1 Pu Accountancy Theory Notes-2

SHANTHI SSK Pre-University College, Pavagada
ACCOUNTANCY
CHAPTER-1: INTRODUCTION TO ACCOUNTING
SECTION-A
I. FILL IN THE BLANKS: (answers are in Bold letters) (1 Mark each)
1. SUMMA is the first book on double entry book keeping.
2. Luca Pacioli has written a book called ‘SUMMA’ in 1494.
3. The term ‘Debit’ comes from the Italian word debito.
4. The term ‘Debito’ comes from the Latin words Debita & Debeo.
5. The term ‘Credit’ comes from the Italian word Credito.
6. The term ‘Credito’ comes from the Latin word Credo.
7. Koutilya, a minister in Chandragupta’s Kingdom wrote a book on economics named Arthashastra.
8. Business Organization involves Economic events.
9. Information in financial reports is based on Economic transactions.
10. Determining the transactions to be recorded is Identification.
11. Quantification of business transactions in to financial terms using monetary unit is called
Measurement.
12. Recording is made in a Chronological order.
13. Identified & measured economic events should be recorded in Chronological order.
14. Accounting is the language of Business.
15. Management are the internal users of accounting information of organization.
16. Internal users of accounting information are the Management of the business entity.
17. External users are groups outside the business entity, who use the information to make decisions
about the business entity.
18. Accounting begins with the identification of transaction & ends with the preparation of Financial
statements.
19. Lender (Bank) would most likely use an entity’s financial report to determine whether or not the
business entity is eligible for a loan.
20. Information is said to be relevant if it is Available in time & help in prediction.
21. Sub-disciplines within the accounting are: financial accounting, Cost accounting and Management
accounting.
22. Accounting measures the business transaction in terms of Monetary units.
II. Multiple Choice Questions: (answers are in Bold letters) (1Mark each)
1. Which of the following is not a business transaction?

a) Bought furniture of ₹ 10,000 for business
b) Paid salary of employees ₹ 5,000
c) Paid son’s college fees from her personal bank account ₹ 20,000
d) Paid son’s college fee from the business ₹ 20,000
Ans: c) Paid son’s college fees from her personal bank account ₹ 20,000
2. Deepti wants to buy a building for her business. Which of the following is the relevant data for
her decision?
a) Similar business acquired the required building in 2000 for ₹ 10,00,000
b) Building cost details of 2003
c) Building cost details of 1998
d) Similar building cost in August 2005 ₹ 25,00,000
Ans: d) Similar building cost in August 2005 ₹ 25,00,000
3. Which is the last step of accounting as a process of information?
a) Recording of data in the books of accounts.
b) Presentation of summaries in the form of financial statements.
c) Communication of information.
d) Analysis and interpretation of information.
Ans: c) Communication of information.
4. Which qualitative characteristics of accounting information is reflected when accounting
information is clearly presented?
a) Understandability b) Relevance c) Comparability d) Reliability
Ans: a) Understandability
5. Use of common unit of measurement and common format of reporting promotes
a) Comparability b) Understandability c) Relevance d)
Reliability
Ans: a) Comparability
6. Management accounting
a) Is a clerical work
b) Is accounting for future
c) Is a recording technique of management related transactions
d) Is an analysis of the past business activities
Ans: b) Is accounting for future
7. Which of the following shows the financial position of the business?
a) Profit and loss account
b) Total Debtors account
c) Balance sheet
d) Funds flow statement
Ans: c) Balance sheet
8. Which of the following is not a sub-field of the business?
a) Management accounting
b) Cost accounting
c) Social responsible accounting
d) None of these
Ans: c) Socially responsible accounting
9. Functions of accounting include
a) Keeping systematic record
b) Protecting properties of business
c) Ascertain the profit and loss

d) All of these
Ans: d) All of these
10. Accounting records transactions in terms of
a) Selling units b) Monetary units c) Production units d) None of the above
Ans: b) Monetary units
11. Accounting is basically concerned with
a) Forecasting b) Measurement c) Management d) None of the above
Ans: b) Measurement
12. It is the Language of business
a) Accounting b) Financial statements c) Accounting assumption d) Book keeping
Ans: a) Accounting
13. Financial statements are a part of
a) Accounting b) Book-keeping c) Both d) None of these
Ans: a) Accounting
14. Financial statement users include
a) Shareholders b) Government c) Vendors d) All of the above
Ans: d) All of the above
15. All of the following are functions of accounting, except
a) Decision making b) Measurement c) Forecasting d) Ledger posting
Ans: a) Decision making
16. Financial statements do not consider
a) Assets expressed in monetary terms
b) Liabilities expressed in monetary terms
c) Only Assets expressed in non-monetary terms
d) Assets and Liabilities expressed in monetary terms
Ans: c) Only Assets expressed in non-monetary terms
17. Which of the following is not an objective of accounting?
a) To provide information about assets, liabilities and capital of the business
b) To provide information about the personal assets and liabilities of the owner
c) To maintain records of business transactions
d) To provide information about the performance of an enterprise.
Ans: b) To provide information about the personal assets and liabilities of the owner
III. State whether the following statements are True or False: (1 Mark each)
1. Accounting is the process of recording and classifying business (financial) transactions. [True]
2. Qualitative characteristics are the attributes of accounting information which tend to enhance its
understandability and usefulness. [True]
3. Are liable information should be free from error or bias. [True]
4. Profit represents excess of revenue over expenses. [True]
5. The owners of business are keen to have an idea about the net results of their business operations
periodically. [True]
6. Entity is reality that has a definite individual existence. [True]
7. Current assets are assets held on long-term basis. [False]
8. Long-term liabilities are those that are usually payable before a period of one year. [False]
9. Discount is the deduction in the price of the goods sold. [True]
10. Voucher is not a documentary evidence of a transaction. [False]
11. Drawings increase the investment of the owners. [False]
12. Accounting is a language of business. [True]
13. Financial accounting is one of the branches of accounting. [True]
14. Appointment of manager is a business enterprise is a business transaction to be entered in the
books of accounts. [False]
15. ‘Computer’ is an example of Current Asset. [False]
16. ‘Land’ is an example of fixed Asset. [True]
17. ‘Cash Memo’ is an example of voucher. [True]
18. Amount invested by the owner in a business is called drawings. [False]
19. The persons who owe money to the business are called creditors. [False]
20. The persons to whom the business owes money are called creditors. [True]
21. Trade discount should be recorded in the books of accounts. [False]
22. Cash discount should be recorded in the books of accounts. [True]
23. Accounting records only those transactions and events which are of financial character. [True]
24. Capital is increased by profit and decreased by losses. [True]
25. Drawings reduces capital. [True]
26. Capital means assets minus external liabilities. [True]
IV. Answer the following questions, each question carries ONE mark:
(1 Mark each)
1. What is Entity?
Ans: Entity means a reality (i.e., a thing or a person) having a definite individual existence. Business
entity means a specifically identifiable business enterprise like Big bazaar, ITC Limited etc...
2. State two types of transactions.
Ans: 1) Cash transaction
2) Credit transaction
3. What is capital?
Ans: Capital is the amount invested by the owner in the business (or) Capital = Assets – Liabilities
4. Give the meaning of voucher?
Ans: The documentary evidence in support of a transaction is known as voucher. E.g. Cash memo,
receipt, etc...
5. Give an example of voucher.
Ans: 1) Cash memo
2) Invoice
3) Receipt
6. Who are Debtors?

Ans: Debtors are persons or other entities who owe money to the business for buying goods and
services on Credit. Debtors are asset to the business.
7. Who are Creditors?
Ans: Creditors are the persons or other entities to whom the business owes money for providing the
goods or services on credit. Creditors are liabilities to the business.
SECTION-B
I. Answer the following questions, each question carries TWO mark:

(2 Marks each)
1. What is Transaction?
Ans: A transaction means an event, or dealing involving the exchange of money or money’s worth
between the persons (or business firms).
E.g.: a) Purchase of goods for ₹.10,000 b) Salary paid to salesman ₹.4,000
2. What are credit transactions? Give an example.
Ans: Credit transactions are those transaction in which receipt or payment of cash is Post-paid to a
future date.
E.g.: goods purchased from Mr. Anand on credit for ₹.1000.
3. What are cash transactions? Given an example.
Ans: Cash transaction is a transaction which involves immediate receipt and payment of cash.
E.g.: Goods sold for cash ₹.1000.
4. What are Assets?
Ans: Assets are economic resources of an enterprise. They are used by the business in the operation.
Assets include:
5. State any two types of assets.
Ans: 1) Fixed Assets E.g. Machinery.
2) Current Assets E.g. Cash.
6. What are Fixed Assets?
Ans: Fixed assets are assets held on a long-term basis. These assets are used for normal operations of
the business.
E.g. Land, Building, Machinery, Furniture etc...
7. What are current assets?
Ans: Current assets are assets held on a short-term basis.
E.g. Debtors, bills receivable, stock, cash etc...
8. What are Liabilities?
Ans: Liabilities are obligations or debts that on enterprise has to pay. In other words, liabilities are
the amounts due from a business to considers.
E.g. Creditors, Bank loan
9. What are long term liabilities?
Ans: Long term liabilities are those that are usually payable after a period of one year.
E.g. Long-term loan, Debentures.

10. What are short term liabilities?
Ans: Short term liabilities are obligations that are payable within a period of one year.
E.g. Creditors, bills payable, bank overdraft.
11. State any two examples of short-term liabilities.
Ans: 1) Creditors
2) Bills payable
3) Bank overdraft
12. What are goods?
Ans: Goods refer to the products in which a trader deals.
E.g. for a stationary merchant, stationary articles like books, pens, pencils, ink, paper etc. are his
goods.
13. What are drawings?
Ans: Drawings refer to cash, goods or other assets withdrawn (i.e., taken away) by the owner from
business for personal use.
14. Give the meaning of stock.
Ans: Stock (or inventory) means the value of unsold goods or unused materials in a concern at any
particular point of time.
The value of stock at the end of the year is called closing stock. The value of stock in the beginning
of the year is called opening stock.
*********************
Chapter-02: Theory Base of Accounting

