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Tamil Nadu HSE First Year Commerce study materials
Tamil Nadu HSE First Year Commerce study resources

Tamil Nadu HSE First Year Commerce practice questions

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Question 1Principles of Accounting and Basic Concepts

In the accounting equation, which item represents the owner's claim against the assets of a sole trading concern?

  1. Capital Correct answer.
  2. Liabilities
  3. Drawings
  4. Fixed assets

Explanation

Capital is the owner's equity, representing the amount the proprietor has invested in the business plus profits retained. It appears on the right side of the accounting equation along with liabilities, balancing the assets.

Question 2Principles of Accounting and Basic Concepts

A firm has total assets of Rs. 8,00,000 and outside liabilities of Rs. 3,00,000. What is the amount of owner's capital?

  1. Rs. 5,00,000 Correct answer.
  2. Rs. 3,00,000
  3. Rs. 11,00,000
  4. Rs. 8,00,000

Explanation

Under the accounting equation, Assets = Capital + Liabilities, so Capital = Assets minus Liabilities. Here Rs. 8,00,000 minus Rs. 3,00,000 gives Rs. 5,00,000 as the proprietor's capital.

Question 3Principles of Accounting and Basic Concepts

Which accounting concept justifies recording a machine purchased for Rs. 5,00,000 in the books at its actual cost rather than at its current market value?

  1. Prudence concept
  2. Cost concept Correct answer.
  3. Accrual concept
  4. Matching concept

Explanation

The cost concept states that assets are recorded at the price paid to acquire them and are not periodically revalued to market price. This keeps accounting records objective and verifiable through supporting vouchers.

Question 4Principles of Accounting and Basic Concepts

A trader treats the business as a separate entity from himself and records his personal house purchase outside the business books. Which concept is being applied?

  1. Dual aspect concept
  2. Going concern concept
  3. Business entity concept Correct answer.
  4. Money measurement concept

Explanation

The business entity concept treats the business and its owner as two distinct entities for accounting purposes. Personal transactions of the proprietor are therefore excluded from the business records.

Question 5Principles of Accounting and Basic Concepts

Which of the following transactions results in two assets changing while total assets remain unchanged?

  1. Purchasing furniture for cash Correct answer.
  2. Introducing capital in cash
  3. Paying rent by cheque
  4. Purchasing goods on credit

Explanation

Buying furniture for cash increases one asset, furniture, and decreases another asset, cash, by the same amount. Total assets are therefore unaffected and no liability or capital change arises.

Question 6Principles of Accounting and Basic Concepts

Under the dual aspect concept, which pair of accounts is affected when a firm purchases goods for cash?

  1. Purchases account and creditors account
  2. Cash account and capital account
  3. Stock account and capital account
  4. Purchases account and cash account Correct answer.

Explanation

A cash purchase of goods increases the purchases (or stock) account and decreases the cash account by the same amount. Both accounts belong to the asset and expense side, so the equation stays balanced.

Question 7Principles of Accounting and Basic Concepts

Which qualitative characteristic of accounting information is satisfied when the same accounting method is followed year after year?

  1. Timeliness
  2. Relevance
  3. Materiality
  4. Consistency Correct answer.

Explanation

Consistency requires the firm to apply the same accounting policies and methods from one period to the next. This makes the financial statements of different years comparable and prevents distortion of reported results.

Question 8Principles of Accounting and Basic Concepts

A firm makes a provision for doubtful debts on its debtors at the year end. Which principle guides this treatment?

  1. Prudence principle Correct answer.
  2. Consistency principle
  3. Cost principle
  4. Realisation principle

Explanation

Prudence, or conservatism, requires that anticipated losses and risks be provided for even before they are confirmed. Creating a provision for doubtful debts recognises a probable loss in the current period itself.

Question 9Principles of Accounting and Basic Concepts

Which of the following is a limitation of accounting that arises because it records only transactions expressible in money?

  1. It reports profits that are always exact and verifiable
  2. It ignores non-monetary factors such as employee morale and customer goodwill Correct answer.
  3. It values all assets at their current market price
  4. It records transactions only when cash is received or paid

Explanation

Accounting is restricted by the money measurement concept to events that can be expressed in monetary terms. Qualitative factors such as staff loyalty, managerial efficiency and market reputation therefore remain outside the books.

