CHAPTER- Introduction to Accounting, Basic Accounting Terms,

Theory Base of Accounting

1 Which is the first step of accounting as a process of information?
(a) Recording of data in the books of accounts (b) Communication of information to users
(c) Analysis and interpretation of information (d) Identification of monetary transactions
Answer (d) Identification of monetary transactions
2 Internal users of accounting information is/are……..
(a) Banks (b) Potential Investors (c) Suppliers (d) Employees
Answer (d) Employees
3 Which of the following is a Fictitious assets :
(a) Bills Receivable (b) Motor Car (c) Preliminary Expenses (d) Debtors
Answer (c) Preliminary Expenses
4 The excess of revenue over expenses of an accounting year is known as --------.
Answer (Net profit)
5 Amount invested in the business by the owner is known as------------------.
Answer (Capital)
6 Discount given to encourage prompt payment and which reduces bad debts is called------
Answer (Cash discount)
7 The monetary benefit received from sale of noncurrent assets is called---------.
Answer (Gain)
8 Assertion (A): Accounting may lead to window dressing.
Reason (R): Accounting is confined to monetary transactions only.
Choose the correct option from following statement on basis of above Assertion (A) and Reason
(R)
(a) Both (A) and (R) correct and (R) is the perfect explanation of (A)
(b) Both (A) and (R) correct individually but (R) is not a perfect explanation of (A)
(c) Both (A) and (R) incorrect
(d) (A) is correct but (R) is incorrect
Answer: (b)
9 Assertion (A): Trade Discount is not recorded in the books of accounts, even if goods are purchased
in cash.
Reason (R): Trade Discount is allowed for timely payment of due amount.
Choose the correct option from following statement on basis of above Assertion (A) and
Reason(R)
(a) Both (A) and (R) correct and (R) is the perfect explanation of (A)
(b) Both (A) and (R) correct individually but (R) is not a perfect explanation of (A)
(c) Both (A) and (R) incorrect
(d) (A) is correct but (R) is incorrect
Answer (c)
10 Can you differentiate between profit and gain, highlighting their distinct concepts within financial
accounting?
 Answer: Profit is the excess of revenues over expenses during an accounting period. It is the result of
business transactions which are of regular nature whereas gain arises from events or transactions
which are incidental to business such as sale of a fixed asset or winning a lottery prize.
11 Demonstrate your competence by outlining the key distinctions between fixed assets and current
assets in the context of financial accounting.
Answer: Fixed assets refer to those assets which are held for continued use in the business and are not
meant for resale whereas current assets are either meant for sale or which are expected to be converted
into cash within one year.
12 In your understanding, could you elaborate on the potential drawbacks or disadvantages associated
with the field of accounting?
Answer: Limitations of accounting are:
(i) It is based on accounting concepts and conventions. For instance:
(a) Fixed assets are valued at historical costs; (b) Provision for doubtful debts is made on the basis of
principle of conservatism.
(ii) It is based on personal judgement. For instance: depreciation and provision for doubtful debts are
based on personal judgement of the accountant.
(iii)Requires detailed knowledge of principles of accounting
(iv)Affected by window dressing

