enter the name of the account to be debited in the particulars column followed
by the abbreviation ‘Dr.’ at the end in the same line.
 The amount to be debited is entered in the debit amount column in the same
line.
 Write the name of the account to be credited in the second line starting with the
word ‘To’ prefixed a few spaces away from the margin in the particulars column.
 The amount to be credited is entered in the credit amount column in the same
line.
 Write the narration within brackets in the next line in the particulars column.
7. What is double entry system? State its advantages.
Meaning:
“Every transaction involving money or money’s worth has two fold aspects, the
receiving of a value on the one hand and the giving of the same value on the other.
This two fold nature in all transactions must be recorded in the books and this
gives rise to the term Double Entry Book keeping”.
– Munro and Palmer
Advantages:
(i) Accuracy
 In this system, the two aspects of each transaction are recorded in the
books of accounts.
 This helps in checking the accuracy in accounting.
(ii) Ascertainment of business results
 This helps to ascertain the net profit or loss incurred and financial position
during an accounting period.
(iii) Comparative study
 It facilitates business planning for future.
(iv) Common acceptance
 The business records maintained under this system are accepted by
financial institutions, government.
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 CHAPTER – 4 LEDGER

I CHOOSE THE CORRECT ANSWER

1. Main objective of preparing ledger account is to
(a) Ascertain the financial position
(b) Ascertain the profit or loss
(c) Ascertain the profit or loss and the financial position
(d) Know the balance of each ledger account
2. The process of transferring the debit and credit items from journal to ledger
accounts is called
(a) Casting (b) Posting (c) Journalising (d) Balancing
3. J.F means
(a) Ledger page number (b) Journal page number
(c) Voucher number (d) Order number
4. The process of finding the net amount from the totals of debit and credit columns in
a ledger is known as
(a) Casting (b) Posting (c) Journalising (d) Balancing
5. If the total of the debit side of an account exceeds the total of its credit side, it means
(a) Credit balance (b) Debit balance
(c) Nil balance (d) Debit and credit balance
6. The amount brought into the business by the proprietor should be credited to
(a) Cash account (b) Drawings account
(c) Capital account (d) Suspense account
II VERY SHORT ANSWER QUESTIONS
1. What is a ledger?
 It is a summary statement of all the transactions relating to a person, asset,
liability, expense or income.
 Ledger is known as principal book of accounts.
2. What is meant by posting?
The process of recording in the ledger is called posting.

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3. What is debit balance?
If the total of the debit side of an account is higher the balancing figure is debit
balance.
4. What is credit balance?
If the total of the credit side of an account is higher the balancing figure is credit
balance.
5. What is balancing of an account?
 The accounts are balanced at the end of the accounting period or after a
certain period to ascertain the net balance in each account.
 Balancing means that the debit and credit side amounts are totaled and the
difference between the total of the two sides is placed in the amount column as
‘Balance c/d’ on the side having lesser total.
 So that the total of both debit and credit columns are equal.
III SHORT ANSWER QUESTIONS
1. Distinguish between journal and ledger.
s.no Basis Journal Ledger
1 Stage It is a first stage It is a second stage

2 Recoding Date wise recorded Account wise recorded

3 Basis It is based on source documents It is based on journal

4 Net position It cannot be ascertained It can be ascertained

2. What is ledger? Explain its utilities.

Ledger – Meaning:
 It is a summary statement of all the transactions relating to a person, asset,
liability, expense or income.
 Ledger is known as principal book of accounts.
Utilities:
 Quick information about a particular account.
 Control over business transaction
 Trial balance can be prepared.
 Helps to prepare final accounts

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3. How is posting made from the journal to the ledger?
 Locate the ledger account that is debited in the journal entry.
 Open the respective account in the ledger.
 Record the date of the transaction in the date column on the debit side of that
account.
 Record the name of the account credited in the journal with the prefix ‘To’ in
particulars column.
 Record the amount of the debit in the ‘amount column’.
 Locate the ledger account that is credited in the journal entry.
 Open the respective account in the ledger.
 Write the name of the account in the top middle.
 Now entries are to be made on the credit side of the account.
 Record the date of the transaction in the date column.
 Record the name of the account debited in the journal entry in the particulars
column with the prefix ‘By’ and write the amount in the amount column.
4. Explain the procedure for balancing a ledger account.
 The debit and credit columns of an account are to be totaled separately.
 The difference between the two totals is to be ascertained.
 The difference is to be placed in the amount column of the side having lesser
total. ‘Balance c/d’ is to be entered in the particulars column.
 Now both the debit and credit columns are to be totaled and the totals will be
equal to be recorded in the same line horizontally.
 The difference has to be brought down to the opposite side below the total
‘Balance b/d’ is to be entered in the particulars column.
 If the total on the debit side of an account is higher, the balancing figure is
debit balance.
 If the credit side of an account has higher total, the balancing figure is credit
balance.

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 CHAPTER – 5 TRIAL BALANCE

I CHOOSE THE CORRECT ANSWER

1. Trial balance is a
(a) Statement (b) Account (c) Ledger (d) Journal
2. After the preparation of ledger, the next step is the preparation of
(a) Trading account (b) Trial balance
(c) Journal (d) Profit and loss account
3. The trial balance contains the balances of
(a) Only personal accounts (b) Only real accounts
(c) Only nominal accounts (d) All accounts
4. Which of the following is/are the objective(s) of preparing trial balance?
(a) Serving as the summary of all the ledger accounts
(b) Helping in the preparation of final accounts
(c) Examining arithmetical accuracy of accounts
(d) a, b and c
5. A list which contains balances of accounts to know whether the debit and credit
balances are matched is
(a) Journal (b) Day book (c) Trial balance (d) Balance sheet
6. Which of the following method(s) can be used for preparing trial balance?
(a) Balance method (b) Total method
(c) Total and Balance method (d) a, b and c
7. While preparing the trial balance, the accountant finds that the total of the credit
column is short by Rs. 200. This difference will be
(a) Debited to suspense account (b) Credited to suspense account
(c) Adjusted to any of the debit balance (d) Adjusted to any of the credit balance
8. The account which has a debit balance and is shown in the debit column of the trial
balance is
(a) Sundry creditors account (b) Bills payable account
(c) Drawings account (d) Capital account
9. The difference of totals of both debit and credit side of trial balance is transferred to:
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 (a) Trading account (b) Difference account
(c) Suspense account (d) Miscellaneous account
10. Trial balance is prepared:
(a) At the end of the year (b) On a particular date
(c) For a year (d) None of the above
II VERY SHORT ANSWER QUESTIONS
1. What is trial balance?
“A trial balance is a statement, prepared with the debit and credit balances of the
ledger accounts to test the arithmetical accuracy of the books”.
– J.R. Batliboi
2. Give the format of trial balance.

