QUESTION BANK BCA – I SEMESTER

ACCOUNTING AND FINANCIAL MANAGEMENT OBJECTIVE TYPE

1. What is book keeping?

Book keeping is recording of the day to day financial transactions of a business that result in transfer of money or money’s worth in a systematic manner in a set of books.

2. What is accounting?

Accounting is an art of identifying, classifying, recording, summarizing and interpreting business transactions of financial nature.

3. What is an account?

An account is a summarized record of the transactions at one place relating to one person, one kind of property or any expense or income.

4. List branches of accounting.

a) Financial Accounting b) Cost Accounting and c) Management Accounting

5. Who is a creditor?

Creditor is a person to whom the business owes money. The business owes money him because he has given some benefit to the business. A creditor is a liability for the business.

6. Who is a debtor?

Debtor is a person who owes money to the business. He owes money to the business because he has received some benefit from the business. A debtor is an asset for the business.

7. What do you mean by business transaction? It refers to any business event which is measurable in terms of money and which changes the financial position of the business. E.g. cash invested in business, goods purchased, goods sold, etc.

8. What are goods?

It refers to commodities, articles or products purchased for the purpose of resale. For example, fabrics purchased by a cloth merchant

9. What do you mean by capital?

The money or money’s worth invested by the owner into his business at the time of commencement of business is called capital. In accounting terms, capital is the excess of assets over the liabilities.

10. What are drawings?

It means the amount of cash or any asset withdrawn by the owner of the business for his personal use. For example, cash used by the owner for his domestic consumption

11. What do you mean by accounting conventions?

Accounting conventions are the customs or traditions which are followed by the accountants as a guide in the preparation of the financial statements of a business concern. Important accounting conventions include: convention of conservatism, convention of consistency, convention of disclosure and convention of materiality.

12. What do you mean by accounting concepts?

Accounting concepts are basic assumptions and conditions on which the accounting is based. Important accounting concepts include: business entity concept, going concern concept, money measurement concept, cost concept, dual aspect concept, accounting period concept, realization concept, accrual concept, matching concept and objective evidence concept.

13. What is meant by double entry system of book keeping?

The system of making two or double entries of equal value in two different accounts in opposite directions or sides for recording transaction completely is called double entry system of book keeping.

14. List types of accounts.

The types of account include: (a) Personal Account (b) Real Account (c) Nominal Account.

15. State the rules for debit and credit. The rules for debit and credit are as follows.

TYPE OF ACCOUNT RULES Personal Accounts Debit the receiver

Credit the giver Real Accounts Debit what comes in

Credit what goes out Nominal Accounts Debit expenses and losses

Credit incomes and gains

16. What are assets?

Assets are the properties or resources which are owned by the business organization. For example, land, building, machinery, cash, debtors, etc.

17. What are liabilities?

Liabilities are the debts owed by the business organization to outsiders. For example, amount due to suppliers, bills payable, loan from bank, etc.

18. What do you mean by stock?

It refers to the balance of goods lying unsold on any day. The balance of goods unsold on the last day of the accounting year is known as ‘closing stock’, while balance of goods on the first day of the year is known as ‘opening stock’. Closing stock of one year becomes opening stock of the next year.

19. What is journal?

It is a book of original entry in which all the business transactions are entered in the specified manner in order of date.

20. Give the format of journal. Journal of ……………..

Date Particulars L.F.No.

Debit Rs

Credit Rs

21. Why journal is called book of original entry or prime entry?

Journal is called book of original entry or prime entry because all business transactions are recorded first in the journal.

22. What do you mean by journalizing?

It is the process of entering the business transactions affecting both the aspects of double entry in a book called journal. In other words, it means the passing of the entries for transactions through journal.

23. What is journal entry?

When transaction is duly entered in a journal it becomes a journal entry. The record of a transaction in the journal is called journal entry.

24. What is narration?

Narration is the brief explanation about a particular journal entry which is written just below that journal entry. It helps to understand the nature and purpose of that journal entry.

25. What is ledger?

It is a book where the various accounts are kept-personal, real and nominal. It is a book of final entry in which all types of business transactions are recorded in a classified and summarized form.

