Tag: nature of accounts and rules of debit and credit

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

Machinery purchased on account is recorded 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. Purchase Book

  2. Cash Book

  3. Journal Book

  4. None of the above

Show answer
Correct Option: C
Explanation:

Journal book is meant for recording all such transactions for which no special journal has been maintained in the business. Therefore, in this journal, all such transactions are recorded which do not occur frequently and for these transactions no special journal  is required. 

For example, if Machinery is purchases on credit, it will be recorded in the journal book, because in the cash book only cash purchases of machinery is recorded.
Similarly, many other transactions, which do not find their place in the special journals will be recorded in the General Journal such as:
(i) Outstanding expenses - Salaries outstanding, rent outstanding, etc.

(ii) Prepaid expenses - Prepaid rent, salaries paid in advance, etc.
(iii) Income received in advance - Rent received in advance, interest received in  advance, etc.
(iv) Accrued incomes - Commission yet to be received, interest yet to be received
(v) Interest on capitals.

_____________ includes identifying, recording, classifying and summarizing the 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. Accounting posting

  2. Accounting cycle

  3. Tally of accounts

  4. All of the above

Show answer
Correct Option: B
Explanation:

Accounting cycle is a step-by-step process of recording, classification and summarization of economic transactions of a business. It generates useful information in the form of financial statements including  income statement, balance sheet, cash flow statement and statement of changes in equity.

The time period principle requires that a business should prepare its financial statements on periodic basis. Therefore, cycle is followed once during each accounting period. Accounting cycle starts from the recording of individual transactions and ends on the preparation of financial statements and closing entries.

Trading account is a ______________.

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 account

  2. Real account

  3. Nominal account

  4. Valuation account

Show answer
Correct Option: C
Explanation:

Trading account is nominal account which is prepared at the end of accounting year. It helps to find out gross profit or gross loss during the accounting period. 

Trading account consists of two sides 'debit and credit'. All direct expenses are debited and direct incomes are credited in trading account.

Prepaid salary is _______________.

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 Accounts

  2. Personal Accounts

  3. Nominal Accounts

  4. None of above

Show answer
Correct Option: B
Explanation:

Prepaid expenses are those expenses which have been paid in advance and related benefits are not consumed within the same accounting period. The benefits of expenses incurred are carried to the next accounting period. Examples-prepaid salary, prepaid rent, etc. Prepaid expenses are recorded in the books at the end of an accounting period to show true numbers of a business. 

Prepaid (Unexpired)  salary is a personal account and is shown on the assets side of balance sheet.