S.No Particulars LF Debit Credit

Rs. Rs.

3. What are the methods of preparation of trial balance?

 Balance method
 Total method
 Total and Balance method
4. State whether the balance of the following accounts should be placed in
the debit or the credit column of the trial balance:
(i) Carriage outwards (ii) Carriage inwards (iii) Sales (iv) Purchases
(v) Bad debts (vi) Interest paid (vii) Interest received
(viii) Discount received (ix) Capital (x) Drawings (xi) Sales returns
(xii) Purchase returns
Debit Column Credit Column
Carriage outwards Sales
Carriage inwards Interest received
Purchases Discount received
Bad debts Capital
Interest paid Purchase return
Drawings
Sales return
III SHORT ANSWER QUESTIONS

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1. What are the objectives of preparing trial balance?
(i) Test of arithmetical accuracy
 Trial balance is the means by which the arithmetical accuracy of the book-
keeping work is checked.
(ii) Basis for preparing final accounts
 Financial statements, namely, trading and profit and loss account and balance
sheet are prepared on the basis of summary of ledger balances.

(iii) Location of errors

 The errors should be located and rectified before preparing the financial
statements.

(iv) Summarized information of ledger accounts

 The summary of ledger accounts is shown in the trial balance.
 Ledger accounts have to be seen only when details are required in respect of
an account.
2. What are the limitations of trial balance? (any 3)

 It is possible to prepare trial balance of an organisation, only if the double entry

system is followed.

 Even if some transactions are omitted, the trial balance will tally.

 Trial balance may tally even though errors are committed in the books of
account.

 If trial balance is not prepared in a systematic way, the final accounts prepared
on the basis of trial balance may not depict the actual state of affairs of the
concern.
2. ‘A trial balance is only a prima facie evidence of the arithmetical
accuracy of records’. Do you agree with this statement? Give reasons.
 Yes, it is not a complete proof of arithmetical accuracy of account.
 A Trial balance in which the credit and debit accounts match does not prove
that all transaction have been recorded in the proper accounts.
 Similarly an agreed trial balance does not prove that all transaction have been
recorded in the books of original entry.

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 CHAPTER – 6 SUBSIDARY BOOKS - I

I CHOOSE THE CORRECT ANSWER

1. Purchases book is used to record
(a) all purchases of goods (b) all credit purchases of assets
(c) all credit purchases of goods (d) all purchases of assets
2. A periodic total of the purchases book is posted to the
(a) debit side of the purchases account (b) debit side of the sales account
(c) credit side of the purchases account (d) credit side of the sales account
3. Sales book is used to record
(a) all sales of goods (b) all credit sales of assets
(c) all credit sales of goods (d) all sales of assets and goods
4. The total of the sales book is posted periodically to the credit of
(a) Sales account (b) Cash account
(c) Purchases account (d) Journal proper
5. Purchase returns book is used to record
(a) returns of goods to the supplier for which cash is not received immediately
(b) returns of assets to the supplier for which cash is not received immediately
(c) returns of assets to the supplier for which cash is received immediately
(d) None of the above
6. Sales return book is used to record
(a) Returns of goods by the customer for which cash is paid immediately
(b) Returns of goods by the customer for which cash is not paid immediately
(c) Returns of assets by the customer for which cash is not paid immediately
(d) Returns of assets by the customer for which cash is paid immediately
7. Purchases of fixed assets on credit basis is recorded in
(a) Purchases book (b) Sales book
(c) Purchases returns book (d) Journal proper
8. The source document or voucher used for recording entries in sales book is
(a) Debit note (b) Credit note
(c) Invoice (d) Cash receipt
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9. Which of the following statements is not true?
(a) Cash discount is recorded in the books of accounts
(b) Assets purchased on credit are recorded in journal proper
(c) Trade discount is recorded in the books of accounts
(d) 3 grace days are added while determining the due date of the bill
10. Closing entries are recorded in
(a) Cash book (b) Ledger (c) Journal proper (d) Purchases book
II VERY SHORT ANSWER QUESTIONS
1. Mention four types of subsidiary books.
 Purchases book
 Purchases returns book
 Sales book
 Sales returns books
2. What is purchases book?
Purchases book is a subsidiary book in which only credit purchases of goods are
recorded.
3. What is purchases returns book?
Purchases returns book is a subsidiary book in which transactions relating to
return of previously purchased goods to the suppliers, for which cash is not
immediately received are recorded
4. What is sales book?
 It is a subsidiary book maintained to record credit sale of goods.
 Goods mean the items in which the business is dealing.
 These are meant for regular sale.
5. What is sales returns book?
Sales returns book is a subsidiary book, in which, details of return of goods sold
for which cash is not immediately paid are recorded.
6. What is debit note?
 A ‘debit note’ is a document, bill or statement sent to the person to whom goods
are returned.
 This statement informs that the supplier’s account is debited to the extent of the
value of goods returned.

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7. What is credit note?
 Credit note is a statement prepared by a trader who receives back from his
customer the goods sold.
 It contains details such as the description of goods returned by the buyer,
quantity returned and also their value.
8. What is journal proper?
 It is a residuary book which contains rrecord
ecord of transactions, which do not find a
place in the subsidiary books.
 Such as cash book, purchases book, sales book, purchases returns book, sales
returns book, bills receivable book and bills payable book.
9. Define bill of exchange.
“It is an instrument in writing containing an unconditional order, signed by the
maker, directing a certain person to pay a certain sum of money only to, or to the
bearer of the instrument”.
- Negotiable Instruments Act, 1881
10. What is an opening entry?
 Journal entry made in the beginning of the current year with the balances of
assets and liabilities of the previous year is opening journal entry.
11. What is an invoice?
 Invoice is a business document or bill or statement.
 It is prepared and sent by the seller to the buyer giving the details of goods sold.
 It is a source document of prime entry.
III SHORT ANSWER QUESTIONS
1. Give the format of purchases book.

