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K.

Ramesh
Director
Royal Educational Institutions
hyd
(CONTINUED FROM IPE VIDYA PAGE 12-03-2010)
COMMERCE - I
VERY SHORT QUESTIONS & ANSWERS (2 MARKS)

WHAT IS DOUBLE ENTRY SYSTEM


?

1. Extractive Industry
A. These industries are mainly concerned with extraction of products from
Natural resources such as earth, water, air etc.
Example : Agriculture, mining, hunting etc.

2. Define Commerce
A. Commerce is concerned with the exchange of goods. It includes all those
activities which are related to the transfer of goods from the place of
production to the ultimate consumers. It includes ‘trade’ and ‘aids to
trade’.
Commerce = Trade + Aids to trade

3. Entrepot Trade
A. It is also known as reexport trade, it involves importing of foreign goods
with a view to reexport them to other countries.
Example : India buys wheat from Australia and supplies the same to
Bangladesh
4. Kartha : The head of the family is known as kartha. He has the right to
manage the affairs of the business and other members assist him. He is
also called manager. The kartha makes all the contracts on behalf of the
firm. His liability is unlimited.

5. Mithakshara Law : It is applicable to the whole country except Assam


and West Bengal. According to this law only male members in the family
get the right of inheritance by birth. The female members don’t possess
such right.
6. Dayabhaga law : This law is applicable only to Hindus in the states of
Assam and West Bengal According to this law, the right to property
devolves on the co-parceners by succession and not by birth.

7. Partnership Deed : A partnership arises out of an agreement between the


partners. The agreement may be in written or oral. A written agreement
avoids the disputes in future. Such written agreement is called partnership
deed or partnership agreement.

8. Minor Partner : A minor is a person who has not attained the age of 18
years. He can never become a partner because of his incapacity for making
contracts. A minor, however, be admitted to the benefits of partnership
with the consent of all partners. The liability of minor partner is limited.

After attaining the age of 18 years, if he so desires, he can continue as a


partner or withdraw from the firm . In case, he chooses to continue as a
partner, he is liable for all dealings from the date of his joining in the firm.
9. Articles of Association
A. Certain rules and regulations are necessary for the management and control
of a joint stock company. The rules and regulations which are used to
manage the day - to - day affairs of the company are known as “Articles of
Association”. The document is a subsidiary to the memorandum of
association.
10. Minimum subscription
A. Minimum subscription is the minimum amount of capital which a public
company has to secure before allotting the shares. The amount of
minimum subscription must be stated in Articles of Association and
prospectus. The amount must be subscribed within 120 days from the date
of prospectus.
11. What is a certificate of incorporation ?
A. Incorporation involves the registration of the company under the
companies act. It is a legal process through which a company is recognised
as a legal entity. The promoters of a company must prepare various
documents with the registrar of companies of the state. The registrar after
scrutinising them and if he is satisfied he will issue a certificate called
“certificate of incorporation”.
12. Define the term prospectus ?
A. The company act, 1956 section 2 (36) defines the prospectus as “Any
document described or issued as prospectus and includes any notice,
circular, advertisement or other documents inviting deposits from the
public for subscription purchase of any shares or debentures of a
company”.
13. Object Clause :
A. This is the most important clause in the memorandum of association. The
objective of the company must be legal and be very clearly defined. If a
company does any business not included in the objects clause, it will
become invalid.

14. Holding companies


A. A company is considered to be a holding company when it purchases more
than half of the shares in another company. Ex. : Rasi cement is a holding
company of vishnu cement company.

15. Private company


A. A private limited company is defined as a company.
1. Limits the number of its members to 50.
2. Prohibits an invitation to the public subscription to shares and debentures.
3. Restricts the transfer of its shares.
16. Define public enterprises ?
A. Definition : “Public Enterprises are autonomous or semi-autonomous
corporations and companies established, owned and controlled by the state and
engaged in industrial and commercial activities”.

17. Public corporation


A. Public Corporation : A public corporation may be defined as a body
corporate created by the legislative under a special act which sets out its powers,
duties and immunities.
18. Multinational corporation
A. Multination Corporations are also known as Multinational Companies.
Multinational Corporation is a firm that conducts business in two or more
countries. These Companies possessed use capital resources, latest technology
alongwith Worldwide goodwill.
19. Business Finance :
A. Business Finance has been defined as those activities which have to do with
the provision and management of funds for the satisfactory conduct of a
business.Business finance defined as that business activity which is
concerned with the acquisition and conservation of capital funds in meeting
the financial needs and overall objectives of business enterprise.
20. Medium Term Finance :
A. Funds that are raisen for a period between one to five years are termed as
medium term finance. Medium term finane is used for 1) modernization of
machinery, 2) large advertisement campaigns, 3) launching of new
products.

