1. Write in brief the essential of maintaining books of account
Book keeping is very important phenomenon. Book keeping is that branch of knowledge which tells us about how to keep a record of financial transaction in scientific and systematic manner. The importance of recording such transaction arises because of limited human memory. It is a process of recording accounting information in scientific and systematic manner.
2. Give the meaning of book-keeping in three to five effective sentences.
Book-keeping is concerned with the recording of financial transactions. It involves journalizing, posting into ledger accounts and balancing and closing the ledger accounts. The word ‘book-keeping’ is a combination of two separate words i.e. ‘book‘ and ‘keeping’ which refers to the recording of economic events in proper books.
In the words of R.N. Carter, “Book-keeping is the science and art of correctly recording in books of accounts all those business transactions that result in transfer of money or money’s worth.”
3. State any three objectives or functions of book-keeping system.
The following are the main objectives or functions of book-keeping system:
a. To identify financial transactions: Book-keeping identifies the financial transactions for recording purpose. Non-financial transactions are ignored.
b. To keep systematic record: Book-keeping records identified financial transactions of a business in a scientific and systematic manner.
c. To classify the recorded transaction: Book-keeping classifies all the transactions as per their nature and effect.
4. Explain in brief the meaning of accounting.
Accounting is a broader term which includes recording of financial transactions, posting them into ledger accounts, summarizing the ledger balances, interpreting the results and communicating them to interested persons or institutions that are directly and indirectly related to business organization.
5. Mention any three objectives/functions of accounting.
The following are the main objectives or functions of accounting:
a. To keep systematic and scientific record of all business transaction: It keeps the systematic and complete record of financial transaction. Transactions are recorded as per uniform rules and principles in accounting.
b. To determine profit or loss: Each business is motivated by profit. Profit or loss is determined by preparing trading and profit and loss account of the business at the certain period of time.
c. To ascertain financial position: it prepares a balance sheet at the end of every year, which informs about its position of assets, liabilities and capital, when reflect economic strength and weaknesses of business.
6. State any three importance of accounting.
The importance of accounting are as follows:
a. Complete record: Accounting facilitates to replace human memory by maintaining complete record of financial transactions.
b. Knowledge of profitability: Accounting facilitates to ascertain net results (profit or loss) of business operation by preparing Profit and Loss Account or Income Statement.
c. Knowledge of financial position: Accounting facilitates to ascertain financial position of the organization by preparing Balance Sheet or Position Statement.
7. State the scope of accounting.
Accounting covers the following areas.
a. Business organization: Business organization has the largest field of accounting activity. Accounting is useful for determining profit or loss of the business.
b. Non-trading concern: Accounting is also used in non-trading organizations which are established to provide services to the general public. Non profit organizations have to record their incomes and expenditures during the year.
c. Government: Government has the biggest responsibility established for providing welfare, services. Peace, security, justice etc. to the people. In order to provide all these government has to use several financial resources.
d. Professional and individuals: It is also useful to the professionals and individuals to record their income and expenditure. After recording their financial transactions, they can find out their fund position for making expenditures.
8. Mention any three differences between accounting and book-keeping.
Following are the major differences between accounting and book-keeping:
|1. Scope||It has limited scope as it involves recording the financial transactions only.||Its scope is wider as it also involves interpreting, and communicating the financial activities.|
|2. Nature||The job of book-keeping is often routine and clerical.||It is creative and judgmental.|
|3. Stage||It is the first stages accounting process.||It starts when book-keeping ends.|
9. What do you understand by ‘business entity concept.’?
According to this concept, the business and the owner are said to have distinct identities and they should be treated as separate legal entities. This makes possible to record only the transactions of the business.
10. Write in brief about money measurement concept.
According to this assumption, accounting should record only those facts that can be expressed in terms of money. This concept imposes a severe limitation on the scope of accounting report. For example, accounting does not record the fact that a competitor has introduced a better product in the market or that one of the efficient Marketing Managers has resigned from his post.
11. What is meant by ‘going concern concept’?
While recording business transactions in the books of accounts, it should be assumed that business will be carried on indefinitely. This is why, the business purchases fixed assets instead of hiring them. Consequently, the treatment of purchase of goods is differentiated from the purchase of assets. It is obligatory for every accountant to treat business activity as a continuing process and record transactions accordingly.