2. Mention the subsidiary books in which the following transactions

are recorded.
(i) Sale of goods for cash
(ii) Sale of goods on credit
(iii) Purchases of goods on credit
(iv) When the proprietor takes goods for personal use
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M.Com.,M.Phil.,DCA.,B.Ed., Page 21
 (v) Goods returned to suppliers for which cash is not received
immediately
(vi) Asset purchased as credit.
Answers:
i). Cash Book iv). Journal Proper
ii). Sales Book v). Purchase Return Book
iii). Purchase Book vi). Journal Proper
3. What are the advantages of subsidiary books?
(i) Proper and systematic record of business transactions
 All the business transactions are classified and grouped conveniently.
 Transactions are properly and systematically recorded in the subsidiary
books.
(ii) Convenient posting
 All the transactions of a particular nature are recorded at one place, i.e., in
one of the subsidiary books.
(iii) Division of work
 The work will be sub-divided and different persons can work on different
books at the same time.
 The work can be speedily completed.
(4. Write short notes on:
(a) Endorsement of a bill and
(b) Discounting of a bill
a). Endorsement
 It is signing on the back of a bill for the purpose of transferring the title of
the bill to another person.
 The person who endorses is called the “Endorser”.
 The person to whom a bill is endorsed is called the “Endorsee”.
 The endorsee is entitled to collect the money.
b) Discounting
 When the holder of a bill is in need of money before the due date of a bill,
cash can be received by discounting the bill with the banker.
 This process is referred to as the discounting of bill.
 The banker deducts a small amount of the bill which is called discount and
pays the balance in cash immediately to the holder of the bill.
@*@*@*@*@*@*@
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 CHAPTER – 7 SUBSIDARY BOOKS – II CASH BOOK

I CHOOSE THE CORRECT ANSWER

1. Cash book is a
(a) Subsidiary book (b) Principal book
(c) Journal proper (d) Both subsidiary book and principal book
2. The cash book records
(a) All cash receipts (b) All cash payments
(c) Both (a) and(b) (d) All credit transactions
3. When a firm maintains a simple cash book, it need not maintain
(a) Sales account in the ledger (b) Purchases account in the ledger
(c) Capital account in the ledger (d) Cash account in the ledger
4. A cash book with discount, cash and bank column is called
(a) Simple cash book (b) Double column cash book
(c) Three column cash book (d) Petty cash book
5. In Triple column cash book, the balance of bank overdraft brought forward will
appear in
(a) Cash column debit side (b) Cash column credit side
(c) Bank column debit side (d) Bank column credit side
6. Which of the following is recorded as contra entry?
(a) Withdrew cash from bank for personal use
(b) Withdrew cash from bank for office use
(c) Direct payment by the customer in the bank account of the business
(d) When bank charges interest
7. If the debit and credit aspects of a transaction are recorded in the cash book, it is
(a) Contra entry (b) Compound entry
(c) Single entry (d) Simple entry
8. The balance in the petty cash book is
(a) An expense (b) A profit
(c) An asset (d) A liability

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9. Petty cash may be used to pay
(a) The expenses relating to postage and conveyance
(b) Salary to the Manager
(c) Purchase of furniture and fixtures
(d) Purchase of raw materials
10. Small payments are recorded in a book called
(a) Cash book (b) Purchase book
(c) Bills payable book (d) Petty cash book
II VERY SHORT ANSWER QUESTIONS
1. What is cash book?
 It is only cash transactions are recorded in the chronological order.
 The cash book is the book of original entry or prime entry.
 Cash transactions here may include bank transactions also.
2. What are the different types of cash book?
 Single Column Cash Book (Only Cash Column)
 Double Column Cash Book (Cash and Discount Columns)
 Three Column Cash Book (Cash, Discount and Bank Columns)
 Petty Cash Book
3. What is simple cash book?

 It is a ledger account has only one amount column of cash column on each side.

 Only cash transactions are recorded in this book.

 All cash receipts and payments are recorded systematically in this book.
4. Give the format of ‘Single column cash book’.
Dr Single Column Cash Book Cr
DATE RECEIPTS RN LF Rs. DATE PAYMENTS VN LF Rs.

5. What is double column cash book?

 It is a cash book with cash and discount columns.
 As there are two columns, i.e., discount and cash columns, both on debit and
credit sides, this cash book is known as ‘double column cash book’.

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6. Give the format of ‘Double column cash book’.
Dr Double Column Cash Book Cr
Date Receipts LF Cash Discount Date Payments LF Cash Discount
Rs. Rs. Rs. Rs.

7. What is three column cash book?

A three column cash book includes three amount columns on both sides on
cash, bank and discount.

 This cash book is prepared in the same way as simple and double column cash
books are prepared.
8. What is cash discount?
 It is allowed to the parties making prompt payment within the stipulated period
of time.

 It is discount allowed for the creditor and discount received for the debtor who
makes payment.
9. What is trade discount?
 It is a deduction given by the supplier to the buyer on the list price of the goods.
 It is given as when goods are purchased in large quantities.
 It is shown as a deduction in the invoice.
 Trade discount is not recorded in the books of accounts.
10. What is a petty cash book?
 All petty payments of the business may be recorded in separate book which is called
petty cash book.

 The person who maintains the petty cash book is called the petty cash cashier.
III SHORT ANSWER QUESTIONS
1. Explain the meaning of imprest system of petty cash book.
 Under this system, a fixed amount necessary or sufficient to meet petty
payments determined on the basis of past experience is paid to the petty cashier
on the first day of the period.
 The amount given to the petty cashier in advance is known as “Imprest Money”.
 The word imprest means payment in advance.

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 2. Bring out the differences between cash discount and trade discount.
Basis Cash Discount Trade Discount

Purpose It is allowed to encourage It is allowed to encourage

the buyers of goods to make buyers to buy goods in large
payment at an early date quantities.

