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K. RameshDirector

Royal Educational Institutionshyd

(CONTINUED FROM IPE VIDYA PAGE 12-03-2010)COMMERCE - I

VERY SHORT QUESTIONS & ANSWERS (2 MARKS)

WHAT IS DOUBLE ENTRY SYSTEM?

1. Extractive Industry

A. These industries are mainly concerned with extraction of products from

Natural resources such as earth, water, air etc. Example : Agriculture, mining, hunting etc.

2. Define CommerceA. Commerce is concerned with the exchange of goods. It includes all those

activities which are related to the transfer of goods from the place of production to the ultimate consumers. It includes ‘trade’ and ‘aids totrade’.

Commerce = Trade + Aids to trade

3. Entrepot Trade

A. It is also known as reexport trade, it involves importing of foreign goodswith a view to reexport them to other countries.

Example : India buys wheat from Australia and supplies the same toBangladesh

4. Kartha : The head of the family is known as kartha. He has the right tomanage the affairs of the business and other members assist him. He isalso called manager. The kartha makes all the contracts on behalf of thefirm. His liability is unlimited.

5. Mithakshara Law : It is applicable to the whole country except Assamand West Bengal. According to this law only male members in the familyget the right of inheritance by birth. The female members don’t possesssuch right.



6. Dayabhaga law : This law is applicable only to Hindus in the states of Assam and West Bengal According to this law, the right to propertydevolves on the co-parceners by succession and not by birth.

7. Partnership Deed : A partnership arises out of an agreement between thepartners. The agreement may be in written or oral. A written agreementavoids the disputes in future. Such written agreement is called partnershipdeed or partnership agreement.

8. Minor Partner : A minor is a person who has not attained the age of 18years. He can never become a partner because of his incapacity for makingcontracts. A minor, however, be admitted to the benefits of partnershipwith the consent of all partners. The liability of minor partner is limited.

After attaining the age of 18 years, if he so desires, he can continue as apartner or withdraw from the firm . In case, he chooses to continue as apartner, he is liable for all dealings from the date of his joining in the firm.

9. Articles of Association

A. Certain rules and regulations are necessary for the management and controlof a joint stock company. The rules and regulations which are used tomanage the day - to - day affairs of the company are known as “Articles of Association”. The document is a subsidiary to the memorandum of association.

10. Minimum subscriptionA. Minimum subscription is the minimum amount of capital which a public

company has to secure before allotting the shares. The amount of minimum subscription must be stated in Articles of Association andprospectus. The amount must be subscribed within 120 days from the dateof prospectus.

11. What is a certificate of incorporation ?

A. Incorporation involves the registration of the company under thecompanies act. It is a legal process through which a company is recognised

as a legal entity. The promoters of a company must prepare variousdocuments with the registrar of companies of the state. The registrar afterscrutinising them and if he is satisfied he will issue a certificate called“certificate of incorporation”.

12. Define the term prospectus ?

A. The company act, 1956 section 2 (36) defines the prospectus as “Anydocument described or issued as prospectus and includes any notice,



circular, advertisement or other documents inviting deposits from thepublic for subscription purchase of any shares or debentures of acompany”.

13. Object Clause :

A. This is the most important clause in the memorandum of association. Theobjective of the company must be legal and be very clearly defined. If acompany does any business not included in the objects clause, it willbecome invalid.

14. Holding companies

A. A company is considered to be a holding company when it purchases more

than half of the shares in another company. Ex. : Rasi cement is a holding

company of vishnu cement company.

15. Private company

A. A private limited company is defined as a company.

1. Limits the number of its members to 50.

2. Prohibits an invitation to the public subscription to shares and debentures.

3. Restricts the transfer of its shares.

16. Define public enterprises ?

A. Definition : “Public Enterprises are autonomous or semi-autonomouscorporations and companies established, owned and controlled by the state andengaged in industrial and commercial activities”.

17. Public corporation

A. Public Corporation : A public corporation may be defined as a bodycorporate created by the legislative under a special act which sets out its powers,duties and immunities.

18. Multinational corporation

A. Multination Corporations are also known as Multinational Companies.Multinational Corporation is a firm that conducts business in two or morecountries. These Companies possessed use capital resources, latest technology

alongwith Worldwide goodwill.19. Business Finance :

A. Business Finance has been defined as those activities which have to do withthe provision and management of funds for the satisfactory conduct of abusiness.Business finance defined as that business activity which isconcerned with the acquisition and conservation of capital funds in meetingthe financial needs and overall objectives of business enterprise.