26. Give the format of ledger account. Dr (Name of Account) Cr

Date Particulars JF No

Amount Date Particulars JF No

Amount

27. What is posting?

Posting means transfer of entries from the journal to the respective accounts in the ledger.

28. What is trial balance?

Trial Balance is a list of debit and credit balances of all the ledger accounts, prepared on any particular date, to verify the arithmetical accuracy of the entries in the books of account.

29. State the objectives of preparing trial balance.

a) To know the arithmetical accuracy of the books of account. b) To enable preparation of profit and loss account and balance

sheet. c) To find out errors in the books of accounts, if any.

30. Mention any four items which appear on the debit side of a trial

balance.

Cash a/c, Building a/c, Machinery a/c, Debtors’ a/c

31. Mention any 4 items appearing on the credit side of a trial balance. Capital a/c, Bank Loan a/c, Creditors’ a/c, Outstanding Expense Account

32. What is a cash book?

It is a book of account in which all the cash receipts and payments are entered. It is a subsidiary book which serves the purpose of a journal.

33. What is a contra entry?

Contra means ‘opposite’. In three column cash book some transactions affect both the sides of cash book. Therefore, entry will have to be made on both sides of the cash book, i.e. one entry on the receipt side in one column and the other entry of the same amount on the payment side in another column. Such entry is called ‘contra entry’. For example, cash withdrawn from bank

34. What are the final accounts?

Final accounts refer to financial statements and accounts prepared at the end of an accounting year to know the working results, i.e. profit or loss, of the business operations and to present the financial position, i.e. assets and liabilities, of the business as on that date.

The financial statements include trading account, profit and loss account and the balance sheet.

35. State the objectives of preparing the final accounts.

a) To determine the net profit or loss made by running the business.

b) To show the financial status of the business on a particular date.

36. What is trading account?

Trading account is a summarized revenue account which shows the profit or loss on buying and selling of the goods. This account covers the expenses and incomes relating to purchases, production of goods and sale of goods of the business.

37. What is gross profit?

Gross profit is the profit shown by trading account. It is the excess of sales over direct costs. In other words, it indicates the profit on purchasing and selling of goods.

38. What is profit and loss account?

Profit and loss account is a summarized revenue account which shows net profit or loss made by a business during the year. This account includes gross profit or loss and all other incomes and expenses.

39. What is net profit?

Net profit is the excess of gross profit and other incomes over all the expenses of the business. It is the profit shown by profit and loss account.

40. What is balance sheet?

Balance sheet is a statement of assets and liabilities prepared with a view to ascertain the exact financial position of a business on a certain fixed date.

41. What are current assets?

Current assets are the assets which can be easily realized into cash. For example, cash in hand, bank balance, debtors, bills receivables, closing stock, prepaid expenses, etc.

42. What are fixed assets?

Fixed assets are assets which are acquired for permanent use in the business for the purpose of earning profits. For example, land, building, machinery, furniture, vehicles, etc.

43. What are current liabilities? Current liabilities are liabilities which a payable immediately or within a short period of one year. For example, creditors, bills payable, bank overdraft, outstanding expenses, etc.

44. What are long term liabilities?

Long term liabilities are liabilities which a payable after a certain number of years beyond one year. For example, loan taken from bank for 10 years

ESSAY TYPE

1) What are the objectives of financial accounting?

a) To maintain record of all the accounting transactions in appropriate books.

b) To calculate the results of business operations conducted during the specific period.

c) To ascertain the financial position of the business as on particular date.

d) To analyze in detain the profitability and current financial position of the business.

e) To communicate the financial accounting information to various users in proper form.

2) What are the functions of financial accounting?

3) Explain the scope of accounting.

The functions/scope of financial accounting includes the following aspects.

a) Identifying

b) Measuring

c) Recording

d) Classifying

e) Summarising

f) Analysis and Interpretation

g) Communicating

Identifying: It refers to determining the business transactions to be recorded in the books of account.

Measuring: It refers to expressing the value of business transactions in terms of money.

Recording: It refers to entering, in terms of money, business transactions, as and when they occur in relevant books of account.

Classifying: It refers to the grouping of entries of similar nature into appropriate heads for entering in the books of account.

