Question 1

A trade bill arises from:

Accepted Answer

Trade bills arise from genuine sale/purchase on credit.

Question 2

Consistency in stock valuation means:

Accepted Answer

Consistency requires same method for comparability.

Question 3

Pass book is prepared by:

Accepted Answer

Pass book (bank statement) is prepared by bank.

Question 4

Depreciation is:

Accepted Answer

Depreciation is a non-cash expense charged to spread cost of asset over useful life.

Question 5

Outstanding expenses are shown as:

Accepted Answer

Outstanding expenses are payable amounts and shown as current liabilities.

Question 6

Error of principle relates to:

Accepted Answer

Error of principle violates accounting principles, e.g., capital vs revenue.

Question 7

Outstanding salary account is classified as:

Accepted Answer

Outstanding salary represents a group of employees to whom salary is payable; hence it is a representative personal account (also a liability in modern view).

Question 8

The golden rule for personal accounts is:

Accepted Answer

For personal accounts, the traditional rule is: debit the receiver and credit the giver.

Question 9

BRS is prepared to reconcile:

Accepted Answer

BRS reconciles the bank balance as per cash book with pass book.

Question 10

Journal is known as:

Accepted Answer

Journal is the first book where transactions are recorded, hence book of original entry.

Question 11

Which of the following is a nominal account?

Accepted Answer

Purchases is treated as a nominal account (expense) in basic accounting. Cash is a real account (asset), bank loan is liability, and Suresh is a personal account.

Question 12

Cash book is:

Accepted Answer

Cash book is a book of original entry and also serves as ledger for cash/bank.

Question 13

Sales returns are deducted from:

Accepted Answer

Sales returns reduce net sales.

Question 14

Contra entries are recorded in:

Accepted Answer

Contra entries arise between cash and bank columns of cash book.

Question 15

Bad debts recovered are treated as:

Accepted Answer

Bad debts recovered are credited as income in the year of recovery.

Question 16

Discounting means:

Accepted Answer

Discounting is converting a bill into immediate cash after deducting discount.

Question 17

Preference shares generally have:

Accepted Answer

Preference shareholders have preferential right to dividend and repayment of capital.

Question 18

Provision for doubtful debts is created to show debtors at:

Accepted Answer

Debtors are presented at net realisable value after deducting expected losses.

Question 19

If discounted bill is dishonoured, entry is:

Accepted Answer

On dishonour, bank debits us; debtor becomes liable again: Debtor Dr To Bank.

Question 20

Provision for doubtful debts is shown in balance sheet as:

Accepted Answer

Provision is deducted from debtors to show net realisable value.

Question 21

Define reserve.

Accepted Answer

Reserve is an appropriation of profit created after profit is ascertained to strengthen financial position or meet future requirements.

Question 22

What is written down value method?

Accepted Answer

Written down value method charges depreciation at a fixed rate on the reducing book value of the asset each year.

Question 23

Define inventory.

Accepted Answer

Inventory is the stock of goods held for sale or for use in production in the normal course of business.

Question 24

Write the golden rule for real account.

Accepted Answer

The golden rule for real accounts is: Debit what comes in and credit what goes out.

Question 25

What is straight line method?

Accepted Answer

Straight line method charges the same amount of depreciation every year over the useful life of the asset.

Question 26

Define depreciation.

Accepted Answer

Depreciation is the systematic allocation of the cost of a fixed asset over its useful life.

Question 27

Define subsidiary books.

Accepted Answer

Subsidiary books are special journals maintained to record similar transactions separately, such as purchases book, sales book and returns books.

Question 28

Define double entry system.

Accepted Answer

Double entry system is a system of bookkeeping in which every transaction is recorded in two accounts—one is debited and another is credited—for the same amount.

Question 29

Where is provision for doubtful debts shown in balance sheet?

Accepted Answer

Provision for doubtful debts is shown as a deduction from sundry debtors to arrive at net realisable value.

Question 30

State the accounting equation.

Accepted Answer

$$\text{Assets} = \text{Liabilities} + \text{Capital}$$

Question 31

Differentiate between bills receivable and bills payable.

Accepted Answer

Bills receivable are bills accepted by customers and held by the business, so they represent an amount **receivable** and are shown as **assets**. Bills payable are bills accepted by the business in favour of suppliers/creditors, so they represent an amount **payable** and are shown as **liabilities**. Bills receivable are debited when received and credited when realised/endorsed/discounted; bills payable are credited on acceptance and debited on payment.

Question 32

Pass journal entry for depreciation (with provision account).

Accepted Answer

When provision for depreciation is maintained, depreciation is charged as expense and accumulated separately. Journal entry is:

Depreciation A/c Dr.
	To Provision for Depreciation A/c

(Depreciation A/c is transferred to Profit & Loss account; provision appears as deduction from the asset in balance sheet.)

Question 33

Explain objectives of trial balance.

Accepted Answer

Trial balance is prepared mainly to ensure arithmetical accuracy of the ledger and to support preparation of final accounts. Its main objectives are: (i) to check that total debit balances equal total credit balances, which indicates that posting and casting are arithmetically correct; (ii) to provide a summary of ledger balances at one place so that accounts can be reviewed quickly; (iii) to act as a base document for preparing Trading Account, Profit & Loss Account and Balance Sheet; and (iv) to help in locating errors because disagreement in totals signals mistakes in recording/posting/balancing.

