Questions & Answers Archives - Everything about Accounting

25 Short Questions and Answers-Rectification of Errors [With PDF]

admin — Mon, 12 Apr 2021 14:43:13 +0000

Today we’ll learn “25 Short Questions and Answers- Rectification of Errors.” You’ll get a basic idea of rectification of errors if you read it from top to bottom with proper focus.

It will also improve your accounting skills and helps you in doing well on any competitive test.

So let’s get started.

Short Questions and Answers-Rectification of Errors

Question-01: What are the errors of the account?

Answer: Errors of account are mistakes or omissions made by accounting assistants and accountants due to a lack of expertise, incompetence, carelessness, job strain, whimsy, or inattention.

Question-02: How many types of errors are there?

Answer: There are two types of errors:

One-sided errors or errors detected by a trial balance.
Two-sided errors or Errors are not detected by trial balance.

Question-03: What are one-sided errors?

Answer: Double entries are more or less recorded in one direction as a result of one-sided errors. The trial balance differs as a result of the mistake, and the trial balance is temporarily balanced with an uncertain or suspense account.

Question-04: What are the different types of one-sided errors?

Answer: the different types of one-sided errors are as follows:

Errors in posting from journal to ledger.
Errors in writing balances from ledger to trial balance.
Errors in casting & balancing.

Question-05: What are the reasons for occurring errors in posting from journal to ledger?

Answer: the reasons for occurring errors in posting from journal to ledger are as follows:

When moving an account from the journal to the ledger, the sum of money is misspelled.
During the transfer from the primary book to the ledger account, the sum of money is written on the wrong side of the account.
If one side of a transaction is properly recorded in the ledger but the other side is not.

Question-06: What are the reasons for occurring errors in writing balances from ledger to trial balance?

Answer: the reasons for occurring errors in writing balances from ledger to trial balance are as follows:

When transferring the balance from the ledger to the trial balance, the sum of the account balance is incorrectly written.
The account’s debit balance is incorrectly written in the trial balance’s credit column, or the credit balance is written in the debit column.
When transferring cash balance and bank balance from cash book, the sum of cash and bank balance is incorrectly written in the trial balance.

Question-07: What are the reasons for occurring errors in casting and balancing?

Answer: the reasons for occurring errors in casting and balancing are as follows:

It might happen when determining the balances of ledger accounts.
This can happen when you’re adding the debit and credit columns to the trial balance.

Question-08: What are the two-sided errors?

Answer: Even if the debit and credit of the trial Balance match, there may be certain types of errors that are not reflected in the trial balance, such errors are called two-sided errors.

Question-09: How many types of two-sided errors are there?

Answer: There are two types of two-sided errors:

Clerical Errors
Errors of Principle

Question-10: What are the clerical errors?

Answer: the clerical errors are inadvertent mistakes made by the accountant and his departmental employees.

Question-11: What are the different types of clerical errors?

Answer: the different types of clerical errors are as follows:

Errors of omission
Errors of commission
Errors of Miss-posting
Compensating Errors

Question-12: What are errors of omission?

Answer: When a transaction is omitted, partially or completely, once it is recorded in the ledger, and when the transfer of an account is omitted, the accounting work is incomplete. Such a mistake in the book of accounts is called the errors of omission.

Question-13: What are errors of commission?

Answer: An error of commission occurs when you write more or less than the actual amount when recording an account transaction.

Question-14: What are the errors of miss-posting?

Answer: These mistakes occur as a result of employees’ carelessness. Assume that Received from Tanisha $ 20,000 in cash. The cash book is correctly debited with $ 20,000, but the Nisha account is credited instead of the Tanisha account when posting to the ledger. Since the number of credits is the same, even if the amount has been allocated to the wrong account, the trial balance would accept.

Question-15: What are compensating errors?

Answer: Compensating errors occur when one error is compensated by another error. For example, Harry A/C was supposed to be debited with $10,000 but only debited $1000. William A/C was mistakenly credited $1,000 instead of $10,000 on another occasion. Even if there are two mistakes in this situation, the sum of both sides of the trial balance would agree. Since both sides would lose the same amount of money, $9,000.

Question-16: What are errors of principle?

Answer: Errors of principles are errors made due to a lack of proper accounting expertise and/or a violation of accepted accounting principles. Such errors occur when capital expenditures are recorded as revenue expenditures and vice versa.

Question-17: What is a suspense account?

Answer: A suspense account is a fictitious account that is only open for a temporary period.

Question-18: In which cases suspense accounts are opened?

Answer: suspense accounts are opened:

To balance a disagreed trial balance.
To post doubtful items.

Question-19: When are the rectifications of error entries given?

Answer: As soon as the errors are found.

Question-20: Rectifications of error journals are part of which journal?

Answer: General Journal

Question-21: Rectification of error entry is given according to which principle of accounting?

Answer: According to the Full disclosure principle.

Question-22: What is the main consideration of rectifications of error journals?

Answer: Impact of errors in accounting.

Question-23: When is the profit-loss adjustment account debited or credited instead of the corresponding nominal account when correcting errors?

Answer: If the error is found after preparing the final accounts.

Question-24: What will be the rectifications entries for the following errors?

Machine installation expenses wrongly debited to Machinery Account.
Sales return wrongly recorded as purchase account.
Table purchase wrongly recorded as stationary account.

Answer: The rectification entries are as follows:

Machine installation expenses —debit and Cash—credit
Sales return—debit and Purchase account—credit
Office Furniture—debit and Stationary account—credit

Question-25: Why are errors rectified through journals?

Answer: For future reference including the application of the double-entry system.

I hope you have a basic idea about the rectification of errors in accounting at the end of the article.

Read these “25” Short Questions and Answers- Rectification of Errors” on a regular basis and enhance your accounting skills.

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35 Short Questions and Answers-Plant Assets and Depreciation [Notes with PDF]

admin — Fri, 09 Oct 2020 07:06:26 +0000

Today we’ll learn “35 Short Questions and Answers- Plant Assets and Depreciation.”

Plant assets have specific sizes and forms and are not intended to be sold to customers and are used in a company’s operations.