20. Medium Term Finance :

A. Funds that are raisen for a period between one to five years are termed asmedium term finance. Medium term finane is used for 1) modernization of machinery, 2) large advertisement campaigns, 3) launching of newproducts.

21. Trade Credit :

A. It is one of sources for short term finance. Generally businessmen buygoods from suppliers on credit basis and payment is made after a certainshort period, which is called Trade Credit

22 Cumulative Performance Shares :

A. Cumulative preference shares carry cumulative right over dividend. Thedividend on cumulative preference shares is to be payable to the sharesholders whether company earns profits or not. The right on preferenceshare holders to receive dividend can be carried forward.

23. Over Capitalisation :

A. The term capitalisation has been defined in a number of ways. Though thetotal capital employed by the business enterprise includes both fixed capitaland working capital. The term capitalisation includes “Long Term Capital”only.

24. Debit Capital

A. The debt or borrowed capital consists of capital raised by the companythrough issue of debentures and long term borrowals from the financialinstitutions. The providers of capital do not have voting rights.

25. Bearer Debentures

A. The names and address of these debentures are not recorded in the registrarof the company. These debentures are transferable by mere delivery.

26. Institutional Finance

A. The central and state the government have set up a number of financialinstitutions to provide long term finance to the industrial concerns. Theseare IFCI, IDBI, ICICI, State Financial Corporations, LIC, UTI, etc.

PART - II

27. Define Book Keeping?

A. “Book keeping is the science and art of keeping record of businesstransactions in such a systematic manner that the true state of the financial affairsof a business house can be easily ascertained”



28. What is Capital ?

A. The amount invested by the owner for running the business is calledcapital. This can be in the form of goods or cash.

29. What are Drawings?

A. Cash, goods drawn by the owner, investor for personal consumption arecalled as Drawings.

30. What is Capital Expenditure?

A. Capital Expenditure consists of expenditure the benefit of which is not fullyconsumed in one accounting period but spreads over several years or the amountspent in increasing the earning capacity of a business is called as Capital

Expenditure.

31. What is Revenue Expenditure? A. Revenue Expenditure is the amount spent in earning Revenue / Profit iscalled as Revenue Expenditure and includes the Expenses like salaries, rent,wages, repairs, maintenance, stores, depreciation and materials etc.

32. What is Journal ? A. Journal is a book of original entry / first entry in which transactions arerecorded in chronological order and the transaction recorded in journal is called a

journal entry.

33. What is Ledger? A. Ledger is a book of secondary entry. This is also called a book of finalentry. All transactions from journal are recorded in ledger by opening a separateaccount and their balances are found.

34. Dual Aspect Concept

A. This is basis aspect of accounting. According to this concept every businesstransaction has two fold effect, the receiving of the benefit and giving of thebenefit.

35. What is Single Entry System ? A. Single Entry System is a crude and unscientific method of maintainingmethod. Under this system all the transactions are not recorded. Single EntrySystem is a system in which one aspect of the transaction is recorded instead of two aspects.



37. What is Journal Proper ?

A. Journal Proper is a subsidiary book used for recording all the remainingtransactions which cannot be recorded in any one of the seven subsidiarybooks mentioned above.

38. Trade Discount :

A. Trade discount is a reduction in the catalogue price of an article. This isgiven by the wholesaler or manufacturer to retailer to enable him to sell ata catalogue price and make a profit, no entry is passed in the books fortrade discount.

39. Cash Discount :

A. It is given for prompt payment, hence it is recorded in the Cash Book. Thisis given to debtors who pay promptly for their goods when the time forpayment arrives.

40. Write about Debit Note ?

A. While returning goods to the suppliers, a statement called “Debit Note”which is sent to them for their information. It informas the supplier that hisaccount has been debitedto the extent of the value of the goods returned, itcontains the name and address of the supplier, the description of the goods

returned etc.

41. Write about Credit Note?

A. When a customer returns goods a statement called “Credit Note” is sent tohim. The credit note informs the customer that his account has beencredited to the extent of value of the goods returned.

42. What is Contra Entry?

A. Contra Entry is the transaction which is recorded on both the sides of Triple Column Cash Book i.e., Cash and Bank coloumns on the oppositesides. In other words the double entry aspect of the transaction iscompleted in the Cash Book itself.