21. Trade Credit :


A. It is one of sources for short term finance. Generally businessmen buy
goods from suppliers on credit basis and payment is made after a certain
short period, which is called Trade Credit

22 Cumulative Performance Shares :


A. Cumulative preference shares carry cumulative right over dividend. The
dividend on cumulative preference shares is to be payable to the shares
holders whether company earns profits or not. The right on preference
share holders to receive dividend can be carried forward.

23. Over Capitalisation :


A. The term capitalisation has been defined in a number of ways. Though the
total capital employed by the business enterprise includes both fixed capital
and working capital. The term capitalisation includes “Long Term Capital”
only.
24. Debit Capital
A. The debt or borrowed capital consists of capital raised by the company
through issue of debentures and long term borrowals from the financial
institutions. The providers of capital do not have voting rights.

25. Bearer Debentures


A. The names and address of these debentures are not recorded in the registrar
of the company. These debentures are transferable by mere delivery.

26. Institutional Finance


A. The central and state the government have set up a number of financial
institutions to provide long term finance to the industrial concerns. These
are IFCI, IDBI, ICICI, State Financial Corporations, LIC, UTI, etc.

PART - II

27. Define Book Keeping?

A. “Book keeping is the science and art of keeping record of business


transactions in such a systematic manner that the true state of the financial affairs
of a business house can be easily ascertained”
28. What is Capital ?

A. The amount invested by the owner for running the business is called
capital. This can be in the form of goods or cash.

29. What are Drawings?

A. Cash, goods drawn by the owner, investor for personal consumption are
called as Drawings.

30. What is Capital Expenditure?

A. Capital Expenditure consists of expenditure the benefit of which is not fully


consumed in one accounting period but spreads over several years or the amount
spent in increasing the earning capacity of a business is called as Capital
Expenditure.

31. What is Revenue Expenditure?


A. Revenue Expenditure is the amount spent in earning Revenue / Profit is
called as Revenue Expenditure and includes the Expenses like salaries, rent,
wages, repairs, maintenance, stores, depreciation and materials etc.

32. What is Journal ?


A. Journal is a book of original entry / first entry in which transactions are
recorded in chronological order and the transaction recorded in journal is called a
journal entry.

33. What is Ledger?


A. Ledger is a book of secondary entry. This is also called a book of final
entry. All transactions from journal are recorded in ledger by opening a separate
account and their balances are found.

34. Dual Aspect Concept


A. This is basis aspect of accounting. According to this concept every business
transaction has two fold effect, the receiving of the benefit and giving of the
benefit.

35. What is Single Entry System ?


A. Single Entry System is a crude and unscientific method of maintaining
method. Under this system all the transactions are not recorded. Single Entry
System is a system in which one aspect of the transaction is recorded instead of
two aspects.
37. What is Journal Proper ?
A. Journal Proper is a subsidiary book used for recording all the remaining
transactions which cannot be recorded in any one of the seven subsidiary
books mentioned above.

38. Trade Discount :


A. Trade discount is a reduction in the catalogue price of an article. This is
given by the wholesaler or manufacturer to retailer to enable him to sell at
a catalogue price and make a profit, no entry is passed in the books for
trade discount.

39. Cash Discount :


A. It is given for prompt payment, hence it is recorded in the Cash Book. This
is given to debtors who pay promptly for their goods when the time for
payment arrives.

40. Write about Debit Note ?


A. While returning goods to the suppliers, a statement called “Debit Note”
which is sent to them for their information. It informas the supplier that his
account has been debitedto the extent of the value of the goods returned, it
contains the name and address of the supplier, the description of the goods
returned etc.

41. Write about Credit Note?


A. When a customer returns goods a statement called “Credit Note” is sent to
him. The credit note informs the customer that his account has been
credited to the extent of value of the goods returned.

42. What is Contra Entry?

A. Contra Entry is the transaction which is recorded on both the sides of


Triple Column Cash Book i.e., Cash and Bank coloumns on the opposite
sides. In other words the double entry aspect of the transaction is
completed in the Cash Book itself.