SECTION-A
I. Fill in the blanks: [answers are in Bold letters] [1 mark each]
1. In order to maintain uniformity and consistency in Accounting records, certain Rules or Principles
have been developed which are generally accepted by the Accounting profession.
2. The accounting records are made in the books of accounts from the point of view of the Business
unit and out that of the owner.
3. According to Business entity Concept, the business and its owners are to be treated as two
separate entities.
4. When owner brings capital into the business, it is entered in the books of the business. This is
based on Business entity Concept.
5. The concept of money measurement states that the records of the transactions are to be k ept not
in the Physical units but in the monetary unit.
6. According to money measurement concept, only Monetary transactions are entered in the books
of accounts.
7. The concept of going concern assumes that a business firm would continue to carry out its
Operations.
8. Accounting Period concept refers to the span of time at the end of which the financial statements
of enterprise are prepared.
9. According to Accounting period concept, income statement and balance sheet are to be prepared
annually.
10. The Companies Act, 1956 (now, Companies Act, 2013) and the income Tax Act require that the
income statements should be prepared annually.
11. The cost concept requires that all assets are recorded in the books of accounts at their Purchase
(or cost) Price.
12. An asset acquired by a concern is recorded in the books of accounts at cost or purchase price. It is
based on Cost concept.
13. Adoption of historical cost brings in Objectivity in recording as the cost of acquisition is easily
verifiable from the purchase documents.
14. Assets = Liabilities + Capital.
15. Accounting equation states that the Assets of a business are always equal to the claims of owners
and the outsiders.
16. Double entry system of accounting is based on Dual Aspect concept.
17. The concept of revenue recognition requires that the revenue for a business transaction should
be included on the accounting records only when it is Realised
18. Revenue is generally recognised at the point of sale denotes the concept of Revenue recognition.
19. Matching concept states that expenses incurred is an accounting period should be matched with
Revenues during that period.
20. Recognition of expenses in the same period along with related revenues is called Matching
concept.
21. Full disclosure concept requires that all material and relevant facts of an enterprise must be fully
and completely disclosed in the financial statements.
22. The comparison between the financial results of two enterprises would be meaningful only if
same kind of Accounting methods and policies are adopted in the preparation of financial
statements.
23. The principle of Consistency requires that same accounting method should be used from one
accounting period to next accounting period.
24. The concept of conservation requires that profits should not be recorded until Realised.
25. Under the convention of conservation, profits are not anticipated and all Losses are provided for.
26. The receipt for the amount paid for purchase of machinery becomes the documentary Evidence
for the cost of machine.
27. Double entry system is a Complete system as both the aspects of transactions are recorded in the
books of accounts.
28. Single entry system is not a complete system of maintaining records of financial transactions.
29. Under the Cash basis entries in the books of accounts are made when cash is received or paid and
not when the receipt or payment becomes due.
30. The regularity body for Standardization of accounting policies in the country is The Institute of
Charted Accountants of India (ICAI).
II. Multiple Choice Questions: [answers are in Bold letters] [1 mark each]
1. According to which concept the owner of the business is considered creditor of the business:
a) Money measurement concept
b) Dual Aspect concept
c) Separate entity concept ●
d) Going concern concept
2. According to money measurement concept, which one of the following will be recorded in
the books of accounts:
a) Excellent quality of workers
b) Quality of products
c) Managing ability of manager
d) Cost of machinery ●
3. According to money measurement concept:
a) The transactions which cannot be measured in terms of money are to be recorded.
b) Only those transactions which can be measured in terms of money are to be recorded.
c) Proper record of both a& b above is maintained.
d) None of the above transactions are recorded.
4. A concept that a business enterprise will not be sold or liquidated in the near future is known
as
a) Going concern concept ●
b) Business entity concept
c) Accounting period concept
d) None of the above
5. According to the Going concern concept the time period of Business is,
a) For certain life time
b) For un-certain life time ●
c) Going to wind-up shortly
6. Accounts are regularly made after a fixed period usually a year, this concept is based on,
a) Accounting Period ●
b) Dual Aspect
c) Cost
d) Business Entity
7. Assets acquired are recorded in the books,
a) At historical cost ●
b) At market value
c) Both (a) & (b)
8. Accounting equation is based on
a) Cost concept
b) Separate entity concept
c) Dual aspect concept ●
d) Accrual concept
9. Every transaction has a dual or two-fold effect and should be recorded in two places. This is
according to:
a) Matching concept
b) Dual aspect concept ●
c) Cost concept
d) Accounting period concept
10. Revenue is generally recognized being earned at the point of time when
a) Sale is affected ●
b) Cash is received
c) Production is completed
d) Goods are delivered
11. The policy of “anticipate no profit but provide for all possible losses” arises due to the
principle of
a) Consistency b) Disclosure c) Matching d) Conservation ●
12. Stock is valued at cost or market price whichever is lower’. This is in accordance with the
accounting principle of:
a) Consistency b) Disclosure c) Conservation ● d) Materiality
13. According to principle of conservation, stock is valued at
a) Cost price
b) Market price
c) Cost price or market price whichever is higher
d) Cost price or market price whichever is lower ●
14. Provision for bad & doubtful debts is created in anticipation of actual bad debts on the basis
of,
a) Business entity concept
b) Conservation concept
c) Accrual concept
d) Full disclosure concept
15. Contingent liability appears as a font note in the balance sheet. This is in accordance with
accounting principle
a) Consistency
b) Disclosure ●
c) Conservation
d) Materiality
16. The basis of accounting in which revenue and expenses are recognized on period in which
they are earned or incurred and not when money is received or paid,
a) Cash basis b) Accrual basis ● c) Mixed basis d) All of the above
17. By the misuse of which convention ‘Secret Reserve’ is created.
a) Conservation
b) Materiality
c) Consistency
d) Full Disclosure ●
18. Insignificant events are not recorded in the books of accounts due to
a) Materiality concept ●
b) Accrual concept
c) Conservation concept
d) Money measurement concept
19. Depreciation is charged on fixed assets due to this concept:
a) Full disclosure concept
b) Materiality concept
c) Conservation concept
d) None of the above ●
20. According to which concept all expenses are matched with the revenue of the period:
a) Realization concept
b) Money measurement concept
c) Matching concept ●
d) Business entity concept
21. AS-2 Explains
a) Valuation of inventories ●
b) Earnings per share
c) Cash flow statements
22. AS-40 Explains
a) Investment property ●
b) Revenue recognition
c) Depreciation accounting
23. IFRS refers to,
a) Indian Financial reporting standards
b) International financial record system
c) International financial reporting standards ●
24. ICAI constituted an Accounting Standards Board (ASB) in,
a) April 1977 ● b) May 1977 c) April 1972 d) None of the above
III. State whether the following statements are True or False: [1 mark each]
1. A business is a separate entity from its owners for the purpose of accounting. [True]
2. Entity concept of accounting is not applicable to sole trading concerns and partnership concerns.
[False]
3. Dual aspect concept results in the accounting equation. Assets = Capital + Liabilities. [True]
4. The principle of conservation has usually the effect of overstating losses and understanding the
income. [True]
5. The principle of consistency is particularly valuable when alternative accounting method is
equally acceptable. [True]
6. In accounting, all business transactions are recorded on the principle of dual aspect. [True]
7. A business is accounted for as an entity, separate and distinct from its owners. [True]
8. In accordance with going concern concept, a business will continue up to a certain (i.e., limited)
period. [False]
9. According to dual aspect concept there are two aspects in each transaction. [True]
10. According to objective evidence concept, there is no need of vouchers for checking transactions.
[False]
11. According to cost concept, fixed assets are shown after deducting depreciation from the
purchase price. [True]
12. Accounting standards are not creating uniformity in accounting system. [False]
13. Accounting standard board was constituted in April 1977. [True]
14. Basis of Accounting are cash and credit. [False]
15. AS-33 explains earning per share. [True]
16. AS-38 explains Investment property. [False]
17. Accounting period must contain 10 months. [False]
[1 mark each]
IV. Answer the following questions, each question carries ONE mark:
1. State any one basic accounting concept.
Ans: Business entity concept
2. State the basic accounting equation?
Ans: Assets = Liabilities + Capital.
3. State any one system of accounting.
Ans: Double entry system.

4. Expand GAAP.
Ans: Generally Accepted Accounting Principles.
5. Expand ICAI.
Ans: Institute of Chartered Accountants of India.
6. Expand ASB.
Ans: Accounting Standards Board.
7. Expand IFRS.
Ans: International Financial Reporting Standards.
8. State any one benefit of convergence of IAS with IFRS.
Ans: (1) Easy access to global capital markets. (2) True and fair calculation.
9. State one basis of accounting.
Ans: Cash basis
V. Answer the following questions, each question carries TWO marks:

1. State any two accounting concepts.
Ans: (a) Business Entity concept
(b) Money measurement concept
(c) Going concern concept
(d) Matching concept
2. Why it is necessary for accountants to assume that business entity will remain a going concern?
Ans: It is necessary for accountants to assume that business entity will remain going concern
because it provides the very basis for showing the value of assets in the balance sheet.
Further, business has neither the intention nor the necessary to wind up the concern in the
near future.
3. When should revenue be recognised? Are there exceptions to the general rule?
Ans: Revenue should be recognized only when it is realized. Revenue is considered to be realized
when a legal right to receive it arises, i.e., the point of time when goods have been sold or
services have been rendered.
Example: a) Contracts like construction work.
b) Goods sold on hire purchase basis.
4. What is money measurement concept?
Ans: Money measurement concept means only those transactions which can be expressed in
terms of money (i.e. monetary transactions) such as sale of goods for cash, payment of salary,
etc. Are to be recorded in the books of accounts.
5. What is matching concept?
Ans: Matching concept means, to measure the profit or loss of the business for an accounting
period, all the expenses incurred in an accounting period should be matched with (i.e.
deducted from) the revenues (Incomes) earned during that accounting period.
6. State the systems of accounting.
Ans: a) Double entry system b) Single entry system.
7. What is double entry system?
Ans: The system of recording 2 aspects (i.e. debit & credit) of every transaction in the books of
accounts are known as double entry system.
8. What is theory base of accounting?
Ans: The theory base of accounting consists of principles, concepts, rules and guidelines
developed over a period of time to bring uniformity and consistency to the process of
accounting and enhance in utility to different to different users of accounting information.
9. What is the need for theory base of accounting?
Ans: Theory base of accounting or accounting principles, rules and guidelines are required (i.e.,
needed) to make the accounting information reliable as well as comparable, so that it
becomes useful to its users.
10. Give the meaning of generally accepted accounting principles?
Ans: Generally accepted accounting principles refers to the rules or guidelines adopted for
recording and reporting of business transactions. The purpose is to bring uniformity in the
preparation and the presentation of financial statements.
11. Give the meaning of accounting concepts.
Ans: Accounting concepts refers to the necessary assumptions and ideas which are fundamental
to accounting practice.
12. State any two accounting standards, issued by the Institute of chartered Accountants of India.
Ans: (a) AS-3. Cash flow statement
(b) AS-6. Depreciation accounting
(c) AS-10. Accounting for fixed assets
13. State any two accounting standards, issued by the international accounting standards
committee.
Ans: (a) IAS-1. Presentation of financial statements.
(b) IAS-2. Inventories.
(c) IAS-7. Cash flow statement.
13. State two basis of accounting.
Ans: (a) Cash basis: Entries are made when cash is received or paid.
(b) Accrual basis: Revenues or costs are recognized when they occur (Accrue).
*********************
Chapter-3: RECORDING OF TRANSCATION - 1

Section-A (1 mark)
I. Fill in the blanks: {NOTE: The answers are in bold letters.}
1. Business transactions are exchange of economic consideration between parties.
2. Business transactions have two-fold effects.
3. Business transactions are usually evidenced by appropriate Documents.
4. A document which provides the evidence of the transaction is called the Source document or a
voucher.
5. Voucher is a document which provides Evidence of financial transaction.
6. All recordings in the books of account is done on the basis of Vouchers.
7. Vouchers must be preserved in any case till the Audit of the accounts.
8. A transaction with one debit and credit is a Simple transaction.
9. Transactions with multiple debit and multiple credits are called Complex transactions.
10. Voucher which records a transaction that entails multiple debits\credits and one credit\debit is
called Compound voucher.
11. Accounting equation signifies that the assets of a business are always equal to the total of its liability
and Capital.
12. Accounting equation is also called Balance sheet equation.
13. Assets = liabilities + Capital
14. The balance sheet is a statement of Assets, liability and capital.
15. The proprietors and outsiders provide the Resources of the business.
16. Accounting equation is always remaining Equal.
17. Every transaction involves Two aspects.
18. Every debit must have a corresponding Credit.
19. Increase in an asset is Debit.
20. Decrease in an asset is Credit.
21. Increase in expenses is Debit.
22. Decrease in expenses is Credit.
23. Increase in liability is Credit.
24. Decrease in the liability is Debit.
25. Increase in capital is Credit.
26. Decrease in capital is debit.
27. Increase in revenue is Credit.
28. Decrease in revenue is debit.
29. The book in which the transaction is recorded for the first time is called Journal.
30. The process of recording the transaction in the journal is called Journalizing.
31. Journal is a book of Original entry.
32. In journal, transactions are recorded in the Chronological order.
33. A brief description of the transaction is called Narration.
34. When only two accounts are involved to record a transaction, it is called a Simple journal entry.
35. When the number and accounts to be debited or credited is more than one in a transaction, it is
called as Compound journal entry.
36. The goods account is divided into Five accounts.
37. Ledger is the principle book of Accounting system.
38. Ledger contains different Accounts.
39. An account looks like a letter "T".
40. The process of transferring journal entry to individual account is called Posting.
41. L.F is filled up at the time of Posting.
42. All ledger accounts are put into Five categories.
43. All permanent accounts appear in the Balance sheet.
44. All accounts are divided into Five categories for the purpose of recording the transaction.
45. All assets, liabilities and capital accounts are Permanent account.
46. All revenue and expenses are Temporary accounts.
47. Posting from the journal is done Periodically.
48. Issued a cheque for Rs. 10,000 to pay rent. The account is to be debited is Rent A/C.
49. Purchased office stationery for Rs. 5,000 the account to be created is Cash a/c.
50. Purchase new machine for Rs. 1,00,000 and issued cheque for the same. the account to be debited
is machinery a/c.
51. Issued a cheque for Rs. 8,000 to pay rent. the account is to be debited is Rent a/c
52. Collected Rs. 35,000 from debtors. the account to be credited is Debtors a/c.
53. Purchased office stationery for Rs. 5,000. The account is to be credited is Cash a/c.
II. Choose the correct answer:

1. Voucher is prepared for
a) Cash received and paid
b) Cash /credit sales.
c) Cash/credit purchase
d) all of the above.
2. Voucher is prepared from.
a) Documentary evidence.
b) Journal entry.
c) Ledger account
d) All of the above.
3. Which one of the examples is not a Voucher?
(a) Cash memo (b) Invoice. (c) Salary slip. (d) Salary account.
4. Out of the following equation which is correct.
(a) C=A+L (b) C=A-L (c) C=A+L (d) C=L-A
5. Which of the following is correct?
(a) L=A+C (b) A=L-C (c) C=A-L (d) C=A+L
6. Debit signifies.
(a) Increase in asset account (b) Decrease in liability. (c) Increase in expenses account.
(d) All of the above.
7. Find the correct statement.
(a) Credit increases in the asset. (b) Credit increases in expenses.
(c) Debit increases in revenue/income (d) credit increases in capital.
8. What is the nature of drawing goods?
(a)Income (b) expenses
(c) Introduction of capital (d) withdrawal of capital.
9. The ledger folio column of journal is used to.
(a) Record the data on which amount is posted to a ledger a/c.
(b) Record the number of ledger a/c to which information is posted.
(c) Record the number of amounts posted to the ledger a/c.
(d) Record the page number of the ledger a/c.
10. When an entry is made in journal.
(a) Assets are listed first. (b) Accounts to be debited listed first.
(c) Accounts to be credited listed first. (d) Accounts may be listed in any order.
11. Record the Transaction in the ledger is called as:
(a) Casting. (b) Posting. (c) Journalizing. (d) Recording.
12. Journal records the transaction of the firm in an
(a) Analytical manner (b) Chronological order
(c) Periodical manner. (d) Summarized manner.
13. If a transaction is properly analysed and recorded.
(a) Only 2 accounts are used to record the transaction.
(b) One account will be used to record the transaction.
(c) One account balance will increase and another will decrease.
(d) Total amount debited will equals total amount created.
14. Journal entry to record salaries paid will include:
(a) Debit salary credit cash (b) debit capital credit cash.
(c) Debit cash credit salary. (d) Debit salary credit creditors.
15. Goods worth Rs. 21,000 distributed as free sample. the account to be credited is
(a) Purchase a/c (b) sales a/c (c) free sample a/c (d) P & L a/c
16. Income tax worth Rs. 5,000 of the proprietor paid by a firm, the a/c to be debited is.
(a) Income tax a/c. (b) bank a/c. (c) drawing a/c. (d) Expenses a/c.
17. Cash withdrawn by the proprietor should be credited to
(a) Drawings a/c. (b) Capital a/c. (c) P&L a/c. (d) Cash a/c.
18. Rent paid to landlord is credited to
(a) Rent a/c. (b) Landlord a/c. (c) Cash a/c. (d) None of the above.
19. A purchase of machine for cash should be debited to
(a) Cash a/c. (b) Machine a/c. (c) Purchase a/c. (d) None of the above.
20. How many sides does an account have?
(a) One. (b) Two. (c) Three. (d) None of the above.
21. The book in which all accounts are maintained is known as?
(a) Cash book. (b) Journal. (c) Purchase book. (d) Ledger.
22. Ledger book is popularly known as.
(a) Secondary book of accounts. (b) Principle book of accounts.
(c) Subsidiary book of account. (d) None of the above.
23. Ledger records the transaction in ........
(a) Chronological order. (b) Analytical order. (c) Both the above. (d) None.
24. Goods worth Rs. 50,000 were sold to Manoj @ 15% discount on credit. Manoj's a/c will be
debited.......
(a) By Rs. 7,500. (b) By Rs. 42,000. (c) By Rs. 50,000. (d) By Rs. 57,500.
III. State true or false:

1. Business transaction has two-fold affect. {True}
2. Voucher must be preserved till the audit of the accounts. {True}
3. Assets - liabilities = Capital. {True}
4. The balance sheet is the statement of Assets, liabilities and capital. {True}
5. All accounts are divided into five categories. {True}
6. 6. Increase in an asset is to be debited. {True}
7. Decrease in an asset is to be debited. {False}
8. Increase in liability is debited. {False}
9. Increase in income is credited. {True}
10. Increase in capital is created. {True}

11. All permanent accounts appear in the balance sheet. {True}
12. A brief description about the transaction is called narration. {True}
13. Journal is book of original entry. {True}
14. Journal is a book of secondary entry. {False}
15. One debit account and more than one credit account in an entry is called compound entry. {True}
16. L.F is filled up at the time of posting. {True}
17. The process of recording in the ledger is called posting. {True}
IV. Answer the following:
1. Give an example of a voucher?
Ans. *Cash memo. *Invoice.
2. Write the accounting equation?
Ans. Assets = liabilities + capital
3. Give the debit rule of asset?
Ans. Debit increases in assets.
4. Give the credit rule of asset?
Ans. Credit decreases in assets.
5. What is journalizing?
Ans. The process of recording the transaction in journal is called journalising.
6. Expand J.F?
Ans. Journal Folio.
Section – B
V. Answer the following: (2 marks)
1. Give the meaning of voucher?
Ans. Vouchers are the documents on the basis of which business transaction are recorded in the books
of accounts. (OR) Vouchers are the written documents which provide evidence for financial transaction.
2. Write the meaning of accounting equation?
Ans. Accounting equation states that the asset of a business is always equal to the total of its liabilities
and capital.
3. A trader has asset worth Rs. 1,00,000 and his liabilities are 60,000. find out its capital?
Ans. Capital = Assets - Liabilities
=1,00,000 - 60,000
therefore capital = 40,000
4. State the rules of debit and credit of asset a/c?
Ans. Debit increases in asset, credit decreases in asset.
5. State the rules of debit and credit of liability a/c?
Ans. Debit decreases in liability, credit increase in liability.
6. State the rules of debit and credit of capital a/c?
Ans. Debit decreases in capital, Credit increases in capital.
7. State the rules of debit and credit of Revenue or income a/c?
Ans. Debit decreases in revenue and income, Credit increases in revenue or incomes.
8. State the rules of debit and credit of expenses a/c?
Ans. Debit increases in expenses, credit decreases in expenses.
9. Give any two examples of asset?
Ans. Cash, Furniture, Machinery, Buildings.
10. Write any two examples of liabilities?

Ans. Bank loan, BOD, Creditors, bills payable.
11. Write any two examples of expenses?
Ans. Salary, purchases, rent paid, Interest paid.
12. Write any two examples of revenue / incomes?
Ans. Sales, Interest received, commission received.
13. Name any two special journals (subsidiary book)?
Ans. Cash book, purchase book, sales book, journal proper.
14. What is journal?
Ans. Journal is the basic book of original entry. In this book, transaction is first recorded in a
chronological order, as and when they are taking place.
15. Give the meaning of narration?
Ans. Narration is a brief description/explanation of the transaction, given below the journal entry.
16. State ay two features of journal?
Ans. ~* It is a book of original or first entry.
~* In the journal, transactions are recorded in the order of the date.
~* If contains both the debit and credit aspects of each transaction.
~* Each journal entry contains narration.
17. Give the journal entry for goods distributed for free samples.
Ans. Advertisement a/c ------------------ Dr. xxx ---
to purchase/goods a/c --- xxx
18. Give the meaning of ledger?
Ans. Ledger is the principle book of accounting system. It is a book where the different a/c are kept.
19. State any two features of a ledger?
Ans. ~It is book of final entry.
~It is the principle book of account.
~In ledger, transactions are recorded in a classified form.
20. State any two difference between journal and ledger?
Ans. (a) journal is the book of first entry 9original entry), but Ledger is the book of second entry.
(b) Journal is the book of chronological order, but ledger is the book of analytical order.
(c) Process of recording in the journal is journalizing, but the process of recording in the ledger is
known as posting.
21. What is posting?
Ans. Posting is the process of transferring entry from the book of journal to ledger.
22. What is balancing of a ledger account?
Ans. Balancing is the process of finding out the difference between the total of the debit side and the
credit side of an account.
23. What is debit balance?
Ans. If the debit side total of an account is greater than the credit side total, the resulting balance is
called debit balance.
24. What is credit balance?
Ans. If the credit side total of an account is greater than the debit side total, the resulting balance is
called credit balance.
25. Should a transaction be first recorded in the journal or a ledger? why?
Ans. A transaction should be first recorded in the journal. Because in journal both the debit and credit
aspects of transactions are recorded in one place chronologically.
*******************
Chapter-4: RECORDING OF TRANSCATION - 2nd

Section - A (1 - mark)
I. Fill in the blanks:

1. In journal proper, only Cash discount is recorded.
2. Returns of goods purchased in credit to the supplies will entered in Purchase return journal.
3. Assets sold for credit are entered in journal proper.
4. In purchase book, goods purchased on credit are recorded.
5. Inward invoice is the basis for recording purchase book.
6. Debit note is the basis for recording Purchase return.
7. Outward invoice is the basis for Sales book.
8. Credit note is the basis for recording sales return book.
9. Adjusting entries are recorded in Journal proper.
10. Cash book is a subsidiary journal (book).
11. Cash book does not record credit transaction.
12. While making entries in cash book the rule of Asset account is followed.
13. Cash book is a journal as well as ledger.
14. Cash book is a journal and as well as a ledger for Cash account.
15. Fixed assets purchased for cash are recorded in Cash book.
16. Total of the debit side of cash book is more than the credit side.
17. Double column cash book records transaction relating to Cash and Bank.
18. In double column cash book Bank transaction are also recorded.
19. Credit column shown by a bank in cash book is over draft.
20. Cash book maintained to record small expenses is called Petty cash book.
21. Petty cash book is also known as subsidiary cash book.
22. The amount paid to the petty cashier in the beginning of a period is known as Imprest.

1. Purchase book is maintained to record.
(a) Purchase of goods. (b) All cash purchases.
(c) All credit purchases. (d) All credit purchase of goods.
2. Goods purchased on cash are recorded in.
(a) Purchase book. (b) Sales book. (c) Cash book. (d) purchase return book.
3. Total of these transactions are recorded in purchase a/c.
(a) Purchase of furniture. (b) Cash and credit purchase.
(c) Purchases returns. (d) Purchase of stationary.
4. Sales book is maintained to record.
(a) Credit sales of good only. (b) Cash sales of goods only.
(c) All credit sales. (d) None of the above.
5. The periodical total of sales return journal is posted in.
(a) Sales a/c (b) Goods a/c (c) purchase returns a/c. (d) Sales return a/c.
6. Return inwards book records.
(a) Return of goods from factory to the godown. (b) Return of goods from show-room to godown.
(c) Return of goods from the customers. (d) Return of goods from the supplier.
7. Return outward book records.
(a) Goods returned to the supplier. (b) Goods returned to the stores.
(c) Goods returned to the customer. (d) Goods returned by the owner.
8. The periodical total of purchases returns journal is posted to.