Summarising: It refers to summarising the effects of the business transactions on the profit and financial position of the business. In other words, it is the presentation of the information found in the books of account in the form of financial statements at the end of the accounting period.

Analysis and Interpretation: It refers to rearrangement of the information found in the financial statements in a suitable manner and drawing meaningful conclusions about the profit, the financial position and the future prospects of the business.

Communication of results: It refers to informing the results of interpretation of financial statements to the end-users for decision making.

4) Explain the accounting cycle.

Accounting cycle is a complete sequence beginning with recording of transaction and ending with the preparation of final accounts and which is repeated in the same order in each accounting period. It involves the following steps.

1) Journalizing – the transactions are identified and recorded in journal book by providing two effects as per double entry system of book keeping.

2) Posting – the transactions recorded in journal are posted to respective ledger accounts opened specifically for the purpose.

3) Balancing – the ledger accounts are totaled and balanced for understanding the position of individual ledge account.

4) Trial Balance – listing of debit and credit balances of ledger accounts. Trial balance should always tally.

5) Preparation of Financial Statements – the profit and loss account is prepared to know the profit or loss made during the year and balance sheet is prepared to know the financial position as on the last date of the year.

5) What are the advantages and disadvantages of double entry

system of book keeping? Double entry system of book keeping is a system of accounting in which both aspects of a transaction are recorded. “The system of making two or double entries of equal value in two different accounts in opposite sides in the books of accounts is known as the double entry system of book keeping”.

Advantages

1) It provides complete record of all business transactions. 2) It provides an authentic record of all the business transactions as

the transactions are recorded in scientific and systematic manner.

3) As both the aspects of every transaction are recorded, it is possible to prepare a trial balance and check the arithmetical accuracy of books of accounts.

4) The chances for misappropriation and fraud can be reduced to minimum as it helps preparing trial balance.

5) Trial balance enables easy preparation of profit and loss account and balance sheet.

Disadvantages

1) Even this system does not disclose all the errors committed in

the books of accounts. The trial balance only discloses arithmetical accuracy of the books of accounts.

2) The system involves maintenance of a number of account books. So, it is costly.

3) This system requires strict adherence to the principles of accountancy, and as such, requires adequate knowledge of the principles of accountancy.

6) What are the different types of account?

While maintaining the record under double entry system of book keeping, the accounts are basically divided into two categories – personal accounts and impersonal accounts. Further, the personal account is sub-divided into natural personal account, artificial personal account and representative personal account. The impersonal account is divided into real account and nominal account. Classification of accounts is shown by a chart as follows.

Classification of Accounts

Personal Account Impersonal Account Natural Personal Account Real Account Artificial Personal Account Nominal Account Representative Personal Account

Personal accounts are accounts of persons with whom a business concern carries on business. Personal accounts include the following three types:

a) Natural personal accounts are accounts of human beings

with whom the business concern transacts. For example: Amar’s Account

b) Artificial personal accounts are accounts of artificial legal

persons (not living beings) like banks, government institutions, companies, etc. For example: Canara Bank Account

c) Representative personal accounts are accounts which

represent the natural persons or artificial persons for some activities. For example: Salary Payable Account, Outstanding Expenses Account, etc.

Impersonal accounts are accounts other than of natural living being. Impersonal accounts can be classified as follows:

a) Real accounts are accounts of assets owned by a business

concern. For example: Cash Account, Machinery Account, Building Account, etc. The assets owned by a concern may be tangible assets or intangible assets. Tangible assets include Building Account, Cash Account, etc. Intangible assets include Goodwill Account, Patent Account, etc.

b) Nominal accounts are the accounts of expenses, losses, gains

and incomes. For example: Salary Account, Discount Account, Bad Debts Account, etc.

Thus, the accounts can be divided into three types as follows.

Personal Accounts Real Accounts Nominal Accounts

7) What are features of journal and ledger??

Features of journal:

a) Journal is a book of original entry.

b) It is written every day.

c) It is written in chronological order.

d) It contains properly drawn columns

Features of ledger:

a) Ledger is a book of final entry.

b) It is a principal book of accounts.

c) It is a book of secondary entry.

d) It is a permanent record of all transactions.

e) It does not contain narration.

8) Distinguish between journal and ledger.

