Explore topic-wise InterviewSolutions in Current Affairs.

1. Day Book / Journal 

2. Ledgers 

3. Trial Balance 

4. Income statement 

5. Balance sheet

Accounting report is a compilation of accounting information that are derived from the accounting records of a business concern. Accounting reports may be classified as routine reports and special purpose reports.

A voucher or source document is a written document to be used in support of entry made in the accounts. They provide information about the transaction involved and help in verifying the correctness of books of accounts. For example the receipts, bills, cash memos, invoices, salaries bill, wage bills, counterfoils of cheques, registration deeds, etc.

Capital A/c of Mr.X

The recording of the debit aspect and the credit aspect of a transaction in the books of accounts is called double-entry bookkeeping. In this system, every transaction affects at least two accounts or each and every transaction has at least two aspects – a receiving aspect and a giving aspect.

Correct option is: (B) Assets - Liabilities

i a. Add: Increase in the value of Assets 

b. Add: Decrease in the value of liabilities 

c. Less: Decrease in the value of Assets 

d. Less: Increase in the value of liabilities 

Shyni stores is the creditor of Ravi.

The entry stands for withdrawn furniture for personal use of the owner.

Correct answer is (iii) All the above four

1. Purchase Returns Book/ Purchase Returns Journal

2. Debit Note

Correct answer is (a) Transactions.

The book maintained by the petty cashier to record small payments of repetitive nature (petty payments) ie stationery, postage, carriage, traveling, etc are made by him during a particular period is called the “petty cash book”.

The petty cashier works under the supervision and control of the main cashier who advances a certain amount to the petty cashier in the beginning of a specific period. The petty cashier is permitted to make payments only below a particular limit.

Advantages of maintaining petty cash book:

1. Saving of time and effort of chief cashier. He can concentrate on cash transactions involving large amounts of cash.

2. Effective control over cash disbursement. Cash control becomes easy because of division of work.

3. Convenient recording.

A book maintained to record transactions which do not find place in special journal is known as journal proper or journal residual.
Transactions recorded in journal proper are as follows:

1. Opening and closing entry.

2. Adjustment entry.

3. Rectification entries.

4. Transfer entries.

5. Sale or purchase of assets on credit.

6. Entries for endorsement and dishonor of bills of exchange.

7. Goods are withdrawn for personal use.

The cash book serves the dual purposes of a journal and a ledger.

When a transaction is recorded on both sides of the cash book but in different columns, such entry is called Contra Entry.

The source document of purchase return is Debit Note.

Cashbook is a  Subsidiary  journal.

Return of goods purchased on credit to the suppliers will be entered in Purchase Return/ Return outward book  Journal.

Credit balance shown by a bank column in cash book is Overdraft.

1. Started business with cash Rs. 1,00,000

2. Sold goods for cash Rs. 10,000

3. Purchased goods for cash Rs. 25,000

4. Cash deposited into bank Rs. 50,000

5. Rent paid Rs. 2,000

Under this method, when the incoming partner brings his share of goodwill in cash, the existing partners share it in the sacrificing ratio. However, when the amount of goodwill is paid privately by the new partner to old partners privately in cash, no entry is passed in the books of the firm.

The book in which all accounts are maintained is known as Ledger .

Trade discount is allowed by Manufacturer .

Posting is process of transferring entries from book of original entry to the ledger.

Debit Note, it is related to purchase return but all others are related to sales return.

Correct answer is (b) debit balance.

Cashbook is basically a journal because all entries relating to cash are first made in the cash book. But in the meantime, it serves the purpose of a ledger since it is drawn in the form of an account.

1. Journal:

Journal is the prime book in which transactions are entered first time from a source document. In other words, it is the book used for making primary record of day-to-day transactions chronologically. Recording of transactions in the journal is known as “Journalizing” and the recorded transactions are called journal entries. It is also called “Book of Original Entry or Book of Prime Entry”. A specimen form of a journal is given below.

2. Narration:

After entering each transaction in the journal, a brief explanation is provided below. This is called narration.

3. Account:

An account is a classified summary of transaction relating to a change in a particular item during a particular period.

4. Ledger:

A ledger is a collection of all accounts debited or credited in journals. The ledger is a book of second entry or final entry because transactions first entered in journal are finally incorporated in the ledger. It is also called “the Main or the Principal Book of Account of a business. The process of transferring journal entries into ledger is called “posting”.

Correct answer is: (D) accounts receivable subsidiary ledger

Purchase Bill.

1. i) 55%

2. ii) 26.25%

3. ii) False

4. iv) Office expenses paid ₹ 5000

1. b) Other income

2. b) Conveyance expenses

3. a) Discount on issue of debentures & premium payable on redemption of debentures

4. c) Schedule III Part II of Companies Act 2013

Correct option is 

1 a) ₹(50,000)

2 c) Inventories

3 c) ₹6,38,000

4 a) ₹10,00,00,000

1. a) Noncurrent asset –Long term loans & advances

2. c) Current liabilities- Other Current liabilities

3. b) Current assets- Cash & Cash equivalents

4. a) Noncurrent liabilities- Long term borrowings

Correct option is 

1 b) Other income

2 b) Conveyance expenses

3 a) Discount on issue of debentures & premium payable on redemption of debentures

4 c) Schedule III Part II of Companies Act 2013

Correct option is b) A is correct, but R is wrong

Correct option is 

1 a) Noncurrent asset –Long term loans & advances

2 c) Current liabilities- Other Current liabilities

3 b) Current assets- Cash & Cash equivalents

4 a) Noncurrent liabilities- Long term borrowings

1. “Every transaction has dual aspect i.e. debit and credit”.
For example Anish started business with Rs. 20,000. The effect of this transaction is that

• It increases cash (asset) Rs. 20,000.
• It increases capital Rs. 20,000.