43. Petty Cash Book :



A. Petty Cash Book is a cash book maintained to record petty / smallpayments made in cash, to meet day to day requirements. It is maintainedon imprest system and recorded in analytical form.

44. Imprest System : A. Imprest system is a system in which an estimated amount for petty

expenses is determined and advanced to petty cashier out of which all thepetty expenses will be paid and total amount paid will be re-advanced tothe petty cashier, so as to make it equal to imprest amount.

45. What is Bank Reconcillation Statement ?

A. Bank Reconcillation Statement is a statement prepared at periodicalintervals to reconcile the balance of Cash Book with that of Pass Book and

to find out the exact balance with the Bank.

46. What is Over Draft ?

A. Over Draft is the unfavourable balance of the depositor with the bank i.e.,withdrawals are more than deposits. In other words it is the amount due tobank by the customer. In case of favorable balance Cash Book shows creditbalance whereas Pass Book shows debit balance.

47. Suspense Account :

A. Suspense Account is the account prepared to transfer difference in TrialBalance if any to be rectified in future.

48. Errors of Principle :

A. Errors of principle is an error which any one has committed due todefective knowledge of recounting principle.

Part-II Short Note Questions & Answers (5 Marks)

1. What is double entry system ? Write its advantages ?

A. A business transaction is a transfer of money or money’s worth from oneaccount to another. A transfer requires necessarily two accounts. For a completerecord of the transaction, it should be presented in both the accounts. For acomplete record of the effects two accounts in the opposite directions, if oneaccount receives a benefit there should be another account to impart the benefit.



The principle of double entry is based on the fact that there can be nogiving without receiving nor can be receiving without some one giving. Thereceiving aspect is known as ‘Debit’ and is entered on the debit side of theaccount. The giving aspect is known as ‘Credit’ and is entered on the credit sideof the account. The principle under which both debit and credit aspects arerecorded is known as the principle of double entry. Every debit must have acorresponding credit and vice versa. Double entry is the only scientific system of maintaining books of accounts.

Advantages :

1. It provides a complete record of business transactions, as it records both theaspect of every transaction

2. It is possible to prepare trail balance and check the arithmetical accuracy of books of accounts.

3. A trader can know his debtors and creditors from time to time.

4. A trader can find out his financial position by preparing a balance sheet ona particular date.

5. Double entry system helps to find out and prevent errors and frauds.

4. Discuss accounting concepts ?

A. Meaning of Accounting Concepts : Accounting is a system evolved toachieve a set of objectives. In order to achieve the goals, we need a set of rules or

guidelines. These guidelines are termed here as basic accounting concepts. Theterm ‘concept’ means an idea or though. Basic accounting concepts are thefundamental ideas or basic assumptions underlying the theory and practice of financial accounting.

1. Business entity concept : Business is treated separate from the proprietor.All the transactions are recorded in the books of business and not in the books of the proprietor. The proprietor is also treated as a creditor for the business. Whenhe contributes capital he is treated as a person who has invested his amount in thebusiness. Therefore, capital appears in the liabilities of balance sheet of the

business.

2. Going concern concept : This concept relates with the long life of thebusiness. The assumption is that business will continue to exist for unlimitedperiod unless it is dissolved due to some reason or the other.

3. Cost Concept : According to this concept, an asset is recorded at its costin the books of account, i.e., the price which is paid at the time of acquiring it.



4. Accounting period concept : Every businessman wants to know the resultof his investment and efforts after a certain period. Usually one year period isregarded as an ideal for this purpose.

5. Dual aspect concept : Under this concept, every transaction has got a two

fold aspect (i) receiving benefit and (ii) giving of that benefit. Therefore twoaccounts are to be passed in the books of accounts.

6. What are the classes of accounts ? Briefly explain ?

A. An account is a statement in the ledger which records the transactionsrelevant to the persons, asset, expense or profit named in the heading. Accountscan be divided into

1. Personal Accounts 2) Impersonal Accounts

Impersonal accounts can be further divided into real and nominal accounts.Thus, there are three kinds of accounts maintained by business.

1. personal accounts 2) real accounts 3) nominal accounts

1. Personal Accounts : Accounts of persons with whom the business deals

are known as personal accounts. The word persons is used in a special sense here.

It indicates individuals, partnerships, companies etc.