Amount of It is related to time. It s related to quantity of purchase or

Discount sale

Recording in It is recorded in the books It is not recorded in the books

book of accounts of accounts of accounts

3. Write the advantages of maintaining petty cash book.

 There can be better control over petty payments.
 There is saving of time of the main cashier.
 Cash book is not loaded with many petty payments.
4. Write a brief note on accounting treatment of discount in cash book.
 Debit the concerned personal account mentioned on the credit side and the
credit is to Discount received A/c with the amount mentioned in the discount
received column.
 Credit the concerned personal account mentioned on the debit side and the debit
is for Discount allowed A/c with the amount entered in the discount allowed
column.
5. Briefly explain about contra entry with examples.
 When the two accounts involved in a transaction are cash account and bank
account, then both the aspects are entered in cash book itself.
 As both the debit and credit aspects of a transaction are recorded in the cash
book, such entries are called contra entries.
 To denote that there are contra entries, the alphabet ‘C’ is written in L.F. column
on both sides.
Example
 When cash is paid into bank, it is recorded in the bank column on the debit side
and in the cash column on the credit side of the cash book.
(

@*@*@*@*@*@

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 CHAPTER – 8 BANK RECONCILIATION STATEMENT

I CHOOSE THE CORRECT ANSWER

1. A bank reconciliation statement is prepared by
(a) Bank (b) Business
(c) Debtor to the business (d) Creditor to the business
2. A bank reconciliation statement is prepared with the help of
(a) Bank statement (b) Cash book
(c) Bank statement and bank column of the cash book (d) Petty cash book
3. Debit balance in the bank column of the cash book means
(a) Credit balance as per bank statement (b) Debit balance as per bank statement
(c) Overdraft as per cash book (d) None of the above
4. A bank statement is a copy of
(a) Cash column of the cash book (b) Bank column of the cash book
(c) A customer’s account in the bank’s book (d) Cheques issued by the business
5. A bank reconciliation statement is prepared to know the causes for the difference
between:
(a) The balance as per the cash column of the cash book and bank column of the cash
book
(b) The balance as per the cash column of the cash book and bank statement
(c) The balance as per the bank column of the cash book and the bank statement
(d) The balance as per petty cash book and the cash book
6. When money is withdrawn from bank, the bank
(a) Credits customer’s account (b) Debits customer’s account
(c) Debits and credits customer’s account (d) None of these

7. Which of the following is not the salient feature of bank reconciliation statement?
a) Any undue delay in the clearance of cheques will be shown up by the reconciliation
b) Reconciliation statement will discourage the accountant of the bank from
embezzlement
c) It helps in finding the actual position of the bank balance
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 d) Reconciliation statement is prepared only at the end of the accounting period
8. Balance as per cash book is Rs. 2, 000. Bank charge of Rs.50 debited by the bank is
not yet shown in the cash book. What is the bank statement balance now?
(a) Rs.1,950 credit balance (b) Rs.1,950 debit balance
(c) Rs.2,050 debit balance (d) Rs.2,050 credit balance
9. Balance as per bank statement is Rs.1, 000. Cheque deposited, but not yet credited
by the bank is Rs.2, 000. What is the balance as per bank column of the cash
book?
(a) Rs.3,000 overdraft (b) Rs.3,000 favourable
(c) Rs.1,000 overdraft (d) Rs.1,000 favourable
10. Which one of the following is not a timing difference?
(a) Cheque deposited but not yet credited
(b) Cheque issued but not yet presented for payment
(c) Amount directly paid into the bank
(d) Wrong debit in the cash book
II VERY SHORT ANSWER QUESTIONS
1. What is meant by bank overdraft?
 When the business is not having sufficient money in its bank account, it can
borrow money from the bank.
 As a result of this, amount is overdrawn from bank.
2. What is bank reconciliation statement?
 When the balances do not agree with each other, the need for preparing a
statement to explain the causes arises.
 This statement is called bank reconciliation statement (BRS).
3. State any two causes of disagreement between the balance as per bank
column of cash book and bank statement.
 Cheques issued but not yet presented for payment
 Cheques deposited into bank but not yet credited
4. Give any two expenses which may be paid by the banker as per standing
instruction.
 Rent paid by bank as per standing instruction
 Insurance premium, loan installment, etc paid as standing instructions.

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5. Substitute the following statements with one word/phrase
(a) A copy of customer’s account issued by the bank
(b) Debit balance as per bank statement
(c) Statement showing the causes of disagreement between the balance
as per cash book and balance as per bank statement
a). Bank statement
b). Bank Overdraft
c). Bank Reconciliation Statement
6. Do you agree on the following statements? Write “yes” if you agree, and
write “no” if you disagree.
(a) Bank reconciliation statement is prepared by the banker.
(b) Adjusting the cash book before preparing the bank reconciliation
statement is compulsory.
(c) Credit balance as per bank statement is an overdraft.
(d) Bank charges debited by the bank increases the balance as per bank
statement.
(e) Bank reconciliation statement is prepared to identify the causes of
differences between balance as per bank column of the cash book
and balance as per cash column of the cash book.
a). No b). No
c). No d). No
e). No
III SHORT ANSWER QUESTIONS
1. Give any three reasons for preparing bank reconciliation statement.
 To identify the delay in the clearance of cheques
 To ascertain the correct balance of bank column of cash book
 To discourage the accountants of the business as well as bank from misusing
funds.

2. What is meant by the term “cheque not yet presented?”

 When the cheques are issued by the business, it is immediately entered on the
credit side of the cash book by the business.
 But, this may not be entered in the bank statement on the same day.
 It will be entered in the bank statement only after it is presented with the bank.
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3. Explain why does money deposited into bank appear on the debit
side of the cash book, but on the credit side of the bank statement?
 Cash book maintained by trader cash will go out from the trader point of view so
money deposited into the bank appear on the debit side of the cash book.

 Bank statement prepared by bank deposited money by trader it is liability from

bankers view, so money deposited into the bank it will appear in the credit side of
the bank statement.
4. What will be the effect of interest charged by the bank, if the balance is
an overdraft?
Overdraft balance will be increased if the internet is charged by the bank.
5. State the timing differences in BRS with examples.
 Cheques issued but not yet presented for payment
 Cheques deposited into bank but not yet credited
 Bank charges and interest on loan and overdraft
 Interest and dividends collected by the bank
 Dishonor of cheques and bills
 Amount paid by parties directly into the bank.

