Tag: nature of accounts and rules of debit and credit

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

State whether the following statements are True or False
Personal A/c showing credit balance is called creditor. 

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 personal A/c as the name suggests are of people. The rule for the Personal A/c is Debit the receiver and Credit the giver. The creditor is a person who lends us or gives us money. Thus, we shall credit the creditor A/c. So, any personal account showing a credit balance will be called a Creditor.

Thus, the correct answer is A.

State whether the following statements are True or False
Personal account showing debit balance is called creditor.

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:

It is a false statement because, normally liabilities account shows the debit balance is called creditors.

Discount 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

Show answer
Correct Option: B
Explanation:

Nominal accounts are fictitious assets that are associated with expenses, losses, revenues and gains of the firm, such as rent and rates account, travelling expenses A/c, the commission received A/c, interest paid A/c.

Discount can be the indirect income (if received) or indirect expenses (if paid) of a business and hence, they are classified as nominal accounts.

All transaction are recorded directly in ledger.

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:

A transaction should be recorded first in a journal because journal provides complete details of a transaction in one entry. Further, a journal forms the basis for posting the transactions into their respective accounts into ledger.

Ledger is known as the book of original 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:

A ledger is known as the book of final entry or secondary entry whereas, a Journal is known as  the book of original entry because all the transactions of a business are first of all recorded in the Journal from the source document and from the Journal, these entries are posted to the Ledger accounts. Hence, a ledger is known as the book of secondary entry or final entry, as they are posted from the Journal and the balances of these accounts are used to prepare the financial statements of the business.

Overdraft facility is allowed to proprietor's 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: B
Explanation:

Current account is the account on which overdraft facility is allowed by a bank. This facility is provided to the current account holders according to the business needs. It allows a trader to withdraw excess amounts over the amount deposited in the bank account up to a prescribe limit. Overdraft facility is provided to a business for meeting its various business needs and not the proprietor's personal account. A business opens a current account with a bank and overdraft facility is provide on the current account of the  business.

Book of original entries is also known as ______.

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. Invoice book

  2. Journal

  3. Debit/credit notebook

  4. Ledger

Show answer
Correct Option: B
Explanation:

Keeping the kind of books for recording the business transaction depends on the business need but there are two important books which are essentially to kept by each business i.e. journal and ledger. Any transaction which occurs in the business need to be first recorded in journal first. Hence all the original entries can be found from journal itself. 

Capital account 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

Show answer
Correct Option: A
Explanation:

Accounts recording transactions with a person or group of persons are known as personal accounts. These accounts are necessary, to record credit transactions. Personal accounts are of the following types:

1. Natural persons: An account recording transactions with an individual is termed as a natural persons' personal account. For e.g, Kamal's account, Mala's account. Both males and females are included in it.
2. Artificial or legal persons: An account recording financial transactions with an artificial person created by law or otherwise is termed as artificial persons' personal account. For e.g. Firms' accounts, limited companies' accounts.
3. Representative personal accounts: An account indirectly representing a person or persons is known as representative personal accounts. When accounts are of similar nature and their number is large, it is better to group them under one head and  open a representative personal account. For e.g. prepaid rent, outstanding wages etc.
Capital account is the account of a natural person, i.e. an account of person who is alive. Hence, it can be classified as a personal account.

Journal is also called ______.

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. Subsidiary book

  2. Daily event book

  3. History sheet

  4. Log book

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Correct Option: A
Explanation:

Journal is called as subsidiary books because it does not give any summarized details about an account. Journal merely helps the posting of entries in to ledger.

Journalising process is in __________.

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. Analytical manner

  2. Summarized manner

  3. Chronological order

  4. None of the above.

Show answer
Correct Option: C
Explanation:

All business transaction must be recorded as soon it occur. 

Hence, every entry will be passed in a chronological order in journal.