NCERT Solutions For Class 11 Accountancy Financial Accounting Part-1 Chapter 3

NCERT Solutions for Class 11 Accountancy
Financial Accounting Part-1 Chapter 3

Recording of Transactions - I Class 11
Chapter 3 Recording of Transactions - I Exercise Solutions
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Short answers : Solutions of Questions on Page Number : 79

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

below.
Answer needs Correction? Click Here
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.
Amount Amount
Date Particulars J.F. Rs Date Particulars J.F. 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 notat 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.
2. Decrease in expense
Decrease in expense is credited as all expenses have debit balance. If expense

decreases, then it is credited.
3. 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.
4. 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.

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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 :
Assets Liabilities
S.No. Explanation =
Cash + Stock + Debtors + Furniture Creditors
(a) Increase in cash 2,00,000 =
Increase in capital
2,00,000 = NIL
(b) Increase in stock 40,000
Decrease in cash (40,000)
1,60,000 + 40,000 = NIL
(c) Increase in debtors 12,000
Decrease in stock (10,000)
Profit
1,60,000 + 30,000 + 12,000 = NIL
(d) Increase in furniture 7,000
Increase in creditors 7,000
1,60,000 + 30,000 + 12,000 + 7,000 = 7,000
Q2 :
Prepare accounting equation from the following:
(a) Kunal started business with cash

(b) He purchased furniture for cash
(c) He paid commission
(d) He purchases goods on credit
(e) He sold goods (costing Rs 20,000) for cash
Answer :
Assets Liabi
S.No. Explanation
Cash + Furniture + Stock = Cred
(a) Increase in cash 2,50,000
Increase in capital
2,50,000 = N
(b) Increase in furniture 35,000
2,15,000 + 35,000 = N
(c) Decrease in capital (Expense)
2,13,000 + 35,000 = N
(d) Increase in stock 40,000
Increase in creditors 40
2,13,000 + 35,000 + 40,000 = 40
(e) Increase in cash 26,000
Q3 :
Mohit has the following transactions, prepare accounting equation:
(a) Business started with cash

(b) Purchased goods from Rohit
(c) Sales goods on credit to Manish (Costing Rs 17,500)
(d) Purchased furniture for office use
(e) Cash paid to Rohit in full settlement
(f) Cash received from Manish
(g) Rent paid
(h) Cash withdrew for personal use
Answer :
Assets
S.No. Explanation
Cash + Stock + Debtors Furniture =
Increase in capital
1,75,000 =
Increase in creditors (Rohit) =
1,75,000 + 50,000 =
(c) Increase in debtors (Manish) 20,000
Increase in capital (Profit)
1,75,000 + 32,500 + 20,000 =
(d) Increase in furniture 10,000
Q4 :
Rohit has the following transactions:
(a) Commenced business with cash

(b) Purchased machinery on credit
(c) Purchased goods for cash
(d) Purchased car for personal use
(e) Paid to creditors in full settlement
(f) Sold goods for cash costing Rs 5,000
(g) Paid rent
(h) Commission received in advance
Prepare the Accounting Equation to show the effect of the above transactions on the assets,
liabilities and capital.
Answer :
Assets Liabi
S.No. Explanation
Cash + Machinery + Stock = Creditors +U
Increase in capital
1,50,000 = NIL
(b) Increase in machinery 40,000
Increase in creditors = 40,000
1,50,000 + 40,000 = 40,000
(c) Increase in stock 20,000
1,30,000 + 40,000 + 20,000 = 40,000
(d) Decrease in cash (80,000)
Decrease in capital (Drawings)
50,000 + 40,000 + 20,000 = 40,000
(e) Decrease in creditors (40,000)
Increase in capital
(Discount received)

Q5 :
Use accounting equation to show the effect of the following transactions of M/s Royal
Traders:
(a) Started business with cash

(b) Purchased goods for cash
(c) Rent received
(d) Salary outstanding
(e) Prepaid Insurance
(f) Received interest
(g) Sold goods for cash (costing Rs 5,000)
(h) Goods destroyed by fire
Answer :
Assets = Liabil
S.No. Explanation
Cash + Stock + Prepaid Expenses Outstanding
Increase in capital
1,20,000 = NIL
Increase in cash (10,000) =
1,10,000 + 10,000 = NIL
(c) Increase in cash 5,000
1,15,000 + 10,000 = NIL

