Home » Class 11 Accountancy » NCERT Solutions for Class 11 Accountancy Financial Accounting Part-1 Chapter 3 Recording of Transactions – I

NCERT Solutions for Class 11 Accountancy Financial Accounting Part-1 Chapter 3 Recording of Transactions – I


Short answers : Solutions of Questions on Page Number : 79

NCERT Solutions for Class 11 Accountancy Financial Accounting Part 1 Chapter 3 Recording of Transactions – I


Q1 : State the three fundamental steps in the accounting process.
Answer :
The fundamental steps in the accounting process are diagrammatically presented below.


Q2 :Why is the evidence provided by source documents important to accounting?
Answer :

The evidence provided by the source document is important in the following manners:

  1. It provides evidence that a transaction has actually occurred.
  2. It provides important and relevant information about date, amount, parties involved and other details of a particular transaction.
  3. It acts as a proof in the court of law.
  4. It helps in verifying transactions during the auditing process.

Q3 : Should a transaction be first recorded in a journal or ledger? Why?
Answer :
A transaction should be recorded first in a journal because journal provides complete details of a transaction in one entry. Further, a journal forms the basis for posting the transactions into their respective accounts into ledger. Transactions are recorded in journal in chronological order, i.e. in the order of occurrence with the help of source documents. Journal is also known as ‘book of original entry’, because with the help of source document, transactions are originally recorded in books. The process of recording the transactions in journal and then in ledger is presented in the below given flow chart.


Q4 : Are debits or credits listed first in journal entries? Are debits or credits indented?
Answer :
As per the rule of double entry system, there are two columns of ‘Amount’ in the journal format namely ‘Debit Amount’ and ‘Credit Amount’. The way of recording in a journal is quite different from normal recording. Journal entry is recorded in journal format in which the ‘Debit Amount’ column is listed before the ‘Credit Amount’ column.

Credits are indented. Indentation is leaving a space before writing any word. Journal entry has its own jargon. While journalising, in the ‘Particulars’ column of journal format, debited account is written first and credited account is in the next line leaving some space, which is indentation.


Q5 : Why are some accounting systems called double accounting systems?
Answer :
Some accounting systems are called double accounting systems because under this system there are two aspects of every transaction, i.e., every transaction has dual effect. Every transaction affects two accounts simultaneously, that is represented by debiting one account and crediting the other account. It is based on the fact that if there is receiver, there should be a giver.


Q6 :  Give a specimen of an account.
Answer :

_________Account
Dr. Cr.
Date Particulars J.F. Amount Rs Date Particulars  J.F. Amount Rs

 


Q7 : Why are the rules of debit and credit same for both liability and capital?
Answer :
Every business acquires funds from internal as well as from external sources. According to the business entity concept, the amount borrowed from the external sources together with the internal sources like, capital invested by the proprietor, is termed as liability to the business. Business entity concept treats business and business owner separately. Capital of the owner is treated as liability to the business because the business has to repay the amount of capital to the owner, in case of closure of the business. As liability incurred is credited, in the same way, fresh capital introduced and net profit increases the owner’s capital, and so, capital is credited. On the other hand, if liability is paid, it reduces liability, and so, it is debited. Similarly, drawings from capital and net loss reduce the capital, and so, capital is debited. Thus the rules of debit and credit are same for both liability and capital.


Q8 : What is the purpose of posting J.F numbers that are entered in the journal at the time entries are posted to the accounts?Answer :
J.F. number is the number that is entered in the ledger at the time of posting entries into their respective accounts. It helps in determining whether all transactions are properly posted in their accounts. It is recorded at the time of posting and not at the time of recording the transactions.

The purpose of entering J.F. number in the ledger is because of the below given benefits.

  1. J.F. number helps in locating the entries of accounts in the journal book. In other words, J.F number helps to locate the position of the related journal entry and subsidiary book in the journal book.
  2. J.F. number in accounts ensures that recording in the books of original entry has been posted or not.

Q9 : What entry (debit or credit) would you make to: (a) increase revenue (b) decrease in expense, (c) record drawings (d) record the fresh capital introduced by the owner.
Answer :

  1. Increase in revenue

Increase in revenue is credited as it increases the capital. Capital has credit balance and if capital increases, then it is credited.

  1. Decrease in expense

Decrease in expense is credited as all expenses have debit balance. If expense decreases, then it is credited.

  1. Record drawings

Capital has credit balance; if the capital increases, then it is credited. If capital decreases, then it is debited. Drawings are debited as they decrease the capital.

  1. Record of fresh capital introduced by the owner- credit

Capital has credit balance, if capital increases, then it is credited. The introduction of fresh capital increases the balance of capital, and so, it is credited.


Q10 : If a transaction has the effect of decreasing an asset, is the decrease recorded as a debit or as a credit? If the transaction has the effect of decreasing a liability, is the decrease recorded as a debit or as a credit?
Answer :

If a transaction has a decreasing effect on an asset, then this decrease is recorded as credit. This is because, as all assets have debit balance and if assets decrease, then it is credited. For example, sale of furniture results in decrease in furniture (asset); so, the sale of furniture will be credited.

If a transaction has a decreasing effect on a liability, then this decrease is recorded as debit. This is because all liabilities have credit balance. If the liability increases, then it is credited and if the liability decreases, then it is debited. For example, payment to the creditors results in a decrease in the creditors (liability); so, the creditors account will be debited.


Numerical questions : Solutions of Questions on Page Number : 80


Q1 : Prepare accounting equation on the basis of the following:

(a) Harsha started business with cash Rs 2,00,000

(b) Purchased goods from Naman for cash Rs 40,000

(c) Sold goods to Bhanu costing Rs 10,000/- Rs 12,000

(d) Bought furniture on credit Rs 7,000
Answer:

S.No.

