IMPORTANT QUESTIONS
1. What does the debit balance of a Real Account indicate? [1]
The debit balance of a Real Account indicates the value of the asset owned
by the business. Real accounts represent assets like cash, furniture,
buildings, etc., so a debit balance shows the total value of the assets in the
business.
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2. What does the debit balance of a Personal Account indicate? [1]
The debit balance of a Personal Account indicates that the business is
owed money by a person or an entity (i.e., a debtor). It represents the
amount due to the business from that person or organization.
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3. Write a short note on balancing an account. Explain by balancing a
Cash Account. [3]
Balancing an account means determining the difference between the debit
and credit sides of a ledger account and carrying that balance forward to
the next accounting period. To balance an account, example as follows:
- Total Debit: ₹ 60,000 (₹ 50,000 + ₹ 10,000)
- Total Credit: ₹ 25,000 (₹ 5,000 + ₹ 20,000)
Balance = ₹ 60,000 (Debit) - ₹ 25,000 (Credit) = ₹ 35,000 (debit balance)
This ₹ 35,000 is the cash balance carried forward.
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4. Explain the procedure of balancing personal accounts. [3]
To balance Personal Accounts:
1. Identify transactions related to that person or entity (creditors or
debtors).
2. Total the debit side and the credit side).
3. If the debit side is larger, the person owes money to the business, and
the balance is shown on the credit side.
4. If the credit side is larger, the business owes money to the person, and
the balance is shown on the debit side.
5. The balance is carried forward to the next accounting period.
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5. Calculate the amount of cash if, other assets = ₹ 10,000; total
liabilities = ₹ 10,000, and total capital = ₹ 5,000. [1]
From the accounting equation:
Assets = Liabilities + Capital
Cash = ₹ 10,000 + ₹ 5,000 - ₹ 10,000 = ₹ 5,000
So, Cash = ₹ 5,000.
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6. If cash is received against services rendered, indicate how
accounting equation will be affected?
When cash is received against services rendered, it means revenue is
earned by providing services, and cash is received in exchange.
Effect on the accounting equation:
- Assets (Cash) increase because cash is received.
- Capital (Owner’s Equity) increases because earning revenue increases
the owner’s equity.
7. What is the money measurement concept? Which one factor can
make it difficult to compare the monetary values of one year with the
monetary values of another year?
The Money Measurement Concept means only transactions measurable in
monetary terms are recorded in accounting, ignoring non-quantifiable
factors like reputation or employee skill. Inflation can make it difficult to
compare monetary values across years, as it changes the purchasing
power of money, making past and present values unequal and
complicating year-to-year comparisons.
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8. Give four advantages of GST?
Here are four advantages of GST (Goods and Services Tax):
1. Eliminates cascading effect: GST removes the tax-on-tax system by
allowing input tax credit, reducing the overall tax burden.
2. Simplifies tax structure: It consolidates multiple indirect taxes into one,
making compliance easier.
3. Boosts economic growth: By creating a unified tax regime, GST promotes
ease of doing business.
4. Increases transparency: The online tax system enhances accountability
and reduces tax evasion.
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9. What is the nature of accounting principles?
Nature of accounting principles are,
• Accounting principles are a uniform set of rules that are developed to
assure the uniformity and easy comprehension of the accounting
information
• Accounting principles are man made and are derived from
experience and reason
• Accounting principles are not static
10. If a partner takes goods for personal use or goods are given as
charity, why Input GST (CGST and SGST or IGST) Account is credited?
When a partner takes goods for personal use or when goods are given as
charity, the Input GST (CGST and SGST or IGST) account is credited
because:
- Adjustment of Input Tax Credit: Since the goods are no longer used for
business purposes, the GST initially claimed as an input tax credit must be
reversed. This is done to ensure compliance with tax regulations, as these
goods are not intended for sale or business use anymore.
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11. What is Narration?
Narration is a brief explanation or description of a transaction recorded in
the journal or ledger. It provides context about the transaction, detailing the
nature of the entry and helping to clarify the reasons for the debit and credit
entries. Narration is typically written in a concise manner and helps in
understanding the financial records during audits or reviews.
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12. What are the Accounting Principles?
• Business Entity Concept: The business is treated as a separate
entity from its owners, and transactions are recorded from the
business’s point of view.
• Money Measurement Concept: Only those transactions that can be
quantified in monetary terms are recorded in the financial
statements.
• Accounting Period Concept: The life of a business is divided into
specific time periods (usually a year) to prepare financial reports.
• Cost Concept: Assets are recorded at their original cost, not at their
current market value.
• Dual Aspect Concept: Every transaction has a dual effect, affecting
two accounts — one account is debited, and another is credited. This
is the foundation of the double-entry system.
• Revenue Recognition (Realization) Concept: Revenue is recognized
when it is earned, regardless of when payment is received.
• Matching Concept: Expenses should be matched with the revenue
generated during the same accounting period to calculate the true
profit or loss.
• Full Disclosure Concept: All significant information related to
financial statements should be disclosed to provide complete and
accurate information to users.
• Conservatism (Prudence) Concept: Accountants should record
potential losses or expenses as soon as they are anticipated, but
revenue should only be recorded when it is certain.
• Materiality Concept: Only items that are significant or material to
the business should be recorded in the accounts. Insignificant items
can be ignored if they do not affect decision-making.
• Verifiable Objective Concept: Financial transactions must be
backed by verifiable evidence, such as invoices or contracts, to
ensure objectivity and accuracy in reporting.
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13. what are some of the Basic Accounting Terms?
• Assets: Resources owned by a business, such as cash, inventory,
and property, that provide future economic benefits.
• Liabilities: Financial obligations a company owes to others, like
loans, creditors, or accounts payable.
• Capital: The owner's investment in the business, representing the
funds or resources contributed to the company.
• Revenue: Income earned from the sale of goods or services during
normal business operations.
• Expenses: Costs incurred by a business in the process of earning
revenue, such as rent, wages, and utilities.
• Profit: The financial gain when total revenue exceeds total expenses
during a specific period.
• Loss: The excess of expenses over revenue, leading to a negative
financial result for the business.
• Debit: An accounting entry that increases assets or expenses and
decreases liabilities or income.
• Credit: An entry that increases liabilities or revenue and decreases
assets or expenses in accounts.
• Drawings: Withdrawals made by the owner from the business for
personal use, reducing the owner’s capital.
• Inventory: Goods or materials a business holds for the purpose of
sale or production in the ordinary course of operations.
• Accounts Payable: Amounts a business owes to suppliers or
creditors for goods and services purchased on credit.
• Accounts Receivable: Money owed to a business by its customers
for goods or services sold on credit.
• Accrued Expenses: Expenses that have been incurred but not yet
paid by the business, such as unpaid wages or utilities.
• Depreciation: The systematic allocation of the cost of a tangible
asset over its useful life, reflecting its gradual wear and tear.
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