accounts nchmct sem-2 question solved year-2014/15

Q.1. The Trial Balance given below contains certain mistakes. Redraft the Trial Balance:                                                                                                                        (10)

ANS:                                    TRIAL BALANCE of……

As on...

PARTICULARS	L.F	DEBIT	CREDIT
Machinery		17,000
Bad debts		2,800
Bank overdraft			10,000
Building		60,000
Cash		400
Purchase return			2,600
Discount received			3,000
Purchases		1,00,000
Creditors			50,000
Capital			73,600
Interest received			2,600
Sales			1,04,000
Debtors		60,000
furniture		5,600
total		245800	245800

 

 

                                                                      OR                                                           (5+5)

(a)  What is the meaning and purpose 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

 Purpose of a Trial Balance

▪          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 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.

 

(b)  Explain the methods of preparing Trial Balance.

ANS: There are 2 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.

 

Q.2. What is the meaning of Journal? Explain the contents of Journal format and show how posting is done in it by any two imaginary transactions.      (10)

ANS:  A journal is a detailed account that records all the financial transactions of a business in order by date, to be used for future reconciling of and transfer to other official accounting records, such as the general ledger.

Form of Journal:

 

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.

 

 example,

 

Q.3.                                                                                                                           (5)

 (a) Explain briefly any five Generally Accepted Accounting Principles.

ANS:

1.    Economic entity assumption. Financial records must be separately maintained for each economic entity.

2.     Monetary unit assumption. An economic entity's accounting records include only quantifiable transactions.

3.     Time period assumption. Most businesses exist for long periods of time, so artificial time periods must be used to report the results of business activity.

4.     Matching principle. The costs of doing business are recorded in the same period as the revenue they help to generate.

5.     Cost principle. Assets are recorded at cost, which equals the value exchanged at the time of their acquisition.

(c)   How Accounting, Book-keeping and Accountancy are different?

ANS: Accounting- Accounting is the process of summarizing, interpreting, and communicating financial transactions which were classified in the ledger account.

         Book-keeping- Bookkeeping is mainly related to identifying, measuring, and recording, financial transactions.

         Accountancy- is the practice of recording, classifying, and reporting on business transactions for a business.

Q.4. What do you understand by Bank Reconciliation Statement? Briefly explain any four reasons for preparing this statement. (10)

ANS: A bank reconciliation statement is a summary of banking and business activity that reconciles an entity's bank account with its financial records. The statement outlines the deposits, withdrawals and other activities affecting a bank account for a specific period. Bank reconciliation statements ensure payments have been processed and cash collections have been deposited into the bank. The reconciliation statement helps identify differences between the bank balance and book balance, in order to process necessary adjustments or corrections.

      The four reasons for preparing this statement are-

1.      Dishonor of Cheques– Firm credits its account as and when it deposits a cheque with the bank. However, the information of cheque being dishonored is received later to the firm. As a result, difference remains till it is debited back in the account.

2.      Errors in Recording Transactions- While preparing cash book, firm might make few errors like missing out sale entry or other important transactions, wrong balancing, and recording transactions in other ledgers which should be recorded in cash book, etc. All these lead to the difference in balances between cash book and pass book.

3.      .Credit Transfer– Sometimes, the debtors deposit money directly into the firm’s bank account without giving any notification to the firm. In this case, bank credits the firm’s account but the same is not recorded in the cash book. Therefore, difference occurs.

4.      Direct Debit– In some cases, firm gives instructions to bank to pay amount due directly to the payee on due date. This way, bank debits the firm’s account but the firm forgets to make an entry in the cash book.

 

 

Q.5. Enter the following transactions in suitable Cash Book:

2013

April 1 Cash balance 50,000/- Bank balance 1,70,000/-

April 6 Rent paid by cheque 20,000/-

April 10 Goods purchased for 35,000/-

April 18 Received interest in cash 7,000/-

April 22 Withdrew from bank for office use 15,000/-

 April 27 Sold goods for cash 17,000/-

April 29 Paid wages 3,000/-

April 30 Purchased stationery 4,000/-

April 30 Received cheque from Rishi 10,000/-

April 30 Paid to Hari by cheque 25,000/-

 

 

 

OR

(a)  Why Cash Book is maintained in the business? (2+3+3+2=10)

ANS:

1.  Daily cash receipts and cash payments are easily ascertained.
2. Cash in hand at any time can easily be ascertained through Cash Book balance.

 

(b)  Give format of three column cash book.

ANS:

(c)   What is the difference between Cash Book and Petty Cash Book?

ANS:

Cash book	Petty cash book
·         It records all the cash transaction of the business.	·         It is a small amount of money reserved for the daily expenses.
·         It is the main account.	·         It is a secondary account.
·         No another person is appointed.	·         Petty cashier is appointed.

 

(d)  What is ‘Contra Entry’?

  ANS: In dual entry accounting system, a Contra Entry is an entry which is recorded to reverse or offset an entry on the other side of an account. If a debit entry is recorded in an account, contra entry will be recorded on the credit side and vice-versa. It is denoted by ‘c’ in L.F column.

 

Q.6. (a) Explain why ‘Ledger’ is the principal book of business. Give the procedure for balancing Ledger account.                                        (5+5)

 

ANS: The ledger is a permanent summary of all amounts entered in supporting journals which list individual transactions by date. Every transaction flows from a journal to one or more ledgers. A company's financial statements are generated from summary totals in the ledgers.

Ledgers include:

●        Sales ledger, records accounts receivables. This ledger consists of the financial transactions made by customers to the company.

●        Purchase ledger records money spent for purchasing by the company.

●        General ledger representing the 5 main account types: assets, liabilities, income, expenses, and Capital.