Question 10Principles of Accounting and Basic Concepts

Which branch of accounting is primarily concerned with recording costs and preparing information for internal managerial decisions?

  1. Cost accounting Correct answer.
  2. Tax accounting
  3. Social accounting
  4. Financial accounting

Explanation

Cost accounting ascertains and controls the cost of producing goods or rendering services and supplies data for internal planning and control. Its reports are mainly for management rather than outside parties.

Question 11Principles of Accounting and Basic Concepts

Which of the following is a user group that relies on accounting information mainly to assess the firm's ability to repay principal and interest?

  1. Lenders Correct answer.
  2. Researchers
  3. Customers
  4. Employees

Explanation

Lenders such as banks and debenture holders use financial statements to judge solvency and the capacity to service debt. Their primary interest is the firm's ability to repay principal and interest on time.

Question 12Principles of Accounting and Basic Concepts

According to the rules of debit and credit, which of the following increases a liability account?

  1. Neither a debit nor a credit entry
  2. A debit entry
  3. A credit entry Correct answer.
  4. Either a debit or a credit entry

Explanation

Liabilities have a credit balance, so a credit entry increases them and a debit entry decreases them. This follows from the rule that credits increase capital, liabilities and income.

Question 13Principles of Accounting and Basic Concepts

Which type of account is the 'Salary Outstanding' account, and how is it treated in the books?

  1. A real account, debited at the time of payment
  2. A representative personal account, credited to record the unpaid salary Correct answer.
  3. A nominal account, debited when salary is paid
  4. A nominal account, credited when the salary is actually paid

Explanation

Salary outstanding is a representative personal account standing for the employees to whom salary is due. It is credited when the unpaid amount is recorded and debited later when the payment is made.

Question 14Principles of Accounting and Basic Concepts

A firm received Rs. 20,000 from a debtor in full settlement of a debt of Rs. 21,000. Which entry correctly records the discount allowed?

  1. Debit cash Rs. 20,000 and debit discount allowed Rs. 1,000; credit the debtor's account Rs. 21,000 Correct answer.
  2. Debit the debtor's account Rs. 21,000 and credit cash Rs. 20,000 and capital Rs. 1,000
  3. Debit cash Rs. 20,000 and credit the debtor's account Rs. 20,000 only
  4. Debit cash Rs. 21,000 and credit discount allowed Rs. 1,000; credit the debtor's account Rs. 20,000

Explanation

Cash received is debited with Rs. 20,000 and the discount allowed, being an expense, is debited with Rs. 1,000. The debtor's personal account is credited with the full Rs. 21,000, so the entry balances and the account is cleared.

Question 15Principles of Accounting and Basic Concepts

Which of the following is a transaction of a purely internal nature that still requires a journal entry?

  1. Goods purchased on credit from a supplier
  2. Salary paid to an employee by cheque
  3. Cash withdrawn by the proprietor for personal use
  4. Goods given away as free samples Correct answer.

Explanation

Goods given away as free samples or used for advertising are internal adjustments where the goods leave stock without any outside party being involved, yet an entry is needed. The entry debits advertisement or samples account and credits purchases or stock.

Question 16Principles of Accounting and Basic Concepts

Which of the following errors would be disclosed by a trial balance that does not agree?

  1. A sale of Rs. 500 posted to the sales account as Rs. 50 Correct answer.
  2. A purchase of Rs. 700 completely omitted from the books
  3. A sale of Rs. 400 entered in the sales book but posted to the customer's account twice
  4. A receipt of Rs. 300 from a customer credited to the customer's account correctly but debited to the wrong customer's account

Explanation

When one side of an entry is posted with a wrong amount, the two sides of the ledger differ and the trial balance will not tally. A posting of Rs. 50 against a recorded sale of Rs. 500 creates a difference of Rs. 450.

Question 17Principles of Accounting and Basic Concepts

Which of the following errors affects the agreement of the trial balance?