If you read this article with a proper concentration from top to bottom, you’ll get a basic idea of Plant Assets and Depreciation.

It will also increase your knowledge of accounting and help you perform well on any competitive exam.

Short Questions and Answers-Plant Assets and Depreciation

So let’s get started.

Question-01: What do plant assets mean?

Answer: Plant assets are tangible resources that are not intended for sale to customers and are used in company operations.

Question-02: What is a fixed asset?

Answer: Fixed assets refer to the long-term investment in all types of visible and invisible assets of an organization that helps increase profits by conducting day-to-day activities.

Question-03: What is a tangible asset?

Answer: Tangible assets refer to the assets that actually exist or that can be touched. E.g., land building, furniture, etc.

Question-04: What is an intangible asset?

Answer: Intangible assets refer to the assets that do not exist or cannot be touched. For example, Goodwill, patents, copyrights, etc.

Question-05: What is a natural resource?

Answer: Natural resources are those properties that are given by nature and which are reduced in quantity as a result of extraction. E.g., gas, oil, mine, etc.

Question-06: What is a patent?

Answer: A patent is an overall right to use an invention.

Question-07: What does copyright mean?

Answer: Copyright is an exclusive grant from the federal government that allows an artistic or published work to be reproduced and sold by the owner.

Question-08: What’s the cost of research and development (R&D)?

Answer: The expenditures that may result in patents, copyrights, new processes, or new products are research and development (R&D) costs.

Question-09: What does goodwill mean?

Answer: Goodwill is the value of all the beneficial attributes associated with an organization that is not attributable to any other specific asset.

Question-10: What’s a license?

Answer: A license is a contractual arrangement under which a franchisor grants the franchisee the right to sell certain goods, to perform specific services, or to use certain marks or trade names, normally within a designated geographical area.

Question-11: What is Asset turnover?

Answer: Asset turnover is a measure of how effectively a business uses its assets to generate sales.

Question-12: What is the formula to calculate asset turnover?

Answer: Asset Turnover= Net sales/Average Total Assets.

Question-13: What is depreciation?

Answer: Depreciation is the process of rational and systematic allocation of the cost of a plant asset over its useful (service) life.

Question-14: The English word “Depreciation” comes from which word?

Answer: English word “Depreciation” comes from the Latin word “Depretium”.

Question-15: What does depletion mean?

Answer: Depletion is the allocation of a natural resource’s cost to expend over the useful life of the resource in a rational and systematic way.

Question-16: What does amortization mean?

Answer: Amortization is the systematic and rational allocation of the cost of an intangible asset to expenditure over its useful life.

Question-17: What are the features of depreciation?

Answer: The main features of depreciation are as follows:

Depreciation is a

Revenue expenditure
Non-visible expense
Non-cash expense
Estimated expense etc.

Question-18: What are the causes of charging depreciation?

Answer: The causes of charging depreciation are-

Internal Causes:

Wear and Tear
Exhaustion
Passage of time

External Causes:

Effusion of time
Obsolescence
Accidental loss

Question-19: What are the objectives of charging depreciation?

Answer: The objective of charging depreciation are as follows:

Determine of actual profit or loss
Determining actual financial position
Replacement of fixed assets
Maintenance of capital
Ascertainment of the actual cost of production
Determination of accurate value of assets
Detection of tax liabilities

Question-20: What is the effect of not charging depreciation?

Answer: The effects of not charging depreciation are as follows:

Problem in the determination of actual profit and loss.
Problem of determining the actual financial picture.
Problem of replacement of fixed assets.
Problem of maintenance of capital.
Problem of ascertainment of the actual cost of production.

Question-21: Which factors are to be considered while determining depreciation?

Answer: The following factors are to be considered while determining depreciation.

Total cost of assets
Salvage value
Depreciable value
Estimated useful life

Question-22: How many depreciation methods are there?

Answer:

On the basis of Time:

Straight line method
Declining balance method
Sum of years digit method

On basis of Uses:

Machine-hours method
Production output method

Other methods:

Annuity method
Sinking fund method
Revaluation method

Question-23: What is the method of accelerated depreciation?

Answer: The accelerated depreciation method is a method that in the early years generates higher depreciation costs than in later years.

Question-24: What is the declining-Balance method of depreciation?

Answer: The method of declining balance is a method that applies a constant rate to the asset’s declining book value and produces a decreasing annual depreciation expense over the asset’s useful life.

Question-25: What is the straight-line depreciation method?

Answer: The straight-line method is a method of depreciation in which periodic depreciation for each year of the useful life of the asset is the same.

Question-26: What is the Units-of-activity method of depreciation?

Answer: The unit-of-activity method is a method of depreciation in which the useful life of an asset is expressed in terms of the total units of production or use anticipated.

Question-27: What is the cost price of the asset?

Answer: The cost price of the asset refers to the value of an asset and the cost of making that asset usable.

Question-28: What is the salvage value of an asset?

Answer: The salvage value of an asset refers to the estimated value of an asset at the end of its lifespan.

Question-29: What is the depreciable value of an asset?

Answer: The depreciable value of an asset refers to the value obtained by deducting the salvage value of the assets from the cost price of the assets.

Question-30: What is a useful life of an asset?

Answer: An asset’s useful life is an estimate of an asset’s expected productive life, also called service life.

Question-31: According to which Principle Company records the plant assets at cost price?

Answer: According to the historical cost principle company records the plant assets at cost price.

Question-32: What is the formula for the Straight Line method of calculating annual depreciation?

Answer: Annual Depreciation= (Cost-Salvage Value)/Useful Life.

Question-33: How does the Straight Line method calculate the depreciation rate?

Answer: Depreciation Rate= 100%/Useful Life

Question-34: What is the formula for the units of activity method of calculating annual depreciation?

Answer: The formula for the units of activity method of calculating annual depreciation is as follows:

Depreciable Cost per Unit=Depreciable Cost/Total units of activity

Annual Depreciation Expense = Depreciable Cost per Unit X Units of activity during the year

Question-35: What is the formula for the declining balance method of calculating annual depreciation?

Answer: Annual Depreciation Expense=Book Value at beginning of year X Declining balance rate.

I hope you have a basic idea about the plant assets and their depreciation at the end of the article.