13 “The role of accounting has changed over the period of time.” Explain
Answer:
The role of accounting has now shifted from that of a mere recording of business transactions to that
of providing information to interested parties. It is now regarded as information system as the
following points:
1. Role of a language
2. Role of determining the net profit
3. Role of service provider
Role of information system
14 Explain any four qualitative characteristics of accounting information.
Answer (Explanation of the following points)
1. Reliability
2. Relevance
3. Understandability
4. Comparability
15 According to which concept same accounting method to be used every year? Explain in detail.
Answer Consistency concept
The consistency concept in accounting is a principle that requires businesses to use the same
accounting methods and principles from one period to the next. This consistency ensures that financial
statements are comparable over time and that users of the financial statements can make accurate
comparisons and assessments of the company's performance and financial position.
The consistency concept helps enhance the reliability and comparability of financial information,
facilitating more informed decision-making by stakeholders.
16 According to which concept business is considered to run for an indefinite period? Explain in detail.
Answer Going concern concept
The going concern concept is an accounting principle that assumes a business will continue to operate
and fulfill its obligations for the foreseeable future. This concept underpins the preparation of
financial statements under the assumption that the company will not be forced to liquidate its assets or
cease operations in the near term.
The going concern concept is essential for ensuring that financial statements provide a realistic and
stable view of a company’s financial position and performance, reflecting its ability to continue
operations as expected.
17 According to which concept assets are recorded at the value paid for acquired it
Answer Cost concept
 The cost concept, also known as the historical cost concept, is an accounting principle that states
assets should be recorded and reported at their original purchase price or cost. This means that the
value of an asset on the balance sheet is based on the amount paid for it at the time of acquisition,
rather than its current market value..s
The cost concept helps maintain consistency and comparability in financial reporting by ensuring that
the value of assets is based on actual transaction data rather than fluctuating market conditions.
18 According to which concept even the proprietor of the business is treated as a creditor of the
business/? Explain in detail.
Answer Business entity concept :
The business entity concept is a fundamental accounting principle that treats a business as a separate
and distinct entity from its owners or other businesses. This concept ensures that the financial affairs
of the business are kept separate from the personal financial affairs of its owners or stakeholders.
In essence, the business entity concept supports clear and accurate accounting by ensuring that the
business’s finances are treated independently from the personal finances of its owners.
19 According to which concept same accounting method to be used every year? Explain in detail.
Answer Consistency concept
The consistency concept in accounting is a principle that requires businesses to use the same
accounting methods and principles from one period to the next. This consistency ensures that financial
statements are comparable over time and that users of the financial statements can make accurate
comparisons and assessments of the company's performance and financial position.
The consistency concept helps enhance the reliability and comparability of financial information,
facilitating more informed decision-making by stakeholders.

20 What are the key functions of accounting, and how do these functions contribute to the overall
financial management and decision-making processes within an organization?
Answer: (i) Business transactions are recorded either in the journal or in the subsidiary books
depending upon the size of the business and the volume of transactions.
(ii) After recording of transactions in the journal or in the subsidiary books, these are posted to ledger
date wise.
(iii) Depicts financial position of the business.

CHAPTER- Basis of Accounting, Origin of Transactions

1 When a trader sells goods on cash, he prepares:

(a) Cash memo (b) Invoice (c) Receipts (d) Debit notes
ANSWER: (a) Cash memo
2 It is a not scientific method that is why it does not show true and fair view of the business:
(a) Cash Basis (b) Accrual Basis
(c) Purchase Basis (d) Sales Basis
ANSWER: (a) Cash Basis
3 Cash Basis of accounting…..
(a) does not give a true and fair view of profit and financial position
(b) gives a true and fair view of profit and financial position
(c) records all type of transactions
(d) records only credit transactions
ANSWER: (a) does not give a true and fair view of profit and financial position
4 Assertion (A): Accounting principles, concepts and conventions are commonly known as GAAPs.
Reason (R): GAAPs are the basic rules that defines the partners and constraints within which
accounting operates.
In the context of above two statements, which of the following is correct?
(a) Both Assertion (A) and reason (R) are true, and Reason (R) is the correct explanation of
Assertion (A).
(b) Both Assertion (A) and reason (R) are true, but Reason (R) is not the correct explanation of
 Assertion (A).
(c) Assertion (A) is True, but Reason (R) is False.
(d) Assertion (A) is False, but Reason (R) is True.

5 Accounting vouchers are those which comprise unreliable and limited information. (True/false)
False
6 …………. vouchers are the documentary evidence of the credit sales.
Credit
7 If purchaser of goods returns them, he will prepare:
(a) Credit note (b) Debit note (c) Both (a) and (b) (d) None of these
ANSWER: Debit note
8 Accounting voucher is prepared from:
(a) Source voucher (b) Journal entry (c) Both (a) and (b) (d)None of these
ANSWER: Source voucher
9 Define Credit note
10 What is meant by Accrual basis of accounting? Explain its two advantages.
11 “ Cash basis of Accounting is not a better basis for depicting the correct financial position of an
enterprise” Do you agree? Give reason in support of your answer.
12 Give any three points of distinction between Cash basis and Accrual basis of accounting

CHAPTER- Accounting Equations

1 Complete the Accounting equation:

Assets = Capital + ____________

2 Cash received from the debtor is-

(a) Increase in stock and increase in capital (b) Decrease in stock and decrease in capital
(c) Decrease in debtor and increase in cash (d) Increase in stock and decrease in cash