  1. Recording a credit sale in the purchases book instead of the sales book
  2. Treating a revenue receipt as a capital receipt in the same amount
  3. Wrong casting of the sales book by Rs. 1,000 Correct answer.
  4. Recording a transaction twice in the journal with both entries complete

Explanation

An error of casting, that is a wrong total in a subsidiary book, is carried to only one side of the ledger and therefore disturbs the equality of debits and credits. The trial balance will then not agree by the amount of the difference.

Question 18Principles of Accounting and Basic Concepts

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

  1. Carriage paid on goods sold to customers
  2. Insurance premium paid on the stock of goods
  3. Whitewashing of the office building during the year
  4. Wages paid for installing a new machine Correct answer.

Explanation

Wages paid to install a machine are part of the cost of bringing the asset into working condition and are therefore capitalised. Such expenditure is added to the cost of the asset rather than charged to revenue.

Question 19Principles of Accounting and Basic Concepts

Which of the following is a deferred revenue expenditure?

  1. Payment of excise duty on goods produced
  2. Heavy advertising expenditure incurred to launch a new product Correct answer.
  3. Purchase of a delivery van
  4. Salary paid to the accountant for the month

Explanation

Deferred revenue expenditure is revenue in nature but its benefit extends over several years, so it is written off over those years. Heavy advertising to launch a new product is the standard example of such expenditure.

Question 20Principles of Accounting and Basic Concepts

Which of the following is not a feature of the double entry system of bookkeeping?

  1. It helps in preparing a trial balance to check arithmetical accuracy
  2. Every transaction has two aspects
  3. It keeps a complete record of all business transactions
  4. It records only cash transactions Correct answer.

Explanation

The double entry system records both cash and credit transactions, giving a complete record of business activity. Restricting the books to cash transactions is a feature of the cash system, not the double entry system.

Question 21Principles of Accounting and Basic Concepts

Which of the following statements about the accounting equation is correct?

  1. The accounting equation is Capital = Assets plus Liabilities
  2. The accounting equation is Assets = Capital plus Liabilities Correct answer.
  3. The accounting equation is Liabilities = Assets plus Capital
  4. The accounting equation is Assets = Liabilities minus Capital

Explanation

The accounting equation expresses the balance between resources and the claims on them as Assets = Capital plus Liabilities. Every transaction alters the elements in such a way that this equality is always maintained.

Question 22Principles of Accounting and Basic Concepts

A firm's trial balance shows a difference of Rs. 900, which has been temporarily placed in a suspense account. Later it is found that a purchase of Rs. 900 was posted to the machinery account. Which correction is required?

  1. Debit purchases account Rs. 900 and credit machinery account Rs. 900 Correct answer.
  2. Debit machinery account Rs. 900 and credit suspense account Rs. 900
  3. Debit machinery account Rs. 900 and credit purchases account Rs. 900
  4. Debit suspense account Rs. 900 and credit machinery account Rs. 900

Explanation

The purchase was wrongly debited to machinery instead of purchases, so the correction must remove the wrong debit and record the right one. Purchases is therefore debited and machinery is credited with Rs. 900, clearing the error.

Question 23Principles of Accounting and Basic Concepts

Which of the following is an example of an error of principle?

  1. Purchasing a computer for office use and debiting it to the purchases account Correct answer.
  2. Posting a credit sale to the wrong customer's account
  3. Recording a sale of Rs. 500 as Rs. 50
  4. Omitting a cash sale from the cash book

Explanation

An error of principle occurs when a capital expenditure is treated as revenue expenditure or vice versa, violating an accounting principle. Debiting a computer, a fixed asset, to purchases is precisely such an error.

Question 24Principles of Accounting and Basic Concepts

Which of the following best describes the going concern concept?

  1. The business records only transactions measurable in money
  2. The business must record revenue when cash is received
  3. The business will be liquidated in the near future
  4. The business is expected to continue operating for the foreseeable future Correct answer.

Explanation

The going concern concept assumes that the enterprise will continue in operation long enough to carry out its objectives. This assumption supports the distinction between capital and revenue expenditure and the systematic depreciation of fixed assets.

Question 25Principles of Accounting and Basic Concepts

A firm pays Rs. 12,000 as annual insurance premium on 1 October, and its accounting year ends on 31 March. Under the accrual concept, how much should be charged as insurance expense for the year?