(a) Purchases a/c. (b) P & L a/c. (c) Purchases return a/c. (d) Furniture a/c.
9. Balancing of accounts means, ascertaining:
(a) Total of debit side. (b) Total of credit side.
(c) Difference in total of debit and credit side. (d) None of these.
10. When a firm maintains a cash book, it need not maintain.
(a) Journal proper. (b) purchase book. (c) sales book. (d) Bank & cash a/c in ledger.
11. Double column cash book records.
(a) All transactions. (b) Cash and bank transaction.
(c) Only cash transaction. (d) Only credit transaction.
12. Goods purchased for cash are recorded in the.
(a) Purchase book. (b) sales book. (c) cash book. (d) purchase return book.
13. The balance on the debit side of the bank column in the cash book indicates.
(a) The total amount withdrawn from the bank. (c) Cash at bank.
(b) The total amount deposited into bank. (d) None of the above.
14. Cash book is a.
(a) Subsidiary journal. (b) Subsidiary journal and ledger account.
(c) Ledger account. (d) None of the above.
15. Cash book does not record the transaction of.
(a) Cash nature. (b) Credit nature. (c) Cash and credit nature. (d) None.
16. Credit balance of bank account in cash book shows.
(a) Overdraft. (b) Cash deposited in our bank.
(c) Cash withdrawn from the bank. (d) None of these.
17. Cash sales are recorded in.
(a) Sales book. (b) Cash book. (c) Journal. (d) None of the above.
18. Cash discount is provided on:
(a) Prompt payment. (b) Sale. (c) Purchase. (d) None of above.
19. The balance of petty cash book is.
(a) A liability. (b) An expense. (c) A gain. (d) An asset.
20. The term imprest system is used in relation to.
(a) Purchase book. (b) Sales book. (c) Cash book. (d) Petty cash book.
III. True or false:

1. Cash and credit purchases are recorded in purchase book. (False)
2. Credit purchase of machines are recorded in purchase journal. (False)
3. Purchase book records all purchase. (False)
4. Purchase book and purchase book are synonymous. (False)
5. Purchase of fixed asset on credit is recorded in journal proper. (True)
6. Sale book records are credit sales. (False)
7. Cash sales are entered in sales journal. (False)
8. Asset sold on credit are entered in sales journal. (False)
9. Trade discount are not recorded in books of accounts. (True)
10. Purchase and sale of fixed asset on cash are recorded in journal proper. (False)
11. Sales return book records return of fixed assets. (False)
12. Ledger is a subsidiary book. (False)

13. Balancing of an account means ascertaining the total of debit and credit side. (False)
14. Cash a/c is an asset (Real) a/c. (True)
15. Cash book is both a ledger a/c and subsidiary book. (True)
16. Cash book record transaction relating to receipts and payments. (True)
17. Cash received is entered in debit side of the cash book. (True)
18. Transaction recorded in both on debit and credit side of cash book is known as contra entry.
(True)
19. A contra entry appears in both sides of a cash book. (True)
20. A contra entry is one which does not require posting to ledger. (True)
21. Cash sales are entered in sales book. (False)
22. Bank column of the cash book always shows debit balance. (False)
23. Petty cash book is a book having records of big payment. (False)

1. Write any one feature of subsidiary book?
Ans. Subsidiary book are special journals where the transactions are recorded first.
2. Name any one type of subsidiary book?
Ans. *Purchase book *Sales book.
3. What type of transactions are recorded in purchase book?
Ans. All credit purchase of goods.
4. What type of transactions are recorded in sales book?
Ans. All credit sales of goods.
5. Name any one transaction recorded in the purchase return book?
Ans. Return damaged goods to Kiran.
6. Name any one transaction recorded in sales return book?
Ans. Mohan returned damaged goods to us.
7. Name the document used for recording in the purchase return book?
Ans. Debit note.
8. Name the document used for recording in the sales return book?
Ans. Credit note.
9. Name any one type of transaction recorded in journal proper?
Ans. Adjusting entry.
10. What do you mean by discount?
Ans. Discount is the deduction from the price of the goods sold.
11. State any one type of discount?
Ans. (1) Trade discount. (2) Cash discount.
12. Mention any one feature of cash book?
Ans. Cash receipts are entered in the debit side of the cash book.
13. Name any one type of cash book?
Ans. (1) single column cash book. (2) Double column cash book.
14. State any one type of petty cash book?
Ans. Analytical/columnar petty cash book. (2) Simple petty cash book.
15. State any one use of petty cash book?
Ans. It saves time and effort of chief cashier.
16. What is cash book?
Ans. Cash book is a subsidiary book in which all cash receipts and cash payments are recorded.
17. State how the cash book is both journal and a ledger?
Ans. Cash book is journal because all cash transaction is recorded only in the cash book as not in the
journal. It is ledger because it gives cash a/c and bank a/c balance.
18. What are contra entries?
Ans. Entries made on both the debit and credit side of double column cash book to record a single
transaction is called contra entry.
For example: (1) Cash deposited into bank. (2) cash withdrawn from the bank.
19. What is petty cash book?

Ans. Petty cash book is a subsidiary cash book which is used to record the petty or small expenses such
as printing, postage, telephone charges etc.
20. What do u understand by imprest amount in petty cash book?
Ans. Imprest amount is a definite sum, say 2,000 given by cashier to petty cashier in the beginning of a
certain period. Petty cashier makes payment out of this imprest amount. He gets reimbursement of
the amount spent after a certain period.
(Section- B) (2 Marks)
V. Answer the following questions:
1. State any two advantages of a petty cash book?
Ans. (1) It saves time and effort of chief cashier.
(2) It helps to have effective control over cash disbursement.
2. Give the meaning of subsidiary book?
Ans. Subsidiary book are the special journals maintained for recording all the business transactions as
and when they take place.
3. Name any two-special journal? (subsidiary book)
Ans. (1) Cash book. (2) Purchase book.
2. What is journal proper?
Ans. A book maintained to record transactions, which do not find place in special journal (subsidiary
book) is known as journal proper.
3. Name any two types of transactions recorded in journal proper?
Ans. (1) Opening entry. (2) Adjusting entries. (3) Rectification entries.
(4) Purchase and sale of items other than goods on credit.
**********************************
Chapter – 5: BANK RECONCILIATION STATEMENT

Section -B (2 Marks)
I. Answer the following questions:

1. What is bank reconciliation statement?
Ans. Bank reconciliation statement is a statement which is prepared to reconcile (tally) the bank balance
as per cash book with bank balance as per pass book, by showing the items of difference between
the two balances.
2. State the need for the preparation of bank reconciliation statement? (or) Why is bank
reconciliation statement prepared?
Ans. The difference between bank balance as per cash book a bank balance as per pass book
necessitates the preparation of bank reconciliation statement. It shows the causes of difference
which is necessary to reconcile the two balances.
3. State any two reasons for the difference between bank balance as per cash book and bank
balance as per pass book?
Ans. 1) Cheques issued but not presented for payment.
2) Cheques paid into bank but not yet collected.
3) Bank charges not recorded in cash book.
4. State any two causes of difference between cash book balance and pass book balance
occurred due to time lag?
Ans. 1) Cheques issued but not presented.
2) Cheques paid into bank but not collected.
3) Bank charges not recorded in cash book.
5. Give any two examples for errors committed by the firm in cash book?
Ans. (1) Cheque issued to Mohan Rs. 5,000 was recorded as Rs. 8,000 in cash book.
(2) Cheque received from Mohan Rs. 3,900 deposited into bank was recorded in cash book as Rs.
9,300.
(3) The debit side of cash book was overcast by 1,000.
6. Give any two examples for the errors committed by the bank in pass book?
Ans. (1) Cheque deposited into bank for Rs. 5400 was recorded as 4500 in the pass book.
(2) Cheque issued to Mr. Ram Rs. 8,900 was wrongly entered as Rs. 9800 in pass book.
7. What do you understand by the following?
(a) Debit balance as per cash book.
(b) Credit balance as per cash book.
Ans. (a) Debit balance as per cash book means balance of deposits held at the bank. (or favourable
balance as per cash book). Such a balance exists when the deposits made by the firm are more
than its withdrawals.
(b) Credit balance as per cash book indicates bank overdraft (or unfavourable balance as per cash
book). Such as balance exists when the amount withdrawn is more than its deposits.
(a) Debit balance as per pass book.
(b) Credit balance as per pass book.
Ans. (a) It indicates bank overdraft (or unfavourable balance as per pass book). it is excess amount
withdrawn over the amount deposited into bank.
(b) It means balance of deposits held at the bank (or favourable balance as per pass book). Such a
balance exists when the deposits made by the firm are more than its withdrawals.

(a) Favourable balance as per cash book.
(b) Unfavourable balance as per cash book.
Ans. (a) It means balance of deposits held at the bank. It is also known as debit balance as per cash book.
(b) It indicates bank overdraft. It is also known as Credit balance as per cash book.
(a) Favourable balance as per pass book.
(b) Unfavourable balance as per pass book.
Ans. (a) It means balance of deposits held at the bank. It is also known as Credit balance as per pass book.
(b) It indicates bank overdraft. It is also known as Debit balance as per pass book.
11. What is pass book?
Ans. Pass book is copy of costumer's a/c as it appears in the ledger of the bank. Bank gives it to the
customer.
12. What is bank over draft?
Ans. Bank overdraft is a situation where cash withdrawn from the bank is more than the amount of
deposit. When there is bank overdraft, in the cash bank (Bank column), there will be credit balance
and in pass book, there will be debit balance.
13. Why is amended cash book prepared?
Ans. The amended cash book prepared to record the correct items (in the cash book) which appear only
in the pass book. This process reduces the number of items responsible for difference which should
appear in bank reconciliation statement.
14. Enumerate the first two steps to ascertain the correct cash book balance?
Ans. (1) Tick off the items in the both cash book (bank column) and bank statement.
(2) Updating the cash book from the bank statement.
*****************************
Chapter - 6: TRIAL BALANCE AND RECTIFICATION OF ERRORS.

Section - A (1 mark)

1. The trial balance is usually prepared with the Help of ledger accounts.
2. Trial balance is usually prepared at the End of the accounting year.
3. Trial balance is a list of Accounts and its balances.
4. When a transaction is completely omitted from recording in the book of original records, it is an error
of Omission.
5. Accounting entries not recorded as per the generally accepted accounting principles is known as the
error of Principle.
6. When two or more errors are committed in such a way that the net effect of these errors on the debit
and credit of account is nil, such errors are called Compensating errors.
7. Capital account balance is a Credit balance.
8. Drawings account balance is a debit balance.
9. Asset account balance are Debit balance.
10. Liabilities account balance are Credit balance.
11. Expenses account balances are Debit balance.
12. Income account balances are Credit balance.

1. Trial balance is
(a) An account. (b) A statement. (c) A subsidiary book. (d) A principle books.
2. A trial balance is prepared.
(a) After preparation of financial statement.
(b) After receiving transactions in subsidiary book.
(c) After posting to ledger is complete.
(d) After posting to ledger is complete and accounts have been balanced.
3. Object of preparing trial balance
(a) To know to accuracy of an account.
(b) to know the financial position of a business.
(c) To know the profit or loss.
(d) To know the arithmetic accuracy of the book s of accounts.
4. Agreement of trial balance is affected by
(a) One sided error only. (b) Two-sided error only.
(c) Both (a) and (b). (d) None of the above.
5. Which of the following is not an error of principle?
(a) Purchase of furniture debited to furniture a/c.
(b) Repairs in the overhauling of second hang machinery purchased debited to repairs a/c.
(c) Cash received from Manoj posted to Saroj.
(d) Sales of old car credited to sales a/c.
6. Which of the following is not an error of commission?
(a) Overcasting of sales book.
(b) Credit sales to Ramesh Rs. 5000 credited to his account.
(c) Wrong balancing of machinery a/c.
(d) Cash sales not recorded in cash book.
7. Which of the following a/c can rectify through suspense a/c.?

(a) Sales return book was undercast by Rs. 1000.
(b) Sales return by Madhu Rs. 1000 was not recorded.
(c) Sales return by Madhu Rs. 1000, recorded as 100.
(d) Sales return by Madhu Rs. 1000 was recorded in purchase return book.
8. The trial balance agrees; it implies that,
(a) There is no more error in the book.
(b) There may be two sided errors in the book.
(c) There may be one sided error in the book.
(d) There may be two sided and one-sided error in the book.
9. If suspense account does not balance off even after rectification of errors, it implies that.
(a) There is some one-sided error only in the book yet not be located.
(b) There are no more errors yet to be located.
(c) There are some two-sided errors only yet 5to be located.
(d) There may be both one sided and two-sided errors yet to be located.
10. If wages paid for installation of new machinery is debited to wages a/c, it is:
(a) An error of commission. (b) An error of principle.
(c) A compensating error. (d) An error of omission.
III. True or false:

1. Trial balance is a list of balances if all ledger accounts on the particular date. (True)
2. Trial balance is a part of book keeping. (False)
3. Trial balance is just a statement not an account. (True)
4. 4. Object of preparing the balance is to know the profit or loss of the business. (False)
5. The difference of trial balance is transferred to capital account. (False)
6. Generally trial balance does not include the closing stock. (True)
7. When one error compensates the other error, it is called error of principle. (False)
8. Error of omission affects the agreement of trial balance. (True)
9. Compensating errors does not affect the total of trial balance. (True)
10. Trial balance cannot trace the error of principle. (True)
11. Preparation of trial balance is compulsory. (False)
12. Trial balance is a statement. (True)
13. 13. The balance of capital account is shown in the debit column of the trial balance. (False)
14. Liabilities are always shown in the credit side of the trial balance. (True)
Section - B
IV. Answer the following questions:
1. State the meaning of a trial balance?
Ans. Trial balance is a list of ledger account balances. It is prepared to verify the arithmetical accuracy of
Accounts and to facilitate the preparation of final statement.
2. State any two steps in the preparation of trial balances?
Ans. (1) Ascertain the balances of each account is a ledger.
(2) List each account and plays its balance in the debit or credit column, as the case may be.
(3) Compute the total of debit balances column.
(4) Compute the total of credit balance column.

