FINANCIAL ACCOUNT
Higher Order Thinking Skills (HOTS) Questions
Q.1. Purchases Book is a record prepared from the invoices received from suppliers.It correct? Five reasons.
Ans. Yes. Purchases can be either in cash or on credit purchases are recorded in the Purchases Book. The source documents for recording entries in the Purchases Book are invoices or bills received from the suppliers of goods. The entries are made with the net amount of the invoice after deducting trade discount.
Q.2. Total of the purchase invoices recorded in the Purchases Book is posted to debit side of the Purchases Account in the Ledger and to the credit of suppliers accounts. Do you agree? Give reasons.
Ans. Yes. Purchases Account is an Expense Account therefore, following the rule 'Increase in expenses is debited and decrease credited.' Purchases Account is debited. Since, the Purchases Book contains records of credit purchases, the Supplier's Account is credited following the rule applicable to Liability Accounts, i.e., 'Increase in liabilities is credited and decrease debited.'
Q.3. Do you agree that a Sales Book is used to record invoices issued to customers in respect of goods sold on credit and not cash? Give reasons.
Ans. Yes. Sales can be either in cash or on credit. Credit sales are recorded in the Sales Book and cash sales in the Cash Book. The source documents for recording entries in the Sales Book are invoices or bills issued to customers. Entries are recorded with the net amount of the invoice after deducting trade discount.
Q.4. Total of the Sales Book is posted to the credit side of the Sales Account in the General Ledger while individual account of customers is debited by the amount of their respective purchases. Is the above statement correct? Give reasons.
Ans. Yes. Sales Account is a Revenue Account and, therefore, following the rule 'Increase in revenue is credited and decrease debited' Sales Account is credited. Since, the Sales Book contains records of credit sales, the Purchaser's Account (being debtors) is debited following the rule applicable to Asset Accounts, i.e., 'Increase in assets is debited and decrease credited.'
Multiple Choice Questions (MCQ)
Select the correct alternative:
(i) In the Purchases Book the record is in respect of
(a) cash purchases of goods dealt in. (b) credit purchases of goods dealt in.
(c) all purchases of goods dealt in. (d) purchase of anything.
Ans. (b) credit purchases of goods dealt in.
(ii) The Sales Return Book records
(a) the return of goods purchased. (b) the return of goods sold on credit.
(c) the return of goods sold for cash. (d) the return of anything sold.
Ans. (b) the return of goods sold on credit.
(iii) The Sales Book
(a) is a part of the Journal. (b) is a part the Ledger.
(c) is a part of the Balance Sheet. (d) is a part of the Trial Balance.
Ans. (a) is a part of the Journal.
(iv) The total of the Sales Book is posted to
(a) debit of the Sales Account. (b) credit of the Sales Account.
(c) debit of the Customers' Accounts. (d) credit of Customers' Accounts.
Ans. (b) credit of the Sales Account.
(v) The periodic total of Sales Return Journal is posted to the
(a) Sales Account. (b) Goods Account.
(c) Sales Return Account. (d) Any of these.
Ans. (c) Sales Return Account.
(vi) Goods purchased for cash are recorded in the
(a) Purchases Book. (b) Cash Book.
(c) Purchases Return Book. (d) Cash Book and Purchases Book.
Ans. (b) Cash Book.
(vii) Total of these transactions is posted to Purchases Account
(a) Credit purchase of furniture. (b) Purchases Return.
(c) Credit purchase of goods. (d) Purchase of Stationery.
Ans. (c) Credit purchase of goods.
(viii) Sale of business asset on credit is recorded in
(a) Sales Book. (b) Journal Proper.
(c) Special Journal. (d) Cash Book.
Ans. (b) Journal Proper.
(ix) Opening entry is recorded
(a) in the beginning of the accounting year. (b) at the end of the accounting year.
(c) in the end of the accounting year. (d) anytime during the year.
Ans. (a) in the beginning of the accounting year.
(x) Closing entries are passed
(a) in the beginning of the accounting year (b) at the end of the accounting Year.
(c) in the middle of the accounting year. (d) anytime during the year.
Ans. (b) at the end of the accounting Year.
(xi) Which of the following transactions is entered into the Journal Proper?
(a) Cash payment to an employee for expenses. (b) Cash purchase of goods for resale.
(c) Correction of an error. (d) Credit purchase of goods for resale.
Ans. (c) Correction of an error.
(xii) X received a cheque of Rs. 10,000 from Y in settlement of dues of Rs. 10,500. The cheque was dishonored. The reversal of discount allowed by X will be recorded in
(a) Cash Book. (b) Journal Proper.
(c) Ledger directly. (d) None of the above.
Ans. (b) Journal Proper.
Objective Type Questions
1.State whether the following statements are True or False:
- Purchases Book records cash purchases and credit purchases during the year.