  1. Rs. 9,000
  2. Rs. 3,000
  3. Rs. 6,000 Correct answer.
  4. Rs. 12,000

Explanation

Under the accrual concept, only the expense relating to the current accounting period is charged to the profit and loss account. Six months out of twelve have expired, so half of Rs. 12,000, that is Rs. 6,000, is the expense and the balance is prepaid insurance.

Question 26Principles of Accounting and Basic Concepts

Which accounting concept requires that a business transaction be recorded at the amount actually paid or agreed, supported by a documentary proof such as an invoice or receipt?

  1. Realisation concept
  2. Objectivity concept Correct answer.
  3. Cost concept
  4. Matching concept

Explanation

The objectivity (verifiability) concept requires every entry to be supported by reliable, verifiable evidence such as invoices, receipts or vouchers. The cost concept deals with recording assets at acquisition price, while realisation concerns recognising revenue when earned. Hence documentary evidence is the core of objectivity.

Question 27Principles of Accounting and Basic Concepts

A trader keeps his household electricity bill and his son's school fees out of the business books. Which accounting concept justifies this treatment?

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

Explanation

The business entity concept treats the owner and the business as separate entities for accounting purposes. Personal expenses of the proprietor and his family are therefore excluded from the firm's books. This separation is the reason such items never enter the business records.

Question 28Principles of Accounting and Basic Concepts

Goods costing Rs. 15,000 were sold to a customer for Rs. 18,000 on credit. Under the realisation concept, at what amount should the sale be recorded and when?

  1. Rs. 18,000, when the cash is finally received
  2. Rs. 15,000, when the cost is incurred
  3. Rs. 15,000, when the cash is finally received
  4. Rs. 18,000, when the goods are delivered to the customer Correct answer.

Explanation

The realisation concept recognises revenue when the goods are transferred to the buyer and the right to receive payment arises, not when cash arrives. The revenue is measured at the agreed selling price of Rs. 18,000. Cash receipt later only settles the debtor and does not create revenue.

Question 29Principles of Accounting and Basic Concepts

A trader has been valuing closing stock at cost, but this year values it at market price, which is higher than cost. Which convention is violated?

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

Explanation

The convention of consistency requires an entity to follow the same accounting methods each period so that results are comparable. Changing the basis of stock valuation without justification breaks that comparability. Conservatism would in any case require stock to be valued at cost or net realisable value, whichever is lower.

Question 30Principles of Accounting and Basic Concepts

Which of the following best explains why the convention of conservatism is applied while preparing financial statements?

  1. To record all anticipated income as soon as it is expected
  2. To record expenses only when they are actually paid in cash
  3. To value every asset at its current market price
  4. To provide for all possible losses but ignore anticipated profits Correct answer.

Explanation

Conservatism, also called prudence, directs accountants to recognise probable losses and liabilities promptly while deferring anticipated gains. This avoids overstating profit and assets in the financial statements. It does not permit creating hidden reserves or deliberate understatement.

Question 31Principles of Accounting and Basic Concepts

A machine costing Rs. 5,00,000 has an estimated scrap value of Rs. 20,000 and a useful life of 8 years. Under the straight line method, what is the annual depreciation?

  1. Rs. 62,500
  2. Rs. 52,500
  3. Rs. 65,000
  4. Rs. 60,000 Correct answer.

Explanation

Annual depreciation under the straight line method equals (cost minus scrap value) divided by useful life. Here (5,00,000 - 20,000) / 8 = 4,80,000 / 8 = Rs. 60,000. Scrap value must be deducted before dividing so that the asset is written down only to its residual value.

Question 32Principles of Accounting and Basic Concepts

Which of the following is the correct journal entry when goods are withdrawn by the proprietor for personal use?

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

Explanation

Goods taken by the owner for personal use reduce the goods available for sale and increase drawings. The entry is therefore Drawings A/c debited and Purchases A/c credited. Cash is not involved because no money changed hands.

Question 33Principles of Accounting and Basic Concepts

A firm's trial balance was prepared and the debit total exceeded the credit total by Rs. 450. The difference was placed in a suspense account. Which of the following errors would fully explain this difference?