3. State any two objectives of preparing trial balance?
Ans. (1) To ascertain the arithmetical accuracy of the ledger a/c.
(2) To help in the preparation of financial statement.
(3) To help in locating errors.
4. State any two methods of preparing trial balance?
Ans. (1) Totals method.
(2) Balance method. (most widely used method)
(3) Totals cum balance method.
5. Give the meaning of 'balance method' of preparing the trial balance?
Ans. 'Balance method' is a method under which trial balance is prepared by showing the balances of all
ledger accounts and then totalling up the debit and credit columns of the trial balance to assure
their correctness.
6. Give the meaning of errors in accounting?
Ans. Errors in accounting means unintentional mistakes committed by the book keeper in the book of
accounts.
7. State any two types of errors?
Ans. (1) Error of commission.
(2) Error of omission.
(3) Error of principle.
8. Give the meaning of error of commission?
Ans. Errors committed while recording, posting, or totalling of transactions or balancing of accounts in
The books of account are called error of commission.
9. Give two examples for error of commission?
Ans. (a) Sale of goods to Mohan on credit Rs. 1000 recorded as 100 in sales book.
(b) Cash paid to Mohan on account Rs. 2000 was posted to Mohan a/c as Rs. 200.
(c) Purchases book was over cast by Rs. 1000.
10. Give the meaning of error of omission?
Ans. Errors committed for not recording the transaction in the journal or for no posting in the ledger are
called errors of omission.
11. Give two examples of errors of omission?
Ans. (a) Credit sales to Janu Rs. 20000 was not recorded in the sales book.
(b) Salary paid not recorded in the salary a/c.
12. Give the meaning of error of principle?
Ans. If accounting principles are violated or ignored while recording transaction in the book’s accounts,
such errors are known as errors of principle.
13. Give two examples of errors of principle?
Ans. (a) Credit purchase of machinery Rs. 20000 is recorded in purchase book instead of journal proper.
(b) Rent paid to landlord Rs. 3000 is recorded in the cash book as payment to landlords.
14. Give the meaning of compensating errors?
Ans. When two or more errors are committed in such a way that the net effect of these errors on the
debit and credit accounts are nil, such errors are called as compensating errors.
15. What type of errors would cause difference in the trial balance?
Ans. Most of the errors of commission and errors in partial omission.
16. What type of errors would not cause difference in trial balance?
Ans. Errors of omission, error of principle and compensating errors.
17. What is suspense account?
Ans. Suspense account is a temporary account to which the difference in trial balance is transferred.
18. When a suspense a/c is opened?

Ans. Suspense a/c is opened when there is a difference in trial balance.
19. What do you mean by rectification of errors?
Ans. Rectification or correcting of errors are found in books of accounts with the help of journal entries
or an explanatory note called rectification of errors.
Chapter-7: DEPRICIATION, PROVISIONS AND RESERVES.

Section - A (2 Marks)
1. What is depreciation?
Ans. Depreciation is a permanent, continuous and gradual decrease in the book value of fixed assets due
to use and tear, passage of time or obsolescence.
2. State any two features of depreciation?
Ans. 1) It is the decrease in the book value of fixed assets.
2) It includes loss of value due to usage, passage of time etc.
3) It is expired cost.
4) It is a non-cash expense.
3. State any two causes of depreciation?
Ans. (1) Wear and tear due to use.
(2) Passage of time.
(3) Obsolescence.
4. State any two factors affecting the amount of depreciation?
Ans. (1) Cost of asset.
(2) Estimated useful life of asset.
(3) Estimated scrap value of asset.
5. State any two methods of calculating depreciation amount?
Ans. (1) Straight line method.
(2) Written down value method.
(3) Annuity method.
(4) Depreciation fund method.
6. What is straight line method of depreciation?
Ans. Straight line method is a method under which a fixed percentage on original cost of the asset is
written off as depreciation every year.
7. What is written down value method of depreciation?
Ans. Written down value method is a method under which depreciation is charged on the book value of
asset every year.
8. What is provision?
Ans. Provision is a charge against revenue of the current period. It is created to meet certain known
liabilities. Provisions are created by debiting the P&L a/c.
9. Give four examples for provisions?
Ans. (1) Provisions for depreciation. (2) Provisions for doubtful debts.
(3) Provisions for discount on debtors. (4) Provisions for taxation.
10. What is reserve?
Ans. Reserves means a part of the profit set aside and retained in the business to provide for certain
future needs like growth and expansion or to meet future unknown contingencies.
11. Give four examples for reserves?

Ans. (1) General reserves.
(2) Capital reserves.
(3) Workmen compensating fund.
(4) Investments fluctuation fund.
12. State any two differences between provisions and reserves?
Ans:
Provision Reserve
(1) It is a charge against profit. (1) It is an appropriation of profit.
(2) It is created to meet a known liability. (2) It is created for strengthening the financial
(3) It cannot be used for the dividend position of the business.
distribution. (3) It can be used for dividend distribution.
13. State any two types of reserves?
Ans. (1) General reserve. (2) Specific reserve.
14. What is general reserve?
Ans. When the purpose of which reserve in created is not specified, it is called general reserve. It
strengthens the financial position of the business.
15. What is specific reserve?
Ans. Specific reserve is the reserve which is created for some specific purpose and can be utilized only for
that purpose.
16. Give any two examples for specific reserve?
Ans. (1) Dividend equalisation reserve. (2) Women compensation fund.
(3) Investment fluctuation fund. (4) Debenture Redemption Reserve.
17. What are revenue reserves?
Ans. Revenue reserves are the reserves which are created from revenue profit.
18. Give four examples for revenue reserves?
Ans. (1) General reserve. (2) Workmen compensating fund.
(3) Dividend equalization fund. (4) Investment fluctuation fund.
19. What are capital reserves?
Ans. Capital reserves are the reserves which are created out of capital profits. They arise either on sale of
fixed assets or in the settlements of liabilities.
20. Sate any four examples of capital reserves?
Ans. (1) Securities premium. (2) Profit on sales of fixed assets.
(3) Profit on redemption of debentures. (4) Profit on reissue of forfeited shares.
*********************************
Chapter-08: BILLS OF EXCHANGES.

Section-A [1 mark]
1. A bill of exchange is a Negotiable instrument.
2. A bill of exchange is drawn by the Creditor upon his debtor.
3. A bill of exchange must be in Writing.
4. Drawer and Drawee cannot be the same parties in case of a bill exchange.
5. Three days of grace are added to the term of the bill to calculate the due date.
6. A bill of exchange is called a Bill payable by one who is liable to pay it on the due date.
7. There are three parties to a bill of exchange.
8. A bill of exchange can be drawn on any Debtor including a bank.
9. Transfer of a negotiable instrument to another person by signing on it, is known as Endorsement.
10. Interest is payable by the debtor to the creditor when a bill is renewed.
11. The renewal of bill implies that the Old bill must be first cancelled.
12. If a bill is not paid on its due date, it is said to be Dishonoured.
13. A promissory note does not include A bank note or a currency note.
14. A promissory note is an instrument in writing containing an unconditional promisee to pay.
15. The person to whom the amount mentioned in the promissory note is payable is known as Drawee
or payee or promisee.
16. There are two parties to a promissory note.
17. The person to whom the amount mentioned in the promissory note is payable is known as
Promisee.
18. In a promissory note, the person who makes the promisee to pay is called Promisor.
19. The person who endorses the promissory note in favour of another is known as Endorser.
20. A promissory note is drawn by Debtor in favour of his Creditor.

1. Bills of Exchange are covered under
(a) Indian contract act- 1887. (b) Negotiable instrument act-1881.
(c) Sale of goods act-1930. (d) Companies act-1956.
2. A bill of exchange is an acknowledgement of
(a) Receipt. (b) Loan. (c) Debt. (d) Payment.
3. Who signs a bill of exchange at the time of making the bill?
(a) Drawer. (b) Drawee. (c) Payee. (d) None.
4. Drawee means the person who
(a) Makes the order. (b) Accepts the order. (c) Is a payee. (d) All of these.
5. Drawer means the person who
(a) Makes the order. (b) Accepts the order. (c) Is a payee. (d) All of these.
6. The promissory note should be signed by the
(a) Maker. (b) Drawee. (c) Payee. (d) None.
7. A promissory note does not require.
(a) Discounting. (b) Acceptance. (c) Noting. (d) All of these.
8. Noting charges are paid at the time of.
(a) Renewal of the bill. (b) Retirement of the bill.
(c) Dishonour of bill. (d) None of these.
9. The fee charged for getting the bill noted after dishonour is called
(a) Discounting charges. (b) Noting charges. (c) Interest. (d) None.
10. Bills receivable account is
(a) An expense a/c. (b) An asset a/c. (c) A liability a/c. (d) A revenue a/c.
11. When a bill of exchange is endorsed, the amount is payable to the
(a) Original holder. (b) Bank. (c) Endorser. (d) Notary public.
12. When a bill endorsed is dishonoured, which one of these a/c would be credited by the drawee?
(a) Bills payable a/c. (b) Drawer's a/c. (c) Bank a/c. (d) Bill dishonoured a/c.
III. True or false:

1. A bill of exchange must be accepted by the payee. (False)
2. 2. A bill of exchange is drawn by the creditor. (True)
3. A bill of exchange is drawn for all cash transaction. (False)
4. The person to whom payment is to be made in the bill of exchange is called payee. (True)
5. A negotiable instrument is not freely transferable. (False)
6. A negotiable instrument does not require the signature of its maker. (False)
7. Stamping of the bills of exchange is not mandatory. (False)
8. The time of payment of a negotiable instrument need not be certain. (False)
9. A bill of exchange must be in writing. (True)
10. A bill of exchange must be accepted by the payee. (False)
11. There are two parties to a bill of exchange. (False)
12. Bill of exchange is a legal document. (True)
13. A bill of exchange is drawn by the creditor. (True)
14. Bill of exchange cannot be endorsed to creditor. (False)
15. Bill of exchange is an order for the payment. (True)
16. A bill of exchange is drawn for all cash transactions. (False)
17. Bill of exchange is written by debtor. (False)
18. A bill payable on demand is called time bill. (False)
19. The person to whom payment is to be made in a bill of exchange is called payee. (True)
20. A Negotiable instrument does not require the signature of its maker. (False)
21. While calculating date of maturity of every bill 3 days of grace are included. (True)
22. payment of bill before maturity is called retiring. (True)
23. Bill discounted is a contingent liability. (True)
24. Promissory note is written by the debtor. (True)
25. The hundi payable at the sight is called darshani hundi. (True)
26. A negotiable instrument is not freely transferable. (False)
27. Stamping of promissory note is not mandatory. (False)
28. The time of payment of a negotiable instrument need not be certain. (False)

1. Name any one type of commonly used negotiable instrument?
Ans. (1) Bill of exchange. (2) Promissory note.
2. Give the meaning of bill of exchange?
Ans. The written order for payment issued by the seller (Creditor) to the buyer (Debtor) is called a bill of
exchange. It is an acknowledgement of debt given by a debtor to his creditor.
3. State any one feature of bill of exchange?
Ans. (1) A bill of exchange must be in writing. OR (2) It must be stamped.