Journal Ledger It is a book of original entry It is a book of final entry Narration is to be written Narration is not written The transactions are recorded in order of dates

Entries are posted according to accounts affected

Transactions are journalized daily Posting is done periodically Information about a particular account is not found at one place

Information about a particular account is found at one place

Both the aspects of each transaction are recorded

Only one aspect of each transaction is recorded in ledger

It is prepared with the help of transactions

It is prepared with the help of journal

It helps in the preparation of ledger It helps in the preparation of final accounts

9) Distinguish between book keeping and accounting.

Book Keeping Accounting

It denotes the mere recording of business transactions in appropriate account books

It denotes the recording of business transactions in proper account books as well as the preparation and interpretation of financial statements. Hence, the scope of accounting is wider than book keeping

It just maintains information about a business in the books of account

It analyses and interprets the information maintained in the books of account. Hence, accounting begins where book keeping ends

It is concerned with the actual recording of business transactions

It lays down the principles and rules to be followed in recording of business transactions

The work of book keeping is of routine nature, and so, it does not require any special knowledge and skill

The work of accounting is of complicated nature, and so, it requires special knowledge and skill

The book keeping work is, usually, performed by book keeper or account clerk

Accounting work is done by qualified accountants

10) What are the objectives of maintaining cash book?

The objectives of cash book are as follows:

a) To ascertain cash inflows and cash outflows.

b) To ascertain cash and bank balances without actual counting.

c) To prevent and detect misappropriation of cash.

d) To manage cash resources.

11) Explain briefly accounting concepts and conventions.

ACCOUNTING CONCEPTS

Accounting concepts are assumptions or conditions upon which the accounting is based. Following are the accounting concepts.

1) Separate Entity Concept 2) Going Concern Concept 3) Dual Aspect Concept 4) Cost Concept 5) Money Measurement Concept 6) Accrual Concept 7) Accounting Period Concept 8) Matching Concept 9) Realization Concept 10) Verifiable Evidence Concept

Separate Entity Concept: As per this concept, the business and the businessman are treated as separate entities, and as such, the business transactions are recorded in the books of the business from business point of view and never from the viewpoint of proprietors.

Going Concern Concept: As per this concept, it is assumed that the business organization will continue to operate for fairly long period unless and until it enters the state of liquidation.

Dual Aspect Concept: As per this concept, every transaction has two effects while recording it into the books of accounts. For example: if goods are purchased for cash, then there are two effects like goods coming into the business and cash going out from the business.

Cost Concept: As per this concept, an asset acquired by a concern is recorded in the books of accounts at cost or purchase price. The market price of the asset is ignored.

Money Measurement Concept: As per this concept, in accounting, a record is made only of those transactions which can be measured in terms of money. Transactions or events which cannot be expressed in monetary value are not recorded in the books of accounts even if they are significant for the business.

Accrual Concept: As per this concept, all business transactions must brought into record, whether they are settled in cash or not. Revenues and expenses pertaining to a particular year are recorded in the same year whether received/paid or not.

Accounting Period Concept: As per this concept, for measuring the financial results of a business periodically, the working life of a business is split into convenient short periods of time called accounting periods. As per the concept of periodicity, the accounting interval is a period of twelve months for which the business results are measured though the business continues to operate.

Matching Concept: As per this concept, there is periodic matching of cost and revenue to find out the profit or loss of the concern. If the revenues exceed expenses, there is profit, and vice versa.

Realization (Revenue Recognition) Concept: As per this concept, profit should be accounted for only when it is actually realized. Revenue is recognized only when the sale takes place or services are rendered. Sale is considered to be made when the property in the goods is passed to the buyer and he is liable to pay.

Verifiable Evidence Concept: As per this concept, all accounting entries should be evidenced and supported by source documents or business documents such as invoices, vouchers, bills, receipts, etc.

ACCOUNTING CONVENTIONS

Accounting conventions are the customs, traditions or practices which are followed by the accountants as a guide in the preparation

of financial statements of a business concern. Following are accounting conventions.

1) Convention of Materiality 2) Convention of Conservatism 3) Convention of Consistency 4) Convention of Full Disclosure

Convention of Materiality: As per this convention, in accounting, a detailed record is made only of those business transactions which are material, i.e. important. No detailed record if made of transactions which are insignificant.