(d) Increase in outstanding expenses = 2,00
Decrease in capital (Expense)
1,15,000 + 10,000 = 2,00
(e) Increase in prepaid expenses 1,000
1,14,000 + 10,000 + 1,000 = 2,00
(f) Increase in cash 700
1,14,700 + 10,000 + 1,000 = 2,00
(g) Increase in cash 7,000
1,21,700 + 5,000 + 1,000 = 2,00
(h) Decrease in stock (500)
Q6 :
Show the accounting equation on the basis of the following transaction:
(a) Udit started business with:

(i) Cash
(ii) Goods
(b) Purchased building for cash
(c) Purchased goods from Himani
(d) Sold goods to Ashu (Cost Rs 25,000)
(e) Paid insurance premium
(f) Rent outstanding
(g) Depreciation on building
(h) Cash withdrawn for personal use
(i) Rent received in advance
(j) Cash paid to Himani on account
(k) Cash received from Ashu
Answer :
Assets =
S.No. Explanation Cash + Stock + Building + Debtors Creditors + O
E
Increase in stock 1,00,000
Increase in capital
5,00,000 + 1,00,000 = NIL
(b) Increase in building 2,00,000
Decrease in cash (2,00,000) =

3,00,000 + 1,00,000 + 2,00,000 = NIL
(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:
(a) Started business with cash

(b) Rent received
(c) Invested in shares
(d) Received dividend
(e) Purchase goods on credit from Ragani
(f) Paid cash for house hold Expenses
(g) Sold goods for cash (costing Rs 10,000)
(h) Cash paid to Ragani
(i) Deposited into bank
Answer :
Assets =
S.No. Explanation
Cash + Stock + Investment + Bank
Increase in capital
1,20,000 + =
(b) Increase in cash 10,000
Increase in capital (Income) =
1,30,000 =
(c) Decrease in investment 50,000
Decrease in cash (50,000) =
80,000 + 50,000 =
(d) Increase in cash 5,000
Increase in capital (Income)
85,000 + 50,000 =
(e) Increase in stock 35,000
Increase in creditor (Ragani)
85,000 + 35,000 + 50,000 =
(f) Decrease in capital

78,000 + 35,000 + 50,000 =
(g) Increase in cash
Q8 :
Show the effect of following transaction on the accounting equation:
(a) Manoj started business with

(i) Cash
(ii) Goods
(iii) Building
(b) He purchased goods for cash
(c) He sold goods(costing Rs 20,000)
(d) He purchased goods from Rahul
(e) He sold goods to Varun (Costing Rs 52,000)
(f) He paid cash to Rahul in full settlement
(g) Salary paid by him
(h) Received cash from Varun in full settlement
(i) Rent outstanding
(j) Prepaid Insurance
(k) Commission received by him
(l) Amount withdrawn by him for personal use
(m) Depreciation charge on building
(n) Fresh capital invested
(o) Purchased goods from Rakhi
Answer :
Assets =
S.No. Explanation Prepaid
Cre
Cash + Stock + Building + Debtors + Expenses
(a) Increase in cash, 2,30,000 + 1,00,000 + 2,00,000
stock and building
Increase in capital
2,30,000 + 1,00,000 + 2,00,000 =
1,80,000 + 1,50,000 + 2,00,000 =
(c) Increase in cash 35,000
increase in capital
(Profit)
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.
(a) Business started with cash

(b) Purchased goods for cash
(c) Purchase furniture from R.K. Furniture
(d) Sold goods to Parul Traders (costing Rs 7,000 vide bill no. 5674)
(e) Paid cartage
(f) Cash Paid to R.K. furniture in full settlement
(g) Cash sales (costing Rs 10,000)
(h) Rent received
(i) Cash withdrew for personal use
Answer :
Assets =
S.No. Explanation
Cash + Stock + Furniture + Debtors
Increase in capital
1,25,000 + =
Decrease in cash (50,000) =
75,000 + 50,000 =
(c) Increase in furniture 10,000 =
Increase in creditors =
75,000 + 50,000 + 10,000 =
(d) Increase in debtors 9,000
(7,000
Decrease in stock )
75,000 + 43,000 + 10,000 + 9,000 =
(e) Decrease in capital (Cartage
Expenses)
Decrease in cash (100)
74,900 + 43,000 + 10,000 + 9,000 =
(f) Decrease in creditors =
Increase in capital (Discount-
received)