Debit : The receiver

Credit : The Giver

2. Real Accounts : Accounts in which the business records the real things

owned by it i.e. the assets of the business are known as real accounts.

Example : Buildings A/c, Machinery A/c., Furniture A/c, Cash A/c., etc.

Debit : What comes into business

Credit : What goes out of the business

3. Nominal Accounts : Accounts which record expenses, losses, incomes

and gains of the business are known as Nominal Accounts.

Example : Rent A/c., Salaries A/c., Postage A/c. Commission received, interestreceived A/c., bad debts etc.

Debit : All expenses and losses

Credit : All incomes and gains



IMPORTANT ESSAY QUESTIONS(10 MARKS) :

1. Define Sole Trading Business? Write its Merits and Demerits?

2. Write the differences between Private Limited Company and Public Limited Company?

3. What is meant by Memorandum of Association? Write the clauses?

4. Discuss the merits and demerits of Company Organisation?

5. Define Partnership Business? Write its Merits and Demerits?

6. What is Debenture? Explain different types of debentures?

7. Write different types of business finance?

8. What is preference share? Explain different types of preference shares?

IMPORTANT SHORT NOTE QUESTIONS : (5 Marks)

1. Define Industry? Explain different types of Industries with examples?

2. Define Trade? Explain different types of Trade?

3. Explain the advantages of Joint Hindu Family business?

4. Write the Principles (Features) of Co-operative Society?

5. Explain various types of Partners?

6. What is meant by Partnership Deed? Write its contents?

7. Define MNC? Write its characteristic features?

8. Explain the demerits of Public Sector undertakings? (or) Private Sector. (Problem)

9. Explain the Merits of Public Sector undertakings?

10. Explain the need of Private Sector in India?

11. Explain the merits of Preference Shares?

IMPORTANT SHORT NOTE QUESTIONS : (5 Marks)

1. Define Industry? Explain different types of Industries with examples?

2. Define Trade? Explain different types of Trade?

3. Explain the advantages of Joint Hindu Family business?

4. Write the Principles (Features) of Co-operative Society?


6. What is meant by Partnership Deed? Write its contents?

7. Define MNC? Write its characteristic features?

8. Explain the demerits of Public Sector undertakings? (or) Private Sector. (Problem)






K. RAMESH, Director,Head of Dept. of CommerceRoyal Educational Institutions

Hyderabad



PART-II ACCOUNTS IMPORTANT QUESTIONS & ANSWERS

FINAL ACCOUNTS (20 MARKS)

From the following Trial Balance, prepare a Trading, Profit and Loss account and Balance Sheet as on31-12-2000

Debit Balances Amount Credit Balances AmountRs. Rs.

Purchases 1,00,000 Capital 75,000

Machinery 50,000 Returns 2,500

Returns 4,000 Creditors 50,000

Debtors 60,000 Bank Overdraft 20,000

Cash at Bank 25,000 Discount 2,000

Stock (1-1-2000) 40,000 Sales 2,25,000

Taxes 3,500

Wages 28,000

Carriage on Purchases 3,000

Furniture 12,000

Rent 4,000

Bills Receivable 45,000

3,74,500 3,74,500

Adjustments :

1. Closing stock Rs.42,0002. Outstanding wages Rs.4,5003. Writ off Rs.1,000 as bad debts4. Provide 5% depreciation on machinery5. Charge 5% interest on capital



A. Trading and Profit and Loss Account for the year ending 31.12.2000 :Dr. Cr.

Particulars Amount Amount Particulars Amount AmountRs. Rs Rs. Rs

To Opening Stock 40,000 By Sales 2,25,000

To Purchases 1,00,000 Less:

Less : Returns 2,500 97,500 Returns 4,000 2,21,000

To Wages 28,000 By Closing stock 42,000

Add : Outstanding 4,500 32,500

To carriage inwards 3,000

To Gross Profit 90,000

(Transfered to P&L a/c) 2,63,000 2,63,000

To Rent 4,000 By Gross Profit 90,000

To Taxes 3,500 By Discount 2,000

To Bad debts 1,000

To Depreciation on

Machinery 2,500

To Interest on Capital 3,750

To Net Profit 77,250

(Transfered to Capital a/c) 92,000 92,000

Balance Sheet as on 31-12-2000

Liabilities Amount Amount Assets Amount AmountRs. Rs Rs. Rs

Outstanding Wages 4,500 Cash at Bank 25,000

Creditors 50,000 Bills Receivable 45,000

Bank Overdraft 20,000 Debtors 60,000

Capital 75,000 Less : Bad debts 1,000 59,000

Add : Interest 3,750 1,56,000 Furniture 12,000

Add : Net Profit 77,250 Closing Stock 42,000

Machinery 50,000

Less : Depreciation 2,500 47,500

2,30,500 2,30,500



10 Marks Problem Bank Reconciliation Statement

1. Prepare Bank Reconciliation Statement as on 31-12-2002 from the following particulars.1. Bank overdraft as per cash book Rs.6,2202. A cheque issued to Raja for Rs.2,630 was not encashed from the Bank 3. An amount of Rs.500 was collected by the Bank. The same is not recorded in the cash book

4. Interest on overdraft Rs.150 was debited in the pass book only.5. A cheque for Rs.1,000 received, but it was not sent to Bank.6. Devident received by the bank Rs.500, not written in the cash book.7. Bank charges of Rs.50 debited in the pass book only

Ans. Bank Reconciliation Statement as on 31-12-2002

Particulars Amount AmountRs. Rs.

Overdraft as per Cash Book 6,220Add :

1. Cheque received but not sent toBank for collection 1,000

2. Interest on overdraft debited in the pass book 1503. Bank charges debited in the pass book 50 1,200

7,420Less:1. Cheques issued but not presented for payment 2,6302. Dividend received but not entered in the cash book 5003. Amount collected by the bank but not

recorded in the cash book 500 3,630

Overdraft as per pass book 3,790

5 Marks Problem Subsidiary Books

1. Record the following transactions in the pruchase book

2004 Rs.

March 1. Goods purchased from Krishna 5,000/-

4 Purchased goods from Pal for cash 2,000/-

6 Goods purchased from Choudary 1,000/-

8 Goods purchased from Prasad 500/-

12 Goods purchased from Naveen brothers 15,000/-

21 Goods purchased from Upendra 2,500/-



Ans.

Purchases Book

Date Particulars Inward Invoice No. LF. Amount(Rs)

2004

Mar. 1 Krishna 1 5,000

Mar. 6 Chowdary 2 1,000

Mar. 8 Prasad 3 500

Mar.12 Naveen brothers 4 15,000

Mar 21 Upendra 5 2,500

Total 24,000

K. RAMESHHead of Dept. of CommerceRoyal Educational Institutions

Hyderabad



1. Extractive Industry

A. These industries are mainly concerned with extraction of products from Natural resourcessuch as earth, water, air etc.

Example : Agriculture, mining, hunting etc.

2. Define CommerceA. Commerce is concerned with the exchange of goods. It includes all those activities which

are related to the transfer of goods from the place of production to the ultimate consumers.It includes ‘trade’ and ‘aids to trade’.

Commerce = Trade + Aids to trade 3. Entrepot Trade

A. It is also known as reexport trade, it involves importing of foreign goods with a view toreexport them to other countries.

Example : India buys wheat from Australia and supplies the same to Bangladesh

4. Kartha : The head of the family is known as kartha. He has the right to manage theaffairs of the business and other members assist him. He is also called manager. Thekartha makes all the contracts on behalf of the firm. His liability is unlimited.

5. Mithakshara Law : It is applicable to the whole country except Assam and West Bengal.According to this law only male members in the family get the right of inheritance bybirth. The female members don’t possess such right.

6. Dayabhaga law : This law is applicable only to Hindus in the states of Assam and WestBengal According to this law, the right to property devolves on the co-parceners bysuccession and not by birth.

7. Partnership Deed : A partnership arises out of an agreement between the partners. Theagreement may be in written or oral. A written agreement avoids the disputes in future.Such written agreement is called partnership deed or partnership agreement.

8. Minor Partner : A minor is a person who has not attained the age of 18 years. He cannever become a partner because of his incapacity for making contracts. A minor, however,be admitted to the benefits of partnership with the consent of all partners. The liabilityof minor partner is limited.

After attaining the age of 18 years, if he so desires, he can continue as a partner orwithdraw from the firm . In case, he chooses to continue as a partner, he is liable for alldealings from the date of his joining in the firm.

COMMERCE - I

VERY SHORT QUESTIONS & ANSWERS (2 MARKS)

WHAT IS DOUBLE ENTRY SYSTEM ?