Explanation

Assets

=

Liabilities

+

Capital

Cash

+

Stock

+

Debtors

+

Furniture

Creditors

(a)

Increase in cash

2,00,000

=

 

Increase in capital

 

 

 

 

 

 

 

 

 

 

2,00,000

 

2,00,000

=

NIL

+

2,00,000

(b)

Increase in stock

40,000

 

Decrease in cash

(40,000)

 

 

 

 

 

 

 

 

 

 

1,60,000

+

40,000

=

NIL

+

2,00,000

(c)

Increase in debtors

12,000

 

Decrease in stock

(10,000)

 

Profit

 

 

 

 

 

 

 

 

 

2,000

 

1,60,000

+

30,000

+

12,000

=

NIL

2,02,000

(d)

Increase in furniture

7,000

 

 

Increase in creditors

 

 

 

 

 

 

 

 

7,000

 

 

 

 

1,60,000

+

30,000

+

12,000

+

7,000

=

7,000

+

2,02,000


Q2 :Prepare accounting equation from the following:

Rs
(a) Kunal started business with cash 2,50,000
(b) He purchased furniture for cash 35,000

 

(c) He paid commission 2,000
(d) He purchases goods on credit 40,000
(e) He sold goods (costing Rs 20,000) for cash  26,000

Answer :

S.No. Explanation Assets   Liabilities + Capital
Cash + Furniture + Stock = Creditors
(a) Increase in cash 2,50,000
Increase in capital 2,50,000
2,50,000 = NIL + 2,50,000
(b) Increase in furniture 35,000  He paid commission
Decrease in cash (35,000)
2,15,000 + 35,000 = NIL + 2,50,000
(c) Decrease in capital (Expense) (2,000)
Decrease in cash (2,000)
2,13,000 + 35,000 = NIL + 2,48,000
(d) Increase in stock 40,000
Increase in creditors 40,000
2,13,000 + 35,000 + 40,000 = 40,000 + 2,48,000
(e) Increase in cash 26,000

 


Q3 : Mohit has the following transactions, prepare accounting equation:

Rs
(a) Business started with cash 1,75,000
(b) Purchased goods from Rohit 50,000
(c) Sales goods on credit to Manish (Costing Rs 17,500) 20,000
(d) Purchased furniture for office use 10,000
(e) Cash paid to Rohit in full settlement 48,500
(f) Cash received from Manish 20,000
(g) Rent paid 1,000
(h) Cash withdrew for personal use 3,000


Answer :

S.No. Explanation Assets   Liabilities + Capital
Cash + Stock + Debtors Furniture = Creditors
(a) Increase in cash 1,75,000
Increase in capital 1,75,000
1,75,000 = NIL + 1,75,000
(b) Increase in stock 50,000
Increase in creditors (Rohit) = 50,000 + 1,75,000
1,75,000 + 50,000 = 50,000 + 1,75,000
(c) Increase in debtors (Manish) 20,000
Decrease in stock (17,500)
Increase in capital (Profit) 2,500
1,75,000 + 32,500 + 20,000 = 50,000 + 1,77,500
(d) Increase in furniture 10,000
Decrease in cash (10,000)

Q4 : Rohit has the following transactions:

Rs
(a) Commenced business with cash 1,50,000
(b) Purchased machinery on credit 40,000
(c) Purchased goods for cash 20,000
(d) Purchased car for personal use 80,000
(e) Paid to creditors in full settlement 38,000
(f) Sold goods for cash costing Rs 5,000 4,500
(g) Paid rent 1,000
(h) Commission received in advance 2,000

Prepare the Accounting Equation to show the effect of the above transactions on the assets, liabilities and capital.

Answer :

S.No. Explanation Assets Liabilities + Capital
Cash + Machinery + Stock = Creditors + Unaccrued Income
(a) Increase in cash 1,50,000
Increase in capital 1,50,000
1,50,000 = NIL + 1,50,000
(b) Increase in machinery 40,000
Increase in creditors = 40,000
1,50,000 + 40,000 = 40,000 + 1,50,000
(c) Increase in stock 20,000
Decrease in cash (20,000)
1,30,000 + 40,000 + 20,000 = 40,000 + 1,50,000
(d) Decrease in cash (80,000)
Decrease in capital (Drawings) (80,000)
50,000 + 40,000 + 20,000 = 40,000 + 70,000
(e) Decrease in creditors (40,000)
Decrease in cash (38,000)
Increase in capital

(Discount received)

 


Q5 : Use accounting equation to show the effect of the following transactions of M/s Royal Traders:

Rs
(a) Started business with cash 1,20,000
(b) Purchased goods for cash 10,000
(c) Rent received 5,000
(d) Salary outstanding 2,000
(e) Prepaid Insurance 1,000
(f) Received interest 700
(g) Sold goods for cash (costing Rs 5,000) 7,000
(h) Goods destroyed by fire 500

Answer:

S.No. Explanation Assets = Liabilities + Capital
Cash + Stock + Prepaid Expenses Outstanding Expenses
(a) Increase in cash 1,20,000
Increase in capital 1,20,000
1,20,000 = NIL + 1,20,000
(b) Increase in stock 10,000
Increase in cash (10,000) =
1,10,000 + 10,000 = NIL + 1,20,000
(c) Increase in cash 5,000
Increase in capital (Profit) 5,000
1,15,000 + 10,000 = NIL + 1,25,000
(d) Increase in outstanding expenses = 2,000
Decrease in capital (Expense) (2,000)
1,15,000 + 10,000 = 2,000 + 1,23,000
(e) Increase in prepaid expenses 1,000
Decrease in cash (1,000)
1,14,000 + 10,000 + 1,000 = 2,000 + 1,23,000
(f) Increase in cash 700
Increase in capital (Profit) 700
1,14,700 + 10,000 + 1,000 = 2,000 + 1,23,700
(g) Increase in cash 7,000
Decrease in stock (5,000)
Increase in capital (Profit) 2,000
1,21,700 + 5,000 + 1,000 = 2,000 + 1,25,700
(h) Decrease in stock (500)

Q6 :  Show the accounting equation on the basis of the following transaction:

     
(a) Udit started business with: Rs
  (i) Cash 5,00,000
  (ii) Goods 1,00,000
(b) Purchased building for cash 2,00,000
(c) Purchased goods from Himani  50,000
(d) Sold goods to Ashu (Cost Rs 25,000)  36,000
(e) Paid insurance premium  3,000
(f) Rent outstanding  5,000
(g) Depreciation on building  8,000
(h) Cash withdrawn for personal use  20,000
(i) Rent received in advance  5,000
(j) Cash paid to Himani on account  20,000
(k) Cash received from Ashu  30,000