@*@*@*@*@

CHAPTER – 9 RECTIFICATION OF ERRORS

I CHOOSE THE CORRECT ANSWER:

1. Error of principle arises when

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 (a) There is complete omission of a transaction
(b) There is partial omission of a transaction
(c) Distinction is not made between capital and revenue items
(d) There are wrong postings and wrong castings
2. Errors not affecting the agreement of trial balance are
(a) Errors of principle (b) Errors of overcasting
(c) Errors of undercasting (d) Errors of partial omission
3. The difference in trial balance is taken to
(a) The capital account (b) The trading account
(c) The suspense account (d) The profit and loss account
4. A transaction not recorded at all is known as an error of
(a) Principle (b) Complete omission
(c) Partial omission (d) Duplication
5. Wages paid for installation of machinery wrongly debited to wages account is an
error of
(a) Partial omission (b) Principle
(c) Complete omission (d) Duplication
6. Which of the following errors will not affect the trial balance?
(a) Wrong balancing of an account
(b) Posting an amount in the wrong account but on the correct side
(c) Wrong totaling of an account
(d) Carried forward wrong amount in a ledger account
7. Goods returned by Senguttuvan were taken into stock, but no entry was passed in
the books. While rectifying this error, which of the following accounts should be
debited?
(a) Senguttuvan account (b) Sales returns account
(c) Returns outward account (d) Purchases returns account
8. A credit purchase of furniture from Athiyaman was debited to purchases account.
Which of the following accounts should be debited while rectifying this error?
(a) Purchases account (b) Athiyaman account
(c) Furniture account (d) None of these

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9. The total of purchases book was overcast. Which of the following accounts should be
debited in the rectifying journal entry?
(a) Purchases account (b) Suspense account
(c) Creditor account (d) None of the above
10. Which of the following errors will be rectified using suspense account?
(a) Purchases returns book was undercast by Rs.100
(b) Goods returned by Narendran was not recorded in the books
(c) Goods returned by Akila Rs. 900 was recorded in the sales returns book as Rs. 90
(d) A credit sale of goods to Ravivarman was not entered in the sales book.
II VERY SHORT ANSWER QUESTIONS
1. What is meant by rectification of errors?
The correction of accounting errors in a systematic manner is called the
rectification of errors.
2. What is meant by error of principle?
It means the mistake committed in the application of fundamental accounting
principles in recording a transaction in the books of accounts.
3. What is meant by error of partial omission?
 When the accountant has failed to record a part of the transaction, it is known
as error of partial omission.
 This error affects only one account.
4. What is meant by error of complete omission?
 It means the failure to record a transaction in the journal or subsidiary book or
failure to post both the aspects in ledger.
 This error affects two or more accounts.
5. What are compensating errors?
 The errors that make up for each other or neutralise each other are known as
compensating errors.

III SHORT ANSWER QUESTIONS

1. Write a note on error of principle by giving an example.
It means the mistake committed in the application of fundamental accounting
principles in recording a transaction in the books of accounts.
Example: Entering the sale of an asset in the sales book

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 Sale of old furniture on credit for Rs. 500 was entered in the sales book.
2. Write a note on suspense account.
 When the trial balance does not tally, the amount of difference is placed to the
debit or credit to a temporary account known as ‘suspense account’.
 It is an temporarily recorded.
3. What are the errors not disclosed by a trial balance?
 Errors of Principle
 Errors of Omission
 Posting to Wrong account
 Error of amounts in Original Book
 Compensating Errors
4. What are the errors disclosed by a trial balance?
 Wrong totaling in a subsidiary books
 Wrong calculation of Balances in ledger accounts.
 Partial omission of an entry
 Debit entries wrongly recorded as Credit entries of vice-versa
5. Write a note on one-sided errors and two sided errors.
i). One- Side Error:
 One side errors are those errors which affect the agreement of the trial
balance.
 These errors affect only one account and only one side of the account.
 Examples: Errors of partial omission
ii). One- Side Error:
 When an error affects both the debit and credit by an equal amount is called
two sided of errors.
 Wrong posting of both debit and credit
 Errors of which omission

@*@*@*@*@*@*@

CHAPTER – 10 DEPRECIATION ACCOUNTING

I CHOOSE THE CORRECT ANSWER:

1. Under straight line method, the amount of depreciation is

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 (a) Increasing every year (b) Decreasing every year
(c) Constant for all the years (d) Fluctuating every year
2. If the total charge of depreciation and maintenance cost are considered, the method
that provides a uniform charge is
(a) Straight line method (b) Diminishing balance method
(c) Annuity method (d) Insurance policy method
3. Under the written down value method of depreciation, the amount of depreciation is
(a) Uniform in all the years (b) Decreasing every year
(c) Increasing every year (d) None of the above
4. Depreciation is caused by
(a) Lapse of time (b) Usage
(c) Obsolescence (d) a, b and c
5. For which of the following assets, the depletion method is adopted for writing off
cost of the asset?
(a) Plant and machinery (b) Mines and quarries
(c) Buildings (d) Trademark
6. A depreciable asset may suffer obsolescence due to____
(a) Passage of time (b) Wear and tear
(c) Technological changes (d) None of the above.
7. Which method shall be efficient, if repairs and maintenance cost of an asset
increases as it grows older.
(a) Straight line method (b) Reducing balance method
(c) Sinking fund method (d) Annuity method
8. Residual value of an asset means the amount that it can fetch on sale at the ____of its
useful life.
(a) Beginning (b) End (c) Middle (d) None
9. Depreciation is to be calculated from the date when
(a) Asset is put to use (b) Purchase order is made
(c) Asset is received at business premises (d) Invoice of assets is received
10. If the rate of depreciation is same, then the amount of depreciation under straight
line method vis-à-vis written down value method will be

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 (a) Equal in all years
(b) Equal in the first year but higher in subsequent years
(c) Equal in the first year but lower in subsequent years
(d) Lower in the first year but equal in subsequent years.
II VERY SHORT ANSWER QUESTIONS
1. What is meant by depreciation?
“Depreciation is the gradual and permanent decrease in the value of an asset from
any cause”.
- R.N. Carter
2. List out the various methods of depreciation.
 Straight line method  Annuity method
 Written down value method  Revaluation method
 Sum of years of digits method  Sinking fund method
 Machine hour rate method  Insurance policy method
 Depletion method
3. Give the formula to find out the amount and rate of depreciation under
straight line method of depreciation.
Amount of depreciation per year = Original cost of the asset − Scrap value
Estimated useful life of the asset in years
Rate of depreciation = Amount of depreciation per year x 100
Original cost
4. What is annuity method?
Under this method, not only the original cost of the asset but also the amount of
interest on the investment is taken into account while computing depreciation.
5. What is sinking fund method?
 Under this method, the amount charged as depreciation is transferred to
depreciation fund and invested outside the business.
 The investment is made in safe securities which offer a certain rate of interest.