9. Articles of Association

A. Certain rules and regulations are necessary for the management and control of a jointstock company. The rules and regulations which are used to manage the day - to - dayaffairs of the company are known as “Articles of Association”. The document is asubsidiary to the memorandum of association.

10. Minimum subscriptionA. Minimum subscription is the minimum amount of capital which a public company has to

secure before allotting the shares. The amount of minimum subscription must be statedin Articles of Association and prospectus. The amount must be subscribed within 120days from the date of prospectus.

11. What is a certificate of incorporation ?

A. Incorporation involves the registration of the company under the companies act. It is alegal process through which a company is recognised as a legal entity. The promoters of

a company must prepare various documents wi th the registrar of companies of the state.The registrar after scrutinising them and if he is satisfied he will issue a certificatecalled “certificate of incorporation”.

12. Def ine the term prospectus ?

A. The company act, 1956 section 2 (36) defines the prospectus as “Any document describedor issued as prospectus and includes any notice, circular, advertisement or other documentsinviting deposits from the publi c for subscription purchase of any shares or debenturesof a company”.

13. Object Clause :A. This is the most important clause in the memorandum of association. The objective of

the company must be legal and be very clearly defined. If a company does any businessnot included in the objects clause, it will become invalid.

14. Holding companies

A. A company is considered to be a holding company when it purchases more than half of

the shares in another company. Ex. : Rasi cement is a holding company of vishnu cement

company.

15. Private company

A. A private limited company is defined as a company.

1. Limit s the number of it s members to 50 .

2. Prohibits an invitation to the public subscription to shares and debentures.

3. Rest ri cts the transfe r of i ts shares.

16. Define publ ic enterpri ses ?

A. Definition : “Public Enterprises are autonomous or semi-autonomous corporations andcompanies established, owned and controlled by the state and engaged in industrial andcommercial activities”.



17. Public corporation

A. Public Corporation : A public corporation may be defined as a body corporate createdby the legislative under a special act which sets out its powers, duties and immunities.

18. Multina tiona l co rpora tion

A. Multination Corporations are also known as Multinational Companies. Multinational

Corporation is a firm that conducts business in two or more countries. These Companiespossessed use capital resources, latest technology alongwith Worldwide goodwill.

19. Business Finance :

A. Business Finance has been defined as those activities which have to do with the provisionand management of funds for the satisfactory conduct of a business.Business financedefined as that business activity which is concerned with the acquisition and conservationof capital funds in meeting the financial needs and overall objectives of business enterprise.

20. Medium Term Finance :

A. Funds that are raisen for a period between one to five years are termed as medium termfinance. Medium term finane is used for 1) modernization of machinery, 2) largeadvertisement campaigns, 3) launching of new products.

21. Trade Credit :

A. It is one of sources for short term finance. Generally businessmen buy goods fromsuppliers on credit basis and payment is made after a certain short period, which is calledTrade Credit

22 Cumulat ive Perfo rmance Shares :A. Cumulative preference shares carry cumulative right over dividend. The dividend on

cumulative preference shares is to be payable to the shares holders whether companyearns profits or not. The right on preference share holders to receive dividend can becarried forward.

23. Over Capi tali sation :

A. The term capitalisation has been defined in a number of ways. Though the total capitalemployed by the business enterprise includes both fixed capital and working capital. Theterm capitalisation includes “Long Term Capital” only.

24. Debit Capital

A. The debt or borrowed capital consists of capital raised by the company through issue of debentures and long term borrowals from the financial institutions. The providers of capital do not have voting rights.

25. Bearer Debentures

A. The names and address of these debentures are not recorded in the registrar of the company.These debentures are transferable by mere delivery.

26. Institutional F inance

A. The central and state the government have set up a number of financial institutions to



provide long term finance to the industrial concerns. These are IFCI, IDBI, ICICI, StateFinancial Corporations, LIC, UTI, etc.

PART - II

27. Define Book Keeping?

A. “Book keeping is the science and art of keeping record of business transactions in such asystematic manner that the true state of the financial affairs of a business house can be easilyascertained”

28. What is Capital ?

A. The amount invested by the owner for running the business is called capital. This can bein the form of goods or cash.

29. What are Drawings?

A. Cash, goods drawn by the owner, investor for personal consumption are called asDrawings.

30. What i s Capita l Expenditure?

A. Capital Expenditure consists of expenditure the benefit of which is not fully consumedin one accounting period but spreads over several years or the amount spent in increasing the

earning capacity of a business is called as Capital Expend iture.

