Tag: elements of book keeping and accountancy

Questions Related to elements of book keeping and accountancy

When an error is found in the trial balance of last year which affects the profit of the company then __________.

elements of book keeping and accountancy trial balance develop the skill of preparing trial balance by balance method methods of preparing trial balance preparation of trial balance

  1. suspense's account is prepared

  2. profit and loss adjustment account is prepared

  3. it is left undisturbed

  4. Balance sheet adjustment account is prepared

Show answer
Correct Option: B
Explanation:

Ideally, errors of accounting need to be rectified in the same financial year to show a true and fair view of the financial statement. 

If the errors are not located and carried to the subsequent year, rectification of errors are to be done through profit & loss adjustment account. 

An accountant forgot to enter a sales entry in the subsidiary register the impact will be _________.

elements of book keeping and accountancy trial balance develop the skill of preparing trial balance by balance method methods of preparing trial balance preparation of trial balance

  1. trial balance will not be affected

  2. trial balance will be affected

  3. debit side of the trial balance will be enhanced

  4. credit side of the trial balance will be enhanced

Show answer
Correct Option: A
Explanation:

Recording of sales transaction in subsidiary books is an example of complete omission. Its an error of omission. Since both the sides are not recorded, hence trial balance will not be affected. 

Which of the following statements is correct in relation to a trial balance?

elements of book keeping and accountancy trial balance develop the skill of preparing trial balance by balance method methods of preparing trial balance preparation of trial balance

  1. It shows the financial position of a business

  2. All the balances in the trial balance will be summarized on the business balance sheet

  3. It is a list of balances and forms the starting point for the preparation of the business accounts

  4. It is part of the published accounts of a business

Show answer
Correct Option: B
Explanation:

Balance sheet and Income statement shows the financial position of a business.

Trial balance is a list of balances , from which financial statements are prepared i.e. balances will be summarized on the business balance sheet.
The preparation of business accounts starts with journal entries.
And trial balance cannot be published as accounts of business. 

If a worksheet is prepared, there is no need to separately prepare a(n) _________.

elements of book keeping and accountancy trial balance develop the skill of preparing trial balance by balance method methods of preparing trial balance preparation of trial balance

  1. trial balance

  2. balance sheet

  3. income statement

  4. Statement of owner's equity

Show answer
Correct Option: A
Explanation:

If a worksheet is prepared, there is no need to separately prepare a Trial balance. An accounting worksheet is prepared by the book keepers and accountant to complete the accounting cycle and prepare year-end reports like unadjusted trial balance, adjusting journal entries etc. 

Which of the following error can be disclosed by trial balance? 

elements of book keeping and accountancy trial balance develop the skill of preparing trial balance by balance method methods of preparing trial balance preparation of trial balance

  1. Posting wrong amount on one side

  2. Error in balancing

  3. Wrong totaling of subsidiary books

  4. All of the above

Show answer
Correct Option: D
Explanation:

The foremost objective of trial balance is to ascertain accuracy and detection of errors.

  • Posting wrong amount on one side – the trial balance will not tally if the posting in an account is made with incorrect amount. For example if an account is debited with 500 instead of 5000, the trial balance won’t tally.

  • Error in balancing – sometimes due to calculation errors the balance of the ledger accounts can be wrong, and this balance is transferred to the trial balance which will not tally because of the error in calculating the balance.

  • Wrong totaling of subsidiary books - calculation errors may occur in totaling of debit or credit sides of accounts in ledger which leads to error in balancing of the accounts, this balance is transferred to trial balance which will not tally.

Which of the following errors will affect the trial balance? 

elements of book keeping and accountancy trial balance develop the skill of preparing trial balance by balance method methods of preparing trial balance preparation of trial balance

  1. Repairs to building wrongly debited to Building A/c

  2. Total of Purchase Journal by 1,000 short

  3. Freight paid on new machinery debited to Freight A/c

  4. None of the above

Show answer
Correct Option: B
Explanation:

When purchase account is short by some amount, the trial balance shows a difference between the debit and the credit balances of the accounts.

In the case of machinery and building, the transactions are related to expenditure which has to be debited because of which the trial balance is not affected.

Which of the following errors will not affect the agreement of trial balance?

elements of book keeping and accountancy trial balance develop the skill of preparing trial balance by balance method methods of preparing trial balance preparation of trial balance

  1. Errors of Complete Omission

  2. Compensatory Errors

  3. Errors of Principle

  4. All of the above

Show answer
Correct Option: D
Explanation:

Even after the trial balance tallies, that doesn’t means there is no error in the preparation.

  • Errors of complete omission - if a transaction is completely omitted or not recorded in the journal or any subsidiary books , it is termed as error of omission.  Such error will not effect the trial balance as it is not recorded on the debit side of an account nor on the credit side of another account.

  • Compensatory errors - compensating errors is when the effect of one error is neutralized by some other errors. For example, if Ram’s account is debited with 500 instead of 5000 and on the other hand Shyam’s  account is debited with 5000 instead of 500. This situation would not have any effect on the trial balance .

  • Error of principle – when the fundamental principle of accounting is violated while preparing the accounts, this is known as error of principle. These errors are made when there’s no proper distinction between capital and revenue items i.e., capital expenditure being treated as revenue expenditure and vice versa.

An entry for the goods sold to Madhav for Rs.1,020 was posted to his accounts as Rs. 1,200. If rectification is done before preparation of trial balance then which of the following is correct?

elements of book keeping and accountancy trial balance develop the skill of preparing trial balance by balance method methods of preparing trial balance preparation of trial balance

  1. Suspense A/c Dr. 180

    To Madhav A/c 180

  2. Profit & Loss Adj. A/c Dr. 180

    To Madhav A/c 180

  3. Credit Madhav with Rs. 180 saying "By Excess debit for sales Rs. 180"

  4. Debit madhav with Rs. 180 saying " To Excess debit for sales Rs. 180".

Show answer
Correct Option: C
Explanation:

Posting of sales of Rs.1020 to Madhav a/c is done by Rs.1200. Its a single sided error. Madhav's a/c is excessively debited by Rs.180. To rectify the transaction, credit is given to Madhav by Rs.180 stating "by excess debit for sales Rs.180."

Which of the following statements is correct? 

elements of book keeping and accountancy trial balance develop the skill of preparing trial balance by balance method methods of preparing trial balance preparation of trial balance

  1. The trial balance is prepared after preparing the profit and loss account

  2. The trial balance shows only balances of assets and liabilities

  3. The trial balance shows only nominal account balances

  4. The trial balance has no statutory importance from the point of view of law

Show answer
Correct Option: D
Explanation:

The purpose of a trial balance is to prove that the value of all the debit value balances equal the total of all the credit value balances. If the total of the debit and the credit columns do not match then there is an error in the ledger accounts. This error must be found before a profit and loss statement and balance sheet can be produced. Apart from this there is no statutory importance of trial balance from the point of view of law. 

Goods costing Rs.10,000 destroyed as free sample should be credited to 

elements of book keeping and accountancy trial balance develop the skill of preparing trial balance by balance method methods of preparing trial balance preparation of trial balance

  1. Purchase Account

  2. Sales account

  3. Cash Account

  4. Drawing Account

Show answer
Correct Option: A
Explanation:

The journal for goods distributed as free samples is -

Advertisement Expense A/c             Dr 10000
          To Purchases A/c                              10000
Here, purchases account is credited because goods are going out of the business, when goods are brought in the business purchases account is debited, so when goods are going out of the business it is to be credited.