- Sales Book is the part of Journal.
- Sales Account shows cash sales and credit sales during the year.
- Adjusting entries are passed in the beginning of the accounting period.
- Goods purchased for cash are recorded in Purchases Account.
- Closing entries of one accounting period are opening entries of next accounting period.
- Purchase of Machinery on credit is recorded in Journal Proper.
- A post-dated chque received from customer is not recorded in the books of accounts.
- The weekly or monthly total of the Purchases Book is posted to debit of the Purchases Account.
- Purchases Book is prepared from transactions recorded in Journal Proper.
[(i) False; (ii) True; (iii) True; (iv) False; (v) True; (vi) False; (vii) True; (viii) False; (ix) True; (x) False.]
2.Fill-in-the blanks with appropriate words:
- __________Folio column is prepared in the Sales Book.
- Post-dated cheque received from a customer is recorded in ____________.
- Goods returned by customer against cash are recorded in ____________ Book.
- The transaction of goods withdrawn by proprietor is recorded in _______________.
- Contra Entry is recorded in ______________ Book.
- Individual transaction of purchase of goods from Purchases Book is posted to ______________ Account in the ledger.
- From _____________ every transaction is posted to two accounts in the ledger.
- From ________________ Book the balance is directly transferred to the Trial Balance.
- Discount allowed by creditors on timely payment to them is recorded in _______________.
- Sahil sold goods to Pawan for Rs. 10,000 at 10% Trade Discount. It will be recorded by Pawan in ____________ Book.
[(i) Ledger; (ii) Journal Proper or General Journal; (iii) Cash; (iv) Journal Proper or General Journal; (v)Cash; (vi) Supplier's or Creditor's; (vii) Journal Proper or General Journal; (viii) Cash; (ix) Journal Proper or General Journal; (x) Purchases.]
Very Short Answer Type Questions
Q.1 What is Purchases Book?
Ans. Purchases Book is a subsidiary book in which credit purchases of goods dealt in or stores and raw material used for production are recorded.
Q.2 Define Sales Book.
Ans. Sales Book is a subsidiary book which credit sale of goods dealt in are recorded.
Q.3 What is meant by Journal Proper?
Ans. Journal Proper is a book of account in which those transactions and events are recorded which are not recorded in the subsidiary books.
Q.4 What is Purchases Return Book?
Ans. Purchases Return Book is a subsidiary book in which the return of goods purchased is recorded.
Q.5 In which account total of Purchases Return Book is recorded?
Ans. Purchases Return account.
Q.6 What is meant by a Sales Return Book?
Ans. Sales Return Book is a subsidiary book in which the return of goods sold is recorded.
Q.7 For what purposes is a Journal Proper used?
Ans. Journal Proper is a residuary book which is used for recording those transactions which are not recorded in any of the other books of original entry.
Q.8 Give two examples of entries which appear in a'Journal Proper'.
Ans. Credit purchase of plant and machinery and Credit sales of fixed assets.
Q.9 What is an opening entry?
Ans. Opening entry is the entry made in the beginning of a financial year to open the books by debiting assets and crediting liabilities and capital, appearing in the Balance Sheet of the previous year.
Q.10 Mention the subsidiary books in which following transactions are recorded along with reason thereof:
- Purchase of furniture on credit for use in shop.
- Sale of goods on credit.
- Goods returned by Debtors.
- Purchase of stock on credit.
- Providing for interest on capital to proprietor.
- Goods returned to creditors.
- Sale of goods for cash.
Ans. 1. Journal Proper: Because purchase of fixed assets on credit is recorded in Journal Proper.
2. Sales Book: Because Sales Book records only credit sales of goods.
3. Sales Return Book: Because goods returned by customer are recorded in Sales Return Book.
4. Purchases Book: Because Purchases Book records only Credit Purchases of goods.
5. Journal Proper: Because Journal Proper records all those transactions which cannot be recorded in any of the other subsidiary books. Interest on proprietor's capital is also one of those items which can only be recorded in Journal Proper.
6. Purchases Return Book: Because it records only goods returned by the firm to its suppliers.
7. Cash Book: Cash Book records cash receipts and cash payments.
Q.11 Name the books of original entry where the following transactions will be recorded with reasons thereof:
- Goods purchased from Ram Lal for Rs. 5,000 on credit.
- Provision for doubtful created @ 5%on debtors with books value of Rs.10,000.
- Defective goods sold to Babita on credit worth Rs. 4,000 were returned by her.
- Purchased furniture on credit from Mr. Ratan Singh for Rs. 15,000 for use in the business.
Ans. 1 Purchases Book because it is credit purchase of goods for sale.
2. Journal Proper because it will not be recorded in any other subsidiary books.
3. Sales Return Book because it is return of goods sold.
4. Journal Proper because it will not be recorded in other subsidiary books.
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