Read these “35” Short Questions and Answers- Plant Assets and Depreciation on a regular basis and enhance your accounting skills.

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35 Short Questions and Answers-Accounting Principles [Notes with PDF]

admin — Fri, 25 Sep 2020 07:08:49 +0000

Accounting principles are of immense importance in accounting. Accounting principles are followed in the preparation of the statement of comprehensive income and the statement of financial position.

Today we’ll learn “35 Short Questions and Answers-Accounting Principles.” If you read it with a proper concentration from top to bottom, you’ll get a basic idea of the accounts Principles. It will also increase your knowledge of accounting and help you perform well on any competitive exam.

For details you may read these articles:

Short Questions and Answers-Accounting Principles

Question-01: What’s the Principle?

Answer: The rules or regulations that are followed in order to carry out the work properly are called principles.

Question-02: What is the accounting Principle?

Answer: The accounting principle refers to a number of basic or self-evident truths that are universally accepted in accounting.

Question-03: What are the generally accepted accounting principles (GAAP)?

Answer: General principles that suggest how economic events should be reported.

Question-04: What is the International Financial Reporting Standards (IFRS)?

Answer: International standards for accounting set by the International Accounting Standards Board (IASB)

Question-05: What is the Economic Entity assumption?

Answer: The assumption requires the separation of the activities of the entity and all the other economic entities from the activities of its owner.

Question-06: What is the fair value principle?

Answer: The accounting principle that assets and liabilities (the price received to sell an asset or settle a liability) should be stated at fair value

Question-07: What’s the historical cost principle?

Answer: An accounting principle that states that assets should be reported at their cost by businesses.

Question-08: What is the Time period assumption?

Answer: The assumption that accountants are able to break a company’s economic life into artificial time periods.

Question-09: What is the revenue recognition principle?

Answer: The principle that companies recognize revenue during the accounting period in which the performance obligation is fulfilled.

Question-10: What is the Going Concern assumption?

Answer: The assumption is that for the foreseeable future, the company will continue to operate.

Question-11: What’s the full disclosure principle?

Answer: The principle of accounting requires a business to report to users of the circumstances and events of the financial statement that affect them.

Question-12: What’s the monetary unit assumption?

Answer: An assumption that businesses include only transaction data that can be expressed in terms of money in accounting records.

Question-13: What is the concept of accrual?

Answer: Under this concept, the outstanding expenses are added to the related expenses which have been paid, and the outstanding revenues are added to the related revenues which have already been received during the accounting year concerned.

Question-14: What is the matching principle?

Answer: The matching principle is the connection between income and expenditure.

Question-15: What is the materiality Principle?

Answer: The principle of providing significant and important accounting information.

Question-16: What is the Conservatism Principle?

Answer: According to this principle, all possible losses have to be estimated and recorded in the books of accounts, but the potential gains cannot be recorded in the books of accounts.

Question-17: What is Industrial Practice?

Answer: A way of deviating from the accepted accounting policy due to the differences in the organization.

Question-18: What is the Consistency Principle?

Answer: The Consistency Principle is the principle that the same rules apply every year in the field of accounting.

Question-19: What is the objectivity Principle?

Answer: The principles followed in the measurement of data utility for maximum reliability of accounting information.

Question-20: What’s the Accounting convention?

Answer: Accounting convention is recognized or public conduct in the field of accounting.

Question-21: What is the Full form of AAA, AICPA, SFAC, ASB, FASB, IASC, and GAAP?

Answer:

AAA = American Accounting Association.

AICPA= American Institute of Certified Public Accountants.

SFAC= Statements of Financial Accounting Concepts.

ASB= Accounting Standard Board.

FASB= Financial Accounting Standard Board.

IASC= International Accounting Standard Committee.

GAAP= Generally Accepted Accounting Principles.

Question-22: What is the concept?

Answer: The principle that is acceptable to all is called concept.

Question-23: What is the current name of IAS (International Accounting Standards)?

Answer: IFRS (International Financial Reporting Standards)

Question-24: What is the Financial Accounting Standards Board (FASB)?

Answer: Financial Accounting Standards Board (FASB) is a private organization that develops generally accepted accounting principles in the United States (GAAP).

Question-25: What is the International Accounting Standards Board (IASB)?

Answer: An accounting standard-setting body that issues standards followed outside the United States by several countries.

Question-26: What is the Securities and Exchange Commission (SEC)?

Answer: Securities and Exchange Commission (SEC) is a government agency that oversees U.S. financial markets and standard-setting bodies in accounting.

Question-27: Under what principle is depreciation charged on fixed assets?

Answer: The Going Concern Concept.

Question-28: On which basis is the profit-loss or income statement prepared?

Answer: According to the periodicity concept.

Question-29: According to which principle is the probable liability shown in the financial statements?

Answer: In accordance with the full disclosure principle.

Question-30: Advance income is shown as liability according to which principle?

Answer: According to the going concern concept.

Question-31: The asset is shown in the balance sheet at purchase price according to which principle of accounting?

Answer: According to the historical cost principle.

Question-32: Depreciation reserves are created according to which principle?

Answer: According to the full-disclosure principle.

Question-33: In accordance with which principle, in the determination of the price of the closing stock, is the lesser to be taken between the purchase price and the market price?

Answer: According to the conservatism principle.

Question-34: Which accounts are closed on the basis of the concept of the accounting period?

Answer: Nominal accounts or revenue and expenditure accounts.

Question-35: Expenditure is charged against income under which principle?

Answer: According to the matching principle.

I hope you have a basic idea about the accounting principles at the end of the article. Read these “35” Short Questions and Answers – Accounting Principles on a regular basis and enhance your accounting skills.

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Short Questions and Answers:

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35 Short Questions and Answers- Receivables [Notes with PDF]

admin — Tue, 08 Sep 2020 06:10:27 +0000

Today we’ll learn “35 Short Questions and Answers-Receivables.” The concept of Receivables is very important in Accounting.

For any company that sells goods or services on credit, the management of receivables is a very important activity.

If you read this article with a proper concentration from top to bottom, you’ll get a basic idea of the receivables.

It will also increase your knowledge of accounting and help you perform well on any competitive exam.

