Journal

1. What is a Journal in Accounting?

o Answer: A journal is the initial book of record where all financial
transactions are recorded chronologically before being posted to ledger
accounts.
2. What is a Journal Entry?
o Answer: A journal entry is a record of a transaction in the journal,
including the date, accounts affected, amounts debited and credited, and
a brief description.
3. Define ‘Posting’ in the Context of a Journal.
o Answer: Posting is the process of transferring amounts fromthe journal to
the corresponding accounts in the ledger.
4. What is a Compound Journal Entry?
o Answer: A compound journal entry is a journal entry that involves more than
two accounts. It has multiple debits and/or credits.
5. What is the Difference Between a General Journal and a Special Journal?
o Answer: A general journal records all types of transactions not captured
by special journals, while special journals are used to record specific
types of transactions, such as sales or purchases.
Ledger
1. What is a Ledger in Accounting?
o Answer: A ledger is a book or electronic record where all the financial
transactions fromthe journal are posted and summarized by account.
2. What is a Ledger Account?
o Answer: A ledger account is a record in the ledger that tracks all
transactions related to a specific account, such as Cash or Accounts
Receivable.
3. What is the Purpose of the Ledger?
o Answer: The ledger serves to organize and summarize all financial
transactions, allowing for easy tracking of individual accounts and
preparation of financial statements.
4. What is an Account Balance in the Ledger?
o Answer: The account balance in the ledger is the difference between the
total debits and credits recorded in an account.
 5. What is a Trial Balance in the Ledger?
o Answer: A trial balance is a statement prepared fromthe ledger that lists
all the account balances to verify that total debits equal total credits.
Trial Balance
1. What is a Trial Balance?
o Answer: A trial balance is a statement that lists all the ledger account
balances to ensure that total debits equal total credits, verifying the
accuracy of the ledger entries.
2. When is a Trial Balance Prepared?
o Answer: A trial balance is typically prepared at the end of an accounting
period before preparing financial statements to check the accuracy of
the ledger accounts.
3. What Does a Trial Balance Not Detect?
o Answer: A trial balance does not detect errors of omission, errors of
principle, or errors where both debit and credit entries are incorrectly
recorded but still balanced.
4. What is the Purpose of Preparing a Trial Balance?
o Answer: The purpose of preparing a trial balance is to ensure that the
ledger accounts are in balance and to identify any discrepancies that
need to be corrected before preparing financial statements.
5. How Do You Identify Errors Using a Trial Balance?
o Answer: Discrepancies in the trial balance indicate errors that need to be
investigated. Common errors include transposition errors, arithmetic
mistakes, and incorrect postings.
Final Accounts with Adjustments
1. What are Final Accounts?
o Answer: Final accounts refer to the financial statements prepared at the
end of an accounting period, including the Trading Account, Profit and
Loss Account, and Balance Sheet.
2. What is an Adjustment Entry in Final Accounts?
o Answer: An adjustment entry is a journal entry made at the end of an
accounting period to allocate income and expenses to the correct period,
ensuring accurate financial statements.
3. What is the Purpose of Adjusting Entries?
 o Answer: The purpose of adjusting entries is to ensure that revenues and
expenses are recorded in the correct accounting period, thus reflecting
the true financial position and per formance of the business.
4. What is Depreciation and How is it Treated in Final Accounts?
o Answer: Depreciation is the allocation of the cost of a tangible fixed asset
over its useful life. In final accounts, depreciation is treated as an
expense and is deducted fromthe asset’s value on the Balance Sheet.
5. What is an Outstanding Expense?
o Answer: An outstanding expense is an expense that has been incurred
during the accounting period but has not yet been paid. It is recorded as a
liability in the Balance Sheet and added to the relevant expense account
in the Profit and Loss Account.
6. What are Prepaid Expenses?
o Answer: Prepaid expenses are payments made in advance for goods or
services to be received in the future. These are treated as current assets
on the Balance Sheet and deducted fromthe related expense account in
the Profit and Loss Account.
7. What is Accrued Income?
o Answer: Accrued income refers to income that has been earned during the
accounting period but has not yet been received. It is shown as an asset in
the Balance Sheet and added to the relevant income account in the Profit
and Loss Account.
8. How is Bad Debt Treated in Final Accounts?
o Answer: Bad debt is an amount that is unlikely to be recovered froma
debtor. It is treated as an expense in the Profit and Loss Account and
deducted fromAccounts Receivable in the Balance Sheet.
9. What is the Treatment of Closing Stock in Final Accounts?
o Answer: Closing stock is the inventory remaining unsold at the end of the
accounting period. It is shown on the credit side of the Trading Account
and as a current asset in the Balance Sheet.
10. What is Provision for Doubtful Debts?
o Answer: Provision for doubtful debts is an estimate of the amount of
Accounts Receivable that may not be collected. It is treated as an
expense in the Profit and Loss Account and deducted fromAccounts
Receivable in the Balance Sheet.