Question 34

Differentiate between SLM and WDV methods.

Accepted Answer

Under Straight Line Method (SLM), depreciation is calculated on original cost (less scrap value) and the same amount is charged every year. Under Written Down Value (WDV) method, depreciation is calculated at a fixed rate on the reducing book value, so depreciation is higher in early years and lower in later years. SLM suits assets with uniform benefits (e.g., buildings), while WDV suits assets that lose efficiency quickly or become obsolete (e.g., machinery, computers).

Question 35

Explain how provision for doubtful debts is shown in balance sheet.

Accepted Answer

Debtors are shown at their net realisable value. Therefore, from gross sundry debtors, further bad debts (if any) are deducted first, and then provision for doubtful debts is deducted. The presentation is: Debtors (Less: bad debts, Less: provision for doubtful debts) = Net debtors. This prevents overstatement of current assets and presents the likely amount to be realised from debtors.

Question 36

Explain journal and ledger and describe posting with an example.

Accepted Answer

### Journal
Journal is the book of original entry in which transactions are recorded first in chronological order. Each entry shows the debit and credit accounts, amount, and narration. Journal provides a systematic and dated record of all transactions.

### Ledger
Ledger is the principal book of accounts. It contains separate accounts for each item such as Cash, Purchases, Sales, Rent, Debtors, Creditors, etc. The purpose of ledger is classification—bringing together all transactions of a similar nature in one account so that the balance of that account can be found.

### Posting (process)
Posting means transferring the journal entry information to ledger accounts. The debit account in the journal is posted on the debit side of that ledger account, and the credit account in the journal is posted on the credit side of that ledger account (with cross-references).

**Example:** Rent paid ₹2,000
Journal entry: Rent A/c Dr. ₹2,000
	To Cash A/c ₹2,000
Posting:
- Rent A/c is debited ₹2,000 in the ledger (because rent expense increases).
- Cash A/c is credited ₹2,000 in the ledger (because cash decreases).

Thus, journal provides the first record and ledger provides account-wise classification for preparing trial balance and final accounts.

Question 37

Explain the preparation of trading account, profit & loss account and balance sheet.

Accepted Answer

Trading Account is prepared first to ascertain gross profit/gross loss. Debit side includes opening stock, purchases (net of returns) and direct expenses; credit side includes sales (net of returns) and closing stock. The difference is gross profit (transferred to P&L).

Profit & Loss Account starts with gross profit on credit side and records indirect incomes (commission, discount received). Indirect expenses (salaries, rent, depreciation, selling and office expenses) are debited. The difference is net profit/net loss, which is transferred to capital account.

Balance Sheet is prepared to show financial position by listing liabilities (capital, loans, creditors, outstanding expenses) and assets (fixed assets after depreciation, stock, debtors, cash/bank, prepaid expenses). All year-end adjustments are incorporated so that assets and liabilities reflect true amounts.

Question 38

Classify errors in accounting and explain which errors affect trial balance.

Accepted Answer

Errors in accounting may be classified as: (i) errors of omission, (ii) errors of commission, (iii) errors of principle, and (iv) compensating errors.

**Errors that generally do not affect trial balance agreement** include complete omission (both debit and credit omitted), errors of principle (wrong account but debit and credit totals still equal), and compensating errors (two errors offset each other).

**Errors that generally affect trial balance agreement** are those that create one-sided differences, such as wrong casting of books, wrong balancing of accounts, posting to the wrong side, partial omission (only one aspect recorded), or posting wrong amounts on one side. Such errors disturb equality of debit and credit totals and cause disagreement.

Question 39

Explain accounting treatment of bills receivable: (i) receiving bill, (ii) discounting, (iii) dishonour.

Accepted Answer

Bills receivable accounting shows how a debtor’s liability is converted into a bill and how it is settled or re-established on dishonour.

**(i) On receiving/acceptance of bill:**
Bills Receivable A/c Dr.
	To Debtor’s A/c
(Being bill received from debtor)

**(ii) On discounting the bill with bank:**
Bank A/c Dr. (net proceeds)
Discount A/c Dr. (discount charged)
	To Bills Receivable A/c (full amount)
(Being bill discounted)

**(iii) On dishonour of discounted bill:**
Debtor’s A/c Dr. (bill amount + noting charges, if any)
	To Bank A/c
(Being bill dishonoured and bank debited our account; debtor again becomes liable)

If the bill was held till maturity and dishonoured, the entry is Debtor’s A/c Dr. To Bills Receivable A/c and noting charges (if paid) are also debited to debtor. Thus, dishonour restores the debtor’s liability.

Question 40

Explain various subsidiary books and their uses.

Accepted Answer

Subsidiary books are special journals used to record similar transactions separately to save time and improve control. Important subsidiary books are: Purchases Book (credit purchases of goods), Sales Book (credit sales of goods), Purchases Returns Book (returns to suppliers), Sales Returns Book (returns from customers), Bills Receivable Book (bills received), Bills Payable Book (bills accepted), Cash Book (cash and bank transactions), and Journal Proper (adjustments and transactions not recorded elsewhere). Maintaining these books enables division of work, easy posting (periodic totals), and quick reference for specific types of transactions.

Financial Accounting — Question Paper

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