If you want to know more details you may also read this article: What are the receivables in Accounting?

Short Questions and Answers- Receivables

Question-01: What are the receivables?

Answer: When a person or organization recognizes the amount of money due from another person or organization for the sale of goods or services on credit or for other reasons, it is called receivables.

Question-02: How many types of Receivables are there?

Answer: There are three types of receivables, which are Accounts Receivable, Notes Receivable, and Other Receivables.

Question-03: What are accounts receivable?

Answer: Accounts receivable are amounts customers owe on the account. They are the result of selling goods and services.

Question-04: What are Notes receivable?

Answer: Notes Receivable are written commitments for receivable amounts.

Question-05: What does the honor of the Notes Receivable mean?

Answer: If, at maturity, the written value of the notes is paid along with interest, then it is considered as the honor of the notes receivable.

Question-06: What does the dishonor of the Notes Receivable mean?

Answer: Failure to pay the refund at maturity is considered the dishonor of the Receivable Notes.

Question-07: What are the other Receivables?

Answer: Receivables generated outside trade receivables are other receivables.

Question-08: What are the examples of Other Receivables?

Answer: Interest Receivable, loans to company officers, advances to employees, Income taxes refundable.

Question-09: What is the main source of receivables?

Answer: Credit Sales of goods and services.

Question-10: What is the Aging of accounts receivable?

Answer: The aging of accounts receivables is the analysis of customer balances by the length of time they have been unpaid.

Question-11: What is the Accounts receivable turnover?

Answer: The Accounts receivable turnover is a measurement of the liquidity of accounts receivable.

The formula of Accounts receivable turnover=Net credit sales / Average net accounts receivable.

Question-12: What is the Average collection period?

Answer: The average collection period is the average amount of time that a receivable is outstanding.

The formula of the Average collection period = 365 days/accounts receivable turnover.

Question-13: What is the meaning of 1/10, n/30?

Answer: 1% discount if paid within 10 days.

Question-14: Who’s the factor?

Answer: The factor is a financial company or bank that purchases receivables from businesses and then collects payments directly from customers.

Question-15: Who is the Payee?

Answer: The party to whom payment of a promissory note is to be made.

Question-16: What’s the Promissory Note?

Answer: A written promise to pay a specified amount of money on demand or at a fixed time.

Question-17: What is bad debt expense?

Answer: While all necessary steps are taken to recover any debts from the receivable accounts or the debtor, if debtors fail to pay the debt due to financial loss or bankruptcy, it is considered a bad debt expense.

Question-18: What is Allowance for Doubtful Accounts?

Answer: Allowance for Doubtful Accounts is just advance measures against future potential losses of the business.

Question-19: What are the causes of bad debt expense?

Answer: Debtor’s financial deprivation, Bankruptcy, and death.

Question-20: How many methods are used in accounting for uncollectible accounts, and what are they?

Answer: The accounting for uncollectible accounts uses two methods. Which are

The direct write-off method and
The allowance method.

Question-21: What is the direct write-off method of accounting for bad debt?

Answer: In the direct write-off method, when an organization determines that a particular account is uncollectible, it charges the loss to a Bad Debt Expense.

Question-22: What is the Bad Debt Allowance Method?

Answer: The accounting for bad debts allowance method involves estimating uncollectible accounts at the end of each period.

Question-23: How many bases are used to estimate the allowance, and what are they?

Answer: Two bases are used to estimate the allowance: (1) percentage of sales and (2) percentage of receivables.

Question-24: Which method of accounting for bad debt is not acceptable for financial reporting purposes?

Answer: The Direct write-off method.

Question-25: Where is the bad debt expense shown in the financial statements?

Answer: In the income statement as operating costs.

Question-26: How is the new bad debt expense shown in the balance sheet?

Answer: New bad debt expense is shown in the balance sheet to be deducted from the accounts receivable.

Question-27: Why is the cash discount given against accounts receivable?

Answer: To encourage quick payments.

Question-28: What is the purpose of determining bad debt expense and doubtful debt reserve?

Answer: Determine the exact amount due and keeping the capital intact.

Question-29: What are the synonyms of accounts receivable?

Answer: Book loans, miscellaneous debtors, and sales ledgers balance.

Question-30: How do you report the receivables in the financial statements?

Answer: As of current assets.

Question-31: What are the reserves?

Answer: Reserves are part of the undistributed profit of the business.

Question-32: What is the debtor discount allowance?

Answer: The allowance that is created to compensate for the debts owed to various debtors is called the debtor discount allowance.

Question-33: How is the debtor discount allowance calculated?

Answer: After deducting the bad debt expenses and the new allowance for doubtful debt from the debtor, the debtor discount allowance is calculated on what remains.

Question-34: How is the debtor discount allowance shown in the financial statements?

Answer: The debtor discount allowance shall be shown as operating expenses in the statement of income and shall be shown as being deducted from the account receivable in the balance sheet.

Question-35: What is the Day of Grace?

Answer: In England, when the “transferable instruments Act” was introduced, the payment of debts for the sale of goods was made three or more days after maturity, and that extra time was called the Day of Grace.

I hope you have a basic idea about the receivables at the end of the article. Read these “35 Short Questions and Answers – Receivables” on a regular basis and enhance your accounting skills.

If you like it or want to know more don’t forget to comment and share.

You can also read:

Short Questions and Answers:

The post 35 Short Questions and Answers- Receivables [Notes with PDF] appeared first on Everything about Accounting.

30 Short Questions and Answers-Financial Statement [With PDF]

admin — Wed, 15 Jul 2020 06:38:55 +0000

Today we will learn “30 Short Questions and Answers-Financial Statement.” Financial statements have an important place in the accounting information system.

Every business organization prepares a financial statement to determine the financial position at the end of the specified period.

If you read this article from top to bottom with a proper concentration, you’ll get a basic idea of the financial statement.

It will also increase your accounting knowledge and help you to perform well in any competitive examination.

For details you may read these articles:

So let’s start

Short Questions and Answers-Financial Statement

Question-01: What are the financial statements?

Answer: Statements that summarize the financial condition and performance of the business are called financial statements.