43. Petty Cash Book :


A. Petty Cash Book is a cash book maintained to record petty / small
payments made in cash, to meet day to day requirements. It is maintained
on imprest system and recorded in analytical form.

44. Imprest System :


A. Imprest system is a system in which an estimated amount for petty
expenses is determined and advanced to petty cashier out of which all the
petty expenses will be paid and total amount paid will be re-advanced to
the petty cashier, so as to make it equal to imprest amount.

45. What is Bank Reconcillation Statement ?


A. Bank Reconcillation Statement is a statement prepared at periodical
intervals to reconcile the balance of Cash Book with that of Pass Book and
to find out the exact balance with the Bank.

46. What is Over Draft ?

A. Over Draft is the unfavourable balance of the depositor with the bank i.e.,
withdrawals are more than deposits. In other words it is the amount due to
bank by the customer. In case of favorable balance Cash Book shows credit
balance whereas Pass Book shows debit balance.

47. Suspense Account :

A. Suspense Account is the account prepared to transfer difference in Trial


Balance if any to be rectified in future.

48. Errors of Principle :

A. Errors of principle is an error which any one has committed due to


defective knowledge of recounting principle.

Part-II Short Note Questions & Answers (5 Marks)


1. What is double entry system ? Write its advantages ?
A. A business transaction is a transfer of money or money’s worth from one
account to another. A transfer requires necessarily two accounts. For a complete
record of the transaction, it should be presented in both the accounts. For a
complete record of the effects two accounts in the opposite directions, if one
account receives a benefit there should be another account to impart the benefit.
The principle of double entry is based on the fact that there can be no
giving without receiving nor can be receiving without some one giving. The
receiving aspect is known as ‘Debit’ and is entered on the debit side of the
account. The giving aspect is known as ‘Credit’ and is entered on the credit side
of the account. The principle under which both debit and credit aspects are
recorded is known as the principle of double entry. Every debit must have a
corresponding credit and vice versa. Double entry is the only scientific system of
maintaining books of accounts.
Advantages :

1. It provides a complete record of business transactions, as it records both the


aspect of every transaction
2. It is possible to prepare trail balance and check the arithmetical accuracy of
books of accounts.
3. A trader can know his debtors and creditors from time to time.
4. A trader can find out his financial position by preparing a balance sheet on
a particular date.
5. Double entry system helps to find out and prevent errors and frauds.

4. Discuss accounting concepts ?


A. Meaning of Accounting Concepts : Accounting is a system evolved to
achieve a set of objectives. In order to achieve the goals, we need a set of rules or
guidelines. These guidelines are termed here as basic accounting concepts. The
term ‘concept’ means an idea or though. Basic accounting concepts are the
fundamental ideas or basic assumptions underlying the theory and practice of
financial accounting.
1. Business entity concept : Business is treated separate from the proprietor.
All the transactions are recorded in the books of business and not in the books of
the proprietor. The proprietor is also treated as a creditor for the business. When
he contributes capital he is treated as a person who has invested his amount in the
business. Therefore, capital appears in the liabilities of balance sheet of the
business.
2. Going concern concept : This concept relates with the long life of the
business. The assumption is that business will continue to exist for unlimited
period unless it is dissolved due to some reason or the other.
3. Cost Concept : According to this concept, an asset is recorded at its cost
in the books of account, i.e., the price which is paid at the time of acquiring it.
4. Accounting period concept : Every businessman wants to know the result
of his investment and efforts after a certain period. Usually one year period is
regarded as an ideal for this purpose.
5. Dual aspect concept : Under this concept, every transaction has got a two
fold aspect (i) receiving benefit and (ii) giving of that benefit. Therefore two
accounts are to be passed in the books of accounts.

6. What are the classes of accounts ? Briefly explain ?

A. An account is a statement in the ledger which records the transactions


relevant to the persons, asset, expense or profit named in the heading. Accounts
can be divided into
1. Personal Accounts 2) Impersonal Accounts

Impersonal accounts can be further divided into real and nominal accounts.
Thus, there are three kinds of accounts maintained by business.
1. personal accounts 2) real accounts 3) nominal accounts
1. Personal Accounts : Accounts of persons with whom the business deals
are known as personal accounts. The word persons is used in a special sense here.
It indicates individuals, partnerships, companies etc.
Debit : The receiver
Credit : The Giver
2. Real Accounts : Accounts in which the business records the real things
owned by it i.e. the assets of the business are known as real accounts.
Example : Buildings A/c, Machinery A/c., Furniture A/c, Cash A/c., etc.
Debit : What comes into business
Credit : What goes out of the business
3. Nominal Accounts : Accounts which record expenses, losses, incomes
and gains of the business are known as Nominal Accounts.
Example : Rent A/c., Salaries A/c., Postage A/c. Commission received, interest
received A/c., bad debts etc.
Debit : All expenses and losses
Credit : All incomes and gains
IMPORTANT ESSAY QUESTIONS
(10 MARKS) :
1. Define Sole Trading Business? Write its Merits and Demerits?
2. Write the differences between Private Limited Company and Public Limited Company?
3. What is meant by Memorandum of Association? Write the clauses?
4. Discuss the merits and demerits of Company Organisation?
5. Define Partnership Business? Write its Merits and Demerits?
6. What is Debenture? Explain different types of debentures?
7. Write different types of business finance?
8. What is preference share? Explain different types of preference shares?

IMPORTANT SHORT NOTE QUESTIONS :


(5 Marks)
1. Define Industry? Explain different types of Industries with examples?
2. Define Trade? Explain different types of Trade?
3. Explain the advantages of Joint Hindu Family business?
4. Write the Principles (Features) of Co-operative Society?
5. Explain various types of Partners?
6. What is meant by Partnership Deed? Write its contents?
7. Define MNC? Write its characteristic features?
8. Explain the demerits of Public Sector undertakings? (or) Private Sector. (Problem)
9. Explain the Merits of Public Sector undertakings?
10. Explain the need of Private Sector in India?
11. Explain the merits of Preference Shares?

IMPORTANT SHORT NOTE QUESTIONS :


(5 Marks)
1. Define Industry? Explain different types of Industries with examples?
2. Define Trade? Explain different types of Trade?
3. Explain the advantages of Joint Hindu Family business?
4. Write the Principles (Features) of Co-operative Society?
5. Explain various types of Partners?
6. What is meant by Partnership Deed? Write its contents?
7. Define MNC? Write its characteristic features?
8. Explain the demerits of Public Sector undertakings? (or) Private Sector. (Problem)
9. Explain the Merits of Public Sector undertakings?
10. Explain the need of Private Sector in India?
11. Explain the merits of Preference Shares?
K. RAMESH, Director,
Head of Dept. of Commerce
Royal Educational Institutions
Hyderabad
PART-II ACCOUNTS IMPORTANT QUESTIONS & ANSWERS
FINAL ACCOUNTS (20 MARKS)
From the following Trial Balance, prepare a Trading, Profit and Loss account and Balance Sheet as on
31-12-2000

Debit Balances Amount Credit Balances Amount


Rs. Rs.
Purchases 1,00,000 Capital 75,000
Machinery 50,000 Returns 2,500
Returns 4,000 Creditors 50,000
Debtors 60,000 Bank Overdraft 20,000
Cash at Bank 25,000 Discount 2,000
Stock (1-1-2000) 40,000 Sales 2,25,000
Taxes 3,500
Wages 28,000
Carriage on Purchases 3,000
Furniture 12,000
Rent 4,000
Bills Receivable 45,000
3,74,500 3,74,500

Adjustments :
1. Closing stock Rs.42,000
2. Outstanding wages Rs.4,500
3. Writ off Rs.1,000 as bad debts
4. Provide 5% depreciation on machinery
5. Charge 5% interest on capital
A. Trading and Profit and Loss Account for the year ending 31.12.2000 :
Dr. Cr.
Particulars Amount Amount Particulars Amount Amount
Rs. Rs Rs. Rs

To Opening Stock 40,000 By Sales 2,25,000


To Purchases 1,00,000 Less:
Less : Returns 2,500 97,500 Returns 4,000 2,21,000
To Wages 28,000 By Closing stock 42,000
Add : Outstanding 4,500 32,500
To carriage inwards 3,000
To Gross Profit 90,000
(Transfered to P&L a/c) 2,63,000 2,63,000
To Rent 4,000 By Gross Profit 90,000
To Taxes 3,500 By Discount 2,000
To Bad debts 1,000
To Depreciation on
Machinery 2,500
To Interest on Capital 3,750
To Net Profit 77,250
(Transfered to Capital a/c) 92,000 92,000