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 Consultin
(b) Purchased land and a small office building. The land was worth Rs 1,50,000 and the building worth Rs 3
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
(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
Debit
Credit
Date Particulars L.F. Amount Amount
Rs 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)

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
Jan.01 Commenced business with cash
Jan.01 Building
Jan.02 Goods purchased for cash
Jan.03 Sold goods to Ramesh
Jan.04 Paid wages
Jan.06 Sold goods for cash
Jan.10 Paid for trade expenses
Jan.12 Cash received from Ramesh
Discount allowed
Jan.14 Goods purchased for Sudhir
Jan.18 Cartage paid
Jan.20 Drew cash for personal use
Jan.22 Goods use for house hold
Jan.25 Cash paid to Sudhir
Discount allowed
Answer :
Books of Mudit
Journal
Debit
Amount Credit
Date Particulars L.F.
Amount Rs
Rs
2006
Jan.0
1 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.0
2 Purchases A/c Dr. 75,000
To Cash A/c 75,000
Jan.0
3 Ramesh Dr. 30,000
To Sales A/c 30,000
(Goods sold to Ramesh)
Jan.0
4 Wages A/c Dr. 500
To Cash A/c 500
(Wages paid in cash)
Jan.0
6 Cash A/c Dr. 10,000
To Sales A/c 10,000
(Goods sold for cash)
Q13 :
Journalise the following transactions:
2005
Dec. 01 Hema started business with cash

Dec. 02 Open a bank account with SBI
Dec. 04 Purchased goods from Ashu
Dec.06 Sold goods to Rahul for cash
Dec.10 Bought goods from Tara for cash
Dec.13 Sold goods to Suman
Dec.16 Received cheque from Suman
Discount allowed
Dec.20 Cheque given to Ashu on account
Dec.22 Rent paid by cheque
Dec.23 Deposited into bank
Dec.25 Machine purchased from Parigya
Dec.26 Trade expenses
Dec.28 Cheque issued to Parigya
Dec.29 Paid telephone expenses by cheque
Dec.31 Paid salary
Answer :
Books of Hema
Journal
Debit Credit
Rs Rs
2005
Dec.01 Cash A/c Dr. 1,00,000
Dec.02 Bank A/c Dr. 30,000

To Cash A/c 30,000
(Bank account opened with SBI)

To Ashu 20,000
(Goods purchased from Ashu)

To Sales A/c 15,000

To Cash A/c 40,000
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
Answer :
Books of Harpreet Bros.

Journal
Debit Credit
S. No. Particulars L.F. Amount Amount
Rs 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
(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 :
(a) Cash paid for installation of machine

(b) Goods given as charity
(c) Interest charge on capital @ 7% p.a. when total capital were
(d) Received Rs 1,200 of a bad debts written-off last year.
(e) Goods destroyed by fire
(f) Rent outstanding
(g) Interest on drawings
(h) Sudhir Kumar who owed me Rs 3,000 has failed to pay the amount. He pays me a compensation of 45
in a rupee.
(i) Commission received in advance
Answer :
Journal
Debit Credit
S. No. L.F. Amount Amount
Particulars
Rs 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

(Goods given as charity)
(c) Interest on Capital A/c Dr. 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

