BASICS OF ACCOUNTING Question Bank

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BASICS OF ACCOUNTING

QUESTION BANK
Q1 Explain briefly:
a) Users of Accounting
b) Source Documents
Q2 What is the meaning of Accounting? What are its branches? Explain briefly limitations of
Financial Accounting.
Q3 Explain the meaning and significance of concepts and conventions in accounting.
Explain any two of the following:

a) Money measurement concept .


b) Principle of consistency.
c) Principle of conservatism.
d) Accounting period concept
Q4 What are different types of accounts? Explain rules of debit and credit.
Q5 State the basic accounting concept involved in each of the following situation:
1. During the life time of an entity, accountant prepares financial statement at arbitrary
points in time.
2. Revenue is generally recorded at the point of sale.
3. The accountants assume that the business will not be liquidated in the near future.
4. Expanses need to be recorded in the period in which the associated revenues are
recognized.
5. The cash withdrawn by the owner to meet personal expenses is recorded in the books
of the business as drawings.
Q6 What is Bank Reconciliation Statement? Explain the causes for preparing a Bank
Reconciliation Statement.
Q7 Define accounting and explain its various characteristics?
Q8 What is accounting? What are its main objectives?
Q9 Which parties are interested in accounting information and why?
Q10 Describe various branches of accounting?
Q11 What do you mean by financial accounting? Explain its limitations?
Q12 Describe various advantages of accounting?
Q13 Explain various concepts of accounting?
Q14 Describe various conventions of accounting?
Q15 Journalize the following transactions-
Jan1,2010 Business started with cash 50,000/-
Jan2,2010 Machinery purchased from Ram 10,000/-
Jan3,2010 Goods purchased from Mohan for cash 10,000/-
Jan4,2010 Furniture purchased for cash 15,000/-
Jan5,2010 Salary paid to shyam 2,000/-
Jan6,2010 Amount deposited in bank 10,000/-
Jan7,2010 Payment to Ram through cheque 5,000/-
Jan8,2010 cash withdrawn from bank 1,000/-
Jan9,2010 loan taken from Mr. B 20,000/-

Q16 Record the following transactions in the journal of Delhi Furniture Mart and Post them
to ledger.
a) Kailash started business by investing cash Rs. 25,000. He bought goods of
Rs.2,000 and furniture of Rs.250
b) Purchased building for cash Rs.5,000
c) Purchased goods for cash Rs.1,300
d) Paid carriage inward Rs. 20
e) Sold goods for cash Rs.1,375
f) Sold goods for cash to Shanker Rs. 120
g) Sold goods to Shambhu on credit Rs.2,315
h) Purchased goods on credit Rs. 1,200 from XYZ
i) Paid freight Rs. 60
j) Deposited cash into bank Rs.4,800
k) Paid salary Rs. 230
l) Withdraw from the bank for personal use Rs. 160
m) Withdraw from the bank for office use Rs. 210
n) Charged interest on capital Rs. 625

Q17 Anil had the following transactions:


a) Commenced business with cash Rs.50,000.
b) Purchased goods for cash Rs.20,000 and on credit Rs.30,000.
c) Sold goods for cash Rs.40,000 costing Rs.30,000.
d) Rent paid Rs.500.
e) Rent outstanding Rs.100.
f) Bought furniture Rs.5000 on credit.
g) Bought refrigerator for personal use Rs.5000.
h) Purchased building for cash Rs.20,000.
i) Use accounting equation to show the effect of the above transactions on the assets,
liabilities and capital.
Q18 Enter the following transactions in the Cash Book (with Cash and Bank Columns):
2009 Rs.
April 1 Bank Overdraft 3,000
Cash-in-hand 575
April 7 Cheque received from X 1,000
Discount allowed 50
April 9 Cheque received from X deposited in Bank
April 12 Cheque paid to Y 625
Discount received 12
April 15 X’s cheque dishonored
April 20 Money withdrawn from bank for office use 750
April 23 Fees of children paid 118
April 25 Cheque received from Z and endorsed it to A 1,125
April 27 Bank Charges 5
April 30 Cheque endorsed to A dishonored
April 30 Paid into Bank the entire balance after retaining Rs.75 at office
Q19 Write out the following transactions in cash book with cash and bank columns:
2007
Jan.1 Chandrika commences business with Rs.30,000 in cash.
Jan.2 He pays Rs.19,000 into bank account.
Jan.4 He received cheque for Rs.600 from Kirti and Co.
Jan.7 He pays Rattan and Co. by cheque Rs. 330 and is allowed discount Rs. 20.
Jan.10 He pays into bank Kirti and Co. cheque for Rs. 600.
Jan.12 He receives cheque for Rs. 450 from Warsi and allowed him discount Rs.10.
Jan.15 Tripathy and Co. pays into his bank account Rs. 475
Jan.20 He receives cash Rs. 75 and cheque for Rs.100 for cash sales.
Jan.25 He pays into bank Rs.1000.
Jan.27 He pays by cheque for cash purchase Rs.275.
Jan.30 He pays sundry expenses in cash Rs.50.
Jan.30 He pays John and Co.Rs.375 in cash and is allowed discount Rs.25.
Jan.31 He pay office rent by cheque Rs.200.
Jan.31 He pays staff salaries by cheque Rs.300.
Jan.31 He draw a cheque for private use Rs.250.
Jan.31 He drew a cheque for office use for Rs.400
Jan.31 He pays cash for stationery Rs.25.
Jan.31 He purchased goods for cash Rs.125.
Jan.31 He pays Jaspal by cheque for commission Rs.300.
Jan.31 He gives cheque to Ram Saran for cash purchases of furniture for
office Rs.1575.
Jan.31 He receives cheque for commission Rs.500 from Raghubir and
Co. and pays the same into bank.
Jan.31 He receives cheque from Kesri and Co. for Rs.450.
Q20. Pass journal entries with the following information.
2007 Rs.
Jan.1 Pandu started business with……………………….20,000
Jan.3 He opened a current account in the bank…………...5,000
Jan.7 Purchased goods on credit from shakuni……….......4,000
Jan.10 Paid to Shakuni in full settlement………….……... 3,900
Jan.13 Machinery purchased……………………………….2,000
Jan.16 Goods sold to Bracewel…………………………….3,000
Jan.18 Amount received from Bracewel…………………..1,000
Jan.20 Salaries paid…………………………………………..700
Jan.23 Rent received…………………………………………..300
Jan.28 Goods purchased form Shrikant……………………..4,000
Jan.31 Interest on capital @ 10% for the month………………167
Jan.31 Depreciation on machinery……………………………..100