Convention of Conservatism: As per this convention, all prospective losses should be taken note of and provided for, but prospective profits should be ignored. It is on account of this convention that provision for doubtful debts, provision for discount on debtors, etc. are made.

Convention of Consistency: As per this convention, the accounting practices and methods should remain unchanged from one accounting year to another. This convention will facilitate comparison of the trading results of the business with those of the previous years or the trading results of one business with those of another business.

Convention of Full Disclosure: As per this convention, all material and relevant facts concerning financial performance of an enterprise must be fully and completely disclosed in the financial statements and their accompanying notes.

12) Explain the users of accounting information?

Users of Accounting Information include the following.

1) Management 2) Shareholders 3) Prospective Investors 4) Lenders 5) Suppliers 6) Customers 7) Employees 8) Government 9) Researchers

Management: The owners or shareholders elect a group of people to manage day to day affairs of the company. Since these people are ultimately responsible for the financial performance, they must periodically review the financial statements.

Shareholders: Shareholders are the true owners of the company. They have full right to know the financial details of an organization.

Prospective Investors: These are those investors who are planning to invest in a certain company. They are always interested to know financial information provided by financial accounting statements.

Lenders: Banks, financial institutions and other lenders extend financial assistance only if they are assured of good performance and long term solvency of the business. Hence, they study in detail the information provided in the financial statements.

Suppliers: The financial statements facilitate the creditors in ascertaining the capacity of the organization to pay on time for the goods or services supplied by them to the firm.

Customers: The financial statements may be used by the customers to check the long term solvency of the business. Legal obligation associated with guarantees, warranties and after sale service contracts tend to establish long term relationships with customers.

Employees: Financial statements can be used as important source of information regarding the current position of the business as well as future viability of the business organization.

Government: To calculate correct income tax, sales tax, excise duty, etc. requires close scrutiny of the financial statements, especially to detect tax evasion.

Researchers: Academicians, research scholars and analysts use the financial accounting information for the purpose of their study and interpretations for further reporting of findings from various angles.

PROBLEMS FOR PRACTICE

1) Journalize the following transactions.

01.01.2015 Started business with cash Rs.1,00,000 05.01.2015 Purchased goods for Rs.25,000 08.01.2015 Purchased furniture for Rs.5,000 10.01.2015 Sold goods for Rs.50,000 15.01.2015 Paid rent Rs.2,000 18.01.2015 Returned goods to Jacob Rs.500 20.01.2015 Paid for postage Rs.50 22.01.2015 Bought goods for cash Rs.2,500 25.01.2015 Peter returned us goods Rs.250 28.01.2015 Sold goods for cash Rs.4,000 29.01.2015 Paid salary Rs.3,000 31.01.2015 Commission received Rs.150

2) Classify the following accounts into personal accounts, real accounts and nominal accounts.

1) Capital A/c 2) Purchases A/c 3) Cash A/c 4) Salary A/c 5) Vehicle A/c 6) Infosys Limited A/c 7) Salary Payable A/c 8) Vishwa’s A/c 9) Commission Receivable A/c 10) Canara Bank A/c 11) Building A/c 12) Goodwill A/c 13) Patent A/c 14) Stationery A/c 15) Interest A/c 16) Bank Charges A/c 17) Sales A/c 18) Advertisement A/c 19) Bad Debts A/c 20) Co-operative Society A/c 21) Machinery A/c 22) Rent Prepaid A/c 23) Drawings A/c 24) Copy Right A/c 25) Debtors’ A/c

3) Prepare Trial Balance from the following ledger balances as on 31.12.2014

Name of Account Balance (Rs)

Salaries 5,000 Creditors 30,000 Debtors 42,000 Building 90,000 Capital 50,000 Motor Car 10,000 Purchases 45,000 Sales 74,500 Loan from Bank 42,500 Drawings 5,000

4) Enter the following transactions in three column cash book.