Accounting Concepts and Conventions
 1. What is the Business Entity Concept?
o Answer: The Business Entity Concept states that a business is treated as a
separate legal entity fromits owner(s), meaning that personal
transactions of the owner(s) should not be mixed with the business's
transactions.
2. What is the Going Concern Concept?
o Answer: The Going Concern Concept assumes that a business will continue to
operate indefinitely, allowing it to defer the recognition of cer tain
expenses and revenues until future periods.
3. What is the Accrual Concept?
o Answer: The Accrual Concept dictates that revenues and expenses are
recorded when they are earned or incurred, regardless of when cash is
received or paid, ensuring that financial statements reflect true
financial per formance.
4. What is the Matching Concept?
o Answer: The Matching Concept requires that expenses be matched with the
revenues they generate in the same accounting period, ensuring accurate
profit calculation.
5. What is the Prudence (Conservatism) Concept?
o Answer: The Prudence Concept advises accountants to exercise caution
and not overstate assets or income. It means recognizing potential losses
and liabilities as soon as they are foreseeable, but only recognizing
profits when they are realized.
Golden Rules of Accounting
1. What is the Golden Rule for Personal Accounts?
o Answer: The Golden Rule for Personal Accounts is " Debit the receiver,
Credit the giver."
2. What is the Golden Rule for Real Accounts?
o Answer: The Golden Rule for Real Accounts is " Debit what comes in, Credit
what goes out."
3. What is the Golden Rule for Nominal Accounts?
o Answer: The Golden Rule for Nominal Accounts is " Debit all expenses and
losses, Credit all incomes and gains."
4. Give an Example of Applying the Golden Rule to a Transaction.
o Answer: If cash is received froma customer, apply the Real Account rule:
 " Debit Cash (what comes in), Credit Customer's Account (the giver)."
5. How do the Golden Rules Help in Accounting?
o Answer: The Golden Rules of Accounting provide a standardized way to
record transactions, ensuring consistency and accuracy in financial
records.
Depreciation
1. What is Depreciation?
o Answer: Depreciation is the systematic allocation of the cost of a tangible
fixed asset over its useful life, reflecting the reduction in its value over
time.
2. Why is Depreciation Charged on Fixed Assets?
o Answer: Depreciation is charged on fixed assets to spread the cost of the
asset over its useful life, matching the expense with the revenue it
generates.
3. What is the Straight- Line Method of Depreciation?
o Answer: The Straight- Line Method is a depreciation method where an equal
amount of depreciation is charged each year over the asset’s useful life.
4. What is Accumulated Depreciation?
o Answer: Accumulated depreciation is the total amount of depreciation that
has been charged on an asset since it was put into use. It is deducted
fromthe asset’s original cost on the Balance Sheet.
5. What is the Reducing Balance Method of Depreciation?
o Answer: The Reducing Balance Method calculates depreciation as a fixed
percentage of the asset's book value at the beginning of each year,
resulting in decreasing depreciation charges over time.
o 5 marks
The main differences between a journal and a ledger in accounting are as follows:
Journal:
1. Definition:
o A journal is the book of original entry where all financial transactions are
first recorded in chronological order.
2. Purpose:
o The journal serves as the initial record of all business transactions before
they are posted to the ledger.
 3. Recording:
o Transactions are recorded in detail, including the date, accounts affected,
amounts debited and credited, and a brief description.
4. Format:
o Each entry in a journal is made in a double- entry format, showing both
debit and credit for the transaction.
5. Posting:
o The information fromthe journal is later posted to the ledger accounts,
which summarize the transactions.
Ledger:
1. Definition:
o A ledger is the book of final entry where all transactions are classified and
summarized fromthe journal entries into individual accounts.
2. Purpose:
o The ledger serves as the main source for preparing financial statements,
providing a detailed view of each account’s activity.
3. Recording:
o Transactions are recorded in the ledger by account type, with all debits
and credits related to each account being summarized.
4. Format:
o The ledger uses a T- format where the left side represents debits and the
right side represents credits for each account.
5. Summary:
o The ledger shows the total balances of each account, which are used to
prepare the trial balance and financial statements.
Accounting Concepts and Conventions
Accounting concepts and conventions are the fundamental principles that underpin the
accounting process. These are essential for ensuring consistency, reliability, and
comparability of financial information across different periods and entities.
Key Accounting Concepts:
1. Business Entity Concept:
o This concept states that the business is treated as a separate legal entity
distinct fromits owner(s). All financial transactions are recorded from
the business's perspective, ensuring that the personal finances of the
 owner(s) are not mixed with the business accounts. This concept helps in
maintaining clear financial records and in the assessment of business
per formance.