  1. A purchase of Rs. 450 was completely omitted from the books
  2. Salaries paid Rs. 450 were posted correctly to Salaries A/c but not to Cash A/c
  3. A sale of Rs. 450 to Ravi was posted to his account as Rs. 45
  4. The sales book was undercast by Rs. 450 Correct answer.

Explanation

Undercasting the sales book by Rs. 450 means the Sales A/c credit is short by Rs. 450, so credits fall short of debits by exactly that amount. The suspense account would then be credited and later closed when the error is corrected. Errors of complete omission and errors of principle do not disturb trial balance agreement.

Question 34Principles of Accounting and Basic Concepts

Which of the following is an example of a compensating error that leaves the trial balance in agreement?

  1. Cash received from a debtor was posted twice to the debtor's account
  2. A purchase of Rs. 3,000 was debited to Purchases A/c and also credited to the supplier with Rs. 300 Correct answer.
  3. Goods sold to Mohan for Rs. 2,000 were recorded in the sales book as Rs. 200
  4. Repairs to building of Rs. 5,000 were debited to Building A/c

Explanation

A compensating error occurs when two or more mistakes cancel each other's effect on the trial balance totals. Here both the debit and the credit are understated by the same Rs. 2,700, so the trial balance still agrees. Such errors are detected only through detailed checking of ledger accounts.

Question 35Principles of Accounting and Basic Concepts

Which of the following transactions results in an increase in one asset and a decrease in another asset, leaving total assets unchanged?

  1. Sale of goods on credit at a profit
  2. Purchase of machinery on credit
  3. Payment of an outstanding salary
  4. Cash deposited into the bank Correct answer.

Explanation

Depositing cash into the bank increases the bank balance and reduces cash by the same amount, so total assets remain unchanged. This is an exchange between two asset accounts. The other options change total assets or bring in a liability.

Question 36Principles of Accounting and Basic Concepts

Under the accrual concept, an electricity bill of Rs. 4,000 for December 2023 remained unpaid on 31 March 2024. How should this be treated in the final accounts for the year ended 31 March 2024?

  1. Ignore it, since no payment was made during the year
  2. Debit Electricity A/c only when the bill is paid next year
  3. Debit Electricity A/c and show it as an outstanding expense in the balance sheet Correct answer.
  4. Show it only as a note to the accounts without any entry

Explanation

The accrual concept records expenses in the period in which they are incurred, whether or not cash has been paid. The unpaid bill is therefore charged to the current year's profit and loss account and shown as a current liability. When payment is later made, the liability is simply discharged.

Question 37Principles of Accounting and Basic Concepts

A firm purchased furniture for Rs. 40,000 and spent Rs. 2,000 on its carriage and Rs. 3,000 on its installation. At what amount should the furniture be capitalised?

  1. Rs. 40,000
  2. Rs. 45,000 Correct answer.
  3. Rs. 42,000
  4. Rs. 43,000

Explanation

All costs necessary to bring an asset to its working condition and location form part of its cost. Carriage of Rs. 2,000 and installation of Rs. 3,000 are therefore capitalised along with the purchase price. The total capitalised cost is 40,000 + 2,000 + 3,000 = Rs. 45,000.

Question 38Principles of Accounting and Basic Concepts

Which of the following pairs correctly matches a user of accounting information with the primary purpose of that use?

  1. Creditors - to decide whether to declare a dividend
  2. Tax authorities - to determine the selling price of the product
  3. Customers - to calculate the depreciation of the firm's plant
  4. Employees - to assess the firm's ability to pay wages and provide job security Correct answer.

Explanation

Employees and their unions use financial statements to judge the firm's stability, its ability to pay wages and the security of employment. Each user group has a distinct interest, and matching them correctly is essential to understanding the objectives of accounting.

Question 39Principles of Accounting and Basic Concepts

A firm follows the rule of valuing stock at cost or net realisable value, whichever is lower, and also maintains a provision for doubtful debts. Which accounting principle is common to both practices?