4. Name any one party to a bill of exchange?
Ans. Drawe, drawee, and Payee.
5. Who is a drawer of a bill?

Ans. Drawer is the maker of bill of exchange.
6. Who is the drawee in case of bill?
Ans. Drawee is the person on whom the bill of exchange is drawn.
7. Who is payee in case of bill?
Ans. Payee is the person to whom the payment is to be made.
8. Give the meaning of promissory note?
Ans. Promissory note is a written promisee made by a debtor to pay to the creditor a certain sum of money
after a certain period of time.
9. State any one feature of promissory note?
Ans. (1) It must contain an unconditional promisee to pay.
(2) It must be stamped by maker.
10. Name any one party to a promissory note?
Ans. Drawer and drawee.
11. Who is promisor?
Ans. The person who makes or draws the promissory note is called promisor.
12. Who is promisee?
Ans. Promisee is a person in whose favour the promissory note is drawn.
13. Write any one difference between bill of exchange and promissory note?
Ans. Promissory note requires acceptance by the drawer but promissory note does not require any
acceptance.
14. State any one advantage of bill of exchange?
Ans. Convenient means of credit OR Conclusive proof of a credit transaction.
15. Give the meaning of maturity of a bill?
Ans. Maturity of a bill of exchange means the date on which a bill of exchange becomes due for payment.
16. What is discounting of a bill?
Ans. The process of encashment of the bill with the bank before the due date is called discounting of a bill.
17. What is endorsement of a bill?
Ans. Endorsement of a bill means signing on the back of the bill and transferring the bill to another person.
18. Who is an endorser?
Ans. The person who endorses the bill to another person is called an endorser.
19. Who is an endorsee?
Ans. The person to whom the bill is endorsed is called an endorsee.
20. What is meant by dishonour of a bill of exchange?
Ans. If the drawee fails to make payment of the bill on the due date, the bill is said to be dishonoured.
21. What is meant by noting of a bill of exchange?
Ans. Writing the facts of dishonour on the face of the dishonoured bill by a notary public is known as
noting of the bill.
22. What is meant by renewal of a bill of exchange?
Ans. Renewal of the bill means cancellation of old bill and drawing and accepting of a fresh bill with new
terms of payment.
23. What is retirement of a bill of exchange?
Ans. The payment of a bill before due date under rebate is called retirement of a bill of exchange.
24. Give the meaning of rebate?
Ans. Rebate is the discount on the bills for the period between date of retirement and maturity.
25. Give the meaning of accommodation of bill of exchange?
Ans. A bill accepted by the drawee just to accommodate the drawer to raise funds (By discounts the bill
with the bank) is called accommodation of bill.
Chapter – 9: FINALCIAL STATEMENT - 1st

Section- A (2 marks)
1. Mention any two internal users of accounting information?
Ans. (1) Management. E.g. Chief executive, Financial officer
(2) Current owners. E.g. Shareholders.
2. Mention any two external users of accounting information?
Ans. (1) Government. (Income of department)
(2) Creditors.
3. What is capital expenditure?
Ans. Capital expenditure is an expenditure whose benefit extends for more than one accounting year. It is
incurred for acquisition of some fixed asset such as buildings, machinery etc. It is non-recurring
expenditure. Generally, is taken on the assets side of the balance sheet.
4. Give any two examples for capital expenditure?
Ans. (1) Amount spent for the purchase of buildings. (2) Amount spent for the purchase of machinery.
5. What is revenue expenditure?
Ans. Revenue expenditure refers to the expenditure whose benefit is exhausted within one year. It is
incurred for the day to day running of business such as repair charges, salary paid, rent paid etc. It is
recurring expenditure it appears on the debit side of trading and profit and loss account.
6. Give any two examples for revenue expenditure?
Ans. (1) Salary paid to employees. (2) Rent paid. etc.
7. Sate any two differences between capital and revenue expenditure?
Ans. Capital expenditure: (1) It is incurred for purchasing or improving the fixed asset.
(2) Its benefit is available for more than one year.
Revenue expenditure: (1) It is incurred for the day to day running of the business.
(2) Its benefit is available for only one year.
8. What are capital receipts?
Ans. Capital receipts are the receipts on the account of capital items.
In other words, the receipts which create on the obligation to return the money (i.e., Bank loan
taken) and the receipts by the sale of fixed assets are termed as capital receipts.
They are non-recurring expenditure. Generally, these items appear on the liabilities side of the
balance sheet. But sale or assets are shown as deduction from the concerned asset on the assets side
of the balance sheet.
9. Give any two examples for capital receipts?
Ans. (1) Long term loan borrowed from bank. (2) Amount collected by the issue of shares.
10. What are revenue receipts?
Ans. Revenue receipts are the receipts from the normal and regular course of business such as receipts
from sale of goods and services. Thus, they are receipts from revenue items. They are recurring
receipts. Generally, they appear on the credit side of trading and profit & loss account.
11. Give any two examples of revenue receipts?
Ans. (1) Commission received. (2) Sales. (3) Rent received.
12. State any two differences between capital receipts and revenue receipts?
Ans. Capital receipts: (1) These receipts are non-recurring in nature.
(2) These receipts will appear in balance sheet.
Revenue receipts: (1) These receipts are recurring in nature.
(2) These receipts will appear in trading and P&L account.
13. What is deferred revenue expenditure?

Ans. Deferred revenue expenditure is the revenue expenditure whose benefit extends to two or more
years. E.g., Preliminary expenses.
The amount of deferred revenue expenditure which is written off during the current year will be
recorded on the debit side of profit and loss account; and the amount of deferred revenue
expenditure which is not written off will appear temporarily on the assets side of the balance sheet.
14. What are financial statements?
Ans. Financial statement is: -
(1) Trading and profit and loss accounts (or statement of profit and loss).
(2) Balance sheet (or position statement).
They serve as a means of communicating information about the profitability and the financial position
of the business.
15. What statements are mainly included in financial statement?
Ans. (1) Trading and profit and loss account. (i.e., Statement of profit and loss)
(2) Balance sheet. (. e., Position statement)
16. State any two objectives of preparing financial statement?
Ans. (1) To present a true and fair view of the financial performance of the business.
(2) To present a true and fair view of the financial position on the business.
17. Why do you prepare trading and P&L a/c?
Ans. Trading and P&L a/c is prepared to determine the profit earned or loss incurred by the business
enterprise during the accounting period.
18. What is trading account?
Ans. Trading account is an account which ascertains the result of trading which is either gross profit or
gross loss.
19. Mention any 4 items included in trading account?
Ans. (1) Opening stock. (2) Purchases. (3) Wages. (4) Sales. (4) Closing stock.
20. Mention any 4 direct expenses included in trading account?
Ans. (1) Wages. (2) Carriage inwards. (3) Freight. (4) Factory rent. (5) Manufacturing expenses.
21. What do u mean by cost of goods sold?
Ans. Cost of goods sold is the total of opening stock, purchases and direct expenses minus closing stock.
22. What is gross profit?
Ans. The excess of sales over purchases and direct expenses is called gross profit. It can be shown as:
Gross profit = Sales - (Purchases + Direct expenses)
23. How do you find cost of goods sold?
Ans. Cost of goods sold = Opening stock + purchases + direct expenses - Closing stock.
OR
Cost of goods sold = Sales - Gross profit.
24. What is operating profit?
Ans. Operating profit is the profit earned through the normal operations and activities of the business. It is
the excess of operating=g revenue over operating expenses.
Operating profit = Operating revenue - None operating expenses (or)
Operating profit = Net profit + Non-operating expenses - Non operating incomes.
25. Expand EBIT?

Ans. EBIT: Earnings before interest and tax.
26. What is profit and loss account?
Ans. Profit and loss account is an account which shows the net result of the business which is either net
profit or net loss. It starts with gross profit and gross loss. Further, indirect expenses and incomes are
taken in this account.
27. Mention any 4 items included in P&L a/c?
Ans. (1) Salary paid. (2) Rent paid. (3) Commission paid. (4) Interest received. (5) T. phone charges.
28. What is net profit?
Ans. The excess of revenues (income) over expenses is called net profit. It can be shown as:
Net profit = Gross profit + Other incomes - Indirect expenses.
29. What do you mean by closing entries?
Ans. Closing entries are those entries which are passed (i.e., Made) for transferring all the revenue and
expenses (nominal account) item balances to the trading and profit and loss account.
30. Write any two differences between gross profit and net profit?
Ans. Gross profit: (1) It is the result of trading account.
(2) It is calculated after deducting cost of goods sold from sales.
Net profit: (1) It is the result of profit and loss account.
(2) It is calculated by adding other incomes to gross profit and deducting indirect expenses from it.
31. What is balance sheet?
Ans. Balance sheet is a statement of assets and liabilities of a business concern at a given date. It shows the
financial position of the business.
32. What is current asset?
Ans. Current assets are those assets which are held on a short-term basis and are either in the form of cash
or can be converted into cash within a year. E.g., Cash in hand, stock etc.
33. Give any 4 examples of current asset?
Ans. (1) Cash in hand. (2) Cash at bank. (3) Stocks. (4) Short term investments. (5) Sundry debtors.
34. What is fixed assets?
Ans. Fixed assets are those assets which are held on a long-term basis in the business. They are used for
the normal operations of the business. E.g., Machinery, Furniture etc.
35. State any 4 examples of fixed assets?
Ans. (1) Land. (2) Buildings. (3) Machinery. (4) Furniture. (5) Motor car.
36. What are intangible assets? Give two examples.
Ans. Intangible assets are the assets which cannot be seen or touched but can be bought and sold.
E.g., Goodwill, Patents, Copy rights.
37. What are current liabilities?
Ans. Current liabilities are those liabilities which are expected to be paid within a year. E.g., sundry
creditors, Bank loans etc.
38. Give 4 examples of current liabilities?
Ans. (1) Short term loans. (2) Sundry creditors. (3) Bills payable. (4) Out-standing expenses.
39. What are long term liabilities?
Ans. All liabilities which are usually payable after one year are known as long term liabilities. (E.g., Long
term loans)
40. What are investments?
Ans. Investments are the funds invested in government securities, shares of a company etc. They are
assets of the business.
41. What is opening entry?
Ans. Opening entry is an entry made in the beginning of the year to open all the accounts (assets, liabilities
and capital) Contained in the balance sheet of last year.

42. What is meant by Marshalling of asset and liabilities in the balance sheet?
Ans. Arrangement of assets and liabilities in a particular order is known as Marshalling of assets and
liabilities in the balance sheet.
In the balance sheet, assets and liabilities are arranged either in the order of liquidity or permanence.
43. State any two differences between profit and loss account and balance sheet?
Ans. P&L a/c: (1) It includes revenue items. i.e., Expenses and revenue.
(2) It shows net profit or net loss of the business.
Balance sheet: (1) It includes assets, liabilities and capital.
(2) It shows the financial position of the business.
Chapter – 10: FINANCIAL STATEMENT - 2nd

Section - A (1 Marks)
1. Closing stock is valued at Cost price or market price whichever is less.
2. Trading account is prepared to ascertain Gross profit or gross loss.
3. Profit and loss account disclose Net profit or net loss of the business.
4. Balance sheet shows the financial position of the business enterprise.
5. Assets - Capital = Liabilities.
6. Decrease in the value of fixed asset is called as Depreciation.
7. Band debts recovered is recorded in P&L a/c.
8. Patent is a fixed asset.
9. Profit on sale of fixed asset is known as Non- operating profit.
10. Provision for discount on debtors is calculated at a certain percentage on amount of Good debtors.
11. The expenses paid which are related to the next year are called prepaid expenses.
12. The expenses incurred but not paid up to the end of financial year at called as Outstanding expenses.