3 Give one transaction for each of the following that will:

(i) Increase an asset and decrease another asset
(ii) Increase an asset and increase another asset
(iii) Decrease an asset and decrease a liability
(iv) Increase an asset and increase capital
(v) Increase an asset and decrease capital
(vi) Increase in liabilities and decrease in owner’s capital
(vii) Increase in one liability and decrease another liability
(viii) Decrease a liability and increase capital

4 Calculate the amount withdrawn by Mohit (Proprietor) and total assets who started business with a
cash of Rs. 2,00,000 as on April 1, 2013. During the year, he suffered a loss of Rs. 20,000. On 31st
March, 2014, his capital stood as Rs. 1,20,000, bills payable at Rs. 10,000 and bank loan Rs. 8,000.
He also introduced a fresh capital of Rs. 10,000 during the year and he had a bank overdraft of Rs.
6,000 on 31st March 2014.

5 Discuss any seven transactions resulting from the relationship of Assets, Liabilities, and Capital.

6 A commenced his cloth business on 1st April 2011 with a capital of Rs. 3,00,000. On
31st March 2012 his assets were worth Rs. 5,00,000 and liabilities Rs. 1,00,000. Find out his
closing capital and profits earned during the year.
7 (a) Yogesh commenced business on 1st April 2011 with a Capital of Rs. 5,00,000 and a loan of Rs.
1,00,000 borrowed from Citi Bank. On 31st March, 2012, his assets were Rs. 8,00,000. Calculate his
closing capital and profits earned during the year.
 (b) If in the above case, the proprietor had introduced fresh capital of Rs. 40,000 and had withdrawn
Rs. 10,000 for personal purposes, calculate his profits.

8 Prepare an accounting equation from the following transactions.

(1) Amar start business with cash Rs 20000 and goods Rs 2000 and machines Rs 7000
(2) He took a bank loan Rs 50000
(3) He purchases good Rs 10000 for cash and Rs 5000 on credit.
(4) He sold 50% of goods at a profit of 20% on cost.
(5) He sold 10% of the remaining goods at a profit of 10%.
(6) Payment made to creditors Rs 4800 in full settlement.
9 Mohit has the following transactions, prepare accounting equation:
(a) Business started with cash Rs. 1,75,000
(b) Purchased goods from Rohit Rs. 50,000
(c) Sales goods on credit to Manish (Costing Rs. 17,500) Rs. 20,000
(d) Purchased furniture for office use Rs. 10,000
(e) Cash paid to Rohit in full settlement Rs. 48,500
(f) Cash received from Manish Rs. 20,000
(g) Rent paid Rs. 1,000
(h) Cash withdrawn for personal use Rs. 3,000

10 Show the effect of the following transaction on the accounting equation:

(a) Manoj started business with (i) Cash Rs. 2,30,000 (ii) Goods Rs. 1,00,000 (iii) Building Rs.
2,00,000
(b) He purchased goods for cash Rs. 50,000
(c) He sold goods (costing Rs.20,000) Rs. 35,000
(d) He purchased goods from Rahul Rs. 55,000
(e) He sold goods to Varun (Costing Rs. 52,000) Rs. 60,000
(f) He paid cash to Rahul in full settlement Rs. 53,000
(g) Salary paid by him Rs. 20,000
(h) Received cash from Varun in full settlement Rs. 59,000
(i) Rent outstanding Rs. 3,000
(j) Prepaid Insurance Rs. 2,000
(k) Commission received by him Rs. 13, 000
(l) Amount withdrawn by him for personal use Rs. 20,000
(m) Depreciation charge on building Rs. 10,000
(n) Fresh capital invested Rs. 50,000
(o) Purchased goods from Rakhi Rs. 10,000

CHAPTER- Journal & Ledger

1 Outstanding Expense account is:

(a) Artificial Personal Account (b) Representative Personal Account
(c) Natural Personal Account (d) Real Account

2 The entry that is passed for bringing forward the balances of personal and real accounts as shown in last
year’s balance sheet is called _____.
(a) Closing entry (b) Journal entry
(c) Opening entry (d) None of these

