Tag: nature of accounts and rules of debit and credit

Questions Related to nature of accounts and rules of debit and credit

Legal Expenses Account __________.

elements of book keeping and accountancy nature of accounts and rules of debit and credit meaning, advantages and limitations of journals understand the classification of accounts introduction to books of prime entry

  1. Real

  2. Personal

  3. Nominal

  4. All of the above

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Correct Option: C
Explanation:

Accounts relating to income, revenue, gain, expenses and losses are termed as nominal accounts. These accounts are also known as fictitious assets as they do not represent any tangible asset. A separate account is maintained for each head or expense or loss and gain or income. Wages account, Rent account, Commission account, Interest received account are some examples of nominal account. The rule for nominal accounts is: Debit all expenses and losses; Credit all incomes and gains.

Legal expenses account are the indirect expenses of a business and hence, they are classified as nominal accounts.

Sales Account is Nominal Account.

elements of book keeping and accountancy nature of accounts and rules of debit and credit meaning, advantages and limitations of journals understand the classification of accounts introduction to books of prime entry

  1. True

  2. False

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Correct Option: A
Explanation:

All assets of a firm, which are tangible or intangible, fall under the category "Real Accounts".

Tangible real accounts are related to things that can be touched and felt physically. Few examples of tangible real accounts are building, machinery, stock, land, etc.
Intangible real accounts are related to things that can't be touched and felt physically. Few examples of such real accounts are goodwill, patents, trademarks, etc.
Golden rule for real accounts: Debit what comes in; Credit what goes out.
Purchases A/C and Sales A/C are real accounts because goods is a thing of value.

Accrued Interest is a Personal Account.

elements of book keeping and accountancy nature of accounts and rules of debit and credit meaning, advantages and limitations of journals understand the classification of accounts introduction to books of prime entry

  1. True

  2. False

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Correct Option: A
Explanation:

Accrued income is the income which has been earned during a particular accounting period, but has not been received till the end of that accounting period. So, they grow by addition and stay due to being received in the forthcoming accounting periods.

Accrued income is recorded in the books at the end of an accounting period to show true numbers of a business. 
Personal accounts are related ton individuals, firms, companies, etc. They are classified into three subcategories: Artificial, Natural and Representative.
Representative personal accounts represent a certain person or a group directly or indirectly. Accrued interest is a representative personal account indirectly linked to the person, and is shown on the assets side of a balance sheet.

Recording two fold effects of each transaction in the journal is called journalisation.

elements of book keeping and accountancy nature of accounts and rules of debit and credit meaning, advantages and limitations of journals understand the classification of accounts introduction to books of prime entry

  1. True

  2. False

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Correct Option: A
Explanation:

The process of recording transactions in the book of original entry is known as journalising. The transactions are recorded in the form of a Journal entry. 

Recording is made in the double-entry system of accounting. Thus, it records the two-fold effect of every transaction.

Fill in the blanks with correct alternative and rewrite the statements.
Real accounts usually show a ____________ balance.

elements of book keeping and accountancy nature of accounts and rules of debit and credit meaning, advantages and limitations of journals understand the classification of accounts introduction to books of prime entry

  1. debit

  2. credit

  3. equal

  4. unequal

Show answer
Correct Option: A
Explanation:

Real accounts usually show a debit balance.

Assets, expenses, losses, and the owner's drawing account will normally have debit balances.  Their balances will decrease when they debited. 
For example, if a company borrows cash from its local bank, the company will debit its asset account Cash since the company's cash balance is increasing.

Journal is maintained for keeping random individual records of business transactions. 

elements of book keeping and accountancy nature of accounts and rules of debit and credit meaning, advantages and limitations of journals understand the classification of accounts introduction to books of prime entry

  1. True

  2. False

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Correct Option: B
Explanation:

A Journal is called the book of prime entry because all the transactions of a business are first recorded in a Journal, i.e. book of original entry. The transactions are recorded in chronological order and on the basis of the source documents. After recording, these transactions are posted to the ledger accounts, i.e secondary books. Hence, a Journal is called the book of prime entry. 

If the goods are sold, the entry should be recorded in the journal. 

elements of book keeping and accountancy nature of accounts and rules of debit and credit meaning, advantages and limitations of journals understand the classification of accounts introduction to books of prime entry

  1. True

  2. False

Show answer
Correct Option: A
Explanation:

When goods are sold, the transactions should be recorded in the book of original entry, i.e. Journal. All the business transactions of a business are recorded in the Journal and, thus, it is called as the book of original entry. Hence, the entries for the goods sold should be recorded in the journal.

Journal is a book of secondary entry. 

elements of book keeping and accountancy nature of accounts and rules of debit and credit meaning, advantages and limitations of journals understand the classification of accounts introduction to books of prime entry

  1. True

  2. False

Show answer
Correct Option: B
Explanation:

Transactions are recorded daily in journal and hence it is named so. As soon as a transaction takes place its debit and credit aspects are analyzed and first of all recorded chronologically in a book together with its short description. This book is known as journal. The most important function of journal is to show the relationship between two accounts connected with a transaction. Since transactions are first of all recorded in journal, it is called book of original entry or prime entry .

A journal is a book of original or prime entry and not a book of secondary entry. All the business transactions are first recorded in the journal, and then postings are made in the respective ledger accounts, i.e. secondary books. Thus, a journal is a book of original entry.

State whether the following statement is True or False
Real A/c has always a credit balance.

elements of book keeping and accountancy nature of accounts and rules of debit and credit meaning, advantages and limitations of journals understand the classification of accounts introduction to books of prime entry

  1. True

  2. False

Show answer
Correct Option: B
Explanation:

Assets and Liabilities accounts are Real A/cs. The assets have a debit balance whereas liabilities account have a credit balance. Thus, the Real A/c may have debit or credit balance. 

Thus, the correct option is B.

Bank A/c is ____________ type of account.

elements of book keeping and accountancy nature of accounts and rules of debit and credit meaning, advantages and limitations of journals understand the classification of accounts introduction to books of prime entry

  1. Personal

  2. Real

  3. Nominal

  4. Impersonal

Show answer
Correct Option: A
Explanation:

Personal accounts deals with persons, i.e. human being and artificial judicial persons such as companies, government organisations, HUF, etc.

Personal accounts are classified into three subcategories: Artificial, Natural and Representative.
Natural personal accounts: Accounts that are concerned with natural human beings. It includes accounts of debtors, creditors, proprietor, etc.
Artificial personal accounts: All the business concern has a separate legal identity in the eyes of the law, and so the entities are different from its members. Therefore, the accounts of clubs, charitable trust, company, bank, etc. are covered under this category.
Representative personal accounts: The accounts which represent persons or group thereof, are called representative personal account, such as capital A/c, drawings A/c, prepaid A/c.
Bank is an example of personal account and not a real account. All the accounts related to an individual, a firm or a company are termed as personal accounts. Hence, Bank is an example of a personal account.