1. Closing stock is valued at.
(a) Cost price. (b) Market price. (c) Sales price. (d) Cost price or market price whichever is lower.
2. Opening stock appearing in the trial balance-will be shown in
(a) Trading a/c. (b) P&L a/c. (c) Balance sheet. (d) Trading a/c and also in balance sheet.
3. Closing stock appearing outside the trial balance will be shown in
(a) Trading a/c. (b) Balance sheet. (c) Trading a/c and balance sheet. (d) P&L a/c.
4. Liabilities have ________ balance.
(a) Debit. (b) Credit. (c) Either credit or debit. (d) No balance.
5. Capital is the difference between.
(a) Income and expenses. (b) Sales and cost of goods sold.
(c) Assets and liabilities. (d) None of the above.
6. Interest on capital is ______ for the business.
(a) Revenue. (b) Expenses. (c) Gain. (d) None of the above.
7. Sales tax (GST) payable is.
(a) Current asset. (b) Capital a/c. (c) Expenses a/c. (d) Liabilities a/c.
8. Where do you show the bad debts given in the trial balance at the time of preparation of financial
statement?
(a) Trading a/c. (b) P&L a/c. (c) Balance sheet. (d) None of the above.
9. In which a/c do you show the depreciation given in the trial balance at the time of preparation of
financial statement.
(a) P&L a/c. (b) Trading a/c. (c) Balance sheet. (d) None of the above.
10. BOD is shown as a.
(a) Liability. (b) Contingent liability. (c) Unsecured loan. (d) Provision.
11. Full claim accepted by insurance company on the loss of goods by fire is credited to.
(a) Trading a/c. (d) P&L a/c. (c) Insurance company a/c. (d) None.
12. A surplus of revenue over its cost is known as ____ of the business.
(a)Capital. (b) Profit. (c) Assets. (d) None.
13. Net profit is equal to.
(a) Sales - cost of goods sold. (b) Sales - closing stock + Purchases.
(c) Opening stock + Purchases - closing stock. (d) Gross Profit-Administrative & selling expenses.
14. Which one shows the financial results of the concern for a period.
(a) Trading a/c. (b) P&L a/c. (c) Balance sheet. (d) None.
15. Which of the following is not an intangible asset?
(a) Account receivable. (b) Trade mark. (c) Franchise. (d) Good will.
16. Rahul's trial balance provides you the following information:
Debtors Rs.80,000
Bad debts Rs. 2.000
Provision for doubtful debts Rs. 4,000
It is desired to maintain a provision for bad debts of Rs. 1,000
State the amount to be debited/credited in P&L a/c:
(a) Debit Rs. 5,000. (b) Debit Rs. 3,000. (c) Credit Rs.1,000. (d) None.
17. If the rent of one month is still to be paid the adjustment entry will be.
(a) Debit outstanding rent account and credit rent account.
(b) Debit profit and loss account and credit rent account.
(c) Debit rent account and credit profit and loss account.
(d) Debit rent account and credit outstanding rent account.
18. If the rent received in advance is Rs. 2,000. The adjustment entry will be:
(a) Debit profit and loss account and credit rent account.
(b) Debit rent account credit rent received in advance account.
(c) Debit rent received in advance account and credit rent account.
(d) None of these.
19. If the opening capital is Rs. 50,000 as on April 01, 2014 and additional capital introduced Rs 10,000
on January 01, 2015. Interest on capital is 10% p.a. The amount of interest on capital shown in P&L
a/c as on march 31, 2015. will be:
(a) Rs. 5,250. (b) Rs. 6,000. (c) Rs. 300. (d) Rs.700.
20. If the insurance premium paid is Rs. 1,000 and prepaid insurance is Rs. 300. The amount of
insurance premium shown in P&L a/c will be:
(a) Rs. 1,300. (b) Rs. 6,000. (c) Rs. 300. (d) Rs. 700.
III. True or false:
1. 1. Prepaid expenses are the asset of the business. (True)
2. 2. Unearned income is the liability of the business. (True)
3. Accrued income or income due but not received are two different things. (False)
4. Unearned income means income received in advance. (True)
5. 5. Outstanding expenses account is a liability account. (True)

6. Provision for discount on debtors is created only on good debtors. (True)
7. Bad debts are recoverable from the debtors. (False).
8. Depreciation is the decline in the value of fixed assets due to wear and tear, passage of time etc.
(True)
9. Interest on drawings is an expense for the business. (False)
10. The statement of assets and liability is balance sheet. (True)
11. Balance discloses financial position of the business. (True)
12. A person to whom the business owes is called debtors. (False)
13. 13. Provision on discount on debtors can be estimated only after computing the provision for
doubtful debts. (True)
14. Balance sheet is an account. (False)
15. Life insurance premium is treated as business expenses. (False)
IV. Answer the following: (1 Mark)

1. Why is it necessary to record the adjusting entries in the preparation of final accounts?
Ans. It is necessary to record adjusting entries in the preparation of final accounts to ensure that the final
accounts reveal the true profit or loss and the true financial position of the business.
2. Give the meaning of adjustment. (OR what are adjusting entries)?
Ans. Adjusting or Adjustment entries are the entries made to adjust certain items such as closing stock,
outstanding expenses, depreciation etc. at the time of preparation of final accounts.
3. State any one adjustment item?
Ans. (1) Closing stock. (2) Outstanding expenses. (3) Depreciation.
4. What is closing stock?
Ans. The closing stock represents the cost of unsold goods lying in the business at the end of accounting
period.
5. What is outstanding expenses?
Ans. When expenses of an accounting period remain unpaid at the end of the accounting period, they are
termed as outstanding expenses.
6. Give the meaning of prepaid expenses?
Ans. The portion of the expenses paid in the current year which relates to the next accounting year is
known as prepaid expenses.
7. On which side of the balance sheet, prepaid expenses are shown?
Ans. prepaid expenses are shown on the assets side of the balance sheet.
8. What is meant by accrued income?
Ans. The income earned during the current accounting year but not actually received by the end of the
same year is known as accrued income or outstanding expenses.
9. What is meant by interest on capital?
Ans. Interest on capital is interest provided on owner’s capital.
10. What are bad debts?
Ans. Bad debts refer to the amount that a firm has not able to recover from its debtors. In simple, it is
irrecoverable debts.
11. Write the meaning of provision for doubtful debts?
Ans. Provision made to provide for the estimated portion of current years debt which may not be realized
in future is called provision for doubtful debts.
12. Write the meaning of provision for discount on debtors?
Ans. Provision for discount on debtors refers to the provision created to provide for discount likely to be
allowed on good debtors.
13. What is unearned income? (Or income received in advance)

Ans. The portion of the income received in the current year, which belongs to the next accounting period is
termed as income received in advance or an unearned income.
14. How do you treat, provision for discount on debtors given in adjustments while preparing financial
statement?
Ans. Treatment of provision for discount on debtors given in adjustments while preparing final accounts.
(1) First, it is shown on the debit side of P&L a/c.
(2) Then, it is deducted from debtors on the asset side of the balance sheet.
15. How will you treat accrued income given in adjustments while preparing financial statement?
Ans.1) First it is added to the concerned income on the credit side of P&L a/c.
(2) Then, it is shown on the assets side of the balance sheet.
16. What adjusting entry would you pass for depreciation?
Ans. Depreciation A/c _ _ _ _ _ _ _ Dr. xxx ----
to Concerned asset A/c ----- xxx
17. How will you treat interest on capital in the financial statement?
Ans. (1) First, it is shown on the debit side of P&L a/c.
(2) Then, it is added to capital on the liabilities side of the balance sheet.
18. How will you calculate commission payable to manager on profit before charging each commission?
Ans. Commission based on profit before charging such commission
= profit before commission Rate of commission
100
19. Give the adjusting entries for interest on drawings?
Ans. Capital A/c _ _ _ _ _ Dr xxx ----
to interest on drawings A/c ---- xxx
20. State any one example for current asset?
Ans. (1) Cash. (2) Debtors. (3) Stock.
****************************************
Chapter – 11: ACCOUNTS FROM INCOMPLETE RECORDS

Section - A (1 Mark)
1. Total debtor’s a/c is to be prepared to known the credit sales during the year.
2. Total creditor a/c is to be prepared to known the Credit purchases during the year.
3. Opening statement of affairs is to be prepared to be find out opening capital.
4. Drawings is to be added to closing capital in the statement in the P&L.
5. A statement of assets and liabilities prepared under incomplete records mechanism is called
statement of affairs.
6. Preparation of trial balance is not possible under incomplete records mechanism.
7. Incomplete records are popularly known as single entry system.
8. Only personal accounts (Debtors or creditors) Accounts are maintained along with cash book under
complete records.
9. If closing capital is Rs. 10,000, Drawings Rs. 5,000 and additional capital introduced is Rs. 3,000 then
adjusted closing capital will be Rs.12,000
10. Excess of opening capital over closing capital represents gross loss sustained during the period.
11. Incomplete records are generally used by small size enterprises.
12. Excess of adjusted closing capital over opening capital represents gross profit for the year.
II. Choose the correct answers:

1. Opening capital is ascertained by preparing
(a) Total debtor accounts. (b) Total creditors account.
(c) Cash account. (d) Opening statement of affairs.
2. In complete records mechanism of book keeping is
(a) Scientific. (b) Unscientific (c) Unsystematic. (d) Both (b) and (c)
3. It is not possible to prepare ______ from accounts from incomplete records.
(a) Receipts and payments a/c. (b) Trial balance. (c) Balance sheet. (d) Profit and loss a/c.
4. Incomplete records cannot be maintained by
(a) Joint stock company. (b) Partnership firm. (c) Co-operative society. (D) All of the above.
5. A statement of assets and liabilities prepared in accounts from incomplete records.
(a) Balance sheet. (b) Cash flow statement. (c) Fund flow statement. (d) Statement of affairs.
6. Which of the following represents the adjusted closing capital?
(a) Opening capital + Drawings - Additional capital.
(b) Closing capital + Drawings - Additional capital.
(c) Opening capital + Additional capital - Drawings.
(d) Closing capital + Additional capital - Drawings.
7. If opening capital is Rs. 90,000, Drawing Rs. 500; Capital introduced 10,000; closing capital 120,000.
The value of profit is
(a) 20,000. (b) 25,000. (c) 30,000. (d) 40,000.
8. Credit purchases during the year is ascertained by preparing.
(a) Total creditors a/c. (b) Total debtors a/c. (c) Cash a/c. (d) Opening statement of affairs.
9. Credit sales during the year is ascertained by preparing.
(a) Cash book. (b Statement of affairs. (c)Total debtors a/c. (d) Total creditors a/c.
10. Accounts from incomplete records is generally followed by.
(a) Small business units. (b) Non trading concerns. (c) Large business units. (d) None.
11. Bad debts will be appeared in
(a) Total debtors a/c. (b) Total creditors a/c. (c) Total B/R A/c. (d) Total B/P a/c.
12. The advantages of single-entry system are.
(a) Simple method. (b) Economical. (c) Suitable for small business. (d) All of these.
13. Limitations of single-entry systems are
(a) Incomplete and unscientific. (b) Trial balance is impossible.
(c) Difficult to find accuracy in the results. (d) All of the above.
14. Closing balance of bills receivable is ascertained
(a) From B/R a/c. (b) From Total creditors a/c. (c) From cash a/c. (d) From sales a/c.
III. True or false:

1. Incomplete records are also known as single entry system. (True)
2. Statement of affairs and Balance sheet both are the same. (False)
3. Statement of affairs is prepared to know the capital on a particular date. (True)
4. Incomplete records mechanism is un scientific method. (True)
5. Total debtor’s a/c is prepared to know the credit sales. (True)
6. Total creditors a/c is prepared to know credit purchases. (True)
7. Trial balance may be prepared under accounts from incomplete records. (False)
8. There is no difference between accounts from incomplete records and double entry system. (False)
9. Incomplete records mechanism is suitable for small traders. (True)
10. A company may be follow incomplete records mechanism as it is simple and suitable method. (False)

1. Give the meaning of incomplete records?
Ans. Accounting records which are not strictly kept according to double entry system are known as
incomplete records.
2. Mention any one feature of accounts from incomplete records?
Ans. (1) It is incomplete and an unsystematic method of recording transaction.
(2) Generally, it records cash transaction & personal accounts of debtors and creditors.
3. State any one possible reason for keeping incomplete records?
Ans. (1) It is less costly mode of maintaining records.
(2) It requires less time to maintain records.
4. Is it possible to prepare trial balance in incomplete records mechanism?
Ans. No.
5. Can a joint stock company maintain its book under incomplete records?
Ans. No.
6. Which are the accounts usually maintained in accounts from incomplete records?
Ans. (1) Cash book (Cash account)
(2) Difficult to ascertain correct profit or loss.
7. What is statement of affairs?
Ans. Statement of affairs is a statement of assets and liabilities of a business concern. It is prepared in case
of accounts from incomplete records. It is like a balance sheet.
8. Write any one limitation of accounts from incomplete records?
Ans. (1) Arithmetical accuracy of accounts cannot be ascertained.
(2) Difficult to ascertain correct profit or loss.
9. State any one difference between statement of affairs and balance sheet?
Ans. Statement of affairs: (1) It is prepared under incomplete records.
(2) It is less reliable.
(3) Its objective is to estimate the balance in capital a/c on a particular date.
(4) Omission of assets and liabilities cannot be discovered easily.
Balance sheet: (1) It is prepared under double entry system.
(2) It is more reliable.
(3) Its objective is to show the true financial position of business on a particular date.
(4) Omission of assets and liabilities can be discovered easily.
10. What is the necessity of preparing statement of affairs?
Ans. It is necessary to prepare statement of affairs to find out opening capital and closing capital.
11. What is adjusted closing capital?
Ans. The total of closing capital and drawings minus additional capital is adjusted closing capital.
Adjusted closing capital = Closing capital + Drawings - Additional capital.
12. What is statement of profit and loss?
Ans. It is a statement prepared under incomplete system of records to find out profit or loss of a business.
************************************
CHAPTER-12: Applications of Computers in Accounting