The above transaction can be shown in the form of an accounting equation as follows Assets = Liabilities = Capital 20,000 = 0 + 20,000.

2. Duality Principle.

An Accounting standard is a selected set of accounting policies or broad guidelines regarding the principles and methods to be chosen out of several alternatives. Standard conforms to applicable laws, customs, usage and business environment. In India, the Accounting standard Board (ASB) has the authority of issuing Accounting standards.

The sole objective of Accounting standards is to harmonise the diversified policies to make the system more useful and effective. They lay down the norms of accounting policies and practices byway of codes or guidelines to direct as to how the items appearing in the financial statements should be dealt with in the books of account and shown in the financial statements and annual reports.

The ASB has issued 29 accounting standards. 

They are as follows:

1. AS 1 – Accounting Standard 1 – Disclosure of Accounting Policies.

2. AS 2 – Accounting Standard 2 – Valuation of Inventories

3. AS 3 – Accounting Standard 3 – Cash Flow Statements

4. AS 4 – Accounting Standard 4 – Contingencies and Events occurring after the Balance sheet date.

5. AS 5 – Accounting Standard 5 – Net Profit or Loss for the period, prior period items and changes in accounting policies

6. AS 6 – Accounting Standard 6 – Depreciation Accounting.

7. AS 3 – Accounting Standard 7 – Accounting for Construction Contracts

8. AS 8 – Accounting Standard 9 – Accounting for Research and Development

9. AS 9 – Accounting Standard 9 – Revenue Recognition

10. AS 10-Accounting Standard 10-Accounting for Fixed Assets

11. AS 11 -Accounting Standard 11 -Accounting for the effects of changes in Foreign exchange rates

12. AS 12 – Accounting Standard 12 -Accounting for Government grants

13. AS 13-Accounting Standard 13-Accounting for Investments

14. AS 14 – Accounting Standard 14 – Accounting for Amalgamations

15. AS 15-Accounting Standard 15-Accounting for Retirement Benefit in the Financial statements of Employers

16. AS 16 – Accounting Standard 16 – Borrowing costs

17. AS 17 – Accounting Standard 17 – Segment Reporting

18. AS 18 – Accounting Standard 18 – Related party Disclosures

19. AS 19 – Accounting Standard 19 – Leases

20. AS 20 – Accounting Standard 20 – Earning per share

21. AS 21 – Accounting Standard 21 – Consolidated financial statements

22. AS 22 – Accounting Standard 22 – Accounting for taxes on income

23. AS 23 – Accounting Standard 23 – Accounting for investments in associates in consolidated financial statements

24. AS 24 – Accounting Standard 24 – Accounting for discontinued operations

25. AS 25 – Accounting Standard 25 – Interim Financial Reporting

26. AS 26 – Accounting Standard 26 – Intangible Assets

27. AS 27 – Accounting Standard 27 – Financial Reporting of interests in joint ventures.

28. AS 28 – Accounting Standard 28 – Impairment of assets

29. AS 29 – Accounting Standard 29 – Provisions, contingent liabilities, and contingent assets

There are certain general conventions or principles which supplement the basic principles for the preparation of accounting records and financial statements. They are called modifying conventions or principles. 

The important modifying principles are:

1. Cost-Benefit

2. Materiality

3. Consistency

4. Prudence or conservatism

5. Timeliness

6. Substance over legal form

7. Variation in accounting practices.

1. Cost-Benefit Principle:

This principle is a generally accepted norm that the cost of doing anything must not exceed the possible benefit that may be derived. This is applicable in the case of accounting also. Money spent for undertaking accounting work should definitely provide more benefit than the cost incurred.

2. Materiality Principle:

Materiality means relevance or importance or significance. As per this principle all material facts should be disclosed in the financial statements, but insignificant and immaterial facts need not be disclosed in details. For example, purchase of items like pen, pencil, scissors etc. are to be recorded as assets but practically these items are treated as expenses under the head stationery.

3. Consistency Principle:

Consistency means steadiness or unchanging nature. Accounting policies and practices adopted must be consistent for relatively reasonable period of time. The comparison of the financial statements of one year with that of another year will be effective and meaningful only if accounting practices and methods remain unchanged over year.

4. Conservatism or Prudence Principle This principle:

calls for losses while recording accounting information but at the same time does not permit anticipation of profits. This principle implies that while preparing financial statements all possible losses are to be provided for but incomes can be recognized only when there is certainty. It is base on the principle of prudence that stock is valued at market price or cost price whichever is les and provision is provided for doubtful debts.

5. Timeliness principle:

Timeliness implies that the financial statements are to be prepared and published in time. The relevance, dependability, and utility of the financial information depends on the timely publication of financial statements. The users of financial statements need timely information.

6. Principle of Substance over legal form:

This principle states that transactions and financial events are accounted for and presented in accordance with their substance and economic reality and not merely their legal form.

7. Variation in Accounting practices:

For the preparation of financial statements, the business enterprises are following certain specific guidelines and practices which are called generally accepted accounting principles and practices (GAAP). Certain industries may sometimes deviate from GAAP because of the peculiarity of its operation and practices.

Revenue is assumed to be realised when a legal right to receive it arises in the point of time when goods have been sold or services has been rendered. There are certain exceptions to the general rule of revenue realisation.

1. In the case of construction projects, revenue is realised before the contract is complete.

2. When the goods are sold on hire purchase, the amount collected in instalments is treated as realised.

International Financial Reporting Standards (IFRS) are globally accepted accounting standards developed by the International Accounting Standard Board (IASB). IFRS is a set of accounting standards for reporting different types of business transactions and events in the financial statements. The objective is to facilitate international comparison for the true and fair valuation of a business enterprise.