3 ….……………… Dr
To Purchase A/c
(being goods loss by fire)
(a) Loss by fire (b) Goods (c) Sales (d) None of these
4 Fill in the Blanks
1. Sold goods to Kamal costing Rs.10,000 at 30% above cost less trade discount of 10%. The sales
account will be credited with Rs. – – – –.
2. Shankar is declared insolvent. Received from his official receiver 60% in a rupee on a debt of
Rs.15,000. – – – A/c will be Debited with Rs. – – – –
3. Pawan, a trader in electronic goods, gifted a refrigerator to his daughter. – – – – A/c will be debited
and – – – – A/c will be credited.
4. Raghav, a customer, to whom goods were sold, was allowed a rebate of Rs.2000 because they were of
poor quality. These goods were sold charging CGST and SGST @ 9% each. Raghav A/c will be
credited with Rs. – – – –.
5. The following balances appeared in the books of Rishabh on 1 April 2023:
Furniture Rs. 40,000; Creditors Rs. 30,000. Cash Rs.6,000; Bank Rs. 10,000; Debtors Rs.45,000;
Bills Payable Rs. 5,000; Stock Rs. 44,000; the Capital account will be credited with Rs. – – – –

5 Journalize the following transactions in the books of Mr. Mohan and Prepare Bank A/c:
1. Goods sold to K. Asif costing Rs 40,000, issued invoice at 10% above the cost trade discount
10%. at 12% IGST.
2. Issued a cheque of Rs 7,350 in favor of Gupta & Sons on account of the Purchase of Goods worth
Rs 7,500.
3. Received commission by of cheque Rs 5,500, half of which is in advance.
4. The cheque of Rs 10,000 by Jatinder was deposited and returned unpaid.

6 Journalize the following transactions:

1. Anushka started the business with Cash Rs 2,01,000, Furniture Rs 3,00,000, and Machinery Rs
4,50,000.
2. She sold goods to Lakshya amounting to Rs 20,000 at a 5 % trade discount.
3. She sold goods to Dhruv amounting to Rs 80,000 at a 10% trade discount and 5% cash discount.

7 Pass the journal entries of the following transactions:

1. Ram became insolvent and paid 20 paise in rupee for a claim of Rs 5,000 due from him.
2. Wages paid for installation of machinery Rs 2,000
3. Carriage paid on behalf of customer Rs 3,000
4. A bill amounting to Rs 5,000 discounted in the bank is dishonored .
5. Sold goods to Ramesh costing Rs 5,000 at a profit of 20% less trade discount 10%
6. Paid income tax by a cheque Rs 3,000

8 Journalise the following transactions and Prepare a Cash account:

1. Ravina started the business with cash Rs 2,00,000 and a Bank balance Rs 3,00,000.
2. She Purchased goods amounting Rs 30,000 and CGST and SGST paid on it 10% each.
3. She sold goods amounting Rs 1,10,000 including CGST and SGST @ 5% each.
4. Cash deposited into the bank Rs 20,000.
5. Amount withdrawn from Bank for personal use Rs 10,000 and for office use Rs 30,000.

9 (a) Write the rules of debit and credit as per traditional and modern approaches.
(b) “Sudhanshu started the business with cash Rs 10,00,000”.
Analyze the above transaction, using the Modern approach and Traditional Approach for the classification of
accounts
1 Record Journal entries: –
0 1. Goods amounting to Rs 2,000, Furniture Rs 20,000 and Machinery Rs 50,000 lost by fire.
2. Goods amounting to Rs 3,000 and Cash amounting Rs 5,000 lost
by theft.
3. Cash amounting to Rs 4,000 given as charity.
4. Rs 2,000 due from Anvesh proved bad.
1 Journalize the following transactions, post them into Ledger and prepare a Trial Balance :
1 2018 Transactions Amount
Apr. 1 Mohan commenced business with cash 1,00,000
Apr. 3 Bought goods 5,000
Apr. 4 Sold goods to Gopal 4,000
Apr. 10 Bought goods from Ram 8,000
Apr. 15 Paid trade expenses 2,000
Apr. 20 Received cash from Gopal 3,950
Discount Allowed 50
Apr. 25 Paid Wages 700
Apr. 27 Paid to Ram in full settlement 7,700
Apr. 30 Paid rent 1,500