Answer:

S.No. Explanation Assets = Liabilities + Capital
Cash + Stock + Building + Debtors Creditors + Outstanding Expenses + UnaccruedIncome    
(a) Increase in cash 5,00,000
Increase in stock 1,00,000
Increase in capital 6,00,000
5,00,000 + 1,00,000 = NIL + 6,00,000
(b) Increase in building 2,00,000
Decrease in cash (2,00,000)  

=

3,00,000 + 1,00,000 + 2,00,000 = NIL + 6,00,000
(c) Increase in stock 50,000
Increase in creditors = 50,000
3,00,000 + 1,50,000 + 2,00,000 = 50,000

Q7 :  Show the effect of the following transactions on Assets, Liabilities and Capital through accounting equation:

    Rs
(a) Started business with cash 1,20,000
(b) Rent received 10,000
(c) Invested in shares 50,000
(d) Received dividend 5,000
(e) Purchase goods on credit from Ragani 35,000
(f) Paid cash for house hold Expenses 7,000
(g) Sold goods for cash (costing Rs 10,000) 14,000
(h)

(i)

Cash paid to Ragani

Deposited into bank

35,000

20,000

Answer:

S.No. Explanation Assets = Liabilities + Capital
Cash + Stock + Investment + Bank Creditors
(a)  Increase in cash 1,20,000
 Increase in capital 1,20,000
1,20,000 + = NIL + 1,20,000
(b)  Increase in cash 10,000
 Increase in capital (Income) = 10,000
1,30,000 = NIL + 1,30,000
(c)  Decrease in investment 50,000
 Decrease in cash (50,000) =
80,000 + 50,000 = NIL + 1,30,000
(d)  Increase in cash 5,000
 Increase in capital (Income) 5,000
85,000 + 50,000 = NIL + 1,35,000
(e)  Increase in stock 35,000
 Increase in creditor (Ragani) 35,000
85,000 + 35,000 + 50,000 = 35,000 + 1,35,000
(f)  Decrease in capital (7,000)
 Decrease in cash  (7,000)
78,000 + 35,000 + 50,000 = 35,000 + 1,28,000

Q8 :  Show the effect of following transaction on the accounting equation:

Rs
(a) Manoj started business with
(i) Cash 2,30,000
(ii) Goods 1,00,000
(iii) Building 2,00,000
(b) He purchased goods for cash 50,000
(c) He sold goods(costing Rs 20,000) 35,000
(d) He purchased goods from Rahul 55,000
(e) He sold goods to Varun (Costing Rs 52,000) 60,000
(f) He paid cash to Rahul in full settlement 53,000
(g) Salary paid by him 20,000
(h) Received cash from Varun in full settlement 59,000
(i) Rent outstanding 3,000
(j) Prepaid Insurance 2,000
(k) Commission received by him 13,000
(l) Amount withdrawn by him for personal use 20,000
(m) Depreciation charge on building 10,000
(n) Fresh capital invested 50,000
(o) Purchased goods from Rakhi 6,000

Answer:

S.No. Explanation Assets = Liabilities + Capital
Cash + Stock + Building + Debtors + Prepaid Expenses Creditors + Outstanding Expenses    
(a) Increase in cash, stock and building 2,30,000 + 1,00,000 + 2,00,000
Increase in capital 5,30,000
2,30,000 + 1,00,000 + 2,00,000 = + 5,30,000
(b) Increase in stock 50,000
Decrease in cash (50,000)
1,80,000 + 1,50,000 + 2,00,000 = + 5,30,000
(c) Increase in cash 35,000
Decrease in stock (20,000)
increase in capital (Profit) 15,000
2,15,000 + 1,30,000 + 2,00,000

Q9 :  Transactions of M/s. Vipin Traders are given below.

Show the effects on Assets, Liabilities and Capital with the help of accounting Equation.

    Rs
(a) Business started with cash 1,25,000
(b) Purchased goods for cash 50,000
(c) Purchase furniture from R.K. Furniture 10,000
(d) Sold goods to Parul Traders (costing Rs 7,000 vide bill no. 5674) 9,000
(e) Paid cartage 100
(f) Cash Paid to R.K. furniture in full settlement 9,700
(g) Cash sales (costing Rs 10,000) 12,000
(h) Rent received 4,000
(i) Cash withdrew for personal use 3,000

Answer :

S.No. Explanation Assets = Liabilities + Capital
Cash + Stock + Furniture + Debtors Creditors
(a) Increase in cash 1,25,000
Increase in capital 1,25,000
1,25,000 + = NIL + 1,25,000
(b) Increase in stock 50,000
Decrease in cash (50,000) =
75,000 + 50,000 = NIL + 1,25,000
(c) Increase in furniture 10,000 =
Increase in creditors = 10,000
75,000 + 50,000 + 10,000 = 10,000 + 1,25,000
(d) Increase in debtors 9,000
Decrease in stock (7,000)
Increase in capital (Profit) 2,000
75,000 + 43,000 + 10,000 + 9,000 = 10,000 + 1,27,000
(e) Decrease in capital (Cartage Expenses) (100)
Decrease in cash (100)
74,900 + 43,000 + 10,000 + 9,000 = 10,000 + 1,26,900
(f) Decrease in creditors = (10,000)
Decrease in cash (9,700)
Increase in capital (Discount-received) 300

Q10 :  Bobby opened a consulting firm and completed these transactions during November, 2005:

(a) Invested Rs 4,00,000 cash and office equipment with Rs 1,50,000 in a business called Bobbie Consulting.
(b) Purchased land and a small office building. The land was worth Rs 1,50,000 and the building worth Rs 3,50,000. The purchase price was paid with Rs 2,00,000 cash and a long term note payable for Rs 8,00,000.
(c) Purchased office supplies on credit for Rs 12,000.
(d) Bobbie transferred title of motor car to the business. The motor car was worth Rs 90,000.
(e) Purchased for Rs 30,000 additional office equipment on credit.
(f) Paid Rs 75,00 salary to the office manager.
(g) Provided services to a client and collected Rs 30,000
(h) Paid Rs 4,000 for the month’s utilities.
(i) Paid supplier created in transaction (c).
(j) Purchase new office equipment by paying Rs 93,000 cash and trading in old equipment with a recorded cost of Rs 7,000.
(k) Completed services of a client for Rs 26,000. This amount is to be paid within 30 days.
(l) Received Rs 19,000 payment from the client created in transaction (k).
(m) Bobby withdrew Rs 20,000 from the business.

