Explore topic-wise InterviewSolutions in Current Affairs.

Correct option is (d) an income

An account in which indirect expenses are compared with indirect incomes to find out net profit or net loss for a given period is known as the Profit and Loss Account.

Final Accounts are the group of Trading Account, Profit and loss account and Balance sheet prepared to know the results of business for a given period.

Correct option is (a) direct

This statement is False.

Income due but not received is an Asset and not a liability.

This statement is True.

Every transaction is recorded through journal or subsidiary books with the principle of the double-entry book-keeping system. Journal and subsidiary books are posted to the ledger account and trial balance is prepared from the balances of the ledger so there are already two effects passed. So every item of Trial Balance has only one effect.

This statement is False. 

Prepaid means paid in advance for the future period. It is the amount paid but has not yet been used up or has not yet expired. So prepaid expenses are an asset.

The balance sheet is prepared to ascertain the financial position of the business on a specific date usually at the end of the accounting year.

Profit and Loss Account…………….Dr.

To Capital A/c

(Being Net Profit transferred to Capital A/c)

The expense which is paid in advance before they are due for payment is called prepaid expenses.

This statement is True. 

Income received in advance is the liability to the business because it has not yet earned the money and the business has an obligation to deliver the goods or services to the customer

This statement is False.

There are at least two effects in every adjustment of final accounts.

This statement is False. 

The balance sheet is a statement prepare at the end of the financial or accounting year. It is not an Account. It gives an idea of Total Assets and liabilities on a particular day.

Correct option is (b) Profit and Loss

i. Prepaid Expenses

ii. Accrued Income

iii. Carriage Outwards

iv. Balance Sheet

v. Profit and Loss A/c

i. (a) Gross Loss

ii. (a) Trading

iii. (a) Net Profit

iv. (b) less

v. (b) Six

(i) Gross Loss

(ii) Gross Profit

(iii) Net Loss

(iv) Net Profit

(v) Bad debts

(i) Depreciation

(ii) Carriage Inwards

(iii) Trial Balance

(iv) Drawings

(v) Trading A/c

Assets that are purchased with the intention of converting them into cash during the operating year are called current assets. E.g. stock of goods.

Correct option is (d) Capital

Correct option is (b) Fixed

The debts which are not recoverable in spite of repeated efforts to collect the same are called bad debts.

The balancing figure of the Trading Account is Gross Profit or Gross Loss.

i. Closing Stock

ii. Provision for Bad and Doubtful Debts

iii. Final Accounts

iv. Selling Expenses

v. Adjustments

i. Profit and Loss A/c

ii. Gross Loss

iii. Asset

iv. Profit and Loss A/c

v. Net Working

All direct expenses are debited to Trading Account.

Capital = Assets – Liabilities

= ₹ 1,00,000 – ₹ 39,950

= ₹ 60,050

i. Profit and Loss A/c

ii. Profit and Loss A/c

iii. Net Loss

iv. Trading A/c

v. Statement

i. Agree

ii. Disagree

iii. Disagree

iv. Disagree

v. Disagree

Correct option is (b) Personal

The expenses which are incurred in the current year, but not paid partly or fully during the current accounting year are termed as outstanding expenses.

Interest on Bank loan for 6 months 

= 3,50,000 × \(\frac{12}{100}\times\frac{6}{12}\) = ₹ 21,000

i. Plant and Machinery

ii. Debtors

iii. Factory Rent

iv. Reserve for Doubtful Debts

Cost of Machinery = Purchase Price + Installation Charges

= 35,500 + 4,500

= ₹ 40,000

Depreciation for 9 months = 40,000 × \(\frac{7}{100}\times\frac{9}{12}\) = ₹ 2,100

(i) Errors of omission

(ii) Two-sided errors

(iii) One-sided errors

(iv) Two-sided errors

Annual Insurance Premium for 12 months = ₹ 8,000

Less: Prepaid for 8 months = ₹ 5,333

Insurance for 4 months (01.12.18 to 31.03.19) = ₹ 2,667

The discount is allowed to those debtors who are ready to pay a huge amount in one shot. It is given in order to encourage them to repay the debt. The provision for discount on debtors is created n good debtors. 

The amount of good debtors is calculated by deducting the amount of bad debts, further bad debts and new provision for doubtful debts. The required percentage of the good debtors is calculated and the provision for discount on debtors is deducted from the Debtors’ amount in the Assets side of a Balance Sheet. As it is a loss for the business, it is shown in the debit side of the profit and loss account. 

