accounts nchmct sem-2 question solved year-2015/16

Q.1. What are Golden Rules of Accounts? Explain them with the help of a chart and examples

ANS:  There are three golden rules of accounts:-

1. Debit The Receiver, Credit The Giver

This principle is used in the case of personal accounts. When a person gives something to the organization, it becomes an inflow and therefore the person must be credit in the books of accounts. The converse of this is also true, which is why the receiver needs to be debited.

Example- Receive rs 10000 from ram.

Cash a/c………..dr,  10000

       To ram a/c,                    10000

 

2. Debit What Comes In, Credit What Goes Out

This principle is applied in case of real accounts. Real accounts involve machinery, land and building etc. They have a debit balance by default. Thus when you debit what comes in, you are adding to the existing account balance. This is exactly what needs to be done. Similarly when you credit what goes out, you are reducing the account balance when a tangible asset goes out of the organization.

Example- Purchase furniture of Rs 5000.

Furniture a/c……………..dr,     5000

      To cash a/c,                                       5000

 

3. Debit All Expenses And Losses, Credit All Incomes And Gains

This rule is applied when the account in question is a nominal account. The capital of the company is a liability. Therefore it has a default credit balance. When you credit all incomes and gains, you increase the capital and by debiting expenses and losses, you decrease the capital. This is exactly what needs to be done for the system to stay in balance.

Example- capital(credit)

                General expenses(debit)

OR

Q. Explain any five accounting concepts and conventions with examples.

ANS: The five accounting concepts and conventions are:-

1.   Business Entity Concept

According to this concept, the business and the owner of the business are two different entities. In other words, I and my business are separate.

2.   Money Measurement Concept

According to this concept, “we can book only those transactions in our accounting record which can be measured in monetary terms.”

3.   Going Concern Concept

Our accounting is based on the assumption that a business unit is a going concern. We record all the financial transaction of a business in keeping this point of view in our mind that a business unit is a going concern; not a gone concern. Otherwise, the banker will not provide loans, the supplier will not supply goods or services, the employees will not work properly, and the method of recording the transaction will change altogether.

4.    Dual Aspect Concept

There must be a double entry to complete any financial transaction, means debit should be always equal to credit. Hence, every financial transaction has its dual aspect:

●        we get some benefit, and

●        we pay some benefit.

 

5.   Accounting Period Concept

The life of a business unit is indefinite as per the going concern concept. To determine the profit or loss of a firm, and to ascertain its financial position, profit & loss accounts and balance sheets are prepared at regular intervals of time, usually at the end of each year. This one-year cycle is known as the accounting period. The purpose of having an accounting period is to take corrective measures keeping in view the past performances, to nullify the effect of seasonal changes, to pay taxes, etc.

Convention of acoounts are:-

1.   Convention of Consistency

To compare the results of different years, it is necessary that accounting rules, principles, conventions and accounting concepts for similar transactions are followed consistently and continuously. Reliability of financial statements may be lost, if frequent changes are observed in accounting treatment. For example, if a firm chooses cost or market price whichever is lower method for stock valuation and written down value method for depreciation to fixed assets, it should be followed consistently and continuously.

2.   Convention of Disclosure

The Companies Act, 1956, prescribed a format in which financial statements must be prepared. Every company that fall under this category has to follow this practice. Various provisions are made by the Companies Act to prepare these financial statements. The purpose of these provisions is to disclose all essential information so that the view of financial statements should be true and fair. However, the term ‘disclosure’ does not mean all information. It means disclosure of information that is significance to the users of these financial statements, such as investors, owner, and creditors.

3.   Convention of Materiality

If the disclosure or non-disclosure of information might influence the decision of the users of financial statements, then that information should be disclosed.

For better understanding, please refer to General Instruction for preparation of Statement of Profit and Loss in revised scheduled VI to the Companies Act, 1956:

●        A company shall disclose by way of notes additional information regarding any item of income or expenditure which exceeds 1% of the revenue from operations or Rs 1,00,000 whichever is higher.

●        A Company shall disclose in Notes to Accounts, share in the company held by each shareholder holding more than 5% share specifying the number of share held.

4.   Conservation or Prudence

It is a policy of playing safe. For future events, profits are not anticipated, but provisions for losses are provided as a policy of conservatism. Under this policy, provisions are made for doubtful debts as well as contingent liability; but we do not consider any anticipatory gain.

 

Q.2. Journalise the following transactions:

Journal book of………….

