NCERT Solutions Class 11 Accountancy Chapter 3 Recording of Transactions 1

Question 1. State the three fundamental steps in the accounting process.
Answer: The primary stages in the process of accounting include:
1. Identifying business transactions with the support of vouchers.
2. Entering these transactions into the books of original entry, commonly known as the Journal.
3. Sorting and posting them into specific accounts in the Ledger.
4. Drafting financial statements, specifically the Balance Sheet and the Profit and Loss Account.
5. Sharing this accounting information with various stakeholders.
In simple words: Accounting involves recognizing transactions, entering them in journals, classifying them in ledgers, preparing financial reports, and sharing them with stakeholders.

Exam Tip: When describing the accounting cycle, make sure to list the steps in chronological order as they flow logically from identification to final communication.

 

Question 2. Why is the evidence provided by source documents important to accounting?
Answer: Supporting evidence from source documents plays a vital role in accounting due to several reasons:
1. It offers concrete proof that a business event has indeed taken place.
2. It contains key details like the date, monetary value, participating parties, and other specific information regarding a transaction.
3. It serves as reliable legal evidence in court proceedings.
4. It aids auditors in checking and verifying business dealings during audits.
In simple words: Source documents like bills and receipts prove that transactions really happened and show all key details. They serve as legal proof and help check financial books during audits.

Exam Tip: Mention at least three points including legal validity (court of law) and audit verification to score full marks in this question.

 

Question 3. Should a transaction be first recorded in a journal or ledger? Why?
Answer: Any business transaction must be entered first in the journal. This is because the journal captures the complete details of a transaction in a single entry. Additionally, the journal serves as the foundation for transfering these transactions into their specific accounts within the ledger. Entries in the journal are made in chronological order, meaning they are recorded as they happen based on source documents. Consequently, the journal is frequently termed the 'book of original entry' since it is where transactions are initially noted down.
The sequence of recording starts with source documents, moves to the journal, and ends in the ledger.
In simple words: Transactions are written in a journal first because it keeps all details in order of time. This journal entry is then used to update individual ledger accounts.

Exam Tip: Clearly state that the journal is the "book of original entry" and explain the chronological aspect to secure maximum points.

 

Question 4. Are debits or credits listed first in journal entries? Are debits or credits indented?
Answer: Under the double-entry bookkeeping system, the journal format contains two distinct columns for figures - the 'Debit Amount' and the 'Credit Amount'. Writing down entries in a journal follows a unique structure compared to ordinary writing. In this format, the column for debits is positioned to the left of the credit column.
Furthermore, credits are always indented, which means leaving a blank space before entering the account name. When recording in the 'Particulars' column, the debited account is positioned on the top line, whereas the credited account is written on the subsequent line with a slight shift to the right to show indentation.
In simple words: In a journal entry, debits are written first on the left side, and credits are written on the next line shifted slightly to the right.

Exam Tip: Remember that debits are written on top, and credits are indented and start with the word 'To' on the second line.

 

Question 5. Why are some accounting systems called double accounting systems?
Answer: These methods are known as double-entry systems because they recognize two distinct sides of every business event, meaning each transaction has a dual impact. Every single transaction influences at least two separate accounts at the same time - one account is debited while another is credited. This principle relies on the fundamental concept that for every receiver of value, there must also be a corresponding giver of value.
In simple words: These systems are called double-entry because every transaction changes two accounts at the same time - one gets debited and the other gets credited.

Exam Tip: Always emphasize the dual aspect concept (every debit has a corresponding credit of equal value) when explaining this system.

 

Question 6. Give a specimen of an account.
Answer: A standard account format (T-shape account) is presented below:

In simple words: An account is divided into two halves: the left side is the debit side (Dr.) and the right side is the credit side (Cr.).

Exam Tip: Ensure that you clearly label "Dr." on the left corner and "Cr." on the right corner, and include the Journal Folio (J.F.) column.

 

Question 7. Why are the rules of debit and credit same for both liability and capital?
Answer: A business obtains its funding from both inside (internal) and outside (external) channels. Based on the business entity concept, a company is viewed as a separate legal and financial entity from its owner. Consequently, both the owner's capital contribution and loans from external creditors are treated as liabilities of the business. The business is obligated to return the capital to the owner if it winds up, which is why capital is classified as an internal liability.
Because creating or increasing a liability requires a credit, introducing new capital or earning net profits also increases capital and is therefore credited. Conversely, clearing a liability reduces its value, requiring a debit. In a similar way, taking drawings or suffering a net loss reduces the owner's capital, which is recorded as a debit. Therefore, the same rules of debit and credit govern both liabilities and capital.
In simple words: Capital is considered a liability of the business to the owner because they are separate entities. Since both are types of liabilities, they share the exact same debit and credit rules.