Q21 What is a trial balance? What are the different columns of a trial balance? Explain the
different methods of preparing trial balance.
Q22 Explain the meaning and features of Trial Balance.
Q23 What do you mean by Ledger Posting? Explain the procedure for preparing Ledger
Accounts.
Q24 Journalise the following transaction in the books of M/s Beauty Traders.
Dec 1 Started business with cash 2,00,000
Dec2 Bought office furniture 30,000
Dec3 Paid into bank to open an current account 1,00,000
Dec5 Purchased a computer and paid by cheque 2,50,000
Dec6 Bought goods on credit from Ritika 60,000
Dec8 Cash Sales 30,000
Dec9 Sold goods to Karishna on credit 25,000
Dec14 Goods returned to Ritika 2,000
Dec15 Stationery purchased for cash 3,000
Dec16 Paid wages 1,000
Dec18 Goods returned by Karishna 2,000
Dec 20 Cheque given to Ritika 28,000
Dec24 Insurance premium paid by cheque 4,000
Dec26 Cheque received from Karishna 8,000
Dec28 Rent paid by Cheque 3,000
Dec30 Cash Sales 14,000
Q25 From the following transactions pass necessary Journal entries in the books of Mohan &
Co., post them into their ledger and prepare a Trial Balance using the Balance Method:
Date Rs.
Jan. 1 Mohan started business with cash……………………………… 80,000
Feb.5 Purchased goods………………………………………………… 25,000
Feb.20 Sold goods……………………………………………………… 30,000
May 10 Purchased goods from Sohan on credit………………….…… 18,000
May 25 Sold good to Ramesh on credit……………………………….. 20,000
June15 Cash given to Sohan……………………………………..….. 18,000
June28 Cash received from Ramesh………………………………… 20,000
Aug.2 Purchased goods for cash …………………………………… 19,000
Aug.29 Withdraw for personal use………………………………..… 1,500
Oct.10 Purchased goods from Dinesh on Credit…………………… 17,000
Nov.20 Cash paid to Dinesh in full settlement………………..…… 16,800
Dec.31 Paid salaries…………………………………………………… 500
Q26 What do you mean by Rectification of Errors? What are the one sided and two sided
errors?
Q27 Why is the journal sub-divided in a large business house? List four subsidiary books
and give the functions of each.
Q28 What is contra entry? How will you recognize it from among other entries in cash book
Q29 Define assets? Explain various types of assets?
Q30 Explain various types of accounts and their rules for journalizing transactions?
Q31 Briefly explain various subsidiary books of accounting?
Q32 What do you mean by ledger? Describe its need and importance?
Q33 Explain various adjustments of final accounts and their accounting treatment?
Q34 What do you understand by the term ‘Reserve’? What are the Kinds of Reserve and how
it is different from provision?
Q35 A Company had bought machinery for Rs.1,80,000 on 1 April 2005 and another
machinery worth Rs.20,000 on 1 April 2007. The Machinery had been credited on the
written down value method for the past three years at the rate of 10%. Prepare Machinery
account for past three years.
Q36 On 1st January 2008 the Nagpur Golden Transport purchased a Truck for Rs. 4,00,000.
On 1st July 2009 this truck was involved in an accident and was completely destroyed and
Rs. 3,00,000 were received from the insurance company in full settlement. On the same date
another truck was purchased by the Co. for Rs.5,00,000. The company writes off 20%
depreciation p.a. on written Down value method. Accounts are closed on 31st march every
year. Give the truck Account from 2008-2010.
Q37 Explain the meaning of depreciation. Differentiate between straight line method and
written down value method of providing depreciation.
Q38 the book value of plant and machinery on 1-1-2002 was Rs. 2,00,000. New machinery
for Rs. 10,000 was purchased on 1-10-2002 and for Rs. 20,000 on 1-7-2003. On 1-4-2004, a
machinery whose book value had been Rs. 30,000 on 1-1-2002 was sold for Rs.16,000 and
the entire amount was credited to plant and machinery account. Depreciation had been
charged at 10% per annum on straight line method. Show the plant and machinery account
from 1-1-2002 to 31-12-2004.
Q39 Explain Depreciation methods and their significance.
Q40 Distinguish between the following:
a) General Reserve and Specific Reserve.
b) Capital Reserve and Revenue Reserve.
Q41 What is a Capital Reserve? How is it created? What are its uses?
Q42 What are Final Accounts? Explain Trading Account, Profit and Loss Account and
Balance Sheet.
Q43 Distinguish between capital Expenditure and Revenue Expenditure.
Q44 Define fixed, floating, fictitious, liquid and wasting assets and give two examples of
each.
Q45 The trial balance of A limited revealed the following balances on 31st March 2009.
Prepare Trading Account, Profit & Loss Account and Balance Sheet for the year ending 31st
March 2009. The value of stock on 31st March 2009 was valued at Rs. 3,50,000.
Trial Balance
Particulars Debit Balances Credit Balances
Plant & Machinery 8,00,000

Purchases 6,80,000
Sales Return 10,000
Opening Stock 3,00,000
Discount Allowed 3,500
Bank Charges 750
Debtors 4,50,000
Salaries 68,000
Wages 100,000
Carriage Inward 7,500
Carriage Outward 12,000
Rent, Rates & Taxes 20,000
Advertisement 20,000
Cash at Bank 69,000
Capital Account 10,00,000
Sales 12,70,000
Purchase Return 12,750
Discount Received 8,000
Creditors 2,50,000
Total 25,40,750 25,40,750

Q46 Describe the accounting process : Recording, classifying, reporting and analysing.
Q47 How will you treat the following items in the final accounts? Pass adjusting
entries of these items (if any):
a) Loss of goods by flood
b) Goods taken by the proprietor for domestic use
c) Contingent liabilities
d) Goods distributed as free samples
e) Goods given as charity.
Q48 What do you mean by final accounts? Explain the importance and purpose
of final accounts.
Q49 From the following balances of Santosh Gupta prepare Trading and Profit
and Loss Account and Balance Sheet as on 31st March 2005:
Dr. Cr.
Rs. Rs.
Bills Payable - 700
Land and Building 4000 -
Opening Stock 4000 -
Capital - 15000
Bills Receivable 1500 -
Purchases 13000 -
Sales - 22000
Wages 3500 -
Salaries 570 -
Rent and Taxes 200 -
Miscellaneous Expenses 500 -
Carriage 800 -
Furniture 300 -
Cash in hand 230 -
Machinery 6600 -
Discount 500 150
Debtors 3000 -
Creditors - 1000
Coal and Gas 100 -
Printing 50 -
_______ ________
Total 38850 38850
_______ ________

The stock on 31st March, 2005 was valued at Rs. 3000.


Q50 Describe the difference between Accrual basis and Cash basis.

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