Financial Accounting Real

Financial Accounting
Set – 1
Answer 1)
A) Subsidiary books, also known as subsidiary ledgers, are specialized accounting records
used to classify and summarize similar types of transactions. They provide detailed
information about specific categories of transactions, making it easier to manage and
analyze financial data. Here are some common types of subsidiary books:
i) Sales day book -

• Records all credit sales transactions made by the company.
• Contains details such as the date of sale, name of the customer, invoice
number, amount of sale, and any other relevant information.
ii) Purchase day book -
• Records all credit purchases of goods or services made by the company.
• Includes information such as the date of purchase, name of the supplier,
invoice number, amount of purchase, and any other relevant details.
iii) Cash Book -
• Records all cash transactions, including both receipts and payments.
• Typically divided into two sides: the cash receipts side and the cash
payments side.
• Provides a detailed record of cash inflows and outflows, enabling easy
reconciliation of cash balances.
iv) Petty Cash Book -
• Records small, incidental cash expenses that occur frequently.
• Often maintained to avoid recording numerous small transactions in the
main cash book.
• Includes details such as the date of the expense, purpose, amount, and
recipient.
v) General Ledger -
• Acts as the primary accounting record that summarizes all financial
transactions of the business.
• Contains various accounts such as assets, liabilities, equity, revenue, and
expenses.
• Provides a complete overview of the company's financial position and
performance.
B) The accounting process involves several steps to accurately record, analyze, and report
financial transactions:
i) Identifying Transactions - Recognize and document all relevant financial activities.
ii) Recording transactions - Enter transactions into the accounting system using
appropriate journals and subsidiary ledgers.
iii) Classifying transactions - Categorize transactions into relevant accounts based on

their nature.
iv) Summarizing transactions - Compile transaction data into financial statements, such
as the balance sheet and income statement.
v) Analyzing Financial data - Interpret financial information to assess the company's

performance and financial position.
vi) Interpreting Financial reports - Communicate findings through financial reports to

stakeholders, aiding decision-making and transparency.
Answer 2)
A) The Golden Rules of Accounting establish guidelines for recording financial

transactions accurately. For every transaction, there are two aspects: debit and
credit.
Debit:
a. Increases assets and expenses.
b. Decreases liabilities, equity, and income.
Credit:
c. Increases liabilities, equity, and income.
d. Decreases assets and expenses.
In simpler terms:
Debit what comes in, credit what goes out.
Debit the receiver, credit the giver.
Debit expenses and losses, credit incomes and gains.
These rules ensure that the accounting equation (Assets = Liabilities + Equity)
remains balanced, facilitating accurate financial recording and reporting.
B) Journal Entries in the Books of Harsh Kumar

Nu Date Particulars LF Dr Cr
mb
er
March
2022
1 Purchases A/c Dr 60,000
To Y and Co. A/C 60,000
2 D and Co. A/c Dr 30,000
To Sales A/C 30,000
3 Y and Co. A/C Dr 60,000
To bank A/C 58,000
To Discount A/C 2,000
4 Landlord A/C Dr 5,000
To Rent payable A/C 5,000
5 Wages A/C Dr 25,000
To bank A/C 25,000
Answer 3)
Number Particulars Side Column

1 Received Cash Dr Cash
2 Cash paid Cr Cash
3 Discount allowed Dr Discount
4 Discount received Cr Discount
5 Cash deposited in the bank Dr Bank
Cr Cash
6 Cash withdrawn for office use Cr Cash
7 Cheque received and deposited in the bank Dr Bank
8 Cheque issued Cr Bank
9 Wages paid Cr Bank or
Cash
10 Interest received from bank Cr Discount
Answer 4) In the books of Rishabh and Co.

