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SHORT ANSWER QUESTIONS
Accounting Transactions BCOM 1st Year Short Question Answer Study Notes Page. 1
Accounting Transactions BCOM 1st Year Short Question Answer Study Notes Page. 2
Q. 1. Explain the meaning of the term ‘Journal and state its advantages. Ans. Journal: The word journal has been derived from the French word ‘JOUR’ meaning ‘daily records. Journal is a book of prime records for small firms.
Business transactions of financial nature are studied and
classified as assets, liabilities, capital, revenue and expenses and ‘ are accordingly debited and credited in the journal. Entries of
business transactions are passed in the following format of journal:
The journal is sub-divided into five columns. These columns are:
1. Date: The date of transaction is written.
2. Particulars: The names of accounts to be debited and credited are written.
3. Ledger Folio: The page number of the ledger where the account is posted is written.
4. Debit Amount: The amount to be debited is written.
5. Credit Amount: The amount to be credited is written.
Advantages of Journal
The following are the main advantages of journal:
1. Journal reduces the possibility of error.
2. It provides explanation of each transaction.
3. It facilitates posting into ledger.
4. It provides date-wise records.
5. It also facilitates cross checking of accounts.
Q.2. What are the rules of making journal entries in accounts?
Discuss the different rules for journalising the transaction.
Ans. According to the traditional approach, all accounts are classified into three categoriespersonal account, real account and nominal account. The rules for debit and credit for the three types of accounts are given separately as follows:
1. Personal Accounts: Debit the receiver, and credit the giver. 2. Real Accounts: Debit whatever comes in and credit whatever goes out. 3. Nominal Accounts: Debit all expenses and losses and credit all incomes and gains.
Q.3. Distinguish between journal and ledger.
Ans.Distinction between Journal and Ledger
|S.No.||Basis of difference||Journal||Ledger|
|Originality||It is the book of original entry.||It is the book of final entry.|
|Record detail||Full detail of a transaction is recorded.||Full detail of a transaction is not recorded.|
|Page number||Page number of the ledger, i.e. L.f. is written in these books.||Page number of the journal, i.e. j.f. is written in the ledger.|
|Calling of process||The process of recording entry in the journal is called journalising.||Called posting.|
|Preparing of final A/c||Final A/c cannot be prepared directly with the help of journal.||Ledger is the basis of preparing final A/cs.|
Q.4. What is accounting equation?
Ans. Accounting equation is based on ‘Duality Concept which explains that at any point of time the assets of any business enterprise are equal in monetary terms to its equities, both internal and external. Internal equities are the amount contributed by proprietor as capital and amount of profit retained in the business. External equities are liabilities (amount payable to outsiders). In the later discussions, internal equities will be termed as ‘Equity’ and external equities as ‘Liabilities’.
Thus, Assets = Equity + Liabilities
Q.5. Write the characteristics of double entry system.
Ans. The characteristics of double entry system are as follows:
1. Double entry system keeps a complete record of all business transactions. Not only personal accounts are kept but impersonal accounts are also opened in order to record all those transactions that involve assets, gains and losses.
2. It provides complete information of all the transactions, concerning the business.
3. It helps in finding out arithmetical accuracy of accounting record. As every debit has a corresponding credit, therefore total of all debits is always equal to the total of all credits. This accuracy is tested by preparing trial balance.
4. It discloses the result of operations i.e. the profit and loss for the given period by the means of trading and profit & loss A/C.
5. It minimises the opportunity for committing fraud. Detection of errors and frauds is also facilitated in this system.
6. Past records with reference to any account are easily and accurately obtainable in this system.
7. Double entry system is flexible enough to adjust according to the specific needs and capacity of a business unit.
Q.6. What is journal? Why and how is it sub-divided?
Ans. Journal: Refer to Section-A, Q.1.
Need of Sub-division of Journal: In big business houses having numerous business transactions, tis physically impossible for one person to journalise the whole of the transactions. Hence, instead of sing one Journal to record every business transaction, a number of subsidiary journals are employed in all large and medium sized business houses, each of which is used for recording of one particular class of transaction. Sub-division of journal is also done for the purpose of saving in clerical labour, division of work and minimising frauds.
For the purpose of sub-division of journal, following types of special journals are used in the business units:
1. Purchase Journal or Purchase Book.
2. Sales Journal or Sales Book.
3. Purchase Return Journal or Purchase Return Book.
4. Sales Return Journal or Sales Return Book.
5. Bills Receivable Journal or Bills Receivable Book.
6. Bills Payable Journal or Bills Payable Book.
7. Cash Book.
Q.7. Differentiate between trade discount and cash discount.
Ans. Difference between Trade Discount and Cash Discount
|S.No.||Basis of difference||Trade discount||Cash discount|
|Time||Such discount is allowed when goods are purchased beyond a certain quantity or as a trade practice.||This discount is assowed when payment is received within a specified period.|
|Procedure||Such discount is deducted in the bill. Therefore, accounting is made with net sales/purchases.||This discount is allowed on payment. Therfore, this is recorded on receipt or payment.|
|Effect on profit||Gross profit is automatically adjusted when net sales are recorded.||This does not affect gross profit. This is shown in profit and loss account.|
|Variation in rate||Rate of trade discount may fluctuate with quantity bought.||Rate of cash discount may vary with the period with which payment is made.|
|Accounting||No account for trade discount is opened in the ledger.||Cash discount is debited on recipt of payment from customers and credited on payment to creditors.|
Q. 8. Distinction between trial balance and balance sheet.
Ans. Distinction between trial Balance and Balance Sheet
|S. No.||Basis of difference||Trial balance||Balance sheet|
|Timing of preparation||This is prepared before preparing balance sheet.||This is prepared after preparing trial balance.|
|Nature of accounts||Balances of all the accounts are shown in trial balance.||Balances of only assets and liabilities are shown in balance sheet.|
|Purpose||Trial balance shows arithmetical accuracy of accounts books.||Balance sheet shows financial position of the business.|
|Effect of errors||Difference in trial balance indicates existence of errors.||Ballance sheet is prepared after correction of errors.|
|Two sides||Trial balance has debit and credit sides in the statement.||Balance sheet has assets and liabilities side in the statement.|
Q. 9. Distinction between errors of principle and errors of omission.
Or Explain error of principle.
Ans. Distinction between Errors of Principle and Errors of Qmission