1 Following are the Ledger Balances of Sri Paul on 31st March 2022:
2 Amount Amount
Sundry Debtors (Dr.) 79,300 Interest on Loan 10,000
Sundry Creditors (Cr.) 1,36,500 Conveyance 200
Rent (Cr.) 6,300 Furniture 30,000
Miscellaneous Expenses 3,200 Commission 4,000
Plant and Machinery Dr.) 7,98,750 Plant and Machinery (Cr.) 90,000
Creditors and Furniture 30,000 Sundry Debtors (Cr.) 20,800
Opening Stock 40,000 Drawings 15,000
Discount (Cr.) 9,900 Salaries and Wages 25,900
Sundry Creditors (Dr.) 36,500 Discount (Dr.) 5,500
Buildings (Dr.) 9,81,000 Capital 5,00,000
Rent 12,000 Purchases 3,13,450
Loan (Cr.) 10,00,000 Sales 5,61,300
Input IGST A/c 2,500 Input SGST A/c 1,000
Input CGST A/c 1,000 Output IGST A/c 4,500

CHAPTER- Cash Book & Other Subsidiary Books

1 While passing an opening entry, all the assets are ………….. while all the liabilities are …………..
(a) Debited, credited (b) Credited, Credited
(c) Credited, Debited (d) None of the options

2 What are total number of subsidiary books available to record financial transactions?
(a) 8 (b) 7 (c) 6 (d) 12

3 The Sales Return Book always has ………….. balance.

(a) Debit (b) Either debit or credit
(c) Credit (d) None of the options

4 Journal proper includes entries related to …………….

(a) Sale of asset on credit (b) Sale of asset for cash
(c) Sale of goods for cash (d) Sale of goods on credit

5 Petty cashier incurred the following monthly balances – postage Rs. 1,200; conveyance Rs. 500; Sundries
Rs.1,700. Imprest amount Rs. 8,000. What will be the amount of reimbursement?
(a) Rs. 5,600 (b) Rs. 8,000 (c) Rs. 3,400 (d) Rs. 2,000
6 Assertion (A): The cash book always shows a Credit balance or at most nil but can never show a Debit
balance.
Reason (R): A businessman cannot pay more cash than what he has got.

Choose the correct options, in these questions, from the following options:
(a) Both Assertion (A)and Reason(R) are true and R is the correct explanation of A
(b) Both Assertion (A) and Reason (R) are true but R is not the correct explanation of A
(c) Assertion (A) is true but Reason (R) is false
(d) Assertion (A) is false but Reason(R) is true

7 From the following particulars, prepare a Double column Cash Book :-

2022 Particular
Jan 1 Balance of Cash in Hand Rs. 15,000 and Bank Overdraft Rs. 6,000
3 Issued a cheque of Rs. 4,800 to Mr. Black and earned a discount of Rs. 200.
4 Direct deposit by Mr. Kapil in our bank account Rs. 3,800. Discount allowed Rs. 200.
5 Given as charity Rs. 100
7 Issued a cheque of Rs. 500 to the petty cashier.
15 Goods worth Rs. 10,000 were sold to Ganesh on 10th January. Its payment was received
today by cheque after deducting 5% Gash discount.
16 Deposited the above cheque into the Bank.
17 Goods purchased from Raghu for Rs. 8,000. Payment is made after deducting 3% cash
discount.
18 Bought postage stamps Rs. 200.
20 Paid Rs. 4.000 by cheque for furniture purchased.
22 Arun who owned us Rs. 6,000 became bankrupt and paid 60 paise per Rupees.
24 Collected from Anil Rs. 5,000 in cash and deposited into the bank the next day.
24 Cash purchases of stationery Rs. 200.
25 X settled his account of Rs. 7,000 by cheque of Rs. 6,850. The cheque was deposited into the
bank on 28th January.
27 Settled Y's account of Rs. 8,000 by cheque after deducting from that place a 2.5% cash
discount.
29 Cash sales for Rs. 10,000, received cheque.
30 Interest charged by the bank is Rs. 1,500.
8 Enter the following transactions in a Single Column Cash Book∶
2017 (₹)
Feb. 1 Mr. Vipin commenced business with Cash 2,00,000
3 Opened a Bank Account and deposited 75,000
5 Purchased goods for Cash 30,000
7 Purchased goods 15,000
10 Purchased goods from Surya Kant 40,000
12 Paid to Surya Kant 38,800
Discount received 1,200
15 Paid Wages in Cash 22,500
16 Paid to casual labour 1,500
20 Sold goods to Dev Raj for Cash 80,000
25 Paid electricity bill in Cash 12,000
26 Withdrew Cash from Bank 40,000
27 Received for Cash sales 5,000
27 Paid for miscellaneous expenses 500