III SHORT ANSWER QUESTIONS

1. What are the objectives of providing depreciation?
(i) To find out the true profit or loss
 The expenses incurred during a period must be matched with revenue earned
during that period.
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  This is to be done to find out the true profit or loss of the business for every
accounting period.
(ii) To present the true and fair view of financial position
 When the depreciation is charged on fixed assets, the book value of fixed
assets is reduced to that extent and the remaining value is shown in the
balance sheet.
 The balance sheet must represent a true and fair view of financial status.
(iii) To avail tax benefits
 As per the Indian Income Tax Act, while computing tax on business income,
depreciation is deductible from income.
 Hence, depreciation is computed and charged to profit and loss account to
reduce tax liability.
2. What are the causes for depreciation?
(i) Wear and tear:
 The normal use of a tangible asset results in physical deterioration which is
called wear and tear.
 When there is wear and tear, the value of the asset decreased.
(ii) Efflux of time:

 Certain assets whether used or not become potentially less useful with the
passage of time.
(iii) Lack of maintenance:

 A good maintenance will naturally increase the life of the asset.

 When there is no proper maintenance, there is a possibility of more
depreciation.
3. State the advantages and limitations of straight line method of
depreciation.
Advantages:
 Simplest depreciation method to compute
 Can be applied to all long term asset
 The same for each period of assets service life.
Limitation:
 Reducing balance method charges heavy amount of depreciation in earlier
years.
 Total charge on the assets will be more when the asset becomes older.

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  The actual use of the asset is not considered in computation of depreciation
6. State the advantages and limitations of written down value method
of depreciation.
Merits:
 It is easy to understand and simple to implement.
 Depreciation is calculated every year on the opening balance of asset.
 This method is acceptable for income tax purpose.
Limitations:
 It charges heavy amount of depreciation in earlier years.
 The formula to obtain rate of depreciation can be applied only when there is
residual value of the asset.
 Might not be appropriate for some depreciable asset due to rapidly developing
technology.
5. Distinguish between straight line method and written down value
method of providing depreciation.
S. Difference Straight Line Method Written Down
no Value Method
1 Basic On the original cost On the written down
calculation value of the asset
2 Amount of It is same for all years Its goes on decreasing year after
Depreciation year
3 Book value The book value of the The book value of asset
of the asset asset becomes zero never become zero
4 Computation of It is easy to calculate It is very difficult to
Rate of depreciation calculate

@*@*@*@*@*@

CHAPTER – 11 CAPITAL AND REVENUE TRANSACTION

I CHOOSE THE CORRECT ANSWER:

1. Amount spent on increasing the seating capacity in a cinema hall is
(a) Capital expenditure (b) Revenue expenditure
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 (c) Deferred revenue expenditure (d) None of the above.
2. Expenditure incurred Rs.20,000 for trial run of a newly installed machinery will be
(a) Preliminary expense (b) Revenue expenditure
(c) Capital expenditure (d) Deferred revenue expenditure
3. Interest on bank deposits is
(a) Capital receipt (b) Revenue receipt
(c) Capital expenditures (d) Revenue expenditures
4. Amount received from IDBI as a medium term loan for augmenting working capital
(a) Capital expenditures (b) Revenue expenditures
(c) Revenue receipts (d) Capital receipt
5. Revenue expenditure is intended to benefit
(a) Past period (b) Future period
(c) Current period (d) Any period
6. Pre-operative expenses are
(a) Revenue expenditure (b) Prepaid revenue expenditure
(c) Deferred revenue expenditure (d) Capital expenditure
II VERY SHORT ANSWER QUESTIONS:
1. What is meant by revenue expenditure?
 The expenditure incurred for day to day running of the business or for
maintaining the earning capacity of the business is known as revenue
expenditure.
 It is recurring in nature.
2. What is capital expenditure?
 It is an expenditure incurred during an accounting period, the benefits of which
will be available for more than one accounting period.
 It is non- recurring in nature.
3. What is capital profit?
 It is a capital gain which is arise from the sale of capital asset.
 When the asset is sold at a price which exceeds the purchase price the profits is
capital profit.
4. Write a short note on revenue receipt.

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  Receipts which are obtained in the normal course of business are called revenue
receipts.
 It is recurring in nature. The amount received is generally small.
5. What is meant by deferred revenue expenditure?
An expenditure, which is revenue expenditure in nature, the benefit of which is to
be derived over a subsequent period or periods is known as deferred revenue
expenditure

III SHORT ANSWER QUESTIONS

1. Distinguish between capital expenditure and revenue expenditure.
S. Difference Capital Expenditure Revenue Expenditure
no
1 Nature Non Recurring in nature Recurring in nature

2 Shown in In Balance sheet Income Statement

3 Term Long Term Short Term

4 Benefit More than one year Only in current accounting year

2. Distinguish between capital receipt and revenue receipt.

S.no Difference Capital Receipt Revenue Receipt

1 Nature Non Recurring in nature Recurring in nature

2 Shown in In Balance sheet Income Statement

3 Term Long Term Short Term

4 Received in
Source of Income Income
Exchange of

3. What is deferred revenue expenditure? Give two examples.

 An expenditure, which is revenue expenditure in nature, the benefit of which is

to be derived over a subsequent period or periods is known as deferred revenue
expenditure.

 The benefit usually accrues for a period of two or more years.

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  It is charged against income over a period of certain years.