Balance Sheet as on 31-12-2000

Liabilities Amount Amount Assets Amount Amount


Rs. Rs Rs. Rs

Outstanding Wages 4,500 Cash at Bank 25,000


Creditors 50,000 Bills Receivable 45,000
Bank Overdraft 20,000 Debtors 60,000
Capital 75,000 Less : Bad debts 1,000 59,000
Add : Interest 3,750 1,56,000 Furniture 12,000
Add : Net Profit 77,250 Closing Stock 42,000
Machinery 50,000
Less : Depreciation 2,500 47,500
2,30,500 2,30,500
10 Marks Problem Bank Reconciliation Statement

1. Prepare Bank Reconciliation Statement as on 31-12-2002 from the following particulars.


1. Bank overdraft as per cash book Rs.6,220
2. A cheque issued to Raja for Rs.2,630 was not encashed from the Bank
3. An amount of Rs.500 was collected by the Bank. The same is not recorded in the cash book
4. Interest on overdraft Rs.150 was debited in the pass book only.
5. A cheque for Rs.1,000 received, but it was not sent to Bank.
6. Devident received by the bank Rs.500, not written in the cash book.
7. Bank charges of Rs.50 debited in the pass book only

Ans. Bank Reconciliation Statement as on 31-12-2002


Particulars Amount Amount
Rs. Rs.

Overdraft as per Cash Book 6,220


Add :
1. Cheque received but not sent to
Bank for collection 1,000
2. Interest on overdraft debited in the pass book 150
3. Bank charges debited in the pass book 50 1,200
7,420
Less:
1. Cheques issued but not presented for payment 2,630
2. Dividend received but not entered in the cash book 500
3. Amount collected by the bank but not
recorded in the cash book 500 3,630
Overdraft as per pass book 3,790

5 Marks Problem Subsidiary Books

1. Record the following transactions in the pruchase book

2004 Rs.

March 1. Goods purchased from Krishna 5,000/-

4 Purchased goods from Pal for cash 2,000/-

6 Goods purchased from Choudary 1,000/-

8 Goods purchased from Prasad 500/-

12 Goods purchased from Naveen brothers 15,000/-

21 Goods purchased from Upendra 2,500/-


Ans.

Purchases Book

Date Particulars Inward Invoice No. LF. Amount(Rs)

2004

Mar. 1 Krishna 1 5,000

Mar. 6 Chowdary 2 1,000

Mar. 8 Prasad 3 500

Mar.12 Naveen brothers 4 15,000

Mar 21 Upendra 5 2,500

Total 24,000

K. RAMESH
Head of Dept. of Commerce
Royal Educational Institutions
Hyderabad
COMMERCE - I
VERY SHORT QUESTIONS & ANSWERS (2 MARKS)

WHAT IS DOUBLE ENTRY SYSTEM ?


1. Extractive Industry
A. These industries are mainly concerned with extraction of products from Natural resources
such as earth, water, air etc.
Example : Agriculture, mining, hunting etc.

2. Define Commerce
A. Commerce is concerned with the exchange of goods. It includes all those activities which
are related to the transfer of goods from the place of production to the ultimate consumers.
It includes ‘trade’ and ‘aids to trade’.
Commerce = Trade + Aids to trade

3. Entrepot Trade
A. It is also known as reexport trade, it involves importing of foreign goods with a view to
reexport them to other countries.
Example : India buys wheat from Australia and supplies the same to Bangladesh
4. Kartha : The head of the family is known as kartha. He has the right to manage the
affairs of the business and other members assist him. He is also called manager. The
kartha makes all the contracts on behalf of the firm. His liability is unlimited.

5. Mithakshara Law : It is applicable to the whole country except Assam and West Bengal.
According to this law only male members in the family get the right of inheritance by
birth. The female members don’t possess such right.

6. Dayabhaga law : This law is applicable only to Hindus in the states of Assam and West
Bengal According to this law, the right to property devolves on the co-parceners by
succession and not by birth.

7. Partnership Deed : A partnership arises out of an agreement between the partners. The
agreement may be in written or oral. A written agreement avoids the disputes in future.
Such written agreement is called partnership deed or partnership agreement.

8. Minor Partner : A minor is a person who has not attained the age of 18 years. He can
never become a partner because of his incapacity for making contracts. A minor, however,
be admitted to the benefits of partnership with the consent of all partners. The liability
of minor partner is limited.