Cost of Goods Sold = Opening Stock + Purchases – Purchases Returns + Carriage Inward – Closing Stock

= 5,000 + 15,500 – 500 + 1,200 – 18,000

= ₹ 3,200

Gross Profit = Sales – Cost of goods sold

= 30,000 – 3,200

= ₹ 26,800

According to the double-entry system, all the adjustments given outside the Trial Balance are psoted at two places. The adjusting entries are necessaiy they enable us to post and take into account those items which are omitted or entered with the wrong amount and/or recorded under wrong heads. 

The treatment of adjusting entries is necessary: 

(a) It helps us assess the true financial position of an organization based on accrual basis of accounting. 

(b) It helps us know the actual figure of profit or loss. 

(c) It records the omitted entries and rectifies the errors made. 

(d) It helps in providing depreciation and making different provisions, such as bad debts and depreciation.

a. It is treated as a business expense and is debited to profit and loss account. In the balance sheet, the asset will be shown at cost minus the amount of depreciation. 

b. It is treated as a business expense and is debited to profit and loss account. It will be shown as a deduction from the debtors account to portray correctly the expected reliable value of debtors. 

c. It is shown as an expense on the debit side of the profit and loss account and added toe capital in the balance sheet. 

d. It is shown as an expense on the debit side of the profit and loss account and on liability side in the balance sheet.

Closing stock implies the value of unsold goods at the end of an accounting period. The valuation of closing stock is done on the basis of its cost price or the realizable value, whichever of the two is lesser. Treatment of closing stock:

If closing stock is given in the adjustment, then there will be two postings. Trading Account credit side Balance Sheet assets side under current assets If closing sotck is given in the trial balance, then it needs to be shown only in the assets side of the balance sheet.

The provision for doubtful-debts is created with the motive of minimizing the effect of actual loss caused by the bad-debts. The actual figure of the current year’s bad debts will be known in the next year with the realization of debtors. At that point of time, it will be known as to how many of the debtors have become bad. Thus, instead of waiting for the realization of debtors, we create a provision for doubtful-debts in order to cover the expected future loss associated with the debtors becoming bad.

It is extremely important to record the adjusting entries in the preparation of final accounts. 

1. This is done in order to assess the true net profit or net loss of the business organization. 

2. It helps us record those adjustments which were left or omitted and were not recorded in the accounts. 

3. It assists us to separate all the financial transactions into a year-wise category. The financial statements include only those entries which belong to the current year. It rules out the previous and forth coming years’ entries which are the basis for accrual basis of accounting. 

4. Further, it provides us the room for making various provisions which are made at the end of the year, after assessing the entries year’s performance.

Mistakes or errors committed while writing the books of accounts are known as accounting errors.

1. Prepaid expenses: There are several items of expense which are paid in advance in the normal course of business operations. At the end of the accounting year, it is found that the benefits of such expenses have not yet been fully received; a portion of its benefit would be received in the next accounting year. This portion of expense in carried forward to the next year and is termed as prepaid expenses. 

a. When given inside the Trial Balance: It will be posted only in the assets side of the Balance sheet. 

b. When given outside the Trial Balance: It is shown on the assets side of the balance sheet. The amount of prepaid expenses is deducted from the total of expenses under a particular head for the purpose of preparing trading and profit and loss account.

2. Depreciation: It is the decline in the value of assets on account of wear and tear and passage of time etc. 

a. When given inside the Trial Balance: It can be shown in the Debit side of the profit and loss A/c. it means that this depreciation amount has already been deducted from the concerned assets in the balance sheet. 

b. When given outside the Trial Balance: It can be shown in the debit side of the profit and loss a/c and it deducted from the concerned assets in the balance sheet.

3. Closing stock: The closing stock represents the cost of unsold goods lying in the stores at the end of the accounting period. 

a. When given inside the trial balance: It is shown on the asset side of the balance sheet under the head current assets. 

b. When given outside the trial balance: It is credited to the trading and profit and loss account, and shown on the asset side of the balance sheet under the head current assets.

An account that is opened to transfer the difference in the totals of the trial balance is known as a suspense account.

Two-sided errors are those errors that affect both the aspects of a transaction i.e. debit and credit. It does not affect the agreement of the trial balance.

One-sided errors are those errors that either affect the debit or credit aspect of the transaction. It affects the agreement of the trial balance.

An error committed to totaling the amount columns of journal and ledger is called arithmetical error.

The assets recorded in statement of affairs are: Land and Building, Machinery, Debtors and Cash are Four Examples of Assets.