As on…………

 

OR

Q. Explain the process of journalizing and journal book with the formats.

ANS: The act of recording transactions in journal is called journalising. The rules/process may be summarised as follows:

1. Use two separate lines for writing the names of the two accounts concerned in each transaction.
2. write the name of the debtor or account to be debited in the first line and the name of the creditor or the account to be credited in the next line
3. Write the name of the account to be debited close to the line starting the particulars column and that of the account to be credited at a short distance from this line.
4. Use "Dr" after each debit item and "To" before each credit. The term "Cr." after a credit item is unnecessary, as if one account is debtor, the other must be creditor. Ex-

 

Account name a/c………………dr,

           To account name  a/c,

 

5. To separate one entry from another a line is drawn below every entry to cover particulars column only. The line does not extend to amount column.

Journal:-

In accounting and bookkeeping, a journal is a record of financial transactions in order by date. A journal is often defined as the book of original entry. The definition was more appropriate when transactions were written in a journal prior to manually posting them to the accounts in the general ledger or subsidiary ledger.

Formats:-

Column (1)	is meant for writing the date of the transaction.
Column (2)	is used for recording the names of the two accounts affected by transactions.
Column (3)	is meant for noting the number of the page of the ledger on on which the particular account appears in that book.
Column (4)	shows the amount to be debited to the account named.
Column (5)	shows the amount to be credited to the account stated.

 

Q.3. Explain Bank Reconciliation Statement. What are the causes for the difference between Cashbook and Passbook?            (10)

ANS: Bank Reconciliation Statement:

Every entity has to prepare a bank reconciliation statement. This statement indicates the differences between the passbook and the cash book of the entity. By reconciling the differences that exist between the two, a Bank Reconciliation Statement helps in arriving at the exact value of the amount of bank balance held on a particular date.

 

The causes of  the difference between cash book and pass book:-

 

1. Cheques issued but not yet presented for payment in the Bank-When a cheque is issued to a creditor by the firm, it is immediately recorded on the credit side of the bank column of the cash book. But the bank will debit the firm’s account only when this cheque is actually presented to the bank for payment. Generally, there is a gap of some days between the issue of a cheque and its presentation to the bank.

 

2. Cheque paid into the bank for collection but not yet credited/collected by the bank-When a firm receives cheques, drafts etc. from its customers, they are immediately deposited into the bank for collection and an entry is made on the debit side of the bank column of the cash book. But the bank will credit the firm’s account only when it has actually collected the payment of these cheques from other banks. Again there will be a gap of some days between the depositing of the cheques into the bank and credit given by the bank.

 

3. Cheques paid into the bank for collection but dishonoured by the bank- When cheque received from outside parties are deposited with the bank, these are immediately recorded on the debit side of the bank column of the cash book, but if the cheques are dishonoured, the bank will not make any entry in the credit of the customer’s account. As a result, the cash book will show an increased balance in comparison to the passbook.

 

4. Interest allowed by the bank

Interest allowed by the bank is credited to the firm, but unless information is received by the

firm from the bank to this effect, no entry is recorded in the bank column of the cash book.

The difference in these balances may arise because of the following reasons.

 

5, Interest and dividend collected by the bank

If the bank collects dividend on shares, interest on investments, etc on behalf of its customer,

it credits the amount in the passbook. This will increase the balance in the passbook and a

difference in the two balances will exits unless a corresponding entry is recorded in the cash

book by the firm.

 

6. Direct payment through bank

An account holder can instruct the bank to make certain payments such as insurance

premium, rent of the shop, electricity and mobile bills, loan installment, etc. on the behalf.

The bank will debit the party’s account on making the payment.

 

Q.4. What is Capital and Revenue Expenditure? Explain with examples.         (5)

ANS: Capital Expenditure:

Capital expenditure includes costs incurred on the acquisition of a fixed asset and any subsequent expenditure that increases the earning capacity of an existing fixed asset.The cost of acquisition not only includes the cost of purchases but also any additional costs incurred in bringing the fixed asset into its present location and condition (e.g. delivery costs).Capital expenditure, as opposed to revenue expenditure, is generally of a one-off kind and its benefit is derived over several accounting periods. Capital Expenditure may include the following:

Purchase costs (less any discount received)

Delivery costs

Legal charges

Installation costs

Up gradation costs

Replacement costs

Revenue Expenditure:

Revenue expenditure incurred on fixed assets include costs that are aimed at 'maintaining' rather than enhancing the earning capacity of the assets. These are costs that are incurred on a regular basis and the benefit from these costs is obtained over a relatively short period of time. For example, a company buys a machine for the production of biscuits. Whereas the initial purchase and installation costs would be classified as capital expenditure, any subsequent repair and maintenance charges incurred in the future will be classified as revenue expenditure. This is so because repair and maintenance costs do not increase the earning capacity of the machine but only maintains it. Examples-

Repair and maintenance

Stationery expenses

General expenses

Q.5. Prepare the accounts of Jaiswal and Co. from the following information:

 

Journal entries(rough)

Dec 4      cash a/c…..dr,     4000

                   To sales a/c            4000

Dec 8     furniture a/c….dr,    20000

                   To jaiswal & co. a/c    20000

Dec 12   jaiswal & co. a/c….dr,  6000

                   To sales a/c                     6000

Dec 15   sales return a/c…..dr,   400

                    To jaiswal a/c                 400

Dec 20   jaiswal & co. a/c…dr,     4400

                 To discount received a/c,     300

                 To bank a/c                          4100

   

 

Q.6. Enter the following in subsidiary books:                          (10)

ANS:

OR

Explain the sub-division of a journal. Give all the formats of subsidiary books and explain each.