2. Going Concern Concept:
o The going concern concept assumes that a business will continue to operate
indefinitely, and not be forced to halt its operations and liquidate its
assets in the near future. This assumption allows accountants to defer
the recognition of cer tain expenses, such as depreciation and
amor tization, which would not be applicable if the business were closing
down.
3. Accrual Concept:
o The accrual concept dictates that revenues and expenses are recorded in
the period in which they are earned or incurred, regardless of when the
cash is actually received or paid. This ensures that financial statements
accurately reflect the company’s financial position and per formance
during a specific period.
4. Consistency Concept:
o The consistency concept requires that the same accounting methods and
procedures be applied consistently fromone accounting period to
another. This allows for comparability of financial statements over time,
helping stakeholders make informed decisions.
5. Matching Concept:
o The matching concept states that expenses should be matched with the
revenues they generate during the same accounting period. This ensures
that the financial statements reflect the actual profitability of the
business, by linking income earned with the costs incurred to generate
that income.
Key Accounting Conventions:
1. Prudence (Conservatism) Convention:
o The prudence convention advises accountants to exercise caution when
dealing with uncer tainties. It requires that potential losses be recognized
immediately, while gains are only recognized when they are cer tain. This
ensures that financial statements are not overly optimistic and provide a
realistic view of the company’s financial health.
2. Materiality Convention:
o The materiality convention suggests that all significant information should
be disclosed in financial statements. An itemis considered material if its
 omission or misstatement could influence the economic decisions of users of
the financial statements. This ensures that financial statements present
a true and fair view of the business.
3. Full Disclosure Convention:
o The full disclosure convention requires that all relevant and necessary
information for understanding the financial statements should be
disclosed. This includes not only the financial data but also the methods
and principles used in preparing the statements, ensuring transparency.
4. Objectivity Convention:
o The objectivity convention states that accounting information should be
based on verifiable data and evidence, rather than personal opinions or
biases. This ensures the reliability and accuracy of the financial
statements.
UNIT 2
Accounts of Non- Profit Organizations
1. What is a Non- Profit Organization?
o Answer: A non- profit organization (NPO) is an entity that operates for
purposes other than generating profit, such as social, educational,
religious, or charitable activities. Any surplus earned is reinvested in the
organization's objectives rather than distributed to its members.
2. What are the Main Financial Statements Prepared by a Non- Profit
Organization?
o Answer: The main financial statements prepared by a non- profit
organization are the Receipts and Payments Account, the Income and
Expenditure Account, and the Balance Sheet.
3. What is a Receipts and Payments Account?
o Answer: A Receipts and Payments Account is a summary of cash and bank
transactions over a period, showing the total receipts and total payments
irrespective of the period to which they belong.
4. What is an Income and Expenditure Account?
o Answer: An Income and Expenditure Account is similar to a Profit and Loss
Account for non- profit organizations. It records revenues and expenses
for a specific period on an accrual basis to determine the surplus or
deficit.
5. What is a Subscription in the Context of Non- Profit Organizations?
o Answer: A subscription is the fee paid by members to maintain their
 membership in a non- profit organization. It is a significant source of
revenue for many non- profits.
6. What is the Difference Between a Receipts and Payments Account and an
Income and Expenditure Account?
o Answer: A Receipts and Payments Account is a cash- based statement
summarizing all cash receipts and payments, while an Income and
Expenditure Account is an accrual- based statement recording revenues
and expenses for a specific period.
7. What is the Purpose of Preparing a Balance Sheet for a Non- Profit
Organization?
o Answer: The Balance Sheet shows the financial position of the non- profit
organization at a specific date, detailing its assets, liabilities, and
capital funds.
8. What is a Capital Fund in a Non- Profit Organization?
o Answer: A Capital Fund, also known as the General Fund, represents the
accumulated surplus of a non- profit organization. It is increased by
surpluses and donations and decreased by deficits and capital
expenditures.
9. How are Donations Treated in the Accounts of a Non- Profit Organization?
o Answer: Donations can be either capital or revenue in nature. Capital
donations are credited to a Capital Fund or a specific fund, while revenue
donations are credited to the Income and Expenditure Account.
10. What are Legacy Donations?
o Answer: Legacy donations are gifts received by a non- profit organization
under the will of a deceased person. They are usually treated as capital
receipts and credited to a specific Legacy Fund.
These questions and answers should provide a good overview of the key concepts related
to the accounts of non- profit organizations.