After attaining the age of 18 years, if he so desires, he can continue as a partner or


withdraw from the firm . In case, he chooses to continue as a partner, he is liable for all
dealings from the date of his joining in the firm.
9. Articles of Association
A. Certain rules and regulations are necessary for the management and control of a joint
stock company. The rules and regulations which are used to manage the day - to - day
affairs of the company are known as “Articles of Association”. The document is a
subsidiary to the memorandum of association.
10. Minimum subscription
A. Minimum subscription is the minimum amount of capital which a public company has to
secure before allotting the shares. The amount of minimum subscription must be stated
in Articles of Association and prospectus. The amount must be subscribed within 120
days from the date of prospectus.
11. What is a certificate of incorporation ?
A. Incorporation involves the registration of the company under the companies act. It is a
legal process through which a company is recognised as a legal entity. The promoters of
a company must prepare various documents with the registrar of companies of the state.
The registrar after scrutinising them and if he is satisfied he will issue a certificate
called “certificate of incorporation”.
12. Define the term prospectus ?
A. The company act, 1956 section 2 (36) defines the prospectus as “Any document described
or issued as prospectus and includes any notice, circular, advertisement or other documents
inviting deposits from the public for subscription purchase of any shares or debentures
of a company”.
13. Object Clause :
A. This is the most important clause in the memorandum of association. The objective of
the company must be legal and be very clearly defined. If a company does any business
not included in the objects clause, it will become invalid.

14. Holding companies


A. A company is considered to be a holding company when it purchases more than half of
the shares in another company. Ex. : Rasi cement is a holding company of vishnu cement
company.

15. Private company


A. A private limited company is defined as a company.
1. Limits the number of its members to 50.
2. Prohibits an invitation to the public subscription to shares and debentures.
3. Restricts the transfer of its shares.
16. Define public enterprises ?
A. Definition : “Public Enterprises are autonomous or semi-autonomous corporations and
companies established, owned and controlled by the state and engaged in industrial and
commercial activities”.
17. Public corporation
A. Public Corporation : A public corporation may be defined as a body corporate created
by the legislative under a special act which sets out its powers, duties and immunities.
18. Multinational corporation
A. Multination Corporations are also known as Multinational Companies. Multinational
Corporation is a firm that conducts business in two or more countries. These Companies
possessed use capital resources, latest technology alongwith Worldwide goodwill.
19. Business Finance :
A. Business Finance has been defined as those activities which have to do with the provision
and management of funds for the satisfactory conduct of a business.Business finance
defined as that business activity which is concerned with the acquisition and conservation
of capital funds in meeting the financial needs and overall objectives of business enterprise.

20. Medium Term Finance :


A. Funds that are raisen for a period between one to five years are termed as medium term
finance. Medium term finane is used for 1) modernization of machinery, 2) large
advertisement campaigns, 3) launching of new products.

21. Trade Credit :


A. It is one of sources for short term finance. Generally businessmen buy goods from
suppliers on credit basis and payment is made after a certain short period, which is called
Trade Credit

22 Cumulative Performance Shares :


A. Cumulative preference shares carry cumulative right over dividend. The dividend on
cumulative preference shares is to be payable to the shares holders whether company
earns profits or not. The right on preference share holders to receive dividend can be
carried forward.

23. Over Capitalisation :


A. The term capitalisation has been defined in a number of ways. Though the total capital
employed by the business enterprise includes both fixed capital and working capital. The
term capitalisation includes “Long Term Capital” only.
24. Debit Capital
A. The debt or borrowed capital consists of capital raised by the company through issue of
debentures and long term borrowals from the financial institutions. The providers of
capital do not have voting rights.

25. Bearer Debentures


A. The names and address of these debentures are not recorded in the registrar of the company.
These debentures are transferable by mere delivery.

26. Institutional Finance


A. The central and state the government have set up a number of financial institutions to
provide long term finance to the industrial concerns. These are IFCI, IDBI, ICICI, State
Financial Corporations, LIC, UTI, etc.

PART - II

27. Define Book Keeping?

A. “Book keeping is the science and art of keeping record of business transactions in such a
systematic manner that the true state of the financial affairs of a business house can be easily
ascertained”

28. What is Capital ?

A. The amount invested by the owner for running the business is called capital. This can be
in the form of goods or cash.