(Goods destroyed by fire)
Q16 :
Journalise the following transactions, post to the ledger:
2005
Nov. 01 Business started with (i) Cash
(ii) Goods
Nov. 03 Purchased goods from Harish
Nov. 05 Sold goods for cash
Nov. 08 Purchase furniture for cash
Nov. 10 Cash paid to Harish on account
Nov. 13 Paid sundry expenses
Nov. 15 Cash sales
Nov. 18 Deposited into bank
Nov. 20 Drew cash for personal use
Nov. 22 Cash paid to Harish in full settlement of account
Nov. 25 Good sold to Nitesh
Nov. 26 Cartage paid
Nov. 27 Rent paid
Nov. 29 Received cash from Nitesh
Discount allowed
Nov. 30 Salary paid 3,000
Answer :
Journal
Debit Credit
Rs Rs
2005
Nov.01 Cash A/c Dr. 1,50,000
Stock A/c Dr. 50,000
(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 Rs
Jan. 01 Started business with cash
Jan. 02 Opened bank account in PNB
Jan. 04 Goods purchased from Tara
Jan.05 Goods purchased for cash
Jan.08 Goods sold to Naman
Jan.10 Cash paid to Tara
Jan.15 Cash received from Naman
Discount allowed
Jan. 16 Paid wages
Jan. 18 Furniture purchased for office use
Jan. 20 Withdrawn from bank for personal use
Jan. 22 Issued cheque for rent
Jan. 23 Goods issued for house hold purpose
Jan. 24 Drawn cash from bank for office use
Jan. 26 Commission received
Jan. 27 Bank charges
Jan. 28 Cheque given for insurance premium
Jan. 29 Paid salary
Jan. 30 Cash sales
Answer :
Books of M/s Goel Brothers

Journal
Debit Credit
Rs Rs
2006
Jan.01 Cash A/c Dr. 1,65,000
Jan.02 Dr. 80,000

Bank A/c
To Cash A/c 80,000
(Bank account opened with PNB)
Jan.04 Dr. 22,000

Purchases A/c
To Tara 22,000
(Goods purchased from Tara)
Jan.05 Dr. 30,000

Purchases A/c
To Cash A/c 30,000

Jan.08 Dr. 12,000
Naman
To Sales A/c 12,000
(Sale of goods to Naman)
Tara
Jan.10 Dr. 22,000
To Cash A/c 22,000
(Cash paid to Tara)
Jan.15 Dr. 11,700

Cash A/c
Dr. 300
Discount Allowed A/c
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
1 Commenced business with cash
2 Opened bank account with H.D.F.C.
3 Purchased furniture
7 Bought goods for cash from M/s. Rupa Traders
8 Purchased good from M/s. Hema Traders
10 Sold goods for cash
14 Sold goods on credit to M/s. Gupta Traders
16 Rent paid
18 Paid trade expenses
20 Received cash from Gupta Traders
22 Goods return to Hema Traders
23 Cash paid to Hema Traders
25 Bought postage stamps
30 Paid salary to Rishabh
Answer :
Books of M/s. Mohit Traders

Journal
Debit Credit
Rs Rs
2005
Aug.01 Cash A/c Dr. 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
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
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
1 Started business with cash
2 Deposited into bank
4 Bought goods on credit from Himani
6 Purchased goods from cash
8 Returned goods to Himani
10 Sold goods for cash
14 Cheque given to Himani
17 Goods sold to M/s. Goyal TradeRs
19 Drew cash from bank for personal use
21 Goyal traders returned goods
22 Cash deposited into bank
26 Cheque received from Goyal Traders
28 Goods given as charity
29 Rent paid
30 Salary paid
31 Office machine purchased for cash
Answer :
Books of M/s. Bhanu Traders

Journal
Debit Credit
Rs Rs
2005
Dec.02 Bank A/c Dr. 60,000

To Cash A/c 60,000
(Cash deposited into bank)

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

Journal
Debit Credit
Rs Rs
2005
Dec.01 Cash A/c Dr. 2,00,000
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
1 Cash in hand
Cash at bank
Stock of goods
Due to Rohan
Due from Tarun
3 Sold goods to Karuna
4 Cash sales
6 Goods sold to Heena
8 Purchased goods from Rupali
10 Goods returned from Karuna
14 Cash received from Karuna
15 Cheque given to Rohan
16 Cash received from Heena
20 Cheque received from Tarun
22 Cheque received from to Heena
25 Cash given to Rupali
26 Paid cartage
27 Paid salary
28 Cash sale
29 Cheque given to Rupali
30 Sanjana took goods for Personal use
31 Paid General expense
Answer :
Books of Sanjana
Journal Entries
Debit Credit
S.No. Particulars L.F. Amount Amount
Rs 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
(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
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.
2. 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
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.
3. 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
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.
4. 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
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.
5. 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
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:
Debit Credit
Particulars L.F. Amount Amount
Rs 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.....
Debit Cred
Date Particulars L.F. Amount Amou
Rs 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
1) Started business with cash Rs 1,00,000