12. Give the meaning of ‘accounting period concept’.
According to this concept, the economic life is divided into different periods for preparing financial statements. Usually, a period of one year is considered as the accounting period.
13. Write in brief about ‘cost concept’.
This principle states that an asset is recorded at its actual cost and this cost is the basis of all subsequent accounting for the asset. It does not necessarily mean that assets remain on the records at their original purchase price. This actual cost is systematically reduced over its life by a process called depreciation.
14. What is meant by ‘realization concept?
In the business concern, revenue is earned either by selling goods or by rendering service. Revenue is earned only when the seller sells the goods to the buyer. So, revenue should be realized at the time when it is actually earned no matter, it is actually received or not. So, this concept is also called revenue concept.
15. What do you mean by ‘matching concept’?
This concept revolves around the determination of the point of time when revenue is earned. A business firm invests money to purchase or manufacture goods for sale. To earn profit, sales have to be made. There can be no profit without realization of proceeds. This concept is important in ascertaining the exact profit earned during a period in a business concern.
16. What do you understand by double entry system of book keeping? OR Write the essence of double entry system.
The double entry book-keeping system is a technique or a method of book-keeping which recognizes the fact that every financial transaction has two aspects. Every transaction resulting in transfer of money, goods or service must imply existence of at least two parties- one the receiver, another giver. The set of records based on this duality is called double entry system of book-keeping.
17. Explain in short the features of double entry system of book-keeping.
The following are the features of double entry system of book-keeping:
a. Twofold effect: The rule of double entry is that every debit should have a credit and every credit should have a debit too. Recording of transactions under double entry system is made with two-fold effect. It means each and every transaction affects two accounts simultaneously.
b. Equal effect: The rule of double entry book-keeping system states that while recording each transaction the total amount of the debit entry must be equal to the total amount of the credit entry for that transaction.
18. Mention any three objective of double entry system.
The objectives of double entry system are as follows:
a. Double effect (duality): It follows the principle of double aspect by debiting and crediting the transaction. Every transaction must have two fold effect debit and credit.
b. Equal effects: It assumes that debit must be equal to credit amount i.e. it considers the effect of equal amount on both sides of accounts. The same amount is shown on debit and credit.
c. Debit and credit: It has two sides i.e. debit and credit. Most often, the receiving of benefit is entered on the debit side and giving the benefit is entered on the credit.
19. State any three importance or advantages of double entry system.
Following are the main importance or advantages of double entry system:
a. Double entry system helps to keep a complete record
b. Double Entry System helps to ascertain the result of business operation
c. Double entry system helps to check an arithmetical accuracy.
20. Mention any two limitations of double entry system.
Here are some limitations of double entry system:
a. Complicated: It is complicated system where certain rules and regulations are to be followed.
b. Failure to disclose some errors: It fails to disclose the error of omission, error of principles, errors of commission, and compensating errors.
21. Mention the process of accounting. or Mention the sequential steps in an accounting cycle.
The following are the steps/process in an accounting cycle
a. Identification of financial transactions.
b. Recording of transactions in journal and subsidiary books.
c. Classification of all recorded transactions according to their nature in ledger accounts.
d. Summarizing the recorded transactions by preparing trial balance, trading account, profit and loss account and balance sheets.
e. Interpretation and evaluation of the data shown in trading and profit and loss account and balance sheet.
e. Finally, communicating the result to the concerned parties.
22. State the meaning of accounting equation.
The accounting equation shows the relationship between the economic resources belonging to a business and the claims against those resources. The accounting equation focuses on the duality concept i.e. each transaction has a dual effect and affects two components of the balance sheet.
23. What is meant by subsidiary books?
Subsidiary books are the preliminary record books.. The regular transactions are organized and grouped suitably according to their nature. A separate journal is devoted for each group in such a way that a separate book is used for each class of transactions that are of recurring and adequately large in number. Each of such book is known as subsidiary books
24. Mention any two advantages of subsidiary books.
The following are the main two advantages of subsidiary books:
a. Increase in efficiency: Due to the division of work and speculated experience of accounting personnel, the system of subsidiary books help to increase efficiency and thereby decrease in operating cost.
Saving in time: Subsidiary book avoids the needs of preparing journal entries. a particular accounting work is carried by the staff who is familiar with his work. This situation eliminates the possibility of confusion and unnecessary delay in the work.