Question-02: How many types of financial statements are prepared as per IAS?

Answer: Five (5) Types of financial statements are prepared as per IAS.

Question-03: What are the five types of financial statements?

Answer: The five (5) types of financial statements are as follows:

Income statement of comprehensive Income Statement.
Owners’ Equity Statement.
Financial Position Statement or Balance sheet.
Cash Flow Statement.
Notes, including a summary of the significant accounting policies and other explanatory information provided in the financial statement.

Question-04: What are the features of the financial statement?

Answer: The main features of the financial statements are as follows:

This is the final report of the accounts.
It is prepared at the end of a certain accounting period.
Each financial statement publishes its own results.
It is prepared following GAAP.
Provides the necessary comments and explanations.

Question-05: What is the objective or the need to prepare a financial statement?

Answer: The objective or necessity of the preparation of the financial statement is as follows:

Preparation of the budget and business planning.
Determination of the repayment power of the organization’s current and long-term liabilities.
Decision making by the creditors of the loan.
Decision concerning the declaration of dividends.
Aid for the determination of taxes.

Question-06: What are the limitations of the financial statement?

Answer: The limitations of the financial statement are as follows:

Unable to reveal a true and fair financial position.
Maintaining accounts on the basis of historical costs.
Absence of quality information.
Lack of information for the future.
Failure to provide information promptly.

Question-07: Who are the internal users of the financial statements?

Answer: The internal users of the financial statements are as follows:

Owners
Management Authority
Internal Auditors

Question-08: Who are the external users of the Financial Statements?

Answer: The external users of the Financial Statements are as follows:

Creditors
Investors
Government
Tax Authority
External Auditor
Chamber of commerce & Industry
Trade Union
Research Workers
Consulting Firm

Question-09: What is the Income or comprehensive Income Statement?

Answer: The statement in which revenue income and expenditures are recorded is referred to as the income statement or the comprehensive Income statement.

Question-10: What are the objectives of the Income Statement?

Answer: The objectives of the preparation of the income statement are as follows:

Determine the net profit or loss of the enterprise.
Verify the effectiveness of the functions.
Provide information on decision-making.
Provide information on the analysis of the financial situation.

Question-11: How many types of income statements are there and what are they?

Answer: There are two types of income statements. They are as follows:

One-step Income Statement
Multi-step or comprehensive income statement.

Question-12: What is a one-step Income statement?

Answer: An income statement in which the net profit or loss is determined by subtracting the sum of expenses from the sum of all incomes in one step is called a one-step income statement.

Question-13: What is a multi-step income statement?

Answer: An income statement that calculates net profit or loss step by step is called a multi-step income statement.

Question-14: How to calculate gross profit in the comprehensive Income Statement?

Answer: Gross profit= Net Sales-Cost of goods sold

Question-15: How to calculate Operating profit in the comprehensive Income statement?

Answer: Operating Profit= Gross Profit-Operating Expenses

Question-16: How to calculate Net profit in the comprehensive Income statement?

Answer: Net Profit= Operating Profit + Others income-Others Expenses

Question-17: How to calculate Net Income in the comprehensive Income statement for service-providing business?

Answer: Net Income=Total Incomes – Total Expenditures

Question-18: What is the Operating Income?

Answer: The income that is normally earned by running a business is called operating income. E.g., Sales Revenue, Service Revenue.

Question-19: What is the non-operating Income?

Answer: Income earned from outside sources of business is called non-operating income. E.g., Interest Income, Dividend.

Question-20: What is the operating expense?

Answer: The expenses incurred in running a business are called operating expenses. E.g., administrative expenses, sales-related expenses.

Question-21: What is the non-operating expense?

Answer: The expenses incurred outside the operation and administration of the business are called non-operating expenses. E.g., interest expense, loss of sale of scrap assets.

Question-22: What value of the closing stock is included in the income statement?

Answer: Whichever is lower between the purchase price and the market price.

Question-23: According to which principle of accounting is the closing stock valued?

Answer: the closing stock is valued according to Conservation Principle

Question-24: What is the Owners’ equity Statement?

Answer: The statement which is prepared to determine the closing balance of the owner’s equity at the end of the accounting period is called the owners’ equity statement.

Question-25: What is the Financial Position statement or balance sheet?

Answer: The statement which is prepared with all assets and liabilities and capital to know the financial position of a business at the end of the year is called the financial position statement or Balance Sheet.

Question-26: How many methods are there for presenting assets and liabilities in financial statements and what are they?

Answer: There are three (3) methods for presenting assets and liabilities in financial statements. They are as follows:

Liquidity Preference Method
Rigidity Preference Method
Financial Position Method

Question-27: What items are included in the balance sheet?

Answer: Assets, Liabilities, and Owners Equity.

Question-28: What is the Cash Flow statement?

Answer: A statement that shows the inflow, outflow, and current status of a cash fund is called a cash flow statement.

Question-29: What are the notes in the financial statements?

Answer: Issues that can’t be included in the financial statements are presented in the form of notes in the financial statements.

Question-30: Financial statement notes are prepared according to which principle of accounting?

Answer: Financial statement notes are prepared according to the full-disclosure principle.

I hope you have a basic idea about the financial statement at the end of the article. Read these “30 Short Questions and Answers – Financial Statement” on a regular basis and enhance your accounting skills.

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25 Short Questions and Answers-Bank Reconciliation Statement [With PDF]

admin — Thu, 09 Jul 2020 06:49:16 +0000

Today we’re going to learn about the “25 Short Questions and Answers-Bank Reconciliation Statement”

The balance of the bank statement and the bank balance of the cash book should be reasonably equal.

However, as always, this balance may not be equal, and then a bank reconciliation statement must be prepared.

If you read this article from top to bottom, I’m sure you’re going to get a basic idea of the bank reconciliation statement.

It will also enhance your accounting skill, which will help to perform any tests well.

For theory, you may read this article: A Guide to BANK RECONCILIATION STATEMENT. Read This!

So let’s start

Short Questions and Answers-Bank Reconciliation Statement

Question-01: What’s the bank?

Answer: Bank is a financial institution that accepts deposits and grants loans.

Question-02: What are the functions of the bank?