Exam Tip: Emphasize the "Business Entity Concept" which states that the business and its owner are two separate entities, as this is the core rationale.

 

Question 8. What is the purpose of posting J.F numbers that are entered in the journal at the time entries are posted to the accounts?
Answer: The Journal Folio (J.F.) number is recorded in the ledger when transactions are transferred from the journal to their specific accounts. This number helps verify that every entry has been correctly transferred. It is filled in during the posting phase, rather than when the journal entries are first written.
Using J.F. numbers in the ledger provides several key advantages:
1. It allows quick cross-referencing to find the exact page of the transaction in the journal or subsidiary books.
2. It confirms whether a transaction listed in the book of original entry has actually been transferred to the ledger accounts.
In simple words: The J.F. number tells you exactly which page of the journal a ledger entry came from, making it easy to double-check entries and find mistakes.

Exam Tip: Remember that J.F. is written in the ledger, while L.F. (Ledger Folio) is written in the journal. Mention this cross-referencing aspect clearly.

 

Question 9. What entry (debit or credit) would you make to:
(a) increase revenue
(b) decrease in expense,
(c) record drawings
(d) record the fresh capital introduced by the owner.
Answer: The specific entries required for each of the given situations are as follows:
(a) Increase in revenue: Credit
Revenue increases the owner's capital. Since capital has a normal credit balance, any rise in revenue is credited.
(b) Decrease in expense: Credit
Expenses naturally carry a debit balance. Therefore, reducing an expense requires a credit entry.
(c) Record drawings: Debit
Drawings represent a reduction in owner's capital. Since capital decreases with a debit, drawings are debited.
(d) Record fresh capital introduced by the owner: Credit
Bringing in new capital increases the overall capital pool. Since capital is increased by crediting, this entry is a credit.
In simple words: To increase revenue, decrease an expense, or record fresh capital, we make a credit entry. To record drawings, we make a debit entry.

Exam Tip: Understanding the basic accounting rules (Assets & Expenses increase on Debit; Liabilities, Capital & Revenues increase on Credit) makes solving such classification questions very straightforward.

 

Question 10. If a transaction has the effect of decreasing an asset, is the decrease recorded as a debit or as a credit? If the transaction has the effect of decreasing a liability, is the decrease recorded as a debit or as a credit?
Answer: When a transaction leads to a reduction in an asset, that reduction is noted as a credit. This happens because assets normally maintain a debit balance, so any reduction must be credited. For instance, when furniture is sold, the asset furniture drops in value and is therefore credited.
On the other hand, if a transaction reduces a liability, this reduction is recorded as a debit. Because liabilities normally carry a credit balance, an increase is credited and a decrease is debited. For example, paying off creditors reduces the liability toward them, so the creditors account is debited.
In simple words: If an asset goes down, we credit it. If a liability goes down, we debit it.

Exam Tip: Use the modern approach (Accounting Equation rules) to quickly determine debits and credits: Assets/Expenses increase with Debit, while Liabilities/Capital/Revenue increase with Credit.

 

Numerical Questions

 

Question 1. Prepare accounting equation on the basis of the following:
(a) Harsha started business with cash Rs 2,00,000
(b) Purchased goods from Naman for cash Rs 40,000
(c) Sold goods to Bhanu costing Rs 10,000/- Rs 12,000
(d) Bought furniture on credit Rs 7,000
Answer: The accounting equation statement is prepared below:

In simple words: The accounting equation ensures that the total value of all assets (Cash, Stock, Debtors, and Furniture) always equals the sum of liabilities (Creditors) and the owner's capital.

Exam Tip: Always remember to add the profit from credit sales (Rs. 12,000 - Rs. 10,000 = Rs. 2,000) directly to the capital. Ensure that the total of both sides matches after each transaction to avoid errors.

 

Question 2. Prepare accounting equation from the following:
(a) Kunal started business with cash Rs 2,50,000
(b) He purchased furniture for cash Rs 35,000
(c) He paid commission Rs 2,000
(d) He purchases goods on credit Rs 40,000
(e) He sold goods (costing Rs 20,000) for cash Rs 26,000
Answer: The accounting equation statement is prepared below:

In simple words: Expenses like commission are deducted from capital, while profits on sales are added to capital, maintaining balance on both sides of the equation.

Exam Tip: When commission or any other expense is paid, subtract it from both cash and capital. Ensure to compute the net profit from sales and add it to capital.