Analyse the above stated transactions and open the following T-accounts:

Cash, client, office supplies, motor car, building, land, long term payables, capital, withdrawals, salary, expense and utilities expense.

Answer:

a)

The transaction (a) increases assets by Rs 5,50,000 (cash Rs 4,00,000 and office equipment Rs 1,5,000) it will be debited and on the other hand it will increase the capital by Rs 5,50,000, so it will be credited in capital account.

 

Cash Account Office Equipment Account Capital Account
Dr. Cr. Dr. Cr . Dr. Cr.
(a) Rs 4,00,000 (a) Rs 1,50,000 (a) Rs 4,00,000
(a) Rs 1,50,000

 

b)

Purchase of land and small office building are assets. On one hand, the purchase of these items will increase their individual accounts and this will increase the total amount of the assets in the business; so, both the accounts will be debited. On the other hand, payment in cash on the purchase of these assets will decrease the cash balance, so cash account will be credited to the extent of amount paid. After payment for building in cash, the balance of building account will be transferred to creditors for building account. This will increase the amount of the creditors, which in turn will increase the total liabilities of the business. Long term payables are regarded as loan to the business that will increase both cash balance (due to intake of loan) as well as liabilities of the business.

 

Land Account Building Account
Dr. Cr. Dr. Cr.
(b) Rs 1,50,000 (b) Rs 3,50,000

 

Cash Account Long Term Payable Account
Dr. Cr. Dr. Cr.
(a)  Rs 4,00,000 (b) Rs 1,50,000 (b) Rs 8,00,000
(b)  Rs 8,00,000 (b) Rs 50,000

Q11 :  Journalise the following transactions in the books of Himanshu:

2005   Rs
Dec.01 Business started with cash 75,000
Dec.07 Purchased goods for cash 10,000
Dec.09 Sold goods to Swati 5,000
Dec.12 Purchased furniture 3,000
Dec.18 Cash received from Swati in full settlement  4,000
Dec.25 Paid rent 1,000
Dec.30 Paid salary 1,500

Answer:

Books of Himanshu

Journal

Date Particulars L.F. Debit

Amount

 Rs

Credit Amount

 Rs

2005
Dec.01 Cash A/c Dr. 75,000
To Capital A/c 75,000
(Started business with cash)
Dec.07 Purchases A/c Dr. 10,000
To Cash A/c 10,000
(Goods purchased for cash)
Dec.09 Swati Dr. 5,000
To Sales A/c 5,000
(Goods sold on credit)
Dec.12 Furniture A/c Dr. 3,000
To Cash A/c 3,000
(Furniture purchased for cash)
Dec.18 Cash A/c Dr. 4,000
Discount Allowed A/c Dr. 1,000
To Swati 5,000
(Cash received from Swati and discount allowed)
Dec.25 Rent A/c Dr. 1,000
To Cash A/c 1,000
(Rent paid in cash)

Q12 :  Enter the following Transactions in the Journal of Mudit :

2006 Rs
Jan.01 Commenced business with cash 1,75,000
Jan.01 Building 1,00,000
Jan.02 Goods purchased for cash 75,000
Jan.03 Sold goods to Ramesh 30,000
Jan.04 Paid wages 500
Jan.06 Sold goods for cash 10,000
Jan.10 Paid for trade expenses 700
Jan.12 Cash received from Ramesh 29,500
Discount allowed 500
Jan.14 Goods purchased for Sudhir 27,000
Jan.18 Cartage paid 1,000
Jan.20 Drew cash for personal use 5,000
Jan.22 Goods use for house hold 2,000
Jan.25 Cash paid to Sudhir 26,700
Discount allowed 300

Answer:

Books of Mudit

Journal

Date Particulars L.F. Debit Amount

Rs

Credit Amount Rs
2006
Jan.01 Building A/c Dr. 1,00,000
Cash A/c Dr. 1,75,000
To Capital A/c 2,75,000
(Commenced business with cash and building)
Jan.02 Purchases A/c Dr. 75,000
To Cash A/c 75,000
(Goods purchased for cash)
Jan.03 Ramesh Dr. 30,000
To Sales A/c 30,000
(Goods sold to Ramesh)
Jan.04 Wages A/c Dr. 500
To Cash A/c 500
(Wages paid in cash)
Jan.06 Cash A/c Dr. 10,000
To Sales A/c 10,000
(Goods sold for cash)

Q13 :  Journalise the following transactions:

2005   Rs
Dec. 01 Hema started business with cash 1,00,000
Dec. 02 Open a bank account with SBI 30,000
Dec. 04 Purchased goods from Ashu 20,000
Dec.06 Sold goods to Rahul for cash 15,000
Dec.10 Bought goods from Tara for cash 40,000
Dec.13 Sold goods to Suman 20,000
Dec.16 Received cheque from Suman 19,500
  Discount allowed 500
Dec.20 Cheque given to Ashu on account 10,000
Dec.22 Rent paid by cheque 2,000
Dec.23 Deposited into bank 16,000
Dec.25 Machine purchased from Parigya 10,000
Dec.26 Trade expenses 2,000
Dec.28 Cheque issued to Parigya 10,000
Dec.29 Paid telephone expenses by cheque  1,200
Dec.31 Paid salary 4,500

Answer:

Books of Hema
Journal
Date Particulars L.F. Debit Amount Rs Credit Amount Rs
2005
Dec.01 Cash A/c Dr. 1,00,000
To Capital A/c 1,00,000
(Started business with cash)
Dec.02 Bank A/c Dr. 30,000
To Cash A/c 30,000
(Bank account opened with SBI)
Dec.04 Purchases A/c Dr. 20,000
To Ashu 20,000
(Goods purchased from Ashu)
Dec.06 Cash A/c Dr. 15,000
To Sales A/c 15,000
(Goods sold for cash)
Dec.10 Purchases A/c Dr. 40,000
To Cash A/c 40,000
(Goods purchased for cash)
Dec.13 Suman Dr. 20,000
To Sales A/c

 


Q14 :  Jouranlise the following transactions in the books of Harpreet Bros.:

(a) Rs 1,000 due from Rohit are now bad debts.
(b) Goods worth Rs 2,000 were used by the proprietor.
(c) Charge depreciation @ 10% p.a for two month on machine costing Rs 30,000.
(d) Provide interest on capital of Rs 1,50,000 at 6% p.a. for 9 months.
(e) Rahul become insolvent, who owed is Rs 2,000 a final dividend of 60 paise in a rupee is received from his estate.

Answer:

Books of Harpreet Bros.
Journal
S. No. Particulars L.F. Debit Amount Rs Credit Amount Rs
(a) Bad Debt A/c Dr. 1,000
To Rohit (Debtors) 1,000
(Due from Rohit became bad debt)
(b) Drawings A/c Dr. 2,000
To Purchases A/c 2,000
(Goods withdrawn by proprietor for personal use)
(c) Depreciation A/c Dr. 500
To Machinery A/c 500
(Depreciation charged on machinery for two

months)

(d) Interest on Capital A/c Dr. 6,750
To Capital A/c 6,750
(Interest on capital at 6% due for 9 months)
(e) Bad Debt A/c Dr.      800
Cash A/c Dr.     1,200
To Rahul (Debtor) 2,000
(Received from Rahul 60 paise in a rupee and rest amount considered as bad debt)

 


Q15 :  Prepare Journal from the transactions given below :

Rs
(a) Cash paid for installation of machine 500
(b) Goods given as charity 2,000
(c) Interest charge on capital @ 7% p.a. when total capital were 70,000
(d) Received Rs 1,200 of a bad debts written-off last year.
(e) Goods destroyed by fire 2,000
(f) Rent outstanding 1,000
(g) Interest on drawings 900
(h) Sudhir Kumar who owed me Rs 3,000 has failed to pay the amount. He pays me a compensation of 45 paise in a rupee.
(i) Commission received in advance 7,000

Answer:

S. No.  

Particulars

L.F. Debit Amount

Rs

Credit Amount

Rs

(a) Machinery A/c Dr. 500
To Cash A/c 500
(Cash paid for installation of machinery)
(b) Charity A/c Dr. 2,000
To Purchases A/c 2,000
(Goods given as charity)
(c) Interest on Capital A/c Dr. 4,900
To Capital A/c 4,900
(Interest on capital charged @ 7% p.a.)
(d) Cash A/c Dr. 1,200
To Bad Debt Recovered A/c 1,200
(Cash received on from debtors which was

previously written off as bad)

(e) Goods Destroyed by Fire A/c Dr. 2,000
To Purchases A/c 2,000
(Goods destroyed by fire)

Q16 :  Journalise the following transactions, post to the ledger:

2005 Rs
Nov. 01 Business started with (i) Cash 1,50,000
(ii) Goods 50,000
Nov. 03 Purchased goods from Harish 30,000
Nov. 05 Sold goods for cash 12,000
Nov. 08 Purchase furniture for cash 5,000
Nov. 10 Cash paid to Harish on account 15,000
Nov. 13 Paid sundry expenses 200
Nov. 15 Cash sales 15,000
Nov. 18 Deposited into bank 5,000
Nov. 20 Drew cash for personal use 1,000
Nov. 22 Cash paid to Harish in full settlement of account 14,700
Nov. 25 Good sold to Nitesh 7,000
Nov. 26 Cartage paid 200
Nov. 27 Rent paid 1,500
Nov. 29 Received cash from Nitesh 6,800
Discount allowed 200
Nov. 30 Salary paid 3,000

Answer:

Journal
Date Particulars L.F. Debit Amount Rs Credit Amount

Rs

2005      
Nov.01 Cash A/c Dr. 1,50,000
Stock A/c Dr.     50,000
To Capital A/c 2,00,000
(Started business with cash and goods)
Nov.03 Purchases A/c Dr. 30,000
To Harish 30,000
(Goods purchased from Harish)
Nov.05 Cash A/c Dr. 12,000
To Sales A/c 12,000

 


Q17 :  Journalise the following transactions is the journal of M/s. Goel Brothers and post them to the ledger.

2006 MCEPASTEBIN% Rs
Jan. 01 Started business with cash 1,65,000
Jan. 02 Opened bank account in PNB 80,000
Jan. 04 Goods purchased from Tara 22,000
Jan.05 Goods purchased for cash 30,000
Jan.08 Goods sold to Naman 12,000
Jan.10 Cash paid to Tara 22,000
Jan.15 Cash received from Naman 11,700
  Discount allowed 300
Jan. 16 Paid wages 200
Jan. 18 Furniture purchased for office use 5,000
Jan. 20 Withdrawn from bank for personal use 4,000
Jan. 22 Issued cheque for rent 3,000
Jan. 23 Goods issued for house hold purpose 2,000
Jan. 24 Drawn cash from bank for office use 6,000
Jan. 26 Commission received 1,000
Jan. 27 Bank charges 200
Jan. 28 Cheque given for insurance premium 3,000
Jan. 29 Paid salary 7,000
Jan. 30 Cash sales 10,000

Answer:

Books of M/s Goel Brothers
Journal
Date Particulars L.F. Debit Amount

Rs

Credit Amount

Rs

2006    
Jan.01 Cash A/c Dr. 1,65,000
To Capital A/c 1,65,000
(Started business with cash)
Jan.02 Bank A/c Dr. 80,000
To Cash A/c 80,000
(Bank account opened with PNB)
Jan.04 Purchases A/c Dr. 22,000
To Tara 22,000
(Goods purchased from Tara)
Jan.05 Purchases A/c Dr. 30,000
To Cash A/c 30,000
(Goods purchased for cash)
Jan.08 Naman Dr. 12,000
To Sales A/c 12,000
(Sale of goods to Naman)
Jan.10 Tara Dr. 22,000
To Cash A/c 22,000
(Cash paid to Tara)
Jan.15 Cash A/c Dr. 11,700
Discount Allowed A/c Dr.      300
To Naman 12,000
(Cash received from Naman and discount allowed)