Answer: The function of the bank is as follows:

Receipt of Deposits
Advanced Loan
Media for Exchange
Supplying money to the business
Control of credit
Fixing and controlling the exchange rate

Question-03: What’s the bank account?

Answer: The bank account is an account in which the depositor’s money is kept.

Question-04: How many types of bank accounts are there?

Answer: Normally, there are four types of bank accounts that are as follows:

Current Account
Savings Account
Fixed Account
Special Account

Question-05: What’s the current account?

Answer: Current accounts are accounts that are kept and maintained to meet the day-to-day banking needs of traders and industrialists.

Question-06: What’s the savings account?

Answer: The savings account that a bank opens to provide banking facilities to employees, professionals and other low-income individuals are usually referred to as a savings account.

Question-07: What’s a fixed account?

Answer: A fixed account that is opened for a specific period of the future, usually from 3 months to 3 or 5 years, is called a fixed account.

Question-08: What is a special account?

Answer: A bank account that is opened for a specific purpose is called a special account.

Question-09: What’s the cheque?

Answer: A cheque is an exchange bill which is an unconditional order signed by a depositor to a bank for payment on demand.

Question-10: What is the meaning of a check dishonor?

Answer: Dishonor of the cheque means the refusal of the drawer bank to pay the cheque of its customer.

Question-11: What’s the bank passbook?

Answer: As soon as the account is opened, the depositor gets a small free book from his bank to save the transaction in the case of a savings account, this book is called a bank passbook.

Question-12: What’s the bank statement?

Answer: the statement made by the bank to the full details of its depositor is known as a bank statement.

Question-13: What is the Bank’s reconciliation statement?

Answer: The statement prepared to identify the differences between the balance of the bank statement and the bank column of the cash book is known as the bank reconciliation statement.

Question-14: What is the main objective to prepare the bank reconciliation statement?

Answer: The main purpose of preparing the bank reconciliation statement is to reconcile the bank balance between the cash book and the bank statement.

Question-15: What is the main benefit of preparing a bank reconciliation statement?

Answer: The main benefit of preparing a bank reconciliation statement is If there is an error in the transaction kept in the cash book and bank statement, it can be corrected by preparing the bank reconciliation statement.

Question-16: Why bank statement is essential in preparing a bank reconciliation statement?

Answer: The bank statement contains a lot of necessary financial information, which is not in the cash book and these are helpful in preparing the bank reconciliation statement.

Question-17: Is it mandatory to prepare a bank reconciliation statement?

Answer: It is not mandatory to prepare a bank reconciliation statement.

Question-18: Bank reconciliation statement is prepared according to which principle of accounting?

Answer: Bank reconciliation statement is prepared according to the full disclosure principle.

Question-19: What are the reasons for the differences between the balance of the bank statement and the bank column of the cash book?

Answer: the reasons for the differences between the balance of the bank statement and the bank column of the cash book are as follows:

If the cheque is not collected in due time, there will be a case of difference between the balances.
There will be differences in the cheque issued for debt settlement if it is not made before the bank in due time.
If the bank makes any payment or receives any collection on behalf of its client without informing the client, there will be a difference.

Question-20: What can be brought from the bank reconciliation statement?

Answer: The bank reconciliation statement brings

Bank balance
Amount of cheque dishonored.
Total deposit Interest
The total amount of charges.

Question-21: Why bank reconciliation account is not a ledger account?

Answer: Bank reconciliation account is not a ledger account because there are no debit and credit sides of bank reconciliation statements like a ledger.

Question-22: What is meant by bank deposit balance?

Answer: Bank deposit balance means the balance of money deposited in the bank by the depositor.

Question-23: What is meant by the debit balance of the bank statement?

Answer: The debit balance of the bank statement means Bank overdraft.

Question-24: Who records the bank statement?

Answer: Bank records the bank statement.

Question-25: What is a bank overdraft?

Answer: Bank overdraft is the extra withdrawal of money deposited in the bank by the depositor.

I hope you’ve learned about the “25 Short Questions and Answers-Bank Reconciliation Statement” at the end of the article.

If you want to learn more or if there is any confusion, don’t forget to say something to us.

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25 Short Questions and Answers-Trial Balance [With PDF]

admin — Mon, 06 Jul 2020 08:37:44 +0000

Today we’re going to learn about the “25 Short Questions and Answers – Trial Balance”

The 5^th step of the accounting cycle is the preparation of the trial balance.

The trial balance is prepared to verify the arithmetic accuracy of the accounts. Trial balance helps to find the errors and correct the errors.

If you read this article from top to bottom, I’m sure you’re going to get a basic idea of the trial balance.

It will also increase your accounting knowledge, which will help to perform any tests well.

For theory you may read these articles:

So, let’s get started.

Short Questions and Answers-Trial Balance

Question-01: What is a Trial Balance?

Answer: A trial balance is a list of debit and credit balances extracted from the ledger, including the balance of cash and bank columns of the cash book on a given date.

Question-02: What is the objective of the trial balance?

Answer: The objectives of preparing the trial balance are as follows:

Verification of accurate posting of journal and ledger entries.
Facilitate the preparation of a statement of comprehensive income and a statement of financial position.
Find out the mistakes and correct the mistakes.

Question- 03: What is the main objective of trial balance?

Answer: The main objective of the trial balance is to test the arithmetical accuracy of the accounts.

Question-04: Which ledger balances are written on the debit side of the trial balance?

Answer: The ledger balances are written on the debit side of the trial balance is as follows

Assets,
Expenses,
Expenses paid in advance,
Accrued incomes, and etc.

Question-05: Which ledger balances are written on the credit side of the trial balance?

Answer: The ledger balances are written on the credit side of the trial balance is as follows:

Liabilities,
Incomes,
Outstanding Expenses,
Unearned Incomes,
Reserves, etc.

Question-06: What kinds of errors are not detected by the trial balance?

Answer: The types of errors that are not detected by trial balance are as follows:

Errors of omission
Errors of writing
Compensating Errors
Errors of miss-posting
Errors of Principle.

Questions-07: What kinds of errors are detected by the trial balance?