2) Open a bank account Rs 20,000
3) Purchase goods for cash Rs 25,000
4) Goods sold for cash Rs 30,000
5) Goods sold to Mr. X Rs 2,000
Books of Mr A
Journal
Debit Credit
Rs Rs
April1 Cash A/c Dr. 1,00,000
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
April 5 Cash A/c Dr. 30,000

To Sales A/c 30,000
April 6 Mr. 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 When source document is con
details of events or transactions. of an event or transaction, the
voucher.
Purpose It is used for preparing accounting vouchers. It is used for analysing the tra
Recording It acts as a basis for preparing accounting voucher that It acts as a basis for recording
helps in recording.
Preparation It is prepared at the time when an event or a It can be prepared either when
transaction occurs. transaction occurs, or later on
Legality/Validity It can be used as evidence in the court of law. It can be used for assessing th
transactions.
Prepared By It is prepared by the persons who are directly involved It is prepared by the authorise
in the transactions, or who are authorised to prepare or accountants.
approve these documents.
Examples Cash memo, invoice, and pay-in-slip, etc. Cash memo, invoice, pay-in-s
evidence), debit note, credit n
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:
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 +
Cash 1
(1,00,000)
Assets decrease, as cash is invested into the business and capital increases. Thus the
equality between LHS and RHS remains intact.
2. Goods purchased on credit Rs 20, 000
Assets = Liabilities +
Cash Stock Creditors
1,00,000 20,000 = 20,000 +
Assets increase as well as liability increases, without disturbing the equality.
3. Goods purchased with cash 25000
Assets = Liabilities
Cash Stock =
1,00,000 20,000 20,000
(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.
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:
i. Cash paid to Mr. A.
A's A/c Dr.
To Cash
ii. Cash received from Mr. X
Cash A/c Dr.
To Mr. X
2. 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.
i. Tangible assets that can be seen and touched; for example, machinery, building, etc.
ii. 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
2. 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:
i. Rent paid
Rent A/c Dr.
To Cash A/c
ii. Commission received.
Cash A/c Dr.
To Commission A/c

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<< Previous Chapter 2 : Theory Base of AccountingNext Chapter 4 : Recording of Transactions - II

Short answers : Solutions of Questions on Page Number : 79

The fundamental steps in the accounting process are diagrammatically presented

Answer needs Correction? Click Here

3. It acts as a proof in the court of law.

4. It helps in verifying transactions during the auditing process.

Answer needs Correction? Click Here

A transaction should be recorded first in a journal because journal provides complete

Answer needs Correction? Click Here

Answer needs Correction? Click Here

Answer needs Correction? Click Here

Answer needs Correction? Click Here

Answer needs Correction? Click Here

Decrease in expense is credited as all expenses have debit balance. If expense

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

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If a transaction has a decreasing effect on an asset, then this decrease is recorded as

If a transaction has a decreasing effect on a liability, then this decrease is recorded as

Answer needs Correction? Click Here

<< Previous Chapter 2 : Theory Base of AccountingNext Chapter 4 : Recording of Transactions - II

(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 needs Correction? Click Here

(a) Kunal started business with cash

Answer needs Correction? Click Here

(a) Business started with cash

Answer needs Correction? Click Here

(a) Commenced business with cash

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(a) Started business with cash

1,15,000 + 10,000 = NIL

Answer needs Correction? Click Here

(a) Udit started business with:

Decrease in cash (2,00,000) =

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(a) Started business with cash

(f) Decrease in capital

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(a) Manoj started business with

Answer needs Correction? Click Here

(a) Business started with cash

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Cash Account Office Equipment Account Capital Account

Land Account Building Account

Cash Account Long Term Payable Account

Answer needs Correction? Click Here

Dec.07 Purchases A/c Dr. 10,000

Dec.09 Swati Dr. 5,000

Dec.18 Cash A/c Dr. 4,000

Dec.25 Rent A/c Dr. 1,000

Answer needs Correction? Click Here

Answer needs Correction? Click Here

Dec. 01 Hema started business with cash

Dec.02 Bank A/c Dr. 30,000