 

Question 3. Mohit has the following transactions, prepare accounting equation:
(a) Business started with cash Rs 1,75,000
(b) Purchased goods from Rohit Rs 50,000
(c) Sales goods on credit to Manish (Costing Rs 17,500) Rs 20,000
(d) Purchased furniture for office use Rs 10,000
(e) Cash paid to Rohit in full settlement Rs 48,500
(f) Cash received from Manish Rs 20,000
(g) Rent paid Rs 1,000
(h) Cash withdrew for personal use Rs 3,000
Answer: The accounting equation statement is prepared below:

In simple words: Drawings and paid expenses like rent reduce capital. When a creditor is paid in full settlement, any difference between the payable amount and actual payment is treated as gain (discount) and added to capital.

Exam Tip: Pay close attention to "full settlement" transactions. Since Rs. 48,500 was paid to clear a Rs. 50,000 debt, the difference of Rs. 1,500 is a discount received which increases capital.

 

Question 4. Rohit has the following transactions:
(a) Commenced business with cash Rs 1,50,000
(b) Purchased machinery on credit Rs 40,000
(c) Purchased goods for cash Rs 20,000
(d) Purchased car for personal use Rs 80,000
(e) Paid to creditors in full settlement Rs 38,000
(f) Sold goods for cash costing Rs 5,000 Rs 4,500
(g) Paid rent Rs 1,000
(h) Commission received in advance Rs 2,000

Prepare the Accounting Equation to show the effect of the above transactions on the assets, liabilities and capital.
Answer: The accounting equation statement is prepared below:

In simple words: A personal car purchased with business cash is drawings, reducing both cash and capital. Commission received in advance is a liability because we have not yet earned it.

Exam Tip: When goods are sold at a loss, deduct the actual cost from stock, add the cash received to cash, and subtract the loss directly from capital.

 

Question 5. Use accounting equation to show the effect of the following transactions of M/s Royal Traders:
(a) Started business with cash Rs 1,20,000
(b) Purchased goods for cash Rs 10,000
(c) Rent received Rs 5,000
(d) Salary outstanding Rs 2,000
(e) Prepaid Insurance Rs 1,000
(f) Received interest Rs 700
(g) Sold goods for cash (costing Rs 5,000) Rs 7,000
(h) Goods destroyed by fire Rs 500
Answer: The accounting equation statement is prepared below:

In simple words: Salary outstanding is a liability that reduces capital since it is an expense. Prepaid insurance is an asset that is paid out of cash. Loss of goods by fire decreases stock and reduces capital.

Exam Tip: Note the distinction: outstanding expenses are liabilities that decrease capital, whereas prepaid expenses are assets that only affect the asset side (decrease cash, increase prepaid asset).

 

Question 6. Show the accounting equation on the basis of the following transaction:
(a) Udit started business with:
(i) Cash Rs 5,00,000
(ii) Goods Rs 1,00,000
(b) Purchased building for cash Rs 2,00,000
(c) Purchased goods from Himani Rs 50,000
(d) Sold goods to Ashu (Cost Rs 25,000) Rs 36,000
(e) Paid insurance premium Rs 3,000
(f) Rent outstanding Rs 5,000
(g) Depreciation on building Rs 8,000
(h) Cash withdrawn for personal use Rs 20,000
(i) Rent received in advance Rs 5,000
(j) Cash paid to Himani on account Rs 20,000
(k) Cash received from Ashu Rs 30,000
Answer: The accounting equation statement is prepared below:

In simple words: Depreciation on building is an operating loss, which directly reduces both building asset value and capital. Any cash received from a debtor reduces that debtor's balance but increases cash, keeping total assets unchanged.

Exam Tip: Make sure to treat "Rent received in advance" as a liability (unearned income) and "Rent outstanding" as a liability (outstanding expense). Both are placed under Liabilities.

 

Question 7. Show the effect of the following transactions on Assets, Liabilities and Capital through accounting equation:
(a) Started business with cash Rs 1,20,000
(b) Rent received Rs 10,000
(c) Invested in shares Rs 50,000
(d) Received dividend Rs 5,000
(e) Purchase goods on credit from Ragani Rs 35,000
(f) Paid cash for house hold Expenses Rs 7,000
(g) Sold goods for cash (costing Rs 10,000) Rs 14,000
(h) Cash paid to Ragani Rs 35,000
(i) Deposited into bank Rs 20,000
Answer: The accounting equation statement is prepared below:

In simple words: Depositing cash into the bank decreases the cash balance but increases the bank balance, resulting in no change to the total assets. Paid household expenses represent personal drawings and reduce capital.

Exam Tip: Make sure to classify "Invested in shares" as a new asset category under Investments. Any dividend received on such investments is classified as income and is added to capital.

 

Question 8. Show the effect of following transaction on the accounting equation:
(a) Manoj started business with:
(i) Cash Rs 2,30,000
(ii) Goods Rs 1,00,000
(iii) Building Rs 2,00,000
(b) He purchased goods for cash Rs 50,000
(c) He sold goods (costing Rs 20,000) Rs 35,000
(d) He purchased goods from Rahul Rs 55,000
(e) He sold goods to Varun (Costing Rs 52,000) Rs 60,000
(f) He paid cash to Rahul in full settlement Rs 53,000
(g) Salary paid by him Rs 20,000
(h) Received cash from Varun in full settlement Rs 59,000
(i) Rent outstanding Rs 3,000
(j) Prepaid Insurance Rs 2,000
(k) Commission received by him Rs 13,000
(l) Amount withdrawn by him for personal use Rs 20,000
(m) Depreciation charge on building Rs 10,000
(n) Fresh capital invested Rs 50,000
(o) Purchased goods from Rakhi Rs 6,000
Answer: The accounting equation statement is prepared below:

In simple words: Full settlement payments from debtors can result in a discount allowed, which is a business loss and reduces capital. Similarly, full settlement payments to creditors can result in discount received, which increases capital.

Exam Tip: Make sure to carefully track all variables in long questions. When a debtor is settled in full, calculate the discount allowed (loss) and subtract it from capital while removing the entire debt from Debtors.

 

Question 9. Transactions of M/s. Vipin Traders are given below. Show the effects on Assets, Liabilities and Capital with the help of accounting Equation.
(a) Business started with cash Rs 1,25,000
(b) Purchased goods for cash Rs 50,000
(c) Purchase furniture from R.K. Furniture Rs 10,000
(d) Sold goods to Parul Traders (costing Rs 7,000 vide bill no. 5674) Rs 9,000
(e) Paid cartage Rs 100
(f) Cash Paid to R.K. furniture in full settlement Rs 9,700
(g) Cash sales (costing Rs 10,000) Rs 12,000
(h) Rent received Rs 4,000
(i) Cash withdrew for personal use Rs 3,000
Answer: The accounting equation shows that a firm's total assets always equal the sum of its total liabilities and owner's capital. Let us prepare the accounting equation table to show the dual effect of each transaction:

In simple words: The accounting equation balances what a business owns with what it owes. Every single business deal changes these balances but keeps the two sides equal at all times.

Exam Tip: Be sure to subtract cost price from stock and record sales price in cash or debtors, adding the net profit to capital to keep the equation balanced.

 

Question 10. Bobby opened a consulting firm and completed these transactions during November, 2005:
(a) Invested Rs 4,00,000 cash and office equipment with Rs 1,50,000 in a business called Bobbie Consulting.
(b) Purchased land and a small office building. The land was worth Rs 1,50,000 and the building worth Rs 3,50,000. The purchase price was paid with Rs 2,00,000 cash and a long term note payable for Rs 8,00,000.
(c) Purchased office supplies on credit for Rs 12,000.
(d) Bobbie transferred title of motor car to the business. The motor car was worth Rs 90,000.
(e) Purchased for Rs 30,000 additional office equipment on credit.
(f) Paid Rs 75,00 salary to the office manager.
(g) Provided services to a client and collected Rs 30,000
(h) Paid Rs 4,000 for the month’s utilities.
(i) Paid supplier created in transaction (c).
(j) Purchase new office equipment by paying Rs 93,000 cash and trading in old equipment with a recorded cost of Rs 7,000.
(k) Completed services of a client for Rs 26,000. This amount is to be paid within 30 days.
(l) Received Rs 19,000 payment from the client created in transaction (k).
(m) Bobby withdrew Rs 20,000 from the business.
Analyse the above stated transactions and open the following T-accounts:
Cash, client, office supplies, motor car, building, land, long term payables, capital, withdrawals, salary, expense and utilities expense.
Answer: Let us analyze the transaction-level effects and prepare the corresponding T-accounts:

(a) Starting the business with cash and equipment raises the total assets of Bobbie Consulting by Rs 5,50,000. This consists of Rs 4,00,000 cash and Rs 1,50,000 worth of office equipment, both of which are debited to their respective accounts. Simultaneously, the owner's capital account is credited to reflect an increase of Rs 5,50,000.

(b) Acquiring property and office premises adds valuable assets to the firm. These individual asset accounts are debited to reflect this growth. Since part of the transaction is paid in cash, the cash balance drops, requiring a credit of Rs 2,00,000 to the cash account. The remaining balance for the building purchase is considered a liability, thereby increasing our obligations to creditors, which are credited. Additionally, taking on long-term payables acts as a business loan, increasing both cash on the debit side and long-term liabilities on the credit side by Rs 8,00,000.

Let us prepare the T-accounts:

Cash Account

Office Equipment Account

Capital Account

Land Account

Building Account

Long Term Payable Account

Creditors Account

Office Supplies Account

Motor Car Account

Client Account

Withdrawals Account

Salary Expense Account

Utilities Expense Account

In simple words: Ledger T-accounts visually separate debits on the left side from credits on the right. For every transaction, double-entry bookkeeping rules dictate that debits must match credits.

Exam Tip: Be sure to balance each ledger account regularly. Total both sides, calculate the differences, and record the balancing figure to start the next period.

 

Question 11. Journalise the following transactions in the books of Himanshu:
2005
Dec.01 Business started with cash Rs 75,000
Dec.07 Purchased goods for cash Rs 10,000
Dec.09 Sold goods to Swati Rs 5,000
Dec.12 Purchased furniture Rs 3,000
Dec.18 Cash received from Swati in full settlement Rs 4,000
Dec.25 Paid rent Rs 1,000
Dec.30 Paid salary Rs 1,500
Answer: Let us prepare the journal entries in the books of Himanshu:

In simple words: The journal chronologically captures daily transactions, dividing them into debit and credit entries. Every line is backed by a short explanation describing the nature of the transaction.

Exam Tip: Pay special attention to "full settlement" scenarios. If the cash received is less than the credit sales, remember to record the difference as a discount allowed on the debit side.

 

Question 12. Enter the following Transactions in the Journal of Mudit :
2006
Jan.01 Commenced business with cash Rs 1,75,000
Jan.01 Building Rs 1,00,000
Jan.02 Goods purchased for cash Rs 75,000
Jan.03 Sold goods to Ramesh Rs 30,000
Jan.04 Paid wages Rs 500
Jan.06 Sold goods for cash Rs 10,000
Jan.10 Paid for trade expenses Rs 700
Jan.12 Cash received from Ramesh Rs 29,500
Discount allowed Rs 500
Jan.14 Goods purchased for Sudhir Rs 27,000
Jan.18 Cartage paid Rs 1,000
Jan.20 Drew cash for personal use Rs 5,000
Jan.22 Goods use for house hold Rs 2,000
Jan.25 Cash paid to Sudhir Rs 26,700
Discount allowed Rs 300
Answer: Let us record these journal entries for Mudit:

In simple words: The journal captures the business's daily financial flow. It is crucial to remember that personal drawings of cash decrease cash, while drawing goods for personal use decreases purchases.

Exam Tip: For goods taken for personal use, make sure to credit the "Purchases A/c" rather than the "Sales A/c" because goods are removed at their cost price.

 

Question 13. Journalise the following transactions:
2005
Dec. 01 Hema started business with cash Rs 1,00,000
Dec. 02 Open a bank account with SBI Rs 30,000
Dec. 04 Purchased goods from Ashu Rs 20,000
Dec. 06 Sold goods to Rahul for cash Rs 15,000
Dec.10 Bought goods from Tara for cash Rs 40,000
Dec.13 Sold goods to Suman Rs 20,000
Dec.16 Received cheque from Suman Rs 19,500
Discount allowed Rs 500
Dec.20 Cheque given to Ashu on account Rs 10,000
Dec.22 Rent paid by cheque Rs 2,000
Dec.23 Deposited into bank Rs 16,000
Dec.25 Machine purchased from Parigya Rs 10,000
Dec.26 Trade expenses Rs 2,000
Dec.28 Cheque issued to Parigya Rs 10,000
Dec.29 Paid telephone expenses by cheque Rs 1,200
Dec.31 Paid salary Rs 4,500
Answer: Let us prepare the journal entries in the books of Hema:

In simple words: Journalizing helps track business events day by day. Ensure you distinguish between transactions settled in cash and those settled by bank cheque.

Exam Tip: Be sure to keep cash and bank transactions separate. If a payment is made by cheque, credit the Bank account, not the Cash account.

 

Question 14. Journalise the following transactions in the books of Harpreet Bros.:
(a) Rs 1,000 due from Rohit are now bad debts.
(b) Goods worth Rs 2,000 were used by the proprietor.
(c) Charge depreciation @ 10% p.a for two month on machine costing Rs 30,000.
(d) Provide interest on capital of Rs 1,50,000 at 6% p.a. for 9 months.
(e) Rahul become insolvent, who owed is Rs 2,000 a final dividend of 60 paise in a rupee is received from his estate.
Answer: Let us prepare the journal entries in the books of Harpreet Bros.:

In simple words: This journal records adjustive bookkeeping entries, such as depreciation, bad debts, and interest on capital, to correctly update business accounts.

Exam Tip: Work out the depreciation and interest on capital for the exact number of months specified, using the formula: \( \text{Amount} \times \frac{\text{Rate}}{100} \times \frac{\text{Months}}{12} \).

 

Question 15. Prepare Journal from the transactions given below :
(a) Cash paid for installation of machine Rs 500
(b) Goods given as charity Rs 2,000
(c) Interest charge on capital @ 7% p.a. when total capital were Rs 70,000
(d) Received Rs 1,200 of a bad debts written-off last year.
(e) Goods destroyed by fire Rs 2,000
(f) Rent outstanding Rs 1,000
(g) Interest on drawings Rs 900
(h) Sudhir Kumar who owed me Rs 3,000 has failed to pay the amount. He pays me a compensation of 45 paise in a rupee.
(i) Commission received in advance Rs 7,000
Answer: Let us prepare the journal entries:

In simple words: Outstanding expenses are recorded as liabilities, while assets' setup costs are debited directly to the asset account. Capital and drawing adjustments keep capital records precise.

Exam Tip: Never debit "Installation Expenses" for setting up machinery. Always debit the asset's account itself (Machinery A/c), as it is a capital cost.

 

Question 16. Journalise the following transactions, post to the ledger:
2005
Nov. 01 Business started with
(i) Cash 1,50,000
(ii) Goods 50,000
Nov. 03 Purchased goods from Harish 30,000
Nov. 05 Sold goods for cash 12,000
Nov. 08 Purchase furniture for cash 5,000
Nov. 10 Cash paid to Harish on account 15,000
Nov. 13 Paid sundry expenses 200
Nov. 15 Cash sales 15,000
Nov. 18 Deposited into bank 5,000
Nov. 20 Drew cash for personal use 1,000
Nov. 22 Cash paid to Harish in full settlement of account 14,700
Nov. 25 Good sold to Nitesh 7,000
Nov. 26 Cartage paid 200
Nov. 27 Rent paid 1,500
Nov. 29 Received cash from Nitesh 6,800
Discount allowed 200
Nov. 30 Salary paid 3,000
Answer: Let us prepare the journal entries and then post them to their ledger accounts:

Ledger Accounts

Cash Account

Stock Account

Capital Account

Harish's Account

Purchases Account

Sales Account

Nitesh's Account

Discount Allowed Account

Discount Received Account

In simple words: Posting from the journal into specific ledger accounts helps us quickly see the final balance of any single category, like Cash, Capital, or the amount still owed to our suppliers.

Exam Tip: Verify that the total of all debit balances in your ledgers equals the total of all credit balances to ensure ledger accounts are posted accurately.

 

Question 17. Journalise the following transactions is the journal of M/s. Goel Brothers and post them to the ledger.
2006
Jan. 01 Started business with cash 1,65,000
Jan. 02 Opened bank account in PNB 80,000
Jan. 04 Goods purchased from Tara 22,000
Jan. 05 Goods purchased for cash 30,000
Jan. 08 Goods sold to Naman 12,000
Jan. 10 Cash paid to Tara 22,000
Jan. 15 Cash received from Naman 11,700
Discount allowed 300
Jan. 16 Paid wages 200
Jan. 18 Furniture purchased for office use 5,000
Jan. 20 Withdrawn from bank for personal use 4,000
Jan. 22 Issued cheque for rent 3,000
Jan. 23 Goods issued for house hold purpose 2,000
Jan. 24 Drawn cash from bank for office use 6,000
Jan. 26 Commission received 1,000
Jan. 27 Bank charges 200
Jan. 28 Cheque given for insurance premium 3,000
Jan. 29 Paid salary 7,000
Jan. 30 Cash sales 10,000
Answer: Let us prepare the journal entries for M/s. Goel Brothers and post them to their ledger accounts:

Ledger Accounts

Cash Account

Bank Account

In simple words: This complete process maps raw journal records into double-sided ledger accounts. This makes sure that each debit and credit is grouped under its main heading for simplified final checks.

Exam Tip: Always state ledger entries clearly. Ensure Contra entries (like depositing and drawing cash from bank) reflect correctly on both Cash and Bank ledger accounts.

 

Question 18. Give journal entries of M/s. Mohit traders; post them to the Ledger from the following transactions:

Answer:
Books of M/s. Mohit Traders
Journal

 

In simple words: A journal is used to write down every daily business deal as soon as it happens. Each transaction is split into debit and credit entries to show how cash, assets, and liabilities are affected.

 

Exam Tip: Make sure to always write down short narrations under each entry so that the examiner knows why the transaction was recorded. Also, always verify that your total debits match your total credits.

 

Question 19. Journalise the following transaction in the Books of the M/s. Bhanu Traders and Post them into the Ledger.

Answer:
Books of M/s. Bhanu Traders
Journal

 

In simple words: When starting a business, we record the initial cash as a capital contribution. Later transactions, like depositing cash or buying on credit, are recorded in their respective accounts.

 

Exam Tip: Pay attention to credit purchases. Always credit the supplier's personal account to record the outstanding liability.

 

Question 20. Journalise the following transaction in the Book of M/s. Beauty traders also post them in the ledger.

Answer:
Books of Beauti Traders
Journal

 

In simple words: Purchasing permanent items like a computer or furniture increases our business assets, so they must be debited. Paying by cheque reduces our bank account balance, which is credited.

 

Exam Tip: Be sure to distinguish between asset purchases (like furniture/computers) and regular purchases of goods. Asset purchases must be debited to their specific asset accounts.

 

Question 21. Journalise the following transaction in the books of Sanjana and post them into the ledger:

Answer:
Books of Sanjana
Journal Entries

 

In simple words: An opening entry brings forward the balances of assets, liabilities, and capital from the previous month. Assets are debited, liabilities are credited, and the difference is credited to the Capital account.

 

Exam Tip: Always make sure that the total debits in your opening entry equal your total credits. If the Capital amount is not directly given, compute it as the difference between total assets and total liabilities.

 

Long Answer Type Questions:

 

Question 1. Describe the events recorded in accounting systems and the importance of source documents in those systems?
Answer: Since human memory has its limits, it is impossible to recall every single monetary exchange. This is why source documents play a vital role in any bookkeeping system. These documents serve as legal proof for transactions and are admissible in a court of law. When backed by reliable records, financial entries can be easily checked and validated. Furthermore, having primary documents ensures that the bookkeeping entries remain neutral and free from individual prejudice.

Below are some common transactions that require supporting documentation:
1. Selling Rs 200 worth of merchandise on credit, backed by a sales bill or invoice.
2. Buying Rs 500 worth of merchandise on credit, backed by a purchase invoice or bill.
3. Conducting cash sales of Rs 1,000, backed by a cash memo.
4. Making a cash purchase of goods worth Rs 400, backed by a cash memo.
5. Customer returning Rs 100 worth of goods, backed by a credit note.
6. Returning Rs 200 worth of credit-purchased items to a supplier, backed by a debit note.
7. Disbursing a bank payment of Rs 1,200, backed by check leaves.
8. Depositing Rs 500 into a bank account, backed by a pay-in slip.

Among these occurrences, only transactions that can be quantified in money are recorded in account books. Events that are not financial in nature are excluded from ledger accounts; for instance, giving a manager a promotion is not recorded, but raising their wage is logged once the salary is paid or becomes due.

Primary records are essential in the accounting process for several key reasons:
1. They offer concrete proof that a business event took place.
2. They supply crucial data regarding the transaction date, total value, participating entities, and other specific terms.
3. They function as valid evidence if a legal dispute arises in court.
4. They make it much easier to confirm and verify transactions during audits.
In simple words: Source documents like bills, receipts, and invoices are the original proofs of a transaction. They prove that money actually changed hands and help auditors check if the records are true.

Exam Tip: To score full marks on this question, list at least four types of source documents (like cash memo, invoice, credit note, and debit note) and explain how they serve as physical proof for accounting entries.

 

Question 2. Describe how debits and credits are used to analyse transactions.
Answer: The word debit has its roots in the Italian term debito, itself coming from the Latin word debeo, which translates to "owed to proprietor." Meanwhile, credit stems from the Italian word credito, which comes from the Latin word credo, meaning trust or belief, i.e., "owed by proprietor."

Under the double-entry system, every business event entered into the financial books has a two-fold effect: a debit and a credit. To illustrate this concept, consider purchasing Rs 500 worth of merchandise using cash. This single transaction impacts two different accounts at the same time for the identical amount. Because cash is given up to obtain the goods, the firm's cash balance decreases by Rs 500, which is why the cash account receives a credit. At the same moment, the inventory of merchandise increases by Rs 500, requiring a debit to the purchases account. Whether an entry is a debit or a credit depends on the class of account, namely assets, expenses, liabilities, revenue, or capital. Accounts are classified into five distinct categories:

1. Assets - This category covers all physical properties and legal claims held by a business to support its functioning, including ready cash, machinery, bank balances, real estate, and structures. Assets carry a normal debit balance. When asset values rise, we debit them, and when they fall, we credit them.
For instance, if a company buys furniture using a cheque, the entry is:
Furniture A/c Dr.
To Bank A/c

In this scenario, both the furniture and bank balance are categorized as assets. Buying furniture increases that specific asset, so we debit the furniture account. Conversely, issuing a cheque lowers the cash held at the bank, so we credit the bank account.

2. Expenses - These are outlays made to keep the enterprise running and to support regular daily operations. Expenses naturally hold debit balances. Any time an expense is incurred, we debit it.
For example, when rent is paid, the recording is:
Rent A/c Dr.
To Cash A/c

In this case, rent is classified as an expense. Since expenses carry debit balances, the rent account is debited. Meanwhile, paying rent in cash lowers our cash funds, requiring a credit to the cash account.

3. Liabilities - These represent financial obligations that the business owes to outsiders. A rise in a liability is recorded as a credit, whereas a reduction is recorded as a debit.
For example, if a firm takes a loan from a bank, the entry is:
Bank A/c Dr.
To Bank Loan A/c

Here, the bank loan is a liability. Because liabilities carry normal credit balances, the loan account is credited to reflect the increase in what the firm owes.

4. Income - This refers to profits or revenues earned from any business activity during a given period. It represents the excess of revenue over the associated expenses. Income accounts have a normal credit balance because earning income increases the owner's capital.
For instance, receiving rent from a tenant is recorded as:
Cash A/c Dr.
To Rent A/c

Here, rent counts as revenue, so the rent account is credited. The cash account is debited because receiving cash raises the asset balance.

5. Capital - This is the net worth or funds put into the firm by its owner. Capital accounts carry a normal credit balance. Increases in capital are credited, while any withdrawals or decreases are debited.
For instance, if the proprietor injects extra funds into the enterprise, the entry is:
Cash A/c Dr.
To Capital A/c

When additional capital is brought in, the owner's equity rises, which is why the capital account is credited. At the same time, because cash comes into the business, the cash asset increases, so the cash account is debited.
In simple words: Debits and credits are the left and right sides of ledger accounts. Under the dual-entry rule, every transaction affects at least two accounts so that the total debit amount always equals the total credit amount.

Exam Tip: Be ready to list the modern rules of debit and credit for all five account categories: debit increases in assets/expenses, and credit increases in liabilities/equity/income.

 

Question 3. Describe how accounts are used to record information about the effects of transactions?
Answer: While every business transaction is initially written down in the journal as it happens, it is very difficult to find out the total amount owed by a debtor or payable to a creditor at any single moment. To easily check the financial position of various business activities, we transfer these transactions into separate ledger accounts.

Posting entries into accounts follows a standard sequence of steps. Let us look at a simple example to understand the process.
Suppose we sell goods to Mr. A for Rs 50,000 on April 12th and receive Rs 40,000 from him on April 25th.
The journal entries for these events are as follows:

Step 1: Open or find the relevant account in the ledger, such as Mr. A’s Account.
Step 2: Write down the date of the transaction in the date column on the debit side of the account.
Step 3: In the particulars column on the debit side, write the name of the opposite account affected, which is 'Sales' in this case.
Step 4: Record the journal folio (page number of the journal) in the J.F. column of the account.
Step 5: Fill in the transaction value in the amount column.
Step 6: Use these exact same steps to transfer entries to the credit side of Mr. A’s Account when he pays.
Step 7: At the end of the accounting period, balance the account by summing both sides and entering the difference on the smaller side as 'Balance c/d' (carried down).
Step 8: Write down the equalized total on both sides to close the account for the period.
In simple words: Ledger accounts keep all transactions of a single person or category in one place. By posting entries from the journal to the ledger, we can easily see the net balance of any account at any time.

Exam Tip: Be precise about ledger formatting. Remember to use "To" before names on the debit side and "By" before names on the credit side during posting.

 

Question 4. What is a journal? Give a specimen of journal showing at least five entries.
Answer: The word journal comes from the French term 'jour,' which means daily record. In bookkeeping, a journal is where business activities are logged in the order they happen (chronologically) using details from source documents. Because it is the first place transactions are written down, it is known as the book of original entry.

Proforma of Journal
In the books of...

- Date: The day, month, and year of the transaction are written here in chronological order.
- Particulars: This column lists the names of the accounts to be debited and credited, followed by a brief narration of the event.
- L.F. (Ledger Folio): The page number of the ledger where this specific journal entry is transferred.
- Debit Amount: The monetary value of the account being debited is written here.
- Credit Amount: The monetary value of the account being credited is written here.

Sample Transactions:

• April 01: Started business with cash Rs 1,00,000
• April 03: Open a bank account Rs 20,000
• April 04: Purchase goods for cash Rs 25,000
• April 05: Goods sold for cash Rs 30,000
• April 06: Goods sold to Mr. X Rs 2,000

Books of Mr. A
Journal

 

In simple words: A journal is a daily diary for business transactions where every sale, purchase, or expense is written down in order of date before being sent to the ledger.

 

Exam Tip: Drawing the proper five-column format of a journal (Date, Particulars, L.F., Debit Amount, Credit Amount) is crucial to scoring maximum presentation marks.

 

Question 5. Differentiate between source documents and vouchers.
Answer:

In simple words: A source document is the original proof of a transaction (like a shop receipt), while a voucher is an internal accounting paper that shows how that receipt should be recorded in the books.

Exam Tip: Memorize at least three strong points of distinction, such as legal validity, who prepares them, and when they are prepared, to secure full marks.