01.12.2014 Balance at office Rs.4,000 and at bank Rs.4,00,000 02.12.2014 Drew from bank for office use Rs.2,00,000 04.12.2014 Received from John Rs.40,000 and allowed him discount Rs.2,000 06.12.2014 Paid to Michael Rs.20,000 and received discount Rs.800 08.12.2014 Cash sales Rs.20,000 10.12.2014 Cash purchases Rs.24,000 12.12.2014 Paid to Abraham Rs.20,000 and earned discount 2% 14.12.2014 Received from Peter cheque Rs.40,000, allowed discount 3% 16.12.2014 The above cheque sent to bank for collection. 18.12.2014 Paid for personal expenses Rs.20,000 20.12.2014 Bought machinery and paid by cheque Rs.40,000 22.12.2014 Deposited into bank Rs.80,000 24.12.2014 Received from Anthony Rs.40,000 in full settlement of Rs.42,000 26.12.2014 Paid Malcolm Rs.20,000 by cheque in full settlement of Rs.22,000 28.12.2014 Received commission Rs.20,000 30.12.2014 Paid for domestic expenses by cheque Rs.20,000 31.12.2014 Paid by cheque salary Rs.20,000 and wages by cash Rs.12,000

5) From the following transactions, prepare ledger account of Mr.Swamy:

01.02.2010 Sold goods to him Rs.2,000 08.02.2010 He paid us cash Rs.1500

12.02.2010 He returned goods to us Rs.200 14.02.2010 Purchased from him goods Rs.800 16.02.2010 Returned goods to him Rs.50 20.02.2010 Sent him cash Rs.300 28.02.2010 Sold him goods Rs.1,200

6) From the following trial balance, prepare final accounts:

Particulars Debit(Rs) Credit(Rs) Capital 50,000 Drawings 8,000 Stock 17,500 Purchases 74,500 Purchase Returns 3,000 Sales 1,08,500 Sales Returns 800 Building 42,500 Debtors 12,000 Creditors 5,000 Salaries 2,000 Rent 900 Discount 200 Wages 2,780 Printing & Stationery 930 Furniture 1,000 Bad Debts 620 Bills Receivables 850 Carriage Inwards 700 Bills Payable 785 Bank Overdraft 2,515 Cash in hand 4,520 Total 1,69,800 1,69,800

Adjustments: Closing stock – Rs.25000 Create RDD @ 5% Depreciate building @ 2% and furniture @ 5% Rent paid in advance Rs.200

7) Prepare Trading and Profit & Loss and Balance Sheet as on 31.06.2007 from the following Trial Balance

Particulars Debit Amount

Credit Amount

Capital 29,000 Drawings 5,000 Purchases & Sales 30,000 88,000

Stock, 01.07.2006 6,000 Returns 2,000 1,000 Freight 1,000 Wages 7,000 Discount 700 Carriage Inward 900 Salaries 4,000 Printing & Stationery 1,300 Advertisement 6,000 Building 20,000 Plant & Machinery 17,000 Furniture 4,000 Sundry Debtors & Sundry Creditors 8,000 4,000 Bills Receivables & Bills Payable 3,000 2,000 Cash in hand 400 Cash at Bank 9,100 Bad Debts 300 Total 1,25,700 1,25,700

Adjustments: Closing Stock – Rs.6,000

Depreciate Plant by 5% & Building by 2% Outstanding – Wages Rs.400 & Salaries Rs.600 Insurance Prepaid – Rs.100

8) Prepare Trading and Profit & Loss and Balance Sheet as on 31.03.2007 from the following Trial Balance

Particulars Debit Amount

Credit Amount

Capital 70,000 Drawings 22,000 Plant 20,000 Purchases & Sales 1,50,000 2,50,000 Debtors & Creditors 92,000 45,000 Furniture 10,000 Returns 5,400 2,600 Wages 37,000 Interest 430 Rates & Taxes 6,920 Trade Expenses 2,790 Salaries 11,200 Stock, 01.04.2006 60,000 Business Premises 12,000 Bills Payable 50,000 Bank Overdraft 15,000

Bad Debts 800 Cash 2,060 Total 4,32,600 4,32,600

Adjustments: Stock on 31.03.2007 Rs.90,000

Outstanding Wages Rs.8,400 & Rates Rs.4,500 Provide 5% on debtors for bad and doubtful debts Prepaid salary Rs.700 Depreciate Plant by 2% and Furniture by 10%