25. What do you mean by debit note and credit note?
Debit note: The buyer sends a debit note to the seller by reducing the amount payable to him under the same three situations a credit note was made with the amount of return because the buyer finds that the goods are not according to specifications; the amount of allowance for defects which can easily be corrected by the buyer, and acknowledging the under-charges if located after the purchase deal has been made.
Credit note: A credit note is a document accompanying goods returned. As the particulars are almost similar to an Invoice, a separate color is used for credit note to distinguish it easily. The seller of the goods, like an Invoice, who is now receiving the sold goods back, makes the note.
26. Differentiate between cash discount and trade discount.
Trade discount is the amount of rebate allowed to encourage more trade (bulk purchase) and cash discount is the amount of rebate allowed for prompt payment of cash.
27. Write in brief about sales book
Sales book is one of the subsidiary journals devoted exclusively for recording the credit sale of goods dealt in. Apparently, for an entry to be recorded in this book, it ought to meet all the following conditions:
1. The transaction must be a sale;
2. The sale must be of goods-in-trade;
3. The sale must be on credit.
28. Write the meaning of a purchase book
Purchase book considers only the credit purchases of goods dealt in. Apparently, for an entry to be recorded in this book, it must fulfill all the following conditions:
1. The transaction must be a purchase
2. The purchase must be of goods-in-trade
The purchase must be on credit.
29. What is a sale return book
Sales Return book is also known as Return Inwards Book, as goods come into the business in the process of sales return. This book records only the goods, which were originally sold on credit. Obviously, for an entry to be recorded in this book, it must comply with all the following conditions:
1 The transaction must be return of whole or part of goods previously sold.
2. The return must be of goods-in-trade.
3. The customer is not reimbursed by the seller in cash at the time of return of goods.
30. Write the meaning of a purchase return book
Purchase Return book is also known as Return outward Book, as goods go out of the business in the process of purchase return. This book records only the goods purchased on credit and the following conditions need to be satisfied:
1. The transaction must be return of whole or part of goods previously purchased.
2. The return must be of goods-in-trade.
3. The supplier to whom goods are returned should not reimburse in cash at the time of return of goods.
31. What is a Cheque?
A cheque is a form made available by a Banker to its account holder. It is an unconditional order in writing that is addressed by a person to another person (being a financial institution); signed by a person giving it; and requiring the bank to pay on demand a certain sum of money.
32. Mention any three features of cheque
Following are the main three features of cheque:
a. Written document: A cheque is a written order in which the name of the receiver, amount and date are clearly written. Oral order does not come under the criteria of cheque.
b. Unconditional order: A cheque is an unconditional order. The drawer or accountholder cannot add any condition on it.
c. Certain bank: A cheque is issued only to a specified banker in which deposit is made to pay the amount.
33. Mention the parties of Cheque?
There are three parties to a cheque:
a. Drawer: Drawer is the person who gives the order (writes out the cheque).
b. Drawee: Drawee is the financial institution upon whom the cheque is drawn.
c. Payee: The person or organization named to receive payment as per the cheque is known as the Payee, the ultimate beneficiary of the cheque.
34. What are the ordinary causes of dishonouring cheque?
A cheque is said to be dishonoured when the bank refuses to pay the amount specified on the cheque. Such refusal may take place because of several reasons, which the bank intimates, to the person who presents the cheque. Mainly the reasons are: payment stopped by the drawer, non-availability of the required amount, alteration in the cheque, cheque is not signed, not dated, amount in words and figures differ etc.
35. What do you mean by bank reconciliation statement?
“A bank reconciliation statement, often called a bank reconciliation statement or schedule is a schedule the company (depositor) prepares to reconcile, or explain the difference between the cash balance on the bank statement and the cash balance on the company’s books.”
36. State the causes of disagreement between the balance shown by the cash book and pass book balance?
There are various causes of difference between the balance as shown by a Bank Statement and a Cash Book. Among them the major ones are:
· Outstanding Cheques
· Deposits in Transit/ Cheques under collection
· Bank Errors
· Debit Memos
· Credit memos
37. Explain the procedures for preparing the bank reconciliation statement.
There are five steps in preparing a Bank Reconciliation Statement:
a. Compare the deposits
b. Look at the cancelled cheques
c. Look at the Bank Memos (both Debit and Credit).
d. Prepare Bank Reconciliation.
e. Prepare all necessary Journal Entries because of the Bank Reconciliation.