Examples

 Considerable amount spent on advertising

 Major repairs to plant and machinery

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CHAPTER – 12 FINAL ACCOUNTS - I

I CHOOSE THE CORRECT ANSWER:

1. Closing stock is an item of .
(a) Fixed asset (b) Current asset

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 (c) Fictitious asset (d) Intangible asset
2. Balance sheet is
(a) An account (b) A statement
(c) Neither a statement nor an account (d) None of the above
3. Net profit of the business increases the
(a) Drawings (b) Receivables (c) Debts (d) Capital
4. Carriage inwards will be shown
(a) In the trading account (b) In the profit and loss account
(c) On the liabilities side (d) On the assets side
5. Bank overdraft should be shown
(a) In the trading account (b) Profit and loss account
(c) On the liabilities side (d) On the assets side
6. Balance sheet shows the of the business.
(a) Profitability (b) Financial position (c) Sales (d) Purchases
7. Drawings appearing in the trial balance is
(a) Added to the purchases (b) Subtracted from the purchases
(c) Added to the capital (d) Subtracted from the capital
8. Salaries appearing in the trial balance is shown on the
(a) Debit side of trading account (b) Debit side of profit and loss account
(c) Liabilities side of the balance sheet (d) Assets side of the balance sheet
9. Current assets does not include
(a) Cash (b) Stock (c) Furniture (d) Prepaid expenses
10. Goodwill is classified as
(a) A current asset (b) A liquid asset
(c) A tangible asset (d) An intangible asset

II VERY SHORT ANSWER QUESTIONS

1. Write a note on trading account.
 “The trading account shows the results of buying and selling of goods.
 Trading account is prepared to find out the difference between the revenue from
sales and cost of goods sold
2. What are wasting assets?
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  This are the assets which get exhausted gradually in the process of excavation
 Ex: Mines and Quarries.
3. What are fixed assets?
“Fixed assets are assets of a relatively permanent nature used in the operations of
business and not intended for sale.”
- Finney and Miller,
4. What is meant by purchases returns?
 Goods purchased which are returned to suppliers are termed as purchases
returns or returns outward.
5. Name any two direct expenses and indirect expenses.
Direct Expenses Indirect Expenses
1 Wages Salary
2 Carriage inward Carriage outward
6
6. Mention any two differences between trial balance and balance sheet.
Trial Balance Balance Sheet

1 It is prepared to verify the arithmetical

It is prepared to disclose the true financial
accuracy of books Position.
2 It is not part of final account. It is part of final account.

7. What are the objectives of preparing trading account?

 Its gross profit is found to be less than the projected profit its reasons are
analyzed and proper control is exercised in future.

 Its Gross profit is more than projected profit efforts are made to maintain it in
future.
8. What is the need for preparing profit and loss account?
 To know the amount of net profit or Net loss
 To make comparison
 To measures efficiency
III SHORT ANSWER QUESTIONS
1. What are final accounts? What are its constituents?
 Final accounts are the trial balance that is formed at the end of the period of
accounting from where we can derive the financial statements.
 It has two main constituents that is trading and profit and loss accounts which
help to tell the profit and loss incurred at the end of the financial year.

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2. What is meant by closing entries? Why are they passed?
 Balance of all the nominal accounts are required to be closed on the last day of
the accounting year to facilitate to prepare Trading and Profit and Loss Account.
 It is done by passing necessary closing entries in the journal proper.
 Purchase return a/c is closed by transferring to purchase a/c.
3. What is meant by gross profit and Net profit?
 The word gross means “before any deductions”.
 It is called Sales Profit.
 Gross Profit = Net sales - Cost of goods sold
 The word Net means “after all deductions”.
 Net Profit = Gross Profit - Operating Expenses
4. “Balance sheet is not an account”- Explain.
 Balance sheet is the financial statement of a company which includes assets,
liabilities.
 It includes assets on one side and liabilities on the other.
5. What are the advantages of preparing a balance sheet?
 It is helpful in ascertaining the financial position of the business by showing
assets and liabilities of the concern.

 It helps in calculation of various ratios which help in better management of

business.

 It help to ascertain the amount of capital employed in business.

6. What is meant by grouping and marshalling of assets and liabilities?
 The asset and liabilities should be shown in a certain order in the balance
sheet.
 Therefore they should be arranged in certain groups and in a particular order.
 Assets and Liabilities can be arranged in the balance sheet into two ways:
 By Liquidity
 By Premanence

CHAPTER – 13 FINAL ACCOUNTS - II

I. CHOOSE THE CORRECT ANSWER

1. A prepayment of insurance premium will appear in
(a) The trading account on the debit side

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 (b) The profit and loss account on the credit side
(c) The balance sheet on the assets side
(d) The balance sheet on the liabilities side
2. Net profit is
(a) Debited to capital account (b) Credited to capital account
(c) Debited to drawings account (d) Credited to drawings account
3. Closing stock is valued at
(a) Cost price (b) Market price
(c) Cost price or market price whichever is higher
(d) Cost price or net realizable value whichever is lower
4. Accrued interest on investment will be shown
(a) On the credit side of profit and loss account (b) On the assets side of balance sheet
(c) Both (a) and (b) (d) None of these
5. If there is no existing provision for doubtful debts, provision created for doubtful
debts is
(a) Debited to bad debts account (b) Debited to sundry debtors account
(c) Credited to bad debts account (d) Debited to profit and loss account
II VERY SHORT ANSWER QUESTIONS
1. What are adjusting entries?
It is an adjustment recorded at the end of an accounting period to an asset or
liability account and related expenses or income accounts to record business
events that occurred in the period but were not recorded.
2. What is outstanding expense?
 Those expenses which have been incurred during the year current accounting
period and are due to be paid however the payment is not made.
 Such an item is to be treated as a payable for the business.

3. What is prepaid expense?

It is an expenditure paid for in accounting period but for which the underlying
asset will not be consumed until a future period.
4. What are accrued incomes?
It is income which has been earned but not yet received.