Answer: The types of errors detected by the trial balance are as follows:

Posting Errors
Listing Errors
Costing and balancing errors

Question-08: Is it mandatory to prepare a trial balance?

Answer: It is not mandatory to prepare a trial balance.

Question-09: Suspense Account is basically what kind of account?

Answer: Suspense Account is a temporary account.

Question-10: When is the trial balance prepared?

Answer: The trial balance is prepared at the end of the specified accounting period.

Question-11: What is an error of omission?

Answer: If a transaction is not recorded in the journal or is not transferred from the journal to the ledger, it is called an error of omission.

Question-12: What is an error of commission?

Answer: If you debit and credit more or less than the amount of money that has been transacted, or if you have recorded more or less amount of money as both sides in the ledger, it is called an error of commission.

Question-13: What is a compensating Error?

Answer: If an error is unknowingly corrected by another error, it is called a compensating error.

Question-14: What is an error of principle?

Answer: A mistake made in the absence of accounting ethics is called the error of principle.

Question-15: What is an error of miss-posting?

Answer: If the sum of money is written on the same side of another account instead of one account, the mistake that is made is called an error of miss-posting.

Question-16: What does the suspense account express in the trial balance?

Answer: suspense account expresses the difference between the debit column and the credit column.

Question-17: What kind of error would it be to write the revenue expenditure as the capital expenditure and the capital account as the revenue account?

Answer: Error of principle

Question-18: What do you have to do before preparing the financial statement correctly?

Answer: You have to prepare a trial balance before preparing the financial statement correctly.

Question-19: What is used to prepare the trial balance?

Answer: Ledger balances are used to prepare the trial balance.

Question-20: Which accounts do not include in the trial balance?

Answer: Closing stock, Opening cash in hand, and opening bank deposits.

Question-21: What is the main limitation of the trial balance?

Answer: The main limitation of the trial balance is it sometimes can not identify the errors, even if both sides of the trial balance match.

Question-22: When is the closing stock included in the trial balance?

Answer: When the trial balance includes adjusted purchases and gross profits.

Question-23: What is the formula for the calculation of the adjusted purchase?

Answer: Adjusted Purchase = Opening stock + Purchase + Purchase related all expenses – Closing stock

Question-24: What is the sales ledger balance?

Answer: Sales ledger balances are considered as sundry debtors and put on the debit side of the trial balance.

Question-25: What is the purchase ledger balance?

Answer: Purchase ledger balances are considered as sundry creditors and put on the credit side of the trial balance.

I hope you’ve learned about the “25 Short Questions and Answers-Trial Balance” at the end of the article.

If there is any confusion or if you want to learn more, don’t forget to say something to us.

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25 Short Questions and Answers-Cash Book [With PDF]

admin — Sat, 04 Jul 2020 14:47:04 +0000

Today we’ll learn about “25 Short Questions and Answers-Cash Book.” In any business organization, the importance of a cash book is immense.

Business and cash are inextricably related. Cash is ultimately necessary for any sphere of business.

Businesses prepare cash books according to the nature and size of the company.

You’ll get a basic concept of the cash book if you read this article from top to bottom.

It will definitely help you do well on any kind of competitive examination.

For theory read these articles:

So, let’s get started.

Short Questions and Answers-Cash Book

Question-01: What is Cash book?

Answer: Cash book is a book in which an account is kept of the receipts and disbursements of money.

Question-02: What are the features or characteristics of the cash book?

Answer: The important features or characteristics of the cash book are as follows:

All transactions are recorded on the debit side of Cash book while the payments are recorded on the Credit side.
Cash book is known as the primary book of accounts.
It is possible to know how much cash has been received and paid against different sources in a particular period.
It is possible to know the cash balance by identifying the difference between cash received & cash paid.

Question-03: What are the benefits or importance of a cash book?

Answer: The benefits or importance of a cash book are as follows:

Knowing about cash receipts and payments.
Knowing the amount of cash in hand.
Advantage of getting any information about the cash transaction.
Finding misappropriation of cash
To reduce the Journal entry.
Determine the cash fund on a daily basis.

Question-04: How many types of cash books are there, and what are they?

Answer: The cash books that have been used for a long time are of four (4) types, which are as follows:

Single Column Cash Book
Double Column Cash Book
Treble Column Cash Book
Petty Cash book

Nowadays some organizations are preparing the following journal to calculate cash receipts and cash payments separately instead of the traditional cash book.

Cash Receipt Journal
Cash Payment Journal

Question-05: What’s a single-column cash book?

Answer: A cash book with only one column of money on the debit and credit side to record the only amount of cash transactions is called a single column cash book. Comparatively small business prepares a single column cash book.

Question-06: What’s a Double Column Cash Book?

Answer: A cash book with two columns of money on the debit and credit side to record the amount of cash and bank transactions is called a double column cash book. The organization that deals with both cash and bank transactions prepare a double-column cash book.

Question-07: What’s a Treble Column Cash Book?

Answer: A cash book with three columns of money on the debit and credit side to record the amount of cash, bank, and discount transactions is called the Treble Column Cash Book.

Question-08: What is a Petty cash book?

Answer: The book in which the expenses of a small amount are written is called a petty cash book.

Question-09: What is the necessity of a Petty Cash book?

Answer: the necessity of a Petty Cash book is as follows:

Reducing the pressure of work of the head cashier.
Reducing the volume of the cash book.
Saving time and labor.
Reducing errors and omissions.
Controlling the petty expenses.

Question-10: What is a contra entry?

Answer: The transactions that influence both the cash as well as the bank account are known as contra entry.

Question-11: What is a discount?

Answer: A discount is an amount that the seller receives less from the buyer than the selling price of the product.

Question-12: How many types of discounts are there and what are they?

Answer: There are two types of discounts which are as follows:

Cash Discount
Trade Discount

Question-13: What is the cash discount?

Answer: In order to collect the amount for the number of goods sold on credit quickly, the seller allows the buyer this kind of discount. This discount is known as the cash discount.

Questions-14: What is a Trade Discount?

Answer: When the manufacturer or wholesaler of a product gives the retailer a discount at a fixed rate on the price indicated in the price list of the product sold, that discount is called a trade discount.

Question-15: Why does not trade discount accounted for?