38. What do you mean by trial balance?
The trial balance is a statement prepared periodically taking totals or balances of ledgers to see whether they equal or not for checking arithmetical accuracy. The agreement of the trial balance shows that accounting is arithmetically accurate and if it differs it indicates that some errors are there in accounting process.
39. Mention any three objective of trial balance.
The main objectives of trial balance are as follows:
a. To help in locating errors: the trial balance helps to locate an error committed in accounting. It cannot locate all errors committed in accountancy because errors which affect both sides of account are not located by trial balance.
b. To provide all ledger balances: Trial balance compiles the balances of different ledgers. It is the summary of ledger accounts because it can be prepared only after the completion of ledger account.
c. To help to prepare financial statements: Financial statements can be prepared taking the accounts balances if the trial balances total is agreed.
40. Write about the meaning of accounting errors.
Accounting errors are the mistakes that can be committed while recording, casting, carrying forward, posting and summarising the financial transactions. Normally such errors in accounting are perceived from an unbalanced trial balance.
41. Write in short about the meaning of errors of commission.
This error arises due to wrong recording, wrong casting, wrong carry forward, wrong posting, wrong balancing etc. Error of commission may be classified as follows.
a. Error of recording: This error arise when the transaction in not correctly recorded in the books of original entry. This error does not affect the trial balance.
Error of casting: This error arises when a mistake is committed in totalling. This error affects the trial balance.
c. Error in carrying forward: This error arises when a mistake is committed in carrying forward a total of one page on the next page. This error effects the trial balance.
42. Write the meaning of compensating error with example.
Compensating errors refer to such a group of errors where in the effect of one error is compensated by the effect of other error. These error do not affect the agreement of the trial balance but may or may not affect the figure of net profit. For example, goods sold for Rs. 2,000, but wrongly posted to customer’s account as only Rs. 200. Similarly good purchased for Rs. 2,000, but by chance wrongly posted to the suppliers account as Rs. 200. The effect of these errors will be compensated by each other, as Rs. 1800.
43. Write the meaning of errors of omission with example.
This error arises when a transaction is completely or partially omitted to be recorded in the books of accounts. Errors of omission may be classified as under.
a. Complete omission: This error arises when any transaction is not recorded in the book of original entry. This error does not affect the trial balance.
Example: Goods purchased on credit from Santosh not recorded in purchases book.
b. Partial omission: When the transaction is recorded only in one aspect and omitted to record in another aspect. It is called partial omission.
Example: Transaction correctly recorded in the books of original entry but not posted in ledger at all.
44. Write short note on the errors which are disclosed by trail balance.
Errors disclosed by disagreement of Trial Balance
· Omission of Posting
· Omission of an account while preparing a Trial Balance
· Omission of casting
· Omission of carry forward
· Wrong Posting
· Bringing the balance of an account to the wrong side of the Trial Balance
· Wrong Totalling
· Wrong carry forward
· Wrong balancing
· Double posting to one account
45. Write short note on the errors which are not disclosed by trail balance.
Errors not disclosed by disagreement of Trial Balance
Errors of Principle
· Errors of complete Omission, i.e., omission of entry altogether from subsidiary books
· Writing wrong amount in subsidiary books
· Entering a transaction in two subsidiary books
· Posting an amount to the correct side but with wrong amount
46. What do you mean by rectification of errors?
When errors are discovered in the books they are corrected by means of entries in the accounts concerned. The correction of errors is journalized in systematic manner by passing a special entry in the journal proper which is termed as rectification of errors. Before preparing the rectification entry one should identify the errors that have been committed in the books of accounts.
These are errors which do not effect the tallying of a trial balance. All the `whole’ errors ( i.e. errors that effect equally both debit and credit sides of the erroneous entries) of omission, commission, and principle come under this category. In this category will also fall `part’ errors (i.e. errors that affect only each side of the erroneous entries) of commission that do not upset the trial balance (compensating errors).
There are three steps in rectification of the two-sided errors identified.
a. Identify the wrong entry. It may be useful to pass the wrong entry mentally or in writing.
b. Establish the correct entry. The correct entry be passed, it may be done mentally or in writing.
c. Carryout the rectification.The rectification entry or journal entry be passed using the above discussed principles of reduction and enhancement.
48. What do you mean by suspense account?
This is a dummy account opened by an accountant to transfer the difference in trial balance when he is in a hurry to close the books of accounts. Suspense account is called as a dummy account because it is opened not because of any transaction but for convenience. Thus, Suspense Account is an account to which the difference in the Trial Balance has been put temporarily.