Section-A {1 Mark}
I. Fill in the Blanks: [Answers are in Bold letters]:
1. The different parts of computerized accounting system are input, processing and Output.
2. The financial components of computer system consist of input unit, CPU and Output unit.
3. Pay roll accounting is used for calculation of wages, salaries, bonus, etc.
4. Arithmetic and logic (ALU) unit is housed in the central processing unit and perform the calculation at
high speed.
5. The user-oriented Programmes, designed and developed for performing certain specific tasks are called
as Application software.
6. Language syntax is checked by software called as Language processer.
7. The people who write programmes to implement the date processing system design are called as
Programmes.
8. CPU is the brain of the computer.
9. Timelines and Relevance are two of the important requirements of an accounting report.
10. Data is a collection of facts and figures in a row.
11. Control Unit controls and coordinates all the devices of a computer.
II. Multiple Choice Questions: (Answers are in Bold letters):

1. Which of the following is not a feature of computer?
a) Speed b) Accuracy c) Memory d) Intelligence
2. Which of the following is not a basic component in an electronic digital computer?
a) Control unit b) Cost Unit c) Input Unit d) Storage Unit
3. Which one of the following is not a type of software used in the computer machines?
a) Input software b) Application software
c) Operating system d) Connectivity software
4. Which of the following is not a human data entry device?
a) Keyboard b) Sound card c) Touch screen d) Mouse
5. Which of the following is not an input device used in digital computers?
a) Keyboard b) Mouse c) Modem d) Touch pad
6. Computers do not play important role in:
a) Recording business transactions b) Payroll accounting
c) Locating thefts of cash d) Production control
7. Which of the following is not a basic function of accounting information system?
a) Software preparation b) Data manipulation
c) Documents preparation d) Data gathering.
III. True or False:

1. Computer process raw data and converts it into meaningful information. [True]
2. Like human beings, a computer can feel tiredness and lack of concentration. [False]
3. Computer systems are widely accepted due to their exceptional reliability. [True]
4. Computers maintain the record of personal life of an employee in payroll accounting. [False]
5. Control unit performs the calculations at the high speed. [False]
6. The different software are used for performing similar works. [False]
IV. Answer the following in one sentence (each carries one mark):
1. State any one element of computer system
Ans: (1) Hardware (2) Software
2. State any one type of software.
Ans: Operating system.
3. Write any one component of computer.
Ans: Input unit
4. Name any one feature of computer system.
Ans: The functional components of computer system consist of input unit, central processing system
and output unit.
5. Expand CPU.
Ans: Central Processing Unit.
6. Expand ALU.
Ans: Arithmetic and Logic unit.
7. Expand VDU.
Ans: Visual Display Unit.
8. Expand TPS.
Ans: Transaction Processing System.
9. Expand ATM.
Ans: Automated Teller Machine.
10. Expand PIN.
Ans: Personal Identification Number.
11. Expand DBMS.
Ans: Data Base Management System.
12. Expand SQL.
Ans: Structured Query Language.
13. State any one computerized accounting system.
Ans: Online input and storage of accounting data.
14. Expand MIS.
Ans: Management Information System.
15. Expand AIS.
Ans: Accounting Information System.
16. State any one type of MIS report.
Ans: Summary reports, i.e., Profit and Loss A/c and Balance sheet.
V. Answer the following: (each question carries one mark):

1. What is computer?
Ans: A computer is an electronic device, which is capable of performing variety of operations as directed
by a set of instructions.
2. State any two Elements of computer system?
Ans: a) Hardware b) Software c) People d) Procedures e) Data f) Connectivity.
3. What is Hardware?
Ans: Hardware means physical components of computer such as keyboard, mouse, monitor and
processor.
4. What is software?
Ans: A set of programmes, which is used to work with hardware is called software.
5. What are procedures?
Ans: The procedure means a series of operations in a certain or manner to achieve desired results.
6. What is data?
Ans: Data are facts and may consist of numbers, text etc...
7. State any two capabilities of computer system.
Ans: 1) High speed: Computers work with a high speed.
2) Accuracy: Computers provide accurate results.
3) Reliability: Computers are more reliable.
4) Versatility: Computers are able to perform a variety of tasks
5) Storage: Computers have huge capacity to store data or information.
8. Write any two limitations of computer system.
Ans: 1) Lack of common sense: Computer systems do not possess any common sense. They work
according to a stored program.
2) Zero IQ: Computers are dumb devices with zero intelligence quotient. They cannot visualize and
think what exactly to do under a particular situation.
3) Lack of decision making: Computers cannot take decisions on their own.
9. State any two components of computer.
Ans: 1) Input unit. 2) Central processing unit 3) Output unit.
10. Name any two input devices of computer system.
Ans: 1) Key board
2) Mouse
3) Optical scanner
4) Bar code reader
5) Smart card reader.
11. State any two units of CPU.
Ans: 1) Arithmetic and Logic unit (ALU)
2) Memory Unit
3) Control Unit.
12. State any two output devices of computer system.
Ans: 1) Monitor or Visual Display Unit
2) Printer
3)Magnetic Storage Devices.

13. Write any two features of computerized accounting system.
Ans: 1) Online input and storage of accounting data.
2) Printout of purchases and sales invoices.
3) Every account and transaction are assigned a unique code.
4) Grouping of accounts is done from the very beginning.
5) Instant reports for management; for example-income statement, balance sheet etc.
14. What is Management Information System? [MIS]?
Ans: A management information system is a system that provides the information necessary to take
decisions and manage an organisation effectively.
15. What is accounting information system [AIS]?
Ans: Accounting information system is a system of identifying, collecting. Processing, summarising and
communicating (reporting) economic information about a business organization.
16. What is a report?
Ans: When the related information is summarised to meet a particular need, it is called a report.
E.g., Summary reports i.e., P & L A/c and Balance sheet.
17. State any two essential features of an accounting report.
Ans: 1) Relevance 2) Timelines 3) Accuracy 4) Completeness 5) Summarisation
18. State any two MIS reports.
Ans: 1) Summary reports: E.g., Profit and Loss A/c and Balance sheet.
2) Demand reports: E.g., Bad debts report; Stock valuation report etc.
3) Customers / Suppliers reports: E.g., Statement of account, Van Eer Analysis report, Purchase
analysis.
4) Exception reports: E.g., Inventory Report in short supplies, Stock status query.
5) Responsibility Reports: E.g., Report on cash position given by Finance and Accounts department
to the top.
19. State any two types of software.
Ans: 1) Operating system
2) Utility programmes
3) Application software
4) Language Processors
5) System software
6) Connectivity software.
***********************************************
Chapter-13: Computerized Accounting System:

Section-A [1 mark]
5. Fill in the blanks:
1. The framework of storage and processing of data is called as Operating Environment .
2. Accounting software is an integral part of the computerized accounting system.
3. Modern computerised accounting systems are based on the concept of Data base.
4. Database is implemented using Data Base Management System (DBMS).
5. A sequence of actions taken to transform the data into certain useful information is called Data
processing.
6. Accounting software’s can be categorised into ready-to-use, tailor made and Customised.
7. Cost of development, installation and maintenance is high in case of Tailored accounting software’s.
8. An integrated set of objects will constitute the Programme.
9. Ready-to-use accounting software is suited to organizations running Small / conventional business.
10. The accounting software is generally tailored in Large business organizations.
11. An appropriate accounting software for a small business organization having only one user and single
office location would be Ready-to-use.
6. Multiple Choice Questions:

1. Which of the following is not an advantage of computerised accounting?
1. Speed b) Storage capability c) Lesser cost d) Versatility.
4. Which one of the following is not a drawback of computerised accounting?
1. Loss of data b) Fraud and embezzlement c) Less costly d) Regular training.
5. Which one of the following is not an advantage of readymade software?
a). More reliable b) Economical c) Ready to use features d) Easy to install.
4. Which one is the following is not a disadvantage of tailor-made software?
1. Higher development cost b) Complex interface
c) Dependence on specialised persons d) Lesser flexibility.
III. True or False:

1. The data content of financial transactions is stored in well-designed database in computerised
accounting. [True]
2. Computerised accounting system offer on-line facility to store and process transaction data. [True]
3. In manual accounting, concurrent posting in the ledger is not possible. [True]
4. In computerised accounting, the possibility of loss of data is quite remote. [False]
5. Many irrelevant accounting heads are available to the users in ready-to-use software’s. [True]
6. The development and maintenance cost is comparatively less in tailor made accounting software’s.
[False]
Section-B [2 marks]
1. Expand DBMS.
Ans: Data Base Management System.
2. State any one basic requirement of computerised accounting system.
Ans: 1) Accounting frame work
2) Operating procedure
3. State any one basic requirement of a data base applications.
Ans: 1) Front - end Interface
2) Back – end Database
3) Data Processing
4) Reporting system
4. State any one advantage of computerized accounting system.
Ans: 1) Speed: Accounting data is processed faster.
5. Write any one limitations of computerized accounting system.
Ans: Staff opposition: Whenever the accounting system is computerized, there is a significant degree of
resistance from the existing accounting staff.
6. Give any one example for accounting software.
Ans: 1) Tally 2) Ex.
7. State any one accounting package (software).
Ans: 1) Ready to use.
2) Customized
3) Tailored.
8. Write any one advantage of ready to use accounting software.
Ans: 1) It is less costly.
2) It is easier to learn.
3) It is suitable to small business organizations.
9. Write any one limitation of ready to use accounting software.
Ans: 1) Its level of secrecy is relatively low.
2) The software is exposed (prone) to data frauds.
3) Linking to other information system is very difficult.
10. Write any one advantage of customized accounting software.
Ans: 1) Secrecy of data and software can be better maintained.
2) It can be linked to other information systems.
3) It is suitable to large and medium business.
11. Write any one limitation of customized accounting software.
Ans: 1) Cost of installation and maintenance is relatively high.
2) Cost of training is high.
12. Write any one advantage of tailored accounting software.
Ans: 1) Secrecy of data and software can be maintained.
2) It can be linked to other information systems.
3) It is suitable to large business houses with multi users.
13. Write any one limitation of tailored accounting software.
Ans: 1) Cost of installation and maintenance is high
2) Cost of training is high.

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SHANTHI SSK Pre-University College, Pavagada

1. Which of the following is not a business transaction?

c) Ascertain the profit and loss

6. Who are Debtors?

I. Answer the following questions, each question carries TWO mark:

E.g. Long-term loan, Debentures.

Chapter-02: Theory Base of Accounting

Ans: Double entry system.

V. Answer the following questions, each question carries TWO marks:

Chapter-3: RECORDING OF TRANSCATION - 1

II. Choose the correct answer:

III. State true or false:

10. Increase in capital is created. {True}

10. Write any two examples of liabilities?

Chapter-4: RECORDING OF TRANSCATION - 2nd

I. Fill in the blanks:

II. Choose the correct answer:

8. The periodical total of purchases returns journal is posted to.

III. True or false:

12. Ledger is a subsidiary book. (False)

IV. Answer the following:

19. What is petty cash book?

Chapter – 5: BANK RECONCILIATION STATEMENT

I. Answer the following questions:

9. What do you understand by the following?

Chapter - 6: TRIAL BALANCE AND RECTIFICATION OF ERRORS.

I. Fill in the blanks:

II. Choose the correct answer:

7. Which of the following a/c can rectify through suspense a/c.?

III. True or false:

(4) Compute the total of credit balance column.

18. When a suspense a/c is opened?

Chapter-7: DEPRICIATION, PROVISIONS AND RESERVES.

11. Give four examples for reserves?

Chapter-08: BILLS OF EXCHANGES.

II. Choose the correct answer:

III. True or false:

IV. Answer the following questions:

Ans. (1) A bill of exchange must be in writing. OR (2) It must be stamped.

5. Who is a drawer of a bill?

Chapter – 9: FINALCIAL STATEMENT - 1st

13. What is deferred revenue expenditure?

25. Expand EBIT?

and capital) Contained in the balance sheet of last year.

Chapter – 10: FINANCIAL STATEMENT - 2nd

II. Choose the correct answer:

5. 5. Outstanding expenses account is a liability account. (True)

IV. Answer the following: (1 Mark)

13. What is unearned income? (Or income received in advance)

Chapter – 11: ACCOUNTS FROM INCOMPLETE RECORDS

II. Choose the correct answers:

III. True or false:

IV. Answer the following:

CHAPTER-12: Applications of Computers in Accounting

II. Multiple Choice Questions: (Answers are in Bold letters):

III. True or False:

V. Answer the following: (each question carries one mark):

3)Magnetic Storage Devices.

Chapter-13: Computerized Accounting System:

6. Multiple Choice Questions:

III. True or False:

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