Q18 :  Give journal entries of M/s. Mohit traders; post them to the Ledger from the following transactions:

August, 2005 Rs
1 Commenced business with cash 1,10,000
2 Opened bank account with H.D.F.C. 50,000
3 Purchased furniture 20,000
7 Bought goods for cash from M/s. Rupa Traders 30,000
8 Purchased good from M/s. Hema Traders 42,000
10 Sold goods for cash 30,000
14 Sold goods on credit to M/s. Gupta Traders 12,000
16 Rent paid 4,000
18 Paid trade expenses 1,000
20 Received cash from Gupta Traders 12,000
22 Goods return to Hema Traders 2,000
23 Cash paid to Hema Traders 40,000
25 Bought postage stamps 100
30 Paid salary to Rishabh 4,000

Answer:

Books of M/s. Mohit Traders
Journal
Date Particulars L.F. Debit Amount Rs Credit Amount Rs
2005
Aug.01 Cash A/c Dr. 1,10,000
To Capital A/c 1,10,000
(Commenced business with cash)
Aug.02 Bank A/c Dr. 50,000
To Cash A/c 50,000
(Bank account opened with H.D.F.C)
Aug.03 Furniture A/c Dr. 20,000
To Cash A/c 20,000
(Furniture purchased)
Aug.07 Purchases A/c Dr. 30,000
To Cash A/c 30,000
(Goods purchased for cash)
Aug.08 Purchases A/c Dr. 42,000
To M/s. Hema Traders 42,000
(Goods purchased from M/s. Hema Traders)
Aug.10 Cash A/c Dr. 30,000
To Sales A/c 30,000
(Goods sold for cash)
Aug.14 M/s. Gupta Traders Dr. 12,000
To Sales A/c 12,000
(Goods sold to M/s. Gupta traders)

Q19 :  Journalise the following transaction in the Books of the M/s. Bhanu Traders and Post them into the Ledger.

December, 2005   Rs
1 Started business with cash 92,000
2 Deposited into bank 60,000
4 Bought goods on credit from Himani 40,000
6 Purchased goods from cash 20,000
8 Returned goods to Himani 4,000
10 Sold goods for cash 20,000
14 Cheque given to Himani 36,000
17 Goods sold to M/s. Goyal TradeRs 3,50,000
19 Drew cash from bank for personal use 2,000
21 Goyal traders returned goods 3,500
22 Cash deposited into bank 20,000
26 Cheque received from Goyal Traders 31,500
28 Goods given as charity 2,000
29 Rent paid 3,000
30 Salary paid 7,000
31 Office machine purchased for cash 3,000

Answer:

Books of M/s. Bhanu Traders
Journal
Date Particulars L.F. Debit Amount

Rs

Credit Amount Rs
2005    
Dec.01 Cash A/c Dr. 92,000
To Capital A/c 92,000
(Started business with cash)
Dec.02 Bank A/c Dr. 60,000
To Cash A/c 60,000
(Cash deposited into bank)
Dec.04 Purchases A/c Dr. 40,000
To Himani 40,000
(Goods purchased from Himani)

Q20 :  Journalise the following transaction in the Book of M/s. Beauti tradeRs Also post them in the ledger.

Dec. 2005   Rs
1 Started business with cash 2,00,000
2 Bought office furniture 30,000
3 Paid into bank to open an current account 1,00,000
5 Purchased a computer and paid by cheque 2,50,000
6 Bought goods on credit from Ritika 60,000
8 Cash sales 30,000
9 Sold goods to Karishna on credit 25,000
12 Cash paid to Mansi on account 30,000
14 Goods returned to Ritika 2,000
15 Stationery purchased for cash 3,000
16 Paid wages 1,000
18 Goods returned by Karishna 2,000
20 Cheque given to Ritika 28,000
22 Cash received from Karishna on account 15,000
24 Insurance premium paid by cheque 4,000
26 Cheque received from Karishna 8,000
28 Rent paid by cheque 3,000
29 Purchased goods on credit from Meena Traders 20,000
30 Cash sales 14,000

Answer:

Books of Beauti Traders
Journal
Date Particulars L.F. Debit Amount Rs Credit Amount Rs
2005    
Dec.01 Cash A/c Dr. 2,00,000
To Capital A/c 2,00,000
(Started business with cash)
Dec.02 Office Furniture A/c Dr. 30,000
To Cash A/c 30,000
(Office furniture purchased)
Dec.03 Bank A/c Dr. 1,00,000
To Cash A/c 1,00,000
(Opened a current account)
Dec.05 Computer A/c Dr. 2,50,000

Q21 :  Journalise the following transaction in the books of Sanjana and post them into the ledger:

January, 2006   Rs
1 Cash in hand 6,000
  Cash at bank 55,000
  Stock of goods 40,000
  Due to Rohan 6,000
  Due from Tarun 10,000
3 Sold goods to Karuna 15,000
4 Cash sales 10,000
6 Goods sold to Heena  5,000
8 Purchased goods from Rupali 30,000
10 Goods returned from Karuna 2,000
14 Cash received from Karuna 13,000
15 Cheque given to Rohan 6,000
16 Cash received from Heena 3,000
20 Cheque received from Tarun 10,000
22 Cheque received from to Heena 2,000
25 Cash given to Rupali 18,000
26 Paid cartage 1,000
27 Paid salary 8,000
28 Cash sale 7,000
29 Cheque given to Rupali 12,000
30 Sanjana took goods for Personal use 4,000
31 Paid General expense 500

Answer:

Books of Sanjana
Journal Entries
S.No. Particulars L.F. Debit Amount Rs Credit Amount Rs
2006      
Jan.01 Cash A/c Dr. 6,000  
Bank A/c Dr. 55,000
Stock A/c Dr. 40,000
Tarun Dr. 10,000
To Rohan 6,000
To Capital A/c 1,05,000
(Balance brought from the last month)
Jan.03 Karuna Dr. 15,000
To Sales A/c 15,000
(Goods sold to Karuna)

 


Long answers : Solutions of Questions on Page Number : 80


Q1 :  Describe the events recorded in accounting systems and the importance of source documents in those systems?

