Tag: elements of book keeping and accountancy

Questions Related to elements of book keeping and accountancy

Which of the following errors will not effect the Trial Balance?

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  1. Omission of an account from Trial Balance

  2. Entering the balance of an account in the wrong amount column of the Trial Balance

  3. Wrong Totaling of the Trial Balance

  4. Wrong recording in the Journal proper but not posted at all

  5. None of the above

Show answer
Correct Option: D
Explanation:

The trial balance is not affected when a wrong recording is made in the journal but not posted at all. This is because the incorrect entry of the journal has not been posted to the ledger accounts at all. This means the incorrect balance is not transferred to the trial balance, which will not be affected.

Which of the following errors will not 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. Wrong carry-forward of an account

  2. Wrong totaling of an account

  3. Wrong balancing of an account

  4. Omission of an account from Trial Balance

  5. posting a correct amount in the wrong account on correct side.

Show answer
Correct Option: E
Explanation:

Posting a correct amount in the wrong account on the correct side is the error of posting. This error does not affects the agreement of the trial balance because even though the posting is made to the wrong account but the amount entered is correct and the accounting treatment is same as it would be in the correct account. 

For example, cash sales of 10000, is debited to the debtor's account with 10000 instead of cash account. The credit entry for sales account remains the same. In the case the debtors account balance will increase while cash account balance will be unchanged. The trial balance thus tallies.

Rs.10,000 paid in cash for repair of a purchased old machine,Should be debited to :

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  1. Repairs Account

  2. Cash Account

  3. Machine Account

  4. Installation change Account.

Show answer
Correct Option: C
Explanation:

When amount is spent on repairs of existing fixed assets, it is treated as revenue expenditure and is debited to repairs account. But when amount is spent on repair of old machine purchased, it is treated as capital expenditure and is added to the value of the machinery or asset. This is because amount spent on repair of old machinery purchased enhances the efficiency of the asset which is assumed to be used for a long period of time.

The entry for this entry is -
Machinery A/c       Dr 10000
       To Cash A/c                   10000

Income tax paid by a proprietor $Rs.3,000$ appearing in 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. to be debited to Profit & Loss Account

  2. to be credited to Profit & Loss Account

  3. to be added to Capital

  4. to be deducted from Capital

Show answer
Correct Option: D
Explanation:

Income tax paid by the proprietor is on the personal income of the proprietor as business do not have income. It is not a expenditure of the firm. It is a form of drawing by the proprietor and is deducted from the capital of the firm as it leads to outflow of proprietor's capital fund from the business.

Outstanding wages appearing in Trial Balance are shown:

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. On the debit side of Profit & Loss Account

  2. On the debit side of Trading Account

  3. On the liabilities side of the Balance Sheet.

  4. None of these

Show answer
Correct Option: C
Explanation:

Outstanding wages are related to the current year but remain unpaid. As they are expenses of the current year, they must be debited and charged from the profit and loss of the current year. The expenses remained unpaid during the current year, so they are liability of the firm. 

If outstanding wages are mentioned in the trial balance, they will be shown at the liabilities side only of the Balance Sheet (accounts appearing in the trial balance are shown only at one place in the final accounts).

Which of the statements are true.

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 is prepared after preparing the P& L A/c

  2. Trial Balance is prepared after preparing the Balance Sheet

  3. Trial Balance is prepared before preparing the Balance Sheet

  4. None of these

Show answer
Correct Option: C
Explanation:
A trial balance is prepared to record all the balances of debit and credit of the ledger. A balance sheet is prepared at the end of the year, but a trial balance can be prepared at the end of a month, quarter, etc. 

I's Trial balance contains the following information: 12% Bank Loan Rs. 40,000, Interest paid Rs. 3,800. Interest debited to the Profit & Loss Account is:

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. Rs. 4,800

  2. Rs. 5,000

  3. Rs. 5,500

  4. Rs. 1,000

Show answer
Correct Option: D
Explanation:

Interest paid on bank loan is an indirect expense and is debited to the profit and loss account as it is a charge against profit. In the case the total interest paid for the year is 12% of Rs 40000 i.e., 4800. The interest already paid is Rs 3800, the remaining Rs 1000 has to be paid as it is a charge against the profit. Thus Rs 1000 will be debited to the profit and loss account to pay the full amount of interest.

E's Trial Balance contains the following information: Discount received Rs. 1,000. Provision for discount on creditors Rs. 1,600. It is desired to maintain a provision for discount on creditors at Rs. 1,100. The amount to be credited to the Profit & Loss Account is:

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. Rs. 1,500

  2. Rs. 3,500

  3. Rs. 1,000

  4. Rs. 500

Show answer
Correct Option: D
Explanation:

Discount received is the amount received from the creditors for early payments. It is an indirect income for the business and is credited to the profit and loss account. Provision for discount on debtors is the estimated amount of creditors which is not to be paid. It is a saving and an income and is so credited to the profit and loss account. 

Discount received Rs 1000 will be credited to the profit and loss account as it is a income. While provision for discount on creditors 500 will be debited from the profit and loss account as it is a reduction in the income of the business. 
The entry passed will be -
Discount received A/c                          Dr 1000
     To Profit and loss A/c                                     500
      To Provision for discount on creditors A/c   500
Thus profit and loss account will be credited with Rs 500.

H's Trial Balance contains the following information:
Bad debts                                         Rs. 3,000
Discount allowed                              Rs. 3,000
Provision for discount on debtors      Rs.3,200
Provision for bad debts                      Rs. 3,500
Sundry Debtors                                  Rs. 50,000
At the end of the year, it is desired to maintain a provision for bad debts at Rs. 4,000 and provision for discount on debtors at Rs. 2,000. Sundry Debtors will appear in the Balance Sheet at a figure of:

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  1. Rs. 44,000

  2. Rs. 38,000

  3. Rs. 44,700

  4. Rs. 32,300

Show answer
Correct Option: A
Explanation:

Provision for discount on debtors and provision for bad debts are deducted from the sundry debtors balance to show the actual value in the balance sheet. The value of sundry debtors in H's balance sheet will be(50000-4000-2000) i.e., 44000. This is because the new adjustment says to create provision for discount on debtors at Rs 2000 and provision for bad debts at Rs. 4000.

The preparation of a trial balance helps in locating ______________.

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 in Principle

  2. Errors of Omission

  3. Clerical Errors

  4. Compensatory Errors

Show answer
Correct Option: C
Explanation:

While recording the transaction, there is a possibility of having the error. Since accounting is based on double entry system, for every debit there will be a credit. Hence at any point of time, trial balance must be tallied. If trial balance dose not matches, there must be some clerical error.