31. What i s Revenue Expenditure?A. Revenue Expenditure is the amount spent in earning Revenue / Profit is called as RevenueExpenditure and includes the Expenses like salaries, rent, wages, repairs, maintenance, stores,depreciation and materials etc.

32. What is Journal ?A. Journal is a book of original entry / first entry in which transactions are recorded inchronological order and the transaction recorded in journal is called a journal entry.

33. What is Ledger?A. Ledger is a book of secondary entry. This is also called a book of final entry. Alltransactions from journal are recorded in ledger by opening a separate account and their balancesare found.

34. Dual Aspect Concept

A. This is basis aspect of accounting. According to this concept every business transaction

has two fold effect, the receiving of the benefit and giving of the benefit.

35. What i s Single Entry System ?A. Single Entry System is a crude and unscientific method of maintaining method. Under



this system all the transactions are not recorded. Single Entry System is a system in which oneaspect of the transaction is recorded instead of two aspects.

37. What is Journal Proper ?

A. Journal Proper is a subsidiary book used for recording all the remaining transactions

which cannot be recorded in any one of the seven subsidiary books mentioned above.

38. Trade Discount :

A. Trade discount is a reduction in the catalogue price of an article. This is given by thewholesaler or manufacturer to retailer to enable him to sell at a catalogue price andmake a profit, no entry is passed in the books for trade discount .

39. Cash Discount :

A. It is given for prompt payment, hence it is recorded in the Cash Book. This is given todebtors who pay promptly for their goods when the time for payment arrives.

40. Writ e about Deb it Note ?

A. While returning goods to the suppliers, a statement called “Debit Note” which is sent tothem for their information. It informas the supplier that his account has been debitedtothe extent of the value of the goods returned, it contains the name and address of thesupplier, the description of the goods returned etc.

41. Writ e about Credit Note?

A. When a customer returns goods a statement called “Credit Note” is sent to him. Thecredit note informs the customer that his account has been credited to the extent of valueof the goods returned.

42. What is Contra Entry?

A. Contra Entry is the transaction which is recorded on both the sides of Triple ColumnCash Book i.e., Cash and Bank coloumns on the opposite sides. In other words the doubleentry aspect of the transaction is completed in the Cash Book itself.

43. Petty Cash Book :

A. Petty Cash Book is a cash book maintained to record petty / small payments made incash, to meet day to day requirements. It is maintained on imprest system and recordedin analytical form.

44. Imprest System :

A. Imprest system is a system in which an estimated amount for petty expenses is determinedand advanced to petty cashier out of which all the petty expenses will be paid and total



amount paid will be re-advanced to the petty cash ier, so as to make it equal to imprestamount.

45. What is Bank Reconcil lation Statement ?

A. Bank Reconcillation Statement is a statement prepared at periodical intervals to reconcilethe balance of Cash Book with that of Pass Book and to find out the exact balance withthe Bank.

46. What is Over Draft ?

A. Over Draft is the unfavourable balance of the depositor with the bank i.e., withdrawalsare more than deposits. In other words it is the amount due to bank by the customer. Incase of favorable balance Cash Book shows credit balance whereas Pass Book showsdebit balance.

47. Suspense Account :

A. Suspense Account is the account prepared to transfer difference in Trial Balance if anyto be rectified in future.

48. Errors of Principle :

A. Errors of principle is an error which any one has committed due to defective knowledgeof recounting principle.

Part-II Short Note Questions & Answers (5 Marks)

1. What is double entry system ? Write i ts advantages ?

A. A business transaction is a transfer of money or money’s worth from one account toanother. A transfer requires necessarily two accounts. For a complete record of the transaction,it should be presented in both the accounts. For a complete record of the effects two accountsin the opposite directions, if one account receives a benefit there should be another accoun t toimpart the benefit.

The principle of double entry is based on the fact that there can be no giving withoutreceiving nor can be receiving without some one giving. The receiving aspect is known as‘Debit’ and is entered on the debit side of the account. The giving aspect is known as ‘Credit’and is entered on the credit side of the account. The principle under which both debit and creditaspects are recorded is known as the principle of double entry. Every debit must have acorresponding credit and vice versa. Double entry is the only scientific system of maintainingbooks of accounts.