Answer: Because the trade discount doesn’t change the financial condition of the Seller and the buyer.

Question-16: What is a Cash Receipt Journal?

Answer: The cash receipt journal records all cash and cash equivalent receipts transactions in order to know the total cash inflow for a specific period of time.

Question-17: What is the cash payment Journal?

Answer: Cash Payment journal records all cash and cash equivalent payment transactions in order to know the total cash outflow for a specific period of time.

Question-18: Is the Cash book a journal or ledger?

Answer: The Cash book is both journal and ledger.

Question-19: What balance does the cash book always denote?

Answer: The cash book always denotes “Debit Balance”.

Question-20: What does the credit balance of the bank column indicate?

Answer: The credit balance of the bank column indicates “Bank Overdraft.”

Question-21: How many columns are available in different types of cash books?

Answer: The columns are available in different types of cash books are as follows:

Single column cash book- 10 Columns
Double column cash book- 12 columns
Treble column cash book- 14 columns

Question-22: On what basis are cash books made?

Answer: cash books are made on a daily basis.

Question-23: Bank charges and interest are recorded on which side of the cash book?

Answer: Bank charges and interest are recorded on the debit side of the cash book.

Question-24: Discount received and discount payment is recorded in which cash book?

Answer: Discount received and discount payment is recorded in “Treble column cash book.”

Question-25: What is known through the cash book?

Answer: Daily cash and bank balance are known through the cash book.

I hope you’ve got the basic idea of a cash book at the end of the article. If you read these “25 short questions and answers-Cash Book” regularly, your accounting skills will definitely be enhanced.

Don’t forget to comment on us if you like it or want to know more.

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25 Short Questions and Answers-Ledger [With PDF]

admin — Wed, 24 Jun 2020 10:17:33 +0000

Today we’ll learn about “25 Short Questions and Answers-Ledger.” The importance of Ledger in accounting is immense.

Ledger is called the permanent book of all accounts. The financial statement is prepared on the basis of the ledger balance.

If you read this article from the beginning to the end, you will get the basic idea of the ledger that will definitely help you to do well in any competitive exams.

For theory read these articles:

So let’s get started.

Short Questions and Answers- Ledger

Question-01: What is Ledger?

Answer: The book in which a trader’s transactions are recorded in a classified permanent form is called the ledger.

Question-02: What is the feature of the ledger?

Answer: The main feature of Ledger is as follows:

Each account is given a heading.
“T” table and Moving Balance table are followed to prepare ledger.
Record the date, the amount of money, and the journal folio no.
The balance of each of the accounts is identified individually.
Verify the arithmetic accuracy of accounting activities.

Question-03: What is the importance or necessity of Ledger?

Answer: The importance of ledger is as follows:

Permanent records of transactions
Summarizing and classifying the transactions
Providing the arithmetical accuracy
Provide information about financial conditions.
Preventing misappropriation and fraud.

Question-04: Why ledger is called the king of all the books?

Answer: Ledger is called the king of all the books because it

Keeps records permanently.
Classify the accounts
Provides the financial picture of the organization
Helps to prepare final accounts of the organization.
Justify arithmetical accuracy.

Question-05: From which word does the word “Ledger” come?

Answer: The word “Ledger” comes from the word “Ledge”

Question-06: What does the word “ledge” mean?

Answer: The word “ledge” means Shelf.

Question-07: What is the permanent book of accounts?

Answer: The permanent book of accounts is Ledger.

Question-08: What is the basement of the ledger?

Answer: the basement of the ledger is Journal.

Question-09: Why is Ledger called “Shelf”?

Answer: The ledge is called a shelf due to the arrangement of the transactions.

Question-10: How many types of personal ledgers and what are they?

Answer: There are 2 types of personal ledger which are as follows:

Debtors Ledger and
Creditors Ledger.

Question-11: How many types of impersonal ledgers and what are they?

Answer: There are 2 types of impersonal ledgers which are as follows:

Assets & Liabilities related Ledger and
Nominal Ledger.

Question-12: Which is the most commonly used “Ledger format” in modern times?

Answer: The most commonly used “Ledger format” in modern times is “Moving Balance Format”.

Question-13: How many money columns are there in Ledger’s Moving Balance format?

Answer: There are Four (4) columns in Ledger’s Moving Balance format.

Question-14: What is Balance?

Answer: The difference between the posted amount on the debit and credit side of the accounts is known as balance.

Question-15: What is the balancing of accounts?

Answer: The act of equalizing the two sides of the account is called the balancing of accounts.

Question-16: What is the meaning of C/D, B/D, C/F, B/F, B/O, and C/O?

Answer: The meaning of C/D, B/D, C/F, B/F, B/O, and C/O are as follows:

C/D-Carried Down
B/D-Brought Down
C/F-Carried Forward
B/F-Brought Forward
B/O- Brought Over
C/O- Carried Over

Question-17: Which one is prepared on the basis of ledger accounts balance?

Answer: Trial balance is prepared on the basis of ledger accounts balance.

Question-18: Which balance indicates all types of assets and expenses?

Answer: All types of assets and expenses express “debit balance”.

Question-19: Which balance indicates all types of liabilities and incomes?

Answer: All types of liabilities and incomes express “credit balance.”

Question-20: What is to be written at the time of writing the closing balance of the ledger?

Answer: Balance C/D or C/F.

Question-21: What is to be written at the time of writing the opening balance of the ledger?

Answer: Balance B/D or B/F

Question-22: On the basis of what information is the right decision taken to run a business?

Answer: Based on the information obtained from the ledger.

Question-23: What is the main advantage of the “Moving balance table”?

Answer: The balance of each account is always available.

Question-24: How many columns have a “traditional ledger table”?

Answer: Eight (8) columns.

Question-25: What is the main purpose of preparing a ledger account?

Answer: The main purpose of preparing a ledger account is to determine the balance of the account.

I hope you have a basic idea about the ledger at the end of the article. If you practice these “25 Short Questions and Answer-Ledger” on a regular basis, it will certainly help you improve your accounting skills.

If you like it and want to know more about the ledger, don’t forget to write something to us.

You can also read:

Short Questions and Answers-

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