ACCOUNTING IN BUSINESS
I. Fill in the blanks with appropriate words in the following sentences.
1. The book in which the daily business transactions are recorded is called ___________
2. The transaction. Paid salaries' comes under kind of accounts
3. The Modern and scientific method of maintaining accounts is call1ed system of Book keeping.
4. The difference between the debit and credit side of an account is called………..
5. The two accounts of "commenced business with cash are" ...................... and ……………
6. The profit earned by 1rade is transferred to account
7. "The permanent assets lose a portion of their value every year" it is called …………
8. The difference between Assets and Liabilities of a Trade is called ……………..
Ans: (1) Rough book; (2) nominal; (3) double entry; (4) balance of account; (5) cash account, capital account; (6) profit and loss; (7) depreciation; (8) capital.
II. Answer the following question.
1. Which is the book of original entry in Accounting? Why is it called the book of original entry?
Ans: Journal entry is the book of original entry. Since the full particulars of the transactions are recorded first in the journal, it is called the book of original entry.
2. Which are the types of Accounts? Give examples.
Ans: Business institutions maintain three types of ledger accounts to record their transactions. They are-
(i) Personal Accounts, example - bank account.
(ii) Real accounts, example - building's account, cash account. and
(iii) Nominal accounts, example- rent account, salaries, interest.
3. What is the need for accounting in business?
Ans. Need for accounting: It is necessary to know the net profit earned or the loss suffered. It is also required to know the amounts due by the firm to others or due to the firm by others. For all these purposes it is very essential to write down accounts. To illustrate a simple example of a village milk maid, she sells milk to some customers. When ever she sells the milk a measure say a litre or half, she marks a line for one litre and helpline for half litre. At the week end she counts the lines of customers and accordingly collects money.
4. What is Double-entry system of book keeping?
Ans. Every business transaction involves two aspects. One aspect gives the benefit and another aspect receives the benefit. Both these aspects are to be recorded in account books. For every aspect there is an account in ledger. Every ledger account has two sides one account receives the benefit and another account gives the benefit. While entering the aspects we enter two aspects on opposite sides. This system is called Double entry system.
5. Which are the final accounts? What is the result of Profit and loss account?
Ans. Trial Balance is prepared to ascertain the arithmetical accuracy of ledger accounts. After ascertaining accuracy of ledger, final accounts are prepared. Trading account gives the result of buying and selling. It includes all the expenses incurred for buying and selling or for manufacturing goods. The result is gross profit or gross loss. Profit and loss account contains gross profit or gross loss, brought down from trading account and also all the expenses or losses and all gains or profits which are of non trading items.
6. "There is no need to find out the balance of goods sold account and goods purchases account ? Why?
Ans: Goods account appears as goods purchases account and goods sales account. So also goods returns account as purchases returns account and sales returns account. These accounts are not balanced but taken as purchases account, sales account, purchases returns account, sales returns account and shown in trial balance.
7. What is the result of depreciation of fixed assets?
Ans. The permanent assets lose their value every year. It is called Depreciation. It is deducted from the asset and shown as a loss. The total debit and credit balances of personal accounts except capital account and bank account represents as 'Sundry Debtors' and total credit balances represent as. ‘Sundry Creditors’. In the trial balance bank balance is shown as cash at Bank and capital account is shown as capital. The difference between assets and liabilities is called capital.
8. Mention the two accounts of the following transactions and give the rule for debiting and crediting of them.
Ans: (a) Shivaraj started business.
(b) Bought goods from Mohan
(c) Goods returned to Rajesh
(d) Paid rent for premises.
(a) Shivaraj started business with cash Rs. 80,000. The two accounts of this transaction are (a) Cash account and (b) Capital account. Cash account is real account. Cash account receives the benefit so. Cash account has to be debited. That means it has to be entered on debit side of the cash account. The amount brought to start business is capital. Capital account is a personal account. Capital is the giver so capital account has to be credited. That means it has to be entered on the credit side of capital account.
(b) Bought goods from Mohan. So, journal would be goods purchases account to be debited. Mohan's account is to be credited. (A) Goods purchases - Real account - comes in Debit. (B) Mohans account- personal account - given -credit.
(c) Returned goods to Rajesh: (1) Rajesh account - personal account - receives benefit Debit. (2) Goods return account-real account goes out - Credit. Journal would be Rajesh's account to be debited goods. Goods return account to be credited.
(d) Paid rent for premises - (1) rent account- Nominal account - expenses - Debit (2) Cash account - Real account - goes out - Credit Journal would be rent account to be debited. Cash account to be credited.