ANS: Journal is mainly divided into two:

·        Special journal- a journal in which transactions relating to a certain special group are recorded. Ex- purchase book, sales book, purchase return book, sales return book, bills payable book , bills receivable book , journal proper, cash book.

·        General journal- The transactions which do not fall within the scope of above mentioned books, are recorded in this journal e.g. purchase of an asset on credit, depreciation on assets, expenses payable, bad debts etc. It is also known as journal proper, Modern journal or principle journal. Some authors call it only "journal".

The formats of subsidiary books are:-

It records all the credit transactions of purchase of goods with deduction of tax or any other expenses if any.

  

 

            It records all the credit transaction of sales of goods with deduction of tax or any other expenses if any.

 

It records all creditors and bills payable transactions.

It records all the debtors and bills receivable transactions.

Q.7. Prepare a three column cash book for recording the following transactions: (10)

 

 

ANS:

Journals (rough)

March 2      cash a/c…………………..dr,   5400

                   Discount allowed a/c……..dr,  600

                               To sales a/c,                      6000

March 5       purchase a/c……………dr,   1500

                               To bank a/c,                        1500

March 7      rent a/c……………………dr,   1000

                                To cash a/c,                        1000

March 9     bank a/c…………………….dr,   2000

                                To cash a/c,                          2000

March 10    bank a/c…………………..dr,    900

                    Discount allowed a/c……dr,   100

                                 To arun a/c                        1000

 

March 11    cash a/c………………..dr,        700

                            To commission received a/c    700

March 12    arun a/c……………..dr,            900

                            To bank a/c.                            900

March14     wages a/c……………dr,           100

                             To cash a/c                             100

 

Q.8. Prepare a Trading, Profit & Loss Account and Balance Sheet from the following Trial Balance adjustments:                                                   (20)

ANS:

Q.9. What is Trial Balance? Explain the methods of preparing Trial Balance. (10)

ANS: Trial Balance is a list of closing balances of ledger accounts on a certain date and is the first step towards the preparation of financial statements. It is usually prepared at the end of an accounting period to assist in the drafting of financial statements. Ledger balances are segregated into debit balances and credit balances. Asset and expense accounts appear on the debit side of the trial balance whereas liabilities, capital and income accounts appear on the credit side.

The methods of preparing trial balance are:-

 

1. Total Method:

In this method, ledger accounts are not balanced. They are totaled. These totals are entered in the debit and credit columns. The grand total of debit column will be equal to the total of the credit column.

2. Balance Method:

Under this method, the closing balances of ledger accounts are tabulated in a separate statement. The brought down balances are brought to this statement.

All debit balances are shown in the debit column and all credit balances in the credit column. This method is more commonly used one.

3. Compound method:

 Under this method, total of both the sides of the accounts are written in a separate column. Along with this, the balances are also written in the separate columns. Debit balance are written in the debit column and credit balances are written in the credit column of the trial balance.

Or

Q.What is Trial balance? Explain what are the advantages of Trial Balance.

ANS: : Trial Balance is a list of closing balances of ledger accounts on a certain date and is the first step towards the preparation of financial statements. It is usually prepared at the end of an accounting period to assist in the drafting of financial statements. Ledger balances are segregated into debit balances and credit balances. Asset and expense accounts appear on the debit side of the trial balance whereas liabilities, capital and income accounts appear on the credit side.

 

 

The advantages of trial balance are:-

▪          Trial Balance acts as the first step in the preparation of financial statements. It is a working paper that accountants use as a basis while preparing financial statements.

▪          Trial balance ensures that for every debit entry recorded, a corresponding credit entry has been recorded in the books in accordance with the double entry concept of accounting. If the totals of the trial balance do not agree, the differences may be investigated (identify) and resolved before financial statements are prepared. Rectifying basic accounting errors can be a much lengthy task after the financial statements have been prepared because of the changes that would be required to correct the financial statements.

▪          Trial balance ensures that the account balances are accurately extracted from accounting ledgers.

▪          Trial balance assists in the identification and rectification of errors.

Q.10. State True or False:    (5)

(a) Petty cash book is called as subsidiary book and ledger account. false

(b) Discount allowed is a loss. true

(c) Real account says debit the receiver credit the giver. false

 (d) Outstanding salary is a liability.true

(e) Every transaction has minimum two accounts. True.