Advantages :

1. It provides a complete record of business transactions, as it records both the aspect of every transaction



2. It is possible to prepare trail balance and check the arithmetical accuracy of books of accounts.

3. A trader can know his debtors and creditors from time to t ime.

4. A trader can find out his financial position by preparing a balance sheet on a particulardate.

5. Double entry system helps to find out and prevent errors and frauds.

4. Discuss accounting concepts ?

A. Meaning of Accounting Concepts : Accounting is a system evolved to achieve a set of objectives. In order to achieve the goals, we need a set of rules or guidelines. These guidelinesare termed here as basic accounting concepts. The term ‘concept’ means an idea or though.Basic accounting concepts are the fundamental ideas or basic assumptions underlying the theoryand practice of financial accounting.

1. Business entity concept : Business is treated separate from the proprietor. All thetransactions are recorded in the books of business and not in the books of the proprietor. Theproprietor is also treated as a creditor for the business. When he contributes capital he is treatedas a person who has invested his amount in the business. Therefore, capital appears in theliabilities of balance sheet of the business.

2. Going concern concept : This concept relates with the long life of the business. Theassumption is that business will continue to exist for unlimited period unless it is dissolved dueto some reason or the other.

3. Cost Concept : According to this concept, an asset is recorded at its cost in the books of account, i.e., the price which is paid at the time of acquiring it.

4. Accounting period concept : Every businessman wants to know the result of hisinvestment and efforts after a certain period. Usually one year period is regarded as an idealfor this purpose.

5. Dual aspect concept : Under this concept, every transaction has got a two fold aspect(i) receiving benefit and (ii) giving of that benefit. Therefore two accounts are to be passed inthe books of accounts.

6. What are the c lasses of accounts ? Brief ly expla in ?

A. An account is a statement in the ledger which records the transactions relevant to thepersons, asset, expense or profit named in the heading. Accounts can be divided into

1. Personal Accounts 2) Impersonal Accounts

Impersonal accounts can be further divided into real and nominal accounts. Thus, there

are three kinds of accounts maintained by business.

1. personal accounts 2) real accounts 3) nominal accounts

1. Personal Accounts : Accounts of persons with whom the business deals are known as



personal accounts. The word persons is used in a special sense here. It indicates individuals,

partnerships, companies etc.

Debit : The receiver

Credit : The Giver

2. Real Accounts : Accounts in which the business records the real things owned by it i.e.

the assets of the business are known as real accounts.

Example : Buildings A/c, Machinery A/c., Furniture A/c, Cash A/c., etc.

Debit : What comes into business

Credit : What goes out of the business

3. Nominal Accounts : Accounts which record expenses, losses, incomes and gains of the

business are known as Nominal Accounts.

Example : Rent A/c., Salaries A/c., Postage A/c. Commission received, interest received A/c.,bad debts etc.

Debit : All expenses and losses

Credit : All incomes and gains

IMPORTANT ESSAY QUESTIONS(10 MARKS) :

1. Define Sole Trading Business? Writeits Merits and Demerits?

2. Write the differences between PrivateLimited Company and Public LimitedCompany?

3. W ha t is me a nt b y M em or a nd um o f Association? Write the clauses?

4 . D i sc u ss t he m er i ts an d de m er i ts of Company O rganisation?

5. Define Partnership Business? Write itsMerits and Demerits?

6. What is Debenture? Explain differenttypes of debentures?

7. Wri t e d i ff e re n t t y p es of b us i ne s sfinance?

8. W h at i s pr e fe r en c e s h ar e ? Ex p la i ndifferent types of preference shares?

IMPORTANT SHORT NOTE QUESTIONS :(5 Marks)

1. Define Industry? Explain different types of Industries

with examples?2. Define Trade? Explain different types of Trade?

3 . Expla in the advan tages of Join t Hindu Fami lybusiness?

4. Wri te the Pr inciples (Features) of Co-opera t iveSociety?


6 . What i s mean t by Pa rtne rsh ip Deed? Wr i te i t scontents?

7. Define MNC? Write its characteristic features?8. Explain the demerits of Public Sector undertakings?

(or) Private Sector. (Problem)




For more important Questions & Answers in Part-II Accounts visit

K. RAMESHHead of Dept. of CommerceRoyal Educational Institutions

Hyderabad

12 mar ipeiyearcomerce

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