9 Enter the following transactions in the Cash Book with Cash Bank Columns:-
2020
April 1 Balance of Cash in hand Rs. 400, overdraft at Bank Rs. 5,000.
4 Invested further capital of Rs. 10,000 out of which Rs. 6,000 was deposited into the bank.
 5 Sold goods for cash Rs. 3000.
6 Received from Ghanshyam’s. 8,000; discount allowed to him Rs. 200.
10 Purchased goods for Cash Rs. 5,500.
11 Paid to Ram Vilas, our creditor Rs. 2,500; discount allowed by him Rs. 65.
13 Commission paid to our agent Rs. 530.
14 Office furniture purchased from Keshav in cash Rs. 200.
14 Rent paid Rs. 50.
14 Electricity charges paid Rs. 10.
16 Drew cheque for personal use Rs. 850.
17 Cash sale Rs. 2,500.
18 Collection from Atul’s. 4000, deposited in the bank on 19th April.
19 Drew from the bank for office use Rs. 500.
24 Dividend received by cheque. 50, deposited in the bank on the same day.
25 Commission received by cheque. 230, deposited in the hank on 28th April.
29 Drew from the bank for a salary of the office staff Rs. 1,500.
29 Paid salaries of the manager by cheque. 500.
30 Deposited cash in the bank Rs. 1.000.

1 Record the following transactions in a Petty Cash Book with suitable columns. The book is kept on imprest
0 system, the amount of imprest being Rs. 400.
2001 Particular
April 1 Petty cash in hand Rs.54. Received cash to make up the imprest.
Paid for office cleaning Rs. 10.
April 4 Paid railway fare Rs. 32, bus fare Rs. 28, telegram Rs. 15.
April 5 Bought shorthand note books for office Rs. 37.
April 7 Paid carriage on parcels Rs. 15, paid for telegram Rs. 22.
April 10 Bought stamps for Rs. 30, envelopes for Rs. 45 and an accounts register for
Rs. 40.
April 12 Paid for repairs Rs. 20, gave tips to office peon Rs. 15.
1 Mr. Chaturvedi maintains two bank accounts. Prepare his columnar cash book from the following particulars:
1 2021 Particulars Rupees
May 1 Cash in hand 34,000
Balance with Hongkong Bank 75,200
Balance with Citi Bank 1,20,000
May 3 Cash drawn from Citi Bank for office use 25,000
May 8 Sold goods to Diwedi for Rs. 80,000 and received from him Rs. 20,000 in cash and
a cheque for the balance. The cheque is deposited in Hong Kong Bank on the 9th
and the bank credited the amount on the 15th and debited Rs. 25 as its collection
charges.
May 12 Purchased goods for Rs. 40,000 at 20% trade discount. 25% of the amount is paid in
cash and issued a cheque to Citi Bank for the balance amount.
May 20 Paid Wages Rs 36,000 and Salary Rs. 4,000.
May 22 A cheque for Rs. 50,000 was drawn from Citi Bank and it is deposited in Hongkong
Bank.
May 23 Purchased land for Rs. 3,20,000 and a cheque was issued on Hongkong Bank.
May 24 A cheque for Rs. 10,000 which was received from Mohan and was deposited in Citi
Bank on 25th April is dishonored and the bank debited Rs. 100 as bank charges on
this cheque. The amount of the dishonored cheque and bank charges is received
from Mohan in cash on the 25th.
May 26 Deposited cash Rs. 30,000 in Hongkong Bank.
May 28 Sold old typewriter for Rs. 2,000 and old newspapers for Rs. 200 in cash.
May 30 Interest charged by Hongkong Bank Rs. 400.
May 31 Bank charges by Citi Bank Rs. 180 and Hongkong Bank Rs. 340.
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