29. What are Drawings?

A. Cash, goods drawn by the owner, investor for personal consumption are called as
Drawings.

30. What is Capital Expenditure?

A. Capital Expenditure consists of expenditure the benefit of which is not fully consumed
in one accounting period but spreads over several years or the amount spent in increasing the
earning capacity of a business is called as Capital Expenditure.

31. What is Revenue Expenditure?


A. Revenue Expenditure is the amount spent in earning Revenue / Profit is called as Revenue
Expenditure and includes the Expenses like salaries, rent, wages, repairs, maintenance, stores,
depreciation and materials etc.

32. What is Journal ?


A. Journal is a book of original entry / first entry in which transactions are recorded in
chronological order and the transaction recorded in journal is called a journal entry.

33. What is Ledger?


A. Ledger is a book of secondary entry. This is also called a book of final entry. All
transactions from journal are recorded in ledger by opening a separate account and their balances
are found.

34. Dual Aspect Concept


A. This is basis aspect of accounting. According to this concept every business transaction
has two fold effect, the receiving of the benefit and giving of the benefit.

35. What is Single Entry System ?


A. Single Entry System is a crude and unscientific method of maintaining method. Under
this system all the transactions are not recorded. Single Entry System is a system in which one
aspect of the transaction is recorded instead of two aspects.

37. What is Journal Proper ?


A. Journal Proper is a subsidiary book used for recording all the remaining transactions
which cannot be recorded in any one of the seven subsidiary books mentioned above.

38. Trade Discount :


A. Trade discount is a reduction in the catalogue price of an article. This is given by the
wholesaler or manufacturer to retailer to enable him to sell at a catalogue price and
make a profit, no entry is passed in the books for trade discount.

39. Cash Discount :


A. It is given for prompt payment, hence it is recorded in the Cash Book. This is given to
debtors who pay promptly for their goods when the time for payment arrives.

40. Write about Debit Note ?


A. While returning goods to the suppliers, a statement called “Debit Note” which is sent to
them for their information. It informas the supplier that his account has been debitedto
the extent of the value of the goods returned, it contains the name and address of the
supplier, the description of the goods returned etc.

41. Write about Credit Note?


A. When a customer returns goods a statement called “Credit Note” is sent to him. The
credit note informs the customer that his account has been credited to the extent of value
of the goods returned.

42. What is Contra Entry?

A. Contra Entry is the transaction which is recorded on both the sides of Triple Column
Cash Book i.e., Cash and Bank coloumns on the opposite sides. In other words the double
entry aspect of the transaction is completed in the Cash Book itself.

43. Petty Cash Book :

A. Petty Cash Book is a cash book maintained to record petty / small payments made in
cash, to meet day to day requirements. It is maintained on imprest system and recorded
in analytical form.

44. Imprest System :


A. Imprest system is a system in which an estimated amount for petty expenses is determined
and advanced to petty cashier out of which all the petty expenses will be paid and total
amount paid will be re-advanced to the petty cashier, so as to make it equal to imprest
amount.

45. What is Bank Reconcillation Statement ?


A. Bank Reconcillation Statement is a statement prepared at periodical intervals to reconcile
the balance of Cash Book with that of Pass Book and to find out the exact balance with
the Bank.

46. What is Over Draft ?

A. Over Draft is the unfavourable balance of the depositor with the bank i.e., withdrawals
are more than deposits. In other words it is the amount due to bank by the customer. In
case of favorable balance Cash Book shows credit balance whereas Pass Book shows
debit balance.

47. Suspense Account :

A. Suspense Account is the account prepared to transfer difference in Trial Balance if any
to be rectified in future.

48. Errors of Principle :

A. Errors of principle is an error which any one has committed due to defective knowledge
of recounting principle.

Part-II Short Note Questions & Answers (5 Marks)


1. What is double entry system ? Write its advantages ?
A. A business transaction is a transfer of money or money’s worth from one account to
another. A transfer requires necessarily two accounts. For a complete record of the transaction,
it should be presented in both the accounts. For a complete record of the effects two accounts
in the opposite directions, if one account receives a benefit there should be another account to
impart the benefit.

The principle of double entry is based on the fact that there can be no giving without
receiving nor can be receiving without some one giving. The receiving aspect is known as
‘Debit’ and is entered on the debit side of the account. The giving aspect is known as ‘Credit’
and is entered on the credit side of the account. The principle under which both debit and credit
aspects are recorded is known as the principle of double entry. Every debit must have a
corresponding credit and vice versa. Double entry is the only scientific system of maintaining
books of accounts.
Advantages :

1. It provides a complete record of business transactions, as it records both the aspect of


every transaction
2. It is possible to prepare trail balance and check the arithmetical accuracy of books of
accounts.
3. A trader can know his debtors and creditors from time to time.
4. A trader can find out his financial position by preparing a balance sheet on a particular
date.
5. Double entry system helps to find out and prevent errors and frauds.