49. Explain in brief about the capital expenditure.
Capital expenditures are expenses whose benefits accrue to the business for a long period or are expenditures of one time in nature. These expenditures increase the future earning capacity of the business or reduce the future day to day expenses or give some other long term advantages to the firm. Therefore, the acquisition of an asset is a capital expenditure. Assets like Land, Building, Plant and Machinery, Furniture & Fixtures, Fittings, Goodwill, Patent Rights, Copy Right, Trade Mark etc. are the example of capital expenditures.
50. Write any four points to differential the capital expenditure from the revenue expenditure.
The following are main differences between the capital and revenue expenditures:
|Bases of Difference||Revenue expense||Capital Expenditure|
|1. Effect||Its effect is temporary.||Its effect is long-term.|
|2. Physical existence||As it is incurred on items, it has no physical existence.||Except intangible assets, it has physical existence.|
|3. Frequency||It is recurring and regular and it occurs repeatedly.||It is nonrecurring and irregular.|
|4. Treatment||The whole amount of this expenditure is shown in income statement.||A portion of this expenditure is shown in income statement and the balance is shown in the balance sheet on asset side.|
51. Write in short about capital profit.
Capital profits are earned on transactions involving the items of capital in nature. The profits made by sale of fixed assets or premium earned while issuing shares and debentures are the examples of capital profits. Any residual profit made on forfeiture of shares is also considered as capital profit.
52. Differential between capital and revenue receipts
The following are the main differences between the capital and revenue receipts:
|Bases of Difference||Capital Receipt||Revenue Receipt|
|1. Effect||It increases both assets and liabilities.||It increases assets and profit.|
|2. Nature||It is not recurring.||It is recurring.|
|3. Presentation||It is shown in liability side of balance sheet.||It is shown in credit side of trading and profit and loss account.|
53. Explain in brief about the deferred revenue expenditure.
Revenue expenditures are those expenditure which are not debited to single years Profit and Loss Account but deferred to future years and charged to future earnings using some basis, like ability to bear or matching of cost and benefit ratio.
54. Write the meaning of journal proper.
Journal proper may be defined as a journal in which unusual and occasional transactions of the business are recorded systematically in a chronological order. The transactions, which are not recorded in any subsidiary book, are recorded in journal proper.
55. Write about opening entry.
These are entries passed for a new business at the commencement or for an old business to start its books of accounts in the fresh accounting year. That is why such entries are known as opening entries.
56. Write in short about closing entry.
It is prepared at the end of the accounting year i.e. at the time of preparation of final account. For this purpose, revenues and expenses account are closed by transferring into trading and profit and loss account.
57. Write short notes on adjusted trail balance.
The trail balance which is prepared after including the adjustment entries is called an adjusted trail balance.
58. Write the procedures of preparing adjusted trial balance.
Enter the balance of account in trail balance column
Enter the necessary adjustment in adjustment column
59. What is meant by Reserve?
Reserves are created out of divisible profits. Such amounts of surplus profit can be used to meet either a likely or an unforeseen future liability or loss. Since, the reserve is created out of divisible profits it would be done at the time of the preparation of financial statements.
60. Define Provision?
Any amount written off or retained by way of providing for depreciation, renewals, or diminution in value of assets, or retained by way of providing for any known liability the amount of which cannot be determined with accuracy is known as provisions.
61. Give the difference between Reserve and Provision.
|a. Effect||It is an appropriation of profit.||It is a charge against profit.|
|b. Need||It is created for unknown liabilities||It is created for meeting a definite liability.|
|c.Basis||Reserve is created based on a financial policy.||It is based on the principle of conservatism, which suggests that all future losses are to be anticipated and provided for.|
62. What is Secret Reserve?
Secret Reserves are those reserves, which are not disclosed in the books of accounts. These are not specifically created but represent a surplus not disclosed in the Balance Sheet. Secret Reserves are not apparent on the face of the balance sheet and hence are called ‘’hidden reserves’’ or ‘’inner reserve’’.
63. What is research and development fund?
The efforts made to realize the ways is known as research and development. It may be directed at discovering techniques for the production of new items or to replace and to compete with products already marketed by others, or new methods of producing old lines.
Research and Development has become the hallmark of the present competitive business environment. Enterprises are continuously trying to find out better ways to achieve their objectives.