For every debit recorded in a ledger, there must be a corresponding credit so that the debits equal the credits in the grand totals.

And after the debit and the credit are written they are totaled and which side is lower in amount is added with that difference amount by writing balance c/d (carried down) on the last of that month and then both sides are balanced. After that that balancing figure is b/d (bought down) to the first date of another month.

 

 (b) Differentiate Ledger and Journal.

ANS:

OR

 Post the following transactions into Ledger. Balance each Ledger at the end of the month:

04.05.2013 Purchased furniture worth Rs.65,000/-

13.05.2013 Paid wages Rs.5,000/-

21.05.2013 Sold goods to M/s. Durga Traders for Rs.80,000/-

24.05.2013 Purchased equipment and paid cheque of Rs.27,000/- for it.

28.05.2013 Purchased stationery for Rs.3,000/-

30.05.2013 Sold goods for Rs.90,000/-

Journal entries (rough)

05/04    Furniture a/c……….dr, 65000

                        To cash a/c                     65000

05/13    wages a/c……………dr,  5000

                        To cash a/c                     5000

05/21     cash a/c,…………..dr,   80000

                         To sales a/c                     80000

05/24       equipment a/c……….dr, 27000

                          To bank a/c                       27000

05/28        stationery a/c………..dr,  3000

                           To cash a/c                       3000

05/30       cash a/c………………dr,  90000

                            To sales a/c                      90000

 

 

Q.7. Journalise the following transactions:

 01.04.2013 Mr. Shiv started business with cash Rs.5,00,000/-

02.04.2013 Purchased goods from M/s. Lakshmi Rs.35,000/-

10.04.2013 Deposited into bank Rs.3,00,000/-

14.04.2013 Paid by cheque the telephone charges Rs.7,000/-

20.04.2013 Sold to Vishnu goods worth Rs.14,000/-

22.04.2013 Withdrew for personal use Rs.6,000/- from business

22.04.2013 Vishnu returned goods worth Rs.200/- as being defective

25.04.2013 Paid M/s. Lakshmi Rs.15,000/-

27.04.2013 Vishnu settled his account by paying cheque Rs.13,500/-

30.04.2013 Paid rent by cheque Rs.12,000/-

Journal of…………….

As on………………….

 

OR

Explain the three types of Accounts with examples. Give their respective rules of journalizing the transactions. Is it possible to pass a single journal entry for two or more transactions?

ANS: There are three types of accounts:-

1.     Personal account

2.     Real account

3.     Nominal account

 

·         Personal account- These accounts are related to individuals, firms, companies, etc. A few examples of personal accounts include debtors, creditors, banks, outstanding/prepaid accounts, accounts of credit customers, accounts of goods suppliers, capital, drawings, etc.

 

Rule of personal account is:-

Debit the receiver

Credit the giver

 

·         Real account- All assets of a firm, which are tangible or intangible, fall under the category “Real Accounts“.

Tangible real accounts are related to things that can be touched and felt physically. A few examples of tangible real accounts are building, machinery, stock, land, etc.

Intangible real accounts are related to things that can’t be touched and felt physically. A few examples of such real accounts are goodwill, patents, trademarks, etc.

     Rule of real account is:-

Debit what comes in

Credit what goes out

 

Nominal accounts- Accounts which are related to expenses, losses, incomes or gains are called Nominal accounts. The dictionary meaning of the word “nominal” “exists in name only” and the meaning remains absolutely true in accounting sense too, because nominal accounts do not really exist in physical form, but behind every nominal account money is involved. E.g. Purchase A/C, Salary A/C, Sales A/C, Commission received A/C, etc. The final result of all nominal accounts is either profit or loss which is then transferred to the capital account.

        Rule of real account is:-

Debit all expenses & losses

Credit all incomes & gains

 

Yes it is possible for some entries to pass a single entry for two transactions. They are known as Compound Journal Entry.

 

Q.8. State in which subsidiary books the following transactions will be recorded: 

(a) Credit sale of assets. (journal proper)

(b) Cash purchases of goods.(cash book)

(c) Loss of goods by fire. (journal proper)

(d) Credit sale of goods. (sales book)

(e) Return of goods to the business which was sold earlier.(sales return book)

(f) Furniture purchased for cash. (cash book)

(g) Withdrawal of goods for personal use from the business.(journal proper)

(h) Purchased machinery on credit. (journal proper)

(i) Goods purchased earlier returned back to the supplier as being damaged.(purchase return book)

(j) Sold goods in cash.(cash book)

 

Q.9. (a) Explain the meaning and purpose of preparing Final Accounts.

ANS: Final accounts give an idea about the profitability and financial position of a business to its management, owners, and other interested parties. All business transactions are first recorded in a journal. They are then transferred to a ledger and balanced. These final tallies are prepared for a specific period. The preparation of a final accounting is the last stage of the accounting cycle. It determines the financial position of the business. Under this it is compulsory to make trading account, the profit and loss account and balance sheet.

 

(b) Identify the following under Capital Expenditure, Revenue Expenditure and Deferred Revenue Expenditure:

(i) Maintenance charges paid for machinery of the business.(revenue expenditure)

 (ii) Purchased laundry machine for commercial use.(capital expenditure)

 (iii) Installed photocopier in the office.(capital expenditure)

 (iv) Purchased material for production.( revenue expenditure)

(v) Expenditure on purchase of stationery.(revenue expenditure)

(vi) Expenditure incurred on research and experiments.(deferred revenue expenditure)

 

Q.10. From the following Trial Balance, prepare Trading Account and Profit & Loss Account for the year ended 31st March 2013 and a Balance Sheet as on that date:

 

ANS: