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CHSE Odisha Elective Accountancy study materials
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CHSE Odisha Elective Accountancy practice questions

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Question 1Accounting Fundamentals and Theory Base of Accounting

According to the dual aspect concept of accounting, every business transaction affects:

  1. A single account, since one entry is sufficient for each event
  2. At least two items in the accounting equation, keeping it balanced Correct answer.
  3. Only the profit shown in the statement of profit and loss
  4. Only the cash balance of the business at the time of recording

Explanation

The dual aspect concept states that every transaction has two effects of equal amount, so it is recorded in two accounts and the accounting equation (Assets = Liabilities + Capital) always remains balanced. A single transaction therefore changes at least two elements of that equation.

Question 2Accounting Fundamentals and Theory Base of Accounting

A firm purchases machinery for ₹5,00,000 paying ₹2,00,000 by cheque and agreeing to pay the balance later. Which pair of accounts is debited and credited?

  1. Machinery A/c debited; Bank A/c and Creditor A/c credited Correct answer.
  2. Bank A/c debited and Machinery A/c credited
  3. Creditor A/c debited and Machinery A/c credited
  4. Machinery A/c debited and Bank A/c credited only

Explanation

The machinery account receives the full cost of ₹5,00,000 as a debit because an asset increases. The consideration is split: bank is credited with ₹2,00,000 for the payment made and the creditor is credited with ₹3,00,000 for the liability created, so total credits equal the debit.

Question 3Accounting Fundamentals and Theory Base of Accounting

Which of the following is a capital expenditure for a trading firm?

  1. Freight paid on goods purchased for resale
  2. Installation charges of a new generator in the factory Correct answer.
  3. Salaries paid to the accounting staff for the month
  4. Whitewashing of the office building during the year

Explanation

Capital expenditure is incurred to acquire or bring an asset into working condition, and its benefit extends over several years. Installation charges of a generator form part of the cost of that fixed asset, so they are capitalised.

Question 4Accounting Fundamentals and Theory Base of Accounting

Under the accrual basis of accounting, revenue is recognised when:

  1. Cash is actually received from the customer
  2. The legal right to receive it arises from a completed sale Correct answer.
  3. The financial statements are finally prepared
  4. The customer confirms the amount in writing

Explanation

Accrual accounting records revenue in the period in which the right to receive it arises, that is, when the sale is complete, irrespective of when cash changes hands. This is why outstanding income and accrued income appear in the final accounts.

Question 5Accounting Fundamentals and Theory Base of Accounting

Goods costing ₹40,000 were sold for ₹55,000 on credit. Which accounting concept requires the profit of ₹15,000 to be matched against the period of sale rather than the period of collection?

  1. Business entity concept
  2. Matching concept Correct answer.
  3. Consistency concept
  4. Materiality concept

Explanation

The matching concept requires expenses incurred to earn revenue to be recognised in the same period as that revenue. The cost of goods sold of ₹40,000 is therefore set against the sale of ₹55,000, giving ₹15,000 profit in the period of sale.

Question 6Accounting Fundamentals and Theory Base of Accounting

Which qualitative characteristic of accounting information is satisfied when different accountants, using the same records, arrive at similar figures?

  1. Timeliness
  2. Comparability
  3. Relevance
  4. Verifiability Correct answer.

Explanation

Verifiability means that independent knowledgeable observers, examining the same evidence, would reach a similar conclusion. It supports the reliability of the reported figures without requiring identical judgement on every estimate.

Question 7Accounting Fundamentals and Theory Base of Accounting

A firm follows the reducing balance method for depreciation on plant year after year even though the straight line method would show a higher profit. This treatment best illustrates which convention?

  1. Convention of conservatism
  2. Convention of consistency Correct answer.
  3. Convention of full disclosure
  4. Convention of materiality

Explanation

The convention of consistency requires that once a method is chosen it should be applied uniformly from period to period so that results remain comparable. Continuing with the reducing balance method, despite the effect on reported profit, is an application of that convention.

Question 8Accounting Fundamentals and Theory Base of Accounting

Which of the following is an example of a contingent liability that is disclosed but not recorded in the balance sheet?

  1. A pending lawsuit where the outcome is uncertain Correct answer.
  2. A bank overdraft repayable on demand
  3. Provision for doubtful debts created on past experience
  4. Trade payables for goods already received

Explanation

A contingent liability is a possible obligation whose existence will be confirmed only by uncertain future events, so it is disclosed by way of a note rather than recognised. A pending lawsuit with an uncertain outcome fits this description.

Question 9Accounting Fundamentals and Theory Base of Accounting

Which accounting standard-setting body in India issues the Accounting Standards applicable to non-corporate entities?

  1. The Securities and Exchange Board of India
  2. The Reserve Bank of India
  3. The Institute of Chartered Accountants of India Correct answer.
  4. The Insurance Regulatory and Development Authority

Explanation

The Institute of Chartered Accountants of India, through its Accounting Standards Board, formulates and issues Accounting Standards for entities other than companies, which follow standards notified separately. The other regulators issue standards or directions for the sectors they supervise.

Question 10Accounting Fundamentals and Theory Base of Accounting

The going concern assumption justifies which accounting practice?

  1. Closing the books after every transaction
  2. Recording revenue only when cash is received
  3. Valuing closing stock at net realisable value in all cases
  4. Recording fixed assets at historical cost less depreciation Correct answer.

Explanation

Because the business is assumed to continue operating for the foreseeable future, fixed assets are carried at cost less accumulated depreciation rather than at break-up value. This assumption is the basis for deferring the cost of a long-term asset over its useful life.

Question 11Accounting Fundamentals and Theory Base of Accounting

A trader treats a ₹150 stapler purchased for office use as a revenue expense instead of capitalising it. Which convention supports this treatment?

  1. Convention of conservatism
  2. Convention of consistency
  3. Convention of materiality Correct answer.
  4. Convention of full disclosure

Explanation

The convention of materiality permits insignificant items to be treated in the simplest practical manner because their treatment will not influence the decisions of users. A low-cost stapler is immaterial, so charging it to revenue is acceptable.

Question 12Accounting Fundamentals and Theory Base of Accounting

Which of the following best describes the business entity concept?

  1. The business is treated as separate from its owner for accounting purposes Correct answer.
  2. The owner and the business are treated as one and the same person
  3. The business will continue to operate for the foreseeable future
  4. Assets are recorded at the price paid to acquire them

Explanation

The business entity concept treats the business as an accounting unit distinct from its owners, so owner's private transactions are excluded and capital is recorded as a liability of the business to the owner. This separation is essential for measuring business profit correctly.

Question 13Accounting Fundamentals and Theory Base of Accounting

A firm's income statement shows revenue of ₹8,00,000, cost of goods sold of ₹5,00,000 and other expenses of ₹1,20,000. Using the matching concept, what is the profit for the period?

  1. ₹1,80,000 Correct answer.
  2. ₹2,00,000
  3. ₹6,80,000
  4. ₹3,00,000

Explanation

Matching sets all expenses of the period against the revenue of that period. Profit equals ₹8,00,000 minus ₹5,00,000 minus ₹1,20,000, which is ₹1,80,000.

Question 14Accounting Fundamentals and Theory Base of Accounting

Which pair correctly states the effect of the money measurement concept?

  1. All events of the business are recorded, whether or not they involve money
  2. Only transactions expressible in money are recorded, and the value of money is assumed stable Correct answer.
  3. Only cash transactions are recorded in the books of account
  4. Assets are recorded at market value and revised every year

Explanation

The money measurement concept restricts accounting to events that can be expressed in monetary terms and implicitly assumes that the unit of money remains reasonably stable. Non-monetary matters such as employee skill are therefore excluded from the accounts.

Question 15Accounting Fundamentals and Theory Base of Accounting

Which of the following is an internal user of accounting information?

  1. The production manager of the firm Correct answer.
  2. A potential investor studying the annual report
  3. A supplier assessing creditworthiness
  4. A bank considering a loan application

Explanation

Internal users are those within the organisation, such as managers, who use accounting reports for planning, control and decision-making. The production manager falls in this group.

Question 16Accounting Fundamentals and Theory Base of Accounting

A machine costing ₹6,00,000 with an estimated scrap value of ₹60,000 and a useful life of 6 years is depreciated by the straight line method. What is the annual depreciation?

  1. ₹1,00,000
  2. ₹90,000 Correct answer.
  3. ₹1,20,000
  4. ₹1,10,000

Explanation

Under the straight line method, annual depreciation equals the depreciable amount divided by the useful life. The depreciable amount is ₹6,00,000 minus ₹60,000, that is ₹5,40,000, which divided by 6 years gives ₹90,000 per year.

Question 17Recording of Transactions: Journal, Ledger, and Trial Balance

In the double-entry system, which account is debited when goods are purchased for cash?

  1. Cash account
  2. Capital account
  3. Sales account
  4. Purchases account Correct answer.

Explanation

Purchases is an expense for the buyer, and expenses increase on the debit side. Cash is paid out, so cash (an asset) is credited. The entry is Purchases A/c Dr. to Cash A/c.

Question 18Recording of Transactions: Journal, Ledger, and Trial Balance

A trader buys furniture for office use paying by cheque. Which journal entry records this correctly?

  1. Furniture A/c Dr.; To Bank A/c Correct answer.
  2. Furniture A/c Dr.; To Cash A/c
  3. Bank A/c Dr.; To Furniture A/c
  4. Purchases A/c Dr.; To Bank A/c

Explanation

Furniture is an asset used in the business, so it is debited when acquired. Payment is by cheque, so the bank balance falls and Bank A/c is credited. Goods bought for resale would go to Purchases instead.

Question 19Recording of Transactions: Journal, Ledger, and Trial Balance

Which of the following is the correct ruling of a ledger account?

  1. Debit side on the left, credit side on the right Correct answer.
  2. Both debit and credit on the left, balance on the right
  3. Credit side on the left, debit side on the right
  4. Debit side on the right, balance carried below the credit side

Explanation

By universal convention the debit column of a ledger account is placed on the left and the credit column on the right. This layout applies to every account, whether real, personal or nominal.

Question 20Recording of Transactions: Journal, Ledger, and Trial Balance

The trial balance of a firm tallies at Rs. 84,000. Later it is found that a purchase of Rs. 3,000 was completely omitted from the books. What is the effect on the trial balance?

  1. It will show a debit excess of Rs. 3,000
  2. It will show a credit excess of Rs. 3,000
  3. It will show a debit excess of Rs. 6,000
  4. It still tallies, because both debit and credit are equally omitted Correct answer.

Explanation

A complete omission removes equal amounts from both the debit and the credit side, so the two totals remain equal. Such errors are not disclosed by a trial balance. Only one-sided errors disturb the agreement of the trial balance.

Question 21Recording of Transactions: Journal, Ledger, and Trial Balance

Which of the following errors will be disclosed by a trial balance?

  1. Goods returned by Ram entered in the sales book instead of the returns book
  2. Goods sold to Ram Rs. 5,000 posted only to Ram's account Correct answer.
  3. Goods sold to Ram Rs. 5,000 posted to Ram's account as Rs. 5,000 on the wrong date
  4. Goods sold to Ram Rs. 5,000 recorded as Rs. 500 in both accounts

Explanation

Posting only one side of an entry leaves a one-sided difference, so the trial balance will not agree. The other three errors affect both accounts equally or cancel out, and so remain hidden.

Question 22Recording of Transactions: Journal, Ledger, and Trial Balance

What is the correct treatment of a compound journal entry?

  1. More than two accounts are combined in one entry with one narration Correct answer.
  2. Only real accounts may be combined in a single entry
  3. The entry must be split into separate simple entries before posting
  4. Two accounts only are recorded, with separate narrations for each

Explanation

A compound entry brings together more than two accounts in a single journal entry, with total debits equalling total credits. It saves time and needs only one narration. It may combine any type of account.

Question 23Recording of Transactions: Journal, Ledger, and Trial Balance

A firm pays Rs. 1,200 for stationery and Rs. 800 for postage in a single transaction. Which compound entry is correct?

  1. Stationery A/c Dr. 1,200; Postage A/c Dr. 800; To Cash A/c 2,000 Correct answer.
  2. Stationery A/c Dr. 2,000; To Cash A/c 2,000
  3. Postage A/c Dr. 1,200; Stationery A/c Dr. 800; To Cash A/c 2,000
  4. Cash A/c Dr. 2,000; To Stationery A/c 1,200; To Postage A/c 800

Explanation

Both stationery and postage are expenses, so each is debited with its own amount. Cash paid out totals Rs. 2,000, so Cash A/c is credited with that total. Debits of 1,200 and 800 equal the credit of 2,000.

Question 24Recording of Transactions: Journal, Ledger, and Trial Balance

Which source document supports the entry for goods returned by a customer?

  1. Cash memo given at the time of sale
  2. Purchase invoice received from the supplier
  3. Credit note issued by the seller Correct answer.
  4. Debit note issued by the seller

Explanation

When a customer returns goods, the seller issues a credit note reducing the amount owed by the customer. The seller records a sales return on the strength of this credit note. A debit note is issued by the buyer returning goods.

Question 25Recording of Transactions: Journal, Ledger, and Trial Balance

Goods costing Rs. 4,000 are withdrawn by the proprietor for personal use. Which entry is correct?

  1. Capital A/c Dr. 4,000; To Cash A/c 4,000
  2. Purchases A/c Dr. 4,000; To Drawings A/c 4,000
  3. Drawings A/c Dr. 4,000; To Purchases A/c 4,000 Correct answer.
  4. Drawings A/c Dr. 4,000; To Sales A/c 4,000

Explanation

Goods taken for personal use reduce the stock available for sale, so Purchases is credited at cost. The amount is treated as a withdrawal by the owner, so Drawings is debited. No sale has taken place, so Sales is not involved.

Question 26Recording of Transactions: Journal, Ledger, and Trial Balance

In the ledger, the balance of a nominal account is transferred to which account at the end of the year?

  1. Capital Account
  2. Balance Sheet only, without any transfer
  3. Trading or Profit and Loss Account Correct answer.
  4. Cash Account

Explanation

Nominal accounts record expenses, losses, incomes and gains, and their balances are closed by transfer to the Trading or Profit and Loss Account. This is why they are called temporary accounts. Real and personal accounts carry their balances forward.

Question 27Recording of Transactions: Journal, Ledger, and Trial Balance

A debit balance of Rs. 6,500 in the account of Hari means that

  1. the account has been wrongly ruled
  2. the business owes Rs. 6,500 to Hari
  3. Hari owes Rs. 6,500 to the business Correct answer.
  4. Hari has paid Rs. 6,500 in cash to the business

Explanation

For a personal account, a debit balance represents an amount receivable from that person. Hari is therefore a debtor of the business to the extent of Rs. 6,500. A credit balance would indicate a liability to Hari.

Question 28Recording of Transactions: Journal, Ledger, and Trial Balance

Which of these errors is an error of principle?

  1. Sale of Rs. 700 recorded as Rs. 70 in the sales book
  2. Goods sold to Mohan posted to Sohan's account
  3. A purchase of Rs. 900 omitted from the purchases book
  4. Purchase of machinery debited to Purchases account Correct answer.

Explanation

An error of principle arises when a capital expenditure is treated as revenue expenditure or vice versa. Debiting machinery, a fixed asset, to Purchases wrongly treats capital spending as a trading expense. The other errors involve amounts or names, not accounting principles.

Question 29Recording of Transactions: Journal, Ledger, and Trial Balance

The trial balance shows a debit total of Rs. 51,000 and a credit total of Rs. 50,820. The difference is placed in a suspense account. What is the amount and side of the suspense account balance?

  1. Rs. 180 debit
  2. Rs. 360 credit
  3. Rs. 180 credit Correct answer.
  4. Rs. 180 debit and credit both

Explanation

The credit side is short by Rs. 180 (51,000 minus 50,820). To make the trial balance agree, a suspense account with a credit balance of Rs. 180 is opened. The suspense account later absorbs the correction of the one-sided error.

Question 30Recording of Transactions: Journal, Ledger, and Trial Balance

Which of the following is recorded in the journal proper rather than in any special journal?

  1. Cash received from a debtor
  2. Credit sale of goods to a regular customer
  3. Purchase of office equipment on credit from a supplier Correct answer.
  4. Goods purchased for cash

Explanation

The journal proper records transactions that fit no special book, such as credit purchase of a fixed asset. Credit sales of goods go to the sales book and cash transactions to the cash book. Special journals handle routine repetitive transactions.

Question 31Recording of Transactions: Journal, Ledger, and Trial Balance

Narration is written in a journal entry in order to

  1. explain briefly the nature of the transaction recorded Correct answer.
  2. calculate the amount of the debit
  3. fix the date of the transaction
  4. show the page number of the ledger

Explanation

A narration is a short description written below each journal entry explaining why the entry was passed. It aids later understanding and audit. The date, amounts and ledger folio have their own separate columns.

Question 32Recording of Transactions: Journal, Ledger, and Trial Balance

A cheque of Rs. 2,500 received from a customer was deposited in the bank but later dishonoured. Which entry records the dishonour?

  1. Cash A/c Dr. 2,500; To Customer's A/c 2,500
  2. Bank A/c Dr. 2,500; To Customer's A/c 2,500
  3. Customer's A/c Dr. 2,500; To Cash A/c 2,500
  4. Customer's A/c Dr. 2,500; To Bank A/c 2,500 Correct answer.

Explanation

Dishonour reverses the earlier receipt, so the customer again becomes a debtor and is debited. The bank balance falls because the amount is reversed, so Bank A/c is credited. Cash is not affected because the cheque was banked, not kept as cash.

Question 33Recording of Transactions: Journal, Ledger, and Trial Balance

Which account is credited when a bad debt is written off?

  1. Bad Debts account
  2. The debtor's personal account Correct answer.
  3. Sales account
  4. Cash account

Explanation

Writing off a bad debt removes the amount receivable, so the debtor's personal account is credited. Bad Debts, an expense, is debited. The entry is Bad Debts A/c Dr. to Debtor's A/c.

Question 34Recording of Transactions: Journal, Ledger, and Trial Balance

Goods worth Rs. 9,000 were sold to Anil and the amount was posted to the credit of Sunil's account, both being debtors. What is the nature of this error and its effect on the trial balance?

  1. Compensating error; the trial balance fails to agree
  2. Error of principle; the trial balance fails to agree
  3. Error of omission; the trial balance still agrees
  4. Error of commission; the trial balance still agrees Correct answer.

Explanation

Posting to the wrong personal account is an error of commission, since the correct class of account was used but the wrong person's account was chosen. The debit and credit totals remain equal, so the trial balance still tallies.

Question 35Recording of Transactions: Journal, Ledger, and Trial Balance

A trial balance is prepared primarily to

  1. test the arithmetical accuracy of the ledger postings Correct answer.
  2. value the closing stock of the business
  3. prove that no fraud has occurred in the business
  4. calculate the net profit for the period

Explanation

The trial balance checks whether total debits equal total credits, which tests arithmetical accuracy of the ledger. It cannot detect errors that affect both sides equally. Profit is computed from the trading and profit and loss accounts.

Question 36Recording of Transactions: Journal, Ledger, and Trial Balance

Which pair of accounts is correctly matched with its balance carried down in the trial balance?

  1. Both sales returns and purchases returns, debit
  2. Both sales returns and purchases returns, credit
  3. Sales returns, credit; Purchases returns, debit
  4. Sales returns, debit; Purchases returns, credit Correct answer.

Explanation

Sales returns reduce sales revenue, so they carry a debit balance. Purchases returns reduce the cost of goods bought, so they carry a credit balance. The two returns accounts therefore appear on opposite sides of the trial balance.

Question 37Recording of Transactions: Journal, Ledger, and Trial Balance

A credit sale of Rs. 7,500 to Kavya was correctly entered in the sales book but posted to Kavya's account as Rs. 5,700. Which correcting entry is needed?

  1. Suspense A/c Dr. 1,800; To Kavya's A/c 1,800
  2. Kavya's A/c Dr. 1,800; To Suspense A/c 1,800 Correct answer.
  3. Kavya's A/c Dr. 5,700; To Sales A/c 5,700
  4. Sales A/c Dr. 1,800; To Kavya's A/c 1,800

Explanation

Kavya's account was debited Rs. 1,800 short, so it needs a further debit of Rs. 1,800. The sales side was correct, so the difference is adjusted through the suspense account by crediting it. This restores agreement of the trial balance.

Question 38Recording of Transactions: Journal, Ledger, and Trial Balance

Under the modern classification of accounts, an increase in a liability is recorded by

  1. debiting the corresponding asset account
  2. crediting the capital account
  3. crediting the liability account Correct answer.
  4. debiting the liability account

Explanation

Liabilities increase on the credit side under the modern rules, just as they do under the traditional personal account rule. A rise in a liability is therefore credited. A fall in a liability would be debited.

Question 39Recording of Transactions: Journal, Ledger, and Trial Balance

Which of the following transactions results in a contra entry in the cash book?

  1. Rent paid by cheque
  2. Cash received from a debtor
  3. Goods sold for cash
  4. Cash deposited into the bank by the trader Correct answer.

Explanation

A contra entry affects both the cash and the bank columns of the cash book, as when cash is deposited into the bank or withdrawn for office use. It is marked with 'C' in the folio column. The other transactions affect only one column.

Question 40Recording of Transactions: Journal, Ledger, and Trial Balance

A firm's trial balance does not agree, and the difference is temporarily placed in a suspense account. Which statement about the suspense account is correct?

  1. It may be used to hide errors of principle permanently
  2. It is shown in the balance sheet until all one-sided errors are rectified Correct answer.
  3. It must always show a debit balance
  4. It is closed by transfer to the trading account each year

Explanation

The suspense account holds the unexplained difference until one-sided errors are traced and corrected. Until then its balance appears in the balance sheet. It is not an income or expense, so it is not closed to the trading account.

Question 41Bank Reconciliation Statement and Rectification of Errors

In a bank reconciliation statement prepared from the cash book balance, a cheque issued to a supplier but not yet presented for payment is treated how?

  1. Added only if the bank has already debited it
  2. Deducted from the cash book balance
  3. Added to the cash book balance Correct answer.
  4. Ignored because it is already recorded in the cash book

Explanation

An unpresented cheque has already been credited (reduced) in the cash book, but the bank has not yet debited the customer's account. The bank statement balance is therefore higher than the cash book balance, so the amount is added back to the cash book balance to reconcile.

Question 42Bank Reconciliation Statement and Rectification of Errors

A bank reconciliation statement is prepared primarily to explain the difference between which two figures?

  1. Cash book bank balance and bank statement balance Correct answer.
  2. Opening capital and closing capital
  3. Total debtors and total creditors
  4. Gross profit and net profit

Explanation

The statement reconciles the bank column balance shown in the cash book with the balance shown on the bank statement (pass book). Differences arise from timing items and errors on either side. Other balances listed belong to different accounting schedules.

Question 43Bank Reconciliation Statement and Rectification of Errors

Bank charges of Rs. 450 debited by the bank appear in the cash book as Rs. 540. In the reconciliation starting from the cash book balance, what adjustment is required?

  1. No adjustment is needed
  2. Add Rs. 540 to the cash book balance
  3. Add Rs. 90 to the cash book balance
  4. Deduct Rs. 90 from the cash book balance Correct answer.

Explanation

The cash book has recorded Rs. 90 more of expense than the bank actually charged, so the cash book balance is understated by Rs. 90. Adding Rs. 90 back corrects the cash book to agree with the bank's debit of Rs. 450.

Question 44Bank Reconciliation Statement and Rectification of Errors

A trader's cash book shows a debit balance of Rs. 8,000. Cheques deposited but not yet credited by the bank total Rs. 1,500. What is the balance shown by the bank statement?

  1. Rs. 1,500
  2. Rs. 9,500
  3. Rs. 6,500 Correct answer.
  4. Rs. 8,000

Explanation

Cheques deposited but not yet collected have been debited in the cash book but not credited by the bank, so the bank statement balance is lower. Subtracting Rs. 1,500 from Rs. 8,000 gives a bank statement balance of Rs. 6,500.

Question 45Bank Reconciliation Statement and Rectification of Errors

Which item would require an entry in the cash book rather than merely an adjustment in the bank reconciliation statement?

  1. A cheque issued that the payee has not presented
  2. A cheque deposited that the bank has not yet cleared
  3. Interest credited by the bank not recorded by the trader Correct answer.
  4. A deposit made on the last day of the month

Explanation

Interest credited by the bank is a genuine transaction the trader has omitted from the books, so it must be recorded in the cash book through a proper journal entry. The other items are timing differences already recorded in the cash book and are handled only in the reconciliation.

Question 46Bank Reconciliation Statement and Rectification of Errors

A cheque for Rs. 2,000 received from a customer was recorded in the cash book as Rs. 200. Starting from the cash book balance, how is this treated in the reconciliation?

  1. Add Rs. 200 to the cash book balance
  2. Deduct Rs. 1,800 from the cash book balance
  3. Add Rs. 1,800 to the cash book balance Correct answer.
  4. Deduct Rs. 2,000 from the cash book balance

Explanation

The cash book has been under-credited by Rs. 1,800 (Rs. 2,000 less Rs. 200). Adding Rs. 1,800 to the cash book balance corrects this understatement so it agrees with the bank's credit of Rs. 2,000.

Question 47Bank Reconciliation Statement and Rectification of Errors

Which of the following is a timing difference that appears in a bank reconciliation statement?

  1. A wrong totalling of the sales day book
  2. A cheque deposited on 31 March credited by the bank on 3 April Correct answer.
  3. A purchase invoice entered twice in the purchases book
  4. Omission of a credit sale from the ledger

Explanation

A cheque deposited near the year-end but credited by the bank after the year-end is a timing difference between the two records. The other options are bookkeeping errors in the trader's own ledgers, unrelated to the bank balance.

Question 48Bank Reconciliation Statement and Rectification of Errors

The bank statement shows an overdraft of Rs. 5,000. Cheques issued but not presented amount to Rs. 1,200. What is the cash book balance?

  1. Overdraft of Rs. 3,800 Correct answer.
  2. Balance of Rs. 6,200
  3. Overdraft of Rs. 6,200
  4. Balance of Rs. 3,800

Explanation

An unpresented cheque means the bank has not yet reduced the account, so the bank overdraft is larger than the true position in the cash book. Reducing the overdraft by Rs. 1,200 gives an overdraft of Rs. 3,800 in the cash book.

Question 49Bank Reconciliation Statement and Rectification of Errors

A trader forgot to record in the cash book a direct deposit of Rs. 3,000 made by a customer into the bank. What is the effect on the reconciliation?

  1. The bank statement balance is understated by Rs. 3,000
  2. The cash book balance is understated by Rs. 3,000 and must be increased Correct answer.
  3. No adjustment is needed because the bank recorded it
  4. The cash book balance is overstated by Rs. 3,000

Explanation

The bank has credited the account but the trader has not recorded the receipt, so the cash book balance is lower than it should be. The omission is corrected by increasing the cash book balance by Rs. 3,000.

Question 50Bank Reconciliation Statement and Rectification of Errors

Which of these errors would be revealed by preparing a bank reconciliation statement?

  1. Posting a purchase to the wrong supplier's account
  2. A cheque of Rs. 500 recorded in the cash book as Rs. 5,000 Correct answer.
  3. Omission of a credit sale from the sales book
  4. Wrong totalling of the returns inward book

Explanation

An error in the bank column of the cash book creates a difference between the cash book and the bank statement, so reconciliation brings it to light. Errors in personal ledgers or other day books do not affect the bank column and remain hidden.