4. Discuss accounting concepts ?


A. Meaning of Accounting Concepts : Accounting is a system evolved to achieve a set of
objectives. In order to achieve the goals, we need a set of rules or guidelines. These guidelines
are termed here as basic accounting concepts. The term ‘concept’ means an idea or though.
Basic accounting concepts are the fundamental ideas or basic assumptions underlying the theory
and practice of financial accounting.
1. Business entity concept : Business is treated separate from the proprietor. All the
transactions are recorded in the books of business and not in the books of the proprietor. The
proprietor is also treated as a creditor for the business. When he contributes capital he is treated
as a person who has invested his amount in the business. Therefore, capital appears in the
liabilities of balance sheet of the business.
2. Going concern concept : This concept relates with the long life of the business. The
assumption is that business will continue to exist for unlimited period unless it is dissolved due
to some reason or the other.
3. Cost Concept : According to this concept, an asset is recorded at its cost in the books of
account, i.e., the price which is paid at the time of acquiring it.
4. Accounting period concept : Every businessman wants to know the result of his
investment and efforts after a certain period. Usually one year period is regarded as an ideal
for this purpose.
5. Dual aspect concept : Under this concept, every transaction has got a two fold aspect
(i) receiving benefit and (ii) giving of that benefit. Therefore two accounts are to be passed in
the books of accounts.

6. What are the classes of accounts ? Briefly explain ?

A. An account is a statement in the ledger which records the transactions relevant to the
persons, asset, expense or profit named in the heading. Accounts can be divided into
1. Personal Accounts 2) Impersonal Accounts

Impersonal accounts can be further divided into real and nominal accounts. Thus, there
are three kinds of accounts maintained by business.
1. personal accounts 2) real accounts 3) nominal accounts
1. Personal Accounts : Accounts of persons with whom the business deals are known as
personal accounts. The word persons is used in a special sense here. It indicates individuals,
partnerships, companies etc.
Debit : The receiver
Credit : The Giver
2. Real Accounts : Accounts in which the business records the real things owned by it i.e.
the assets of the business are known as real accounts.
Example : Buildings A/c, Machinery A/c., Furniture A/c, Cash A/c., etc.
Debit : What comes into business
Credit : What goes out of the business
3. Nominal Accounts : Accounts which record expenses, losses, incomes and gains of the
business are known as Nominal Accounts.
Example : Rent A/c., Salaries A/c., Postage A/c. Commission received, interest received A/c.,
bad debts etc.
Debit : All expenses and losses
Credit : All incomes and gains

IMPORTANT ESSAY QUESTIONS IMPORTANT SHORT NOTE QUESTIONS :


(10 MARKS) : (5 Marks)
1. Define Sole Trading Business? Write 1. Define Industry? Explain different types of Industries
its Merits and Demerits? with examples?
2. Write the differences between Private 2. Define Trade? Explain different types of Trade?
Limited Company and Public Limited
Company? 3. Explain the advantages of Joint Hindu Family
business?
3. W h a t i s m e a n t b y M e m o r a n d u m o f
4. Write the Principles (Features) of Co-operative
Association? Write the clauses?
Society?
4. Discuss the merits and demerits of
5. Explain various types of Partners?
Company Organisation?
6. What is meant by Partnership Deed? Write its
5. Define Partnership Business? Write its
contents?
Merits and Demerits?
7. Define MNC? Write its characteristic features?
6. What is Debenture? Explain different
types of debentures? 8. Explain the demerits of Public Sector undertakings?
(or) Private Sector. (Problem)
7. Wr i t e d i ff e r e n t t y p e s o f b u s i n e s s
finance? 9. Explain the Merits of Public Sector undertakings?

8. W h a t i s p r e f e r e n c e s h a r e ? E x p l a i n 10. Explain the need of Private Sector in India?


different types of preference shares? 11. Explain the merits of Preference Shares?

For more important Questions & Answers in Part-II Accounts visit

K. RAMESH
Head of Dept. of Commerce
Royal Educational Institutions
Hyderabad