Fixed Asset (Machinery) A/C
Dr Cr
Date Particulars Amount Date Particulars Amount
2020 2021
Oct 1 To bank A/c 1,50,000 March By Depreciation 15,000
1,40,000 31 A/c
To installation By Bal c/d 1,35,000
charges
10,000
2021 To bal b/d 1,35,000 2022 By Depriciation A/c 15,000
April 1 March By bal c/d
31 1,20,000
2022 To bal b/d 1,20,000 2023 By Depriciation A/c 15,000
April 1 March By bal c/d
31 1,05,000
Answer 5)
A) Errors in accounting can occur due to various reasons, and they can have
significant implications for financial reporting accuracy. Here are the different types of
errors in accounting:
1. Errors of Omission:
• These occur when a transaction is completely left out from the accounting
records.
• Forgetting to record a purchase or sale is an example of an error of omission.
2. Errors of Commission:
• These occur when a transaction is recorded incorrectly.
• Entering an incorrect amount for a sale or purchase is an example of an error
of commission.
3. Errors of Principle:
• These occur when transactions are recorded against accounting principles
incorrectly.
• Using an inappropriate accounting method or principle for recording
transactions is an example of an error of principle.
4. Errors of Original Entry:
• These occur when incorrect amounts are entered in the accounting records.
• Transposing digits or misreading figures when recording transactions can lead
to errors of original entry.
5. Compensating Errors:
• These occur when two or more errors cancel each other out, leading to an
overall balance that appears correct.
• For example, overstating one asset account and understating another asset
account might result in the correct total assets balance.
6. Errors of Reversal:
•These occur when a correct entry is later reversed or canceled out by another
entry, resulting in an incorrect net effect.
• Accidentally reversing a transaction that was recorded correctly initially is an
example of an error of reversal.
7. Errors of Duplication:
• These occur when a transaction is recorded more than once.
• Recording a sale twice in the accounting records is an example of an error of
duplication.
8. Errors of Transposition:
• These occur when digits are inadvertently transposed when recording
amounts.
• Writing 54 instead of 45 is an example of an error of transposition.
9. Errors of Principle or Conceptual Errors:
• These occur when there's a misunderstanding or misapplication of
accounting principles or concepts.
• Treating a capital expenditure as revenue expenditure or vice versa is an
example of an error of principle or conceptual error.
Detecting and correcting these errors is essential for maintaining the accuracy and integrity
of financial records and reports.
B) The Income and Expenditure Account, primarily used in nonprofit organizations,

summarizes the organization's revenues and expenses over a specific period. Key features
include:
Accrual Basis: It records revenues and expenses when they are earned or incurred,
regardless of when cash is received or paid.
Nonprofit Focus: It highlights the organization's operational performance rather
than profit generation, focusing on funds used for activities.
Revenue Sources: It categorizes revenue sources into operating and non-operating,
such as donations, grants, program fees, and investment income.
Expense Classification: It classifies expenses by function, such as administration,
programs, fundraising, and overhead costs.
Periodic Reporting: It provides a snapshot of financial performance over a specific
period, typically annually, aiding in budgeting and decision-making.
Answer 6)
In the boks of ST Traders – Final Accounts
Trading and Profit and Loss A/c
Dr Cr
Particulars Amount Particulars Amount
To opening stock 60,220 By Closing Stock 70,000
To Purchases A/c 1,99,080 1,97,630 By Sales A/c 2,81,500 2,79,630
Less: Purchase (1,450) Less: Sales return (1,870)
return
To Gross profit c/d 91,780
3,49,630 3,49,630
To Bad debts 1,250 4,874 By Gross profit b/d 91,780

Add: Provision for
Bad debts 8,274
Less: reserve for bad (4,650)
debts
To Insurance 750 700 By Discount received 2,980
Less: Insurance (50)
prepaid
To Rent and taxes 7,680 7,830
Add: Rent 150
outstanding
To Interest on loan 900
To Discount allowed 3,960
To Bank charges 100
To Salaries 6,420
To Carriage 5,170
To General expenses 3,630
To Net Profit 61,176
94,760 94,760
Balance Sheet
Liabilities Amount Assets Amount

Capital 1,50,000 204,876 Book debts 82,740 74,466
Add: Net profit 61,176 Less: Provision for (8,274)
Less: Drawings (6,300) Bad debts
Loans 15,000 15,900 Cash at bank 13,870
Add: interest on 900
loan
Creditors 18,670 Bills receivable 1,860
Rent outstanding 150 Insurance prepaid 50
Land and Building 42,580
Furniture 5,130
Plant and Machinery 31,640
Closing Stock 70,000
239,596 239,596

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Financial Accounting

i) Sales day book -

i) Identifying Transactions - Recognize and document all relevant financial activities.

iii) Classifying transactions - Categorize transactions into relevant accounts based on

v) Analyzing Financial data - Interpret financial information to assess the company's

vi) Interpreting Financial reports - Communicate findings through financial reports to

A) The Golden Rules of Accounting establish guidelines for recording financial

B) Journal Entries in the Books of Harsh Kumar

Number Particulars Side Column

Answer 4) In the books of Rishabh and Co.

B) The Income and Expenditure Account, primarily used in nonprofit organizations,

Trading and Profit and Loss A/c

To Bad debts 1,250 4,874 By Gross profit b/d 91,780

Liabilities Amount Assets Amount

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