difference between the Income and Expenditure Account and the Receipts and Payments
Account in table form:
Basis Income and Expenditure Account Receipts and Payments Account
Nature Accrual- based statement Cash- based statement
Determines surplus or deficit for Summarizes cash and bank
Purpose
a specific period transactions for a period
Records all receipts and
Records only revenue income
Content payments, including both capital
and expenses
and revenue items
 Includes transactions of any
Includes only items related to the
Time Period period, as long as cash was
current accounting period
received or paid
Includes adjustments for
No adjustments; purely cash
Adjustments outstanding, prepaid, accrued,
transactions
and advance items
Excludes capital receipts and
Capital vs. Includes both capital and
payments; focuses on revenue
Revenue Items revenue receipts and payments
items
Similar to a Profit and Loss Simple ledger format with two
Format Account, with income and columns for receipts and
expenditure columns payments
Balancing Surplus or Deficit transferred to Closing cash and bank balance
Figure Capital Fund or General Fund carried forward
Shows financial per formance Shows cash flow summary for a
Objective
for a period period

UNIT 3
Bill of Exchange: 2 Marks Questions
1. What is a Bill of Exchange?
o Answer: A Bill of Exchange is a written, unconditional order by one par ty
(the drawer) directing another par ty (the drawee) to pay a specified sum
of money to a third par ty (the payee) at a fixed future date or on demand.
2. Who are the par ties involved in a Bill of Exchange?
o Answer: The three par ties involved in a Bill of Exchange are:
1. Drawer: The person who creates and signs the bill.
2. Drawee: The person on whomthe bill is drawn and who is required to
pay.
3. Payee: The person who is entitled to receive the payment.
3. What is the maturity date of a Bill of Exchange?
o Answer: The maturity date of a Bill of Exchange is the date on which the bill
becomes due for payment. It is usually calculated by adding the termof
the bill to the date of drawing, including the 3 days of grace period.
4. What is the term'Days of Grace' in the context of a Bill of Exchange?
o Answer: 'Days of Grace' refers to the additional three days provided by law
beyond the due date of the bill, which allows the drawee to make the
payment.
 5. What is meant by ‘Dishonor of a Bill of Exchange’?
o Answer: Dishonor of a Bill of Exchange occurs when the drawee refuses to
accept or pay the bill on the due date. This can lead to legal action
against the drawee.
These questions cover fundamental aspects of a Bill of Exchange, focusing on its
definition, key par ties involved, and related terms.
BANK RECONCILIATION STATEMENT
Bank Reconciliation Statement: 2 Marks Questions
1. What is a Bank Reconciliation Statement (BRS)?
o Answer: A Bank Reconciliation Statement is a statement prepared to
reconcile the difference between the bank balance as per the cash book
and the bank balance as per the bank statement.
2. Why is a Bank Reconciliation Statement prepared?
o Answer: A Bank Reconciliation Statement is prepared to identify and rectify
any discrepancies between the cash book maintained by the business and
the bank statement provided by the bank.
3. What are some common causes of differences in a Bank Reconciliation
Statement?
o Answer: Common causes include cheques issued but not yet presented for
payment, deposits made but not yet credited by the bank, bank charges,
and errors in the cash book or bank statement.
4. What is meant by ‘Cheques not yet presented’?
o Answer: ‘Cheques not yet presented’ refers to cheques issued by the
business that have not yet been presented for payment by the recipients
and, therefore, are not yet reflected in the bank statement.
5. What does ‘Direct Deposit by the Bank’ mean in the context of a Bank
Reconciliation Statement?
o Answer: ‘Direct Deposit by the Bank’ refers to funds deposited directly into
the business's bank account by a third par ty, which may not yet be
recorded in the business's cash book.
6. Here’s a comparison between the Cash Book and the Pass Book in table form:
5 MARK
Cash Book Pass Book
Feature
A Pass Book is a bank
A Cash Book is a book of original
statement issued by the bank,
Definition entry where all cash transactions
showing the transactions in the
are recorded by the business.
bank account.
 Maintained by the business or
Maintained By Maintained by the bank.
accountant.
Used to record all cash inflows Used to keep a record of bank
and outflows, including cash transactions, showing deposits,
Purpose
transactions and bank withdrawals, and other bank
transactions. activities.
Includes details of transactions
Includes columns for cash
with dates, amounts, and
Format receipts, cash payments, and
descriptions as per the bank’s
sometimes bank transactions.
records.
Records transactions based on
Records transactions based on
Recording bank entries; only reflects
business entries; may include
Method transactions that have gone
both cash and bank transactions.
through the bank.
Updated by the bank and
Updated regularly by the
Updates provided periodically (e.g.,
business, often daily.
monthly).
Errors can occur due to bank
Errors can occur due to
Errors and mistakes or omissions, but the
incorrect recording or omissions
Discrepancies bank’s record is usually
by the business.
considered accurate.
Reconciliation involves comparing Reconciliation is done by
the Cash Book with the bank comparing the Pass Book with
Reconciliation
statement (Pass Book) to identify the Cash Book to ensure
discrepancies. accuracy.
Internal record that helps in External record that provides
Nature of
maintaining detailed cash an official statement of the
Record
transactions. bank transactions.