Answer :

It is beyond human capabilities to memorise each financial transaction and that is why, source documents have their own importance in accounting system. They are considered as an evidence of transactions and can be presented in the court of law. Transactions supported by evidence can be verified. Source documents also ensure that transactions recorded in the books are free from personal biases.

A few events that are supported by source document are given below.

  1. Sale of goods worth Rs 200 on credit, supported by sales invoice/bill
  2. Purchase of goods worth Rs 500 on credit, supported by purchase invoice/bill
  3. Cash sales worth Rs 1,000, supported by cash memo
  4. Cash purchase of goods worth Rs 400, supported by cash memo
  5. Goods worth Rs 100 returned by customer, supported by credit note
  6. Return of goods purchased on credit worth Rs 200, supported by debit note
  7. Payment worth Rs 1,200 through bank, supported by cheques
  8. Deposits into bank worth Rs 500, supported by pay-in slips.

Out of the above events, only those events that can be expressed in monetary terms, are recorded in the books of accounts. However, the non-monetary events are not recorded in accounts; for example, promotion of manger cannot be recorded but increment in salary can be recorded at the time when salary is paid or due.

Source document in accounting is important because of the below given reasons.

  1. It provides evidence that transaction has actually occurred.
  2. It provides information about the date, amount and parties involved and other details of a particular transactions.
  3. It acts as an evidence in the count of law.
  4. It helps in verifying the transaction during the auditing process.

Q2 :  Describe how debits and credits are used to analyse transactions.
Answer :
Debit originated from the Italian word debito, which in turn is derived from the Latin word debeo, which means ‘owed to proprietor’ and credit comes from the Italian word credito, which is derived from the Latin word credo, which means belief, i.e., ‘owed by proprietor’.

According to the dual aspect concept, all the business transactions that are recorded in the books of accounts, have two aspects- debit and credit. The dual aspect can be better understood by the help of an example; bought goods worth Rs 500 on cash. This transaction affects two accounts with the same amount simultaneously. As goods are brought in exchange of cash, so the cash balances in the business reduce by Rs 500, i.e. why the cash account is credited. Simultaneously, the amount of goods increases by Rs 500, so purchases account will be debited. Debit and credit depend on the nature of accounts involved; such as assets, expenses, income, liabilities and capital. There are five types of Accounts.

  1. Assets These include all properties or legal rights owned by a firm for its operations, such as cash in hand, plant and machinery, bank, land, building, etc. All assets have debit balance. If assets increase, they are debited and if assets decrease, they are credited.

For example, furniture purchased and payment made by cheque. The journal entry is:

Furniture A/c Dr.
To Bank A/c

 

Here, furniture and bank balance, both are assets to the firm. As furniture is purchased, so furniture account will increase, and will be debited. On the other hand, payment of furniture is being made by cheque that reduces the bank balance of the business, so bank account will be credited.

  1. Expense– It is made to run business smoothly and to carry day to day business activites.

All expenses have debit balance. If an expense is incurred, it must be debited.

For example, rent paid. The journal entry is:

Rent A/c Dr.
To Cash A/c

 

Here, rent is an expense. All expenses have debit balance. Hence, rent is debited. On the other hand, as rent is paid in cash that reduces the cash balances, so cash account is credited.

  1. Liability- Liability is an obligation of business. Increase in liability is credited and decrease in liability is debited.

For example, loan taken from bank. The journal entry is:

Bank A/c Dr.
To Bank Loan A/c

 

Here, loan from bank is a liability to the firm. As all liabilities have credit balance, so loan from bank has been credited because it increases the liabilities.

  1. Income- Income means profit earned during an accounting period from any source. Income also means excess of revenue over its cost during an accounting period. Income has credit balance because it increases the balance of capital.

For example, rent received from tenant. The journal entry is:

Cash A/c Dr.
To Rent A/c

 

Here, rent is an income; hence, rent account has been credited and cash has been debited, as rent received increases the cash balances.

  1. Q3 :  Describe how accounts are used to record information about the effects of transactions?
    Answer :Capital-
    Capital is the amount invested by the proprietor in the business. Capital has credit balance. Increase in capital is credited and decrease in capital is debited

For example, additional capital introduced by owner. The journal entry is:

Cash A/c Dr.
To Capital A/c

 

As additional capital is introduced, so the amount of capital will increase, i.e. why, capital account is credited. On the other hand, as capital is introduced in form of cash, so the cash balances decrease, i.e. why, cash account is debited.


Q3 :  Describe how accounts are used to record information about the effects of transactions?
Answer :

Every transaction is recorded in the original book of entry (journal) in order of their occurrence; however, if we want to know that how much we receive from our debtors or how much to pay to the creditors, it is not possible to determine at a single movement. Hence, we prepare accounts to know the position of business activities in the meantime.

There are some steps to record transactions in accounts; it can be easily understood with the help of an example.

Sold goods to Mr A worth Rs 50,000 on 12th April and received payment Rs 40,000 on 25th April. The following journal entries will be recorded:

  Particulars L.F. Debit Amount

Rs

Credit Amount

Rs

Apr.12 A’s A/c Dr. 22 50,000  
To Sales 18 50,000
(Goods sold on credit to Mr. A)
Apr.25 Cash A/c Dr. 13 40,000
To A’s A/c 22 40,000
(Cash received from Mr. A)

Step 1- Locate the account in ledger, i.e., Mr A’s Account.

Step 2- Enter the date of transaction in the date column of the debit side of Mr A’s Account.

Step 3- In the ‘Particulars’ column of the debit side of Mr A’s Account, the name of corresponding account is to be written, i.e., ‘Sales’.