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5. What is provision for discount on debtors?
 Discount is allowed when debtors settle their accounts promptly.
 If the debtors of the current period settle their accounts promptly in the
succeeding period, discount will have to be allowed by us.
III SHORT ANSWER QUESTIONS
1. What is the need for preparing final accounts?
 Trading profit and loss account and balance sheet all these three together are
called as final accounts.
 Final results of trading are known through profit and loss account.
 Financial position is reflected by balance sheet.
 Trading and Profit and Loss account prepared to find out profit or loss.
 Balance Sheet is prepared to find out financial position of a concern.
2. What is meant by provision for doubtful debts? Why is it created?
 It refers to amounts set aside as a charge against profit to meet any loss arising due to bad
debt in future.
 At the end of the accounting period there may be certain debts which are doubtful.
 The amount to be received from debtors may or may not be received.
3. Explain how closing stock is treated in final accounts.
 The goods remaining unsold at the end of the accounting period are known as
closing stock.
 They are valued at cost price or net realizable value whichever is lower as per
accounting standard.
 It is shown on the credit side of trading account.
 It is also shown on the asset side of balance sheet.
4. Give the adjusting entries for interest on capital and interest on drawings.
Date Particulars LF Debit Credit
i) Interest on Capital a/c Dr xxx
To Capital a/c xxx
(Interest on capital provided)
ii) Capital a/c Dr xxx
To Interest on Drawings a/c xxx
(Interest on Drawings provided)
5. Explain the accounting treatment of bad debts, provision for doubtful

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 debts and provision for discount on debtors.

Adjustment Journal entry Trading and Balance sheet

P & L a/c
Bad Debts Bad debts a/c Dr Debit side of P & L Asset side by deduction from
To sundry debtors a/c a/c sundry debtors

Provision for Profit and Loss a/c Dr Debit side of P & L Asset side by deduction from
bad and To Provision for bad a/c sundry debtors

doubtful and doubtful debts a/c

debts
Provision for Profit and Loss a/c Dr Debit side of P & L Asset side by deduction from
discount on To Provision for a/c sundry debtors
debtors discount on debtors a/c

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CHAPTER – 14 COMPUTERIZED ACCOUNTING SYSTEM

I. CHOOSE THE CORRECT ANSWER

1. In accounting, computer is commonly used in the following areas:
(a) Recording of business transactions (b) Payroll accounting

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 (c) Stores accounting (d) All the above
2. Customized accounting software is suitable for
(a) Small, conventional business (b) Large, medium business
(c) Large, typical business (d) None of the above
3. Which one is not a component of computer system?
(a) Input unit (b) Output unit
(c) Data (d) Central Processing Unit
4. An example of output device is
(a) Mouse (b) Printer
(c) Scanner (d) Keyboard
5. One of the limitations of computerized accounting system is
(a) System failure (b) Accuracy
(c) Versatility (d) Storage
6. Which one of the following is not a method of codification of accounts?
(a) Access codes (b) Sequential codes
(c) Block codes (d) Mnemonic codes
7. TALLY is an example of
(a) Tailor-made accounting software (b) Ready-made accounting software
(c) In-built accounting software (d) Customized accounting software
8. People who write codes and programes are called as
(a) System analysts (b) System designers
(c) System operators (d) System programmers
9. Accounting software is an example of
(a) System software (b) Application software
(c) Utility software (d) Operating software
II. VERY SHORT ANSWERS:
1. What is a computer?
 A computer is an electronic machine or device.
 It is performs processes calculations and operations based on instructions
provided by a software or hardware program.
2. What is CAS?
 Computerized accounting system refers to the system of maintaining
accounts using computers.

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  It involves the processing of accounting transactions through the use of
hardware and software in order to keep and produce accounting records and
reports.
3. What is hardware?

 The physical components of a computer constitute its hardware.

 Hardware consists of input devices and output devices that make a complete
computer system.
4. What is meant by software?
A set of programs that form an interface between the hardware and the user
of a computer system are referred to as software.
5. What is accounting software?
Accounting software is a type of computer used by accounting professionals to
manage accounts and perform accounting operations.
6. Name any two accounting packages.
 Readymade software
 Customized software
 Tailor made software
7. Give any two examples of readymade software.
 Tally  Busy
 EX  Professional Accountant
8. What is coding?
 Code is an identification mark.
 It involves codification of accounts.
 It is needed where there are numerous accounts heads in an organisation.
9. What is grouping of accounts?
 After classification of accounts into various groups namely, major, minor and
sub-heads and allotting codes to each account these are programmed into the
computer system.
 A proper codification requires a systematic grouping of accounts.
 The major groups or heads could be Assets, Liabilities, Revenues and Expenses.
10. What are mnemonic codes?
It consists of alphabets or abbreviations as symbols to codify a piece of
information.

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III SHORT ANSWER QUESTIONS
1. What are the various types of accounting software?
(i) Readymade software

 It can be used by the business enterprises immediately on procurement.

 These packages are used by small and conventional business enterprises.

 Cost of installation and maintenance is very low.

 Examples: Tally, Busy, Marg, Profit books.

(ii) Customized software

 Many a time, it is not possible that ready-to-use packages suit the

requirements of the business enterprise.

 In such circumstances, customized packages may help the business

enterprise for fulfilling their requirements.

 It can be modified according to the need of the enterprise.

(iii) Tailormade software
 Large enterprises have their own way of functioning.
 In such enterprises, depending upon their functioning, need based
software’s known as tailored packages are installed.
 The cost of these packages is very high.
2. Mention any three limitations of computerized accounting system.
 Data may be lost or corrupted due to power interruptions.
 Data are prone to hacking
 Un-programmed and un-specified reports cannot be generated.
3. State the various types of coding methods.
a. Sequential codes:
 In sequential code, numbers or letters are assigned in consecutive order.
 These codes are applied primarily to source documents such as cheques,
invoices, etc.
 A sequential code can facilitate document search.
b. Block codes:
 In a block code, a range of numbers is partitioned into a desired number of
sub-ranges and each sub-range is allotted to a specific group.
 In most of the cases of block codes, numbers within a sub-range follow
sequential coding scheme.

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 c. Mnemonic codes:
 A mnemonic code consists of alphabets or abbreviations as symbols to
codify a piece of information
4. List out the various reports generated by computerized accounting
system.
 Sales Report
 Purchase report
 Sales Return
 Stock report
 Trading and Profit or Loss account
 Balance sheet
5. State the input and output devices of a computer system.
Input Devices:
 Keyboard  Microphone
 Gamepad  OMR
 Scanner  Digital Camera
 Scanner
Output Device:
 Monitor  Headphone
 Printers  Projector
 Speakers  Film Recorder

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