Step 4- Enter the page number of the ledger in the Journal Folio (J.F.) column of Mr A’s Account.

Step 5- Enter the amount in the ‘Amount’ column.

Step 6- Same steps are to be followed to post entries in the credit side of Mr A’s Account.

Step 7- After entering all the transactions for a particular period, balance the account by totalling both sides and write the difference in shorter side, as ‘Balance c/d’.

Step 8- Total of account is to be written on either sides.


Q4 :  What is a journal? Give a specimen of journal showing at least five entries.

Answer :
Journal is derived from the French word Jour, means daily records. In this book, transactions are recorded in order of their occurrence, i.e., in chronological order from the source document. It is also termed as the book of original entry and each transaction is termed as journal entry.

Performa of Journal

In the books of…..

Date Particulars L.F. Debit Amount Rs Credit Amount

Rs

 

Date- Date of transaction is recorded in the order of their occurrence.

Particulars- Details of business transactions like, name of the parties involved and the name of related accounts, are recorded.

L.F.– Page number of ledger account when entry is posted.

Debit Amount- Amount of debit account is written.

Credit Amount- Amount of credit account is written.

Recording of a Journal Entry

Date
1) Started business with cash Rs 1,00,000 April 01
2) Open a bank account Rs 20,000 April 03
3) Purchase goods for cash Rs 25,000 April 04
4) Goods sold for cash Rs 30,000 April 05
5) Goods sold to Mr. X Rs 2,000 April 06

 

Books of Mr A
Journal
Date Particulars L.F. Debit Amount Rs Credit Amount Rs
April1 Cash A/c Dr. 1,00,000  
To Capital A/c 1,00,000
(Started business with cash)
April 3 Bank A/c Dr. 20,000
To Cash A/c 20,000
(Bank account opened with cash)
April 4 Purchase A/c Dr. 25,000
To Cash 25,000
(Goods purchased for cash)
April 5 Cash A/caccountancy-1 Dr. 30,000  
To Sales A/c 30,000
(Goods sold for cash)
April 6 accountancy-1Mr. X’s A/c Dr. 2,000

Q5 :  Differentiate between source documents and vouchers.
Answer :

Basis of Difference Source Documents Vouchers
Meaning It refers to the documents in writing, containing the details of events or transactions. When source document is considered as evidence of an event or transaction, then it is called voucher.
Purpose It is used for preparing accounting vouchers. It is used for analysing the transactions.
Recording It acts as a basis for preparing accounting voucher that helps in recording. It acts as a basis for recording transactions.
Preparation It is prepared at the time when an event or a transaction occurs. It can be prepared either when an event or a transaction occurs, or later on.
Legality/Validity It can be used as evidence in the court of law. It can be used for assessing the authentication of transactions.
Prepared By It is prepared by the persons who are directly involved in the transactions, or who are authorised to prepare or approve these documents. It is prepared by the authorised persons or by the accountants.
Examples Cash memo, invoice, and payaccountancy-1-in-slip, etc. Cash memo, invoice, pay-in-slip (if used as evidence), debit note, credit note, cash vouchers, transfer vouchers, etc.

Q6 :  Accounting equation remains intact under all circumstances. Justify the statement with the help of an example.

Answer :

According to the dual-aspect concept, every transaction simultaneously, has two effects of equal amount, i.e. debit and credit. However, in any case, the equality of total assets with the total claims of business (sum of capital and liabilities) is not disturbed. This equality is algebraically represented as:
Assets =Total claimsaccountancy-1

or

Assets = Liabilities

Or

or, Liabilities = Asset – Capital

or, Capital = Assets – Liabilities

In any circumstance the above equation cannot be changed. For example,

  1. Business started with cash Rs 1,00,000
Cash A/c Dr.
To Capital A/c

 

Assets = Liabilities + Capital
Cash 1,00,000
(1,00,000)

 

Assets decrease, as cash is invested into the business and capital increases. Thus the equality between LHS and RHS remains intact.

  1. Goods purchased on credit Rs 20, 000
Assets = Liabilities + Capital
Cash Stock Creditors
1,00,000 20,000 = 20,000 + 100,000

 

Assets increase as well as liability increases, without disturbing the equality.

  1. Goods purchased with cash 25000
Assets = Liabilities + Capital
Cash Stock =
1,00,000 20,000 20,000 + 1,00,000
(25,000) 25,000

As goods are purchased for cash, so cash balance reduces by Rs 25,000, but on the other hand, stock balance increases by Rs 25,000. Thus the total balance of LHS remains equal to the total claims.


Q7 :  Explain the double entry mechanism with an illustrative example.
Answer :

Double entry system is based on the dual aspect concept. It means every transaction has two-sided effects, i.e., every debit has its credit.

This system is explained by Luca Pacioli in his book Summade Arithmetica Geometria Proportioni et Proportionalita, 1494. He said if one is receiver, then the other should be the giver.66

In double entry system, accounts are classified as shown below.

  1. Personal Accounts: It includes individual persons, firms, companies, and other institutions, such as Mr. A, M/s ABC & Co. etc.

Rule of double entry system for personal accounts:

  • Debit the receiver.
  • Credit the giver.

For example:

  1. Cash paid to Mr. A.
A’s A/c Dr.
To Cash
  1. Cash received from Mr. X
Cash A/c Dr.
To Mr. X
  1. Impersonal Accounts: It relates to non living things. Impersonal accounts are further classified as real accounts and nominal accounts.
  1. Real Account– It includes all types of assets.
  1. Tangible assets that can be seen and touched; for example, machinery, building, etc.
  1. Intangible assets that cannot be seen and touched; for example, goodwill, patent, etc.

Rule of double entry system for real accounts:

  • Debit what comes in.
  • Credit what goes out.

For example:

Furniture purchased for cash

Furniture A/c Dr.
To Cash A/c
  1. Nominal Account: It includes all expenses, losses, incomes and gains.

Rule of double entry system for nominal accounts:

  • Debit all losses and expenses.
  • Credit all gains and incomes.

For example:

  1. Rent paid
Rent A/c Dr.
To Cash A/c
  1. Commission received.
Cash A/c Dr.
To Commission A/c