  1. Dual aspect
  2. Prudence Correct answer.
  3. Money measurement
  4. Going concern

Explanation

Both the lower of cost or net realisable value rule and the provision for doubtful debts apply prudence by recognising probable losses early. Prudence prevents assets and profits from being overstated in the financial statements. Neither practice relates to the entity assumption or to double entry.

Question 40Principles of Accounting and Basic Concepts

Which of the following statements about the money measurement concept is correct?

  1. It requires assets to be recorded at their current market value
  2. It records only those events that can be expressed in terms of money Correct answer.
  3. It requires all business events to be recorded regardless of whether they can be measured in money
  4. It allows personal transactions of the owner to be merged with business transactions

Explanation

The money measurement concept limits accounting records to transactions and events that can be expressed in monetary units. Events such as a strike, a change of manager or improved employee morale are not recorded because they lack a monetary measure. This is a recognised limitation of accounting.

Question 41Recording of Business Transactions: Journal, Ledger, Trial Balance

In the double-entry system of book-keeping, which statement correctly describes the rule applied to a nominal account?

  1. Debit the giver; credit the receiver
  2. Debit all expenses and losses; credit all incomes and gains Correct answer.
  3. Debit what comes in; credit what goes out
  4. Debit the receiver; credit the giver

Explanation

Nominal accounts record expenses, losses, incomes and gains, and the traditional rule is to debit expenses and losses while crediting incomes and gains. This rule ensures that the profit or loss for the period is collected correctly in the nominal ledger.

Question 42Recording of Business Transactions: Journal, Ledger, Trial Balance

A trader purchases goods for cash Rs. 20,000. In the journal entry, which account is debited?

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

Explanation

Purchases account is a nominal account recording an expense of buying goods, so it is debited. Cash goes out, and since cash is a real account, it is credited as per the rule 'credit what goes out'.

Question 43Recording of Business Transactions: Journal, Ledger, Trial Balance

Which book of original entry is used to record credit sales of goods in the ordinary course of business?

  1. Cash book
  2. Journal proper
  3. Purchases book
  4. Sales book Correct answer.

Explanation

The sales book, also called the sales day book, is a subsidiary book that records only credit sales of goods dealt in by the trader. Cash sales are recorded in the cash book instead.

Question 44Recording of Business Transactions: Journal, Ledger, Trial Balance

What is the fundamental purpose of preparing a trial balance?

  1. To check the arithmetical accuracy of the ledger accounts Correct answer.
  2. To ascertain the net profit of the business
  3. To record transactions in chronological order
  4. To show the financial position of the business

Explanation

A trial balance lists the debit and credit balances of all ledger accounts, and the two totals must agree if the double-entry posting is arithmetically correct. It is a statement of balances, not a financial statement.

Question 45Recording of Business Transactions: Journal, Ledger, Trial Balance

A ledger account has a debit total of Rs. 85,000 and a credit total of Rs. 60,000. How is its balance shown in the trial balance?

  1. Rs. 60,000 in the credit column
  2. Rs. 25,000 in the credit column
  3. Rs. 85,000 in the debit column
  4. Rs. 25,000 in the debit column Correct answer.

Explanation

The difference between the two sides is Rs. 85,000 minus Rs. 60,000, equal to Rs. 25,000, and since the debit side is larger the account carries a debit balance. A debit balance is entered in the debit column of the trial balance.

Question 46Recording of Business Transactions: Journal, Ledger, Trial Balance

Which of the following is a real account?

  1. Rent received account
  2. Salary account
  3. Furniture account Correct answer.
  4. Bank loan account

Explanation

Real accounts relate to assets and properties owned by the business, such as furniture, machinery, cash and buildings. Furniture is an asset, so it is classified as a real account.

Question 47Recording of Business Transactions: Journal, Ledger, Trial Balance

Which source document supports the recording of a credit purchase of goods from a supplier?

  1. Cash receipt issued to a customer
  2. Invoice received from the supplier Correct answer.
  3. Debit note issued to a supplier
  4. Pay-in-slip counterfoil

Explanation

When goods are bought on credit, the supplier sends an invoice showing the quantity, rate and amount due, and this invoice is the basis for entering the transaction in the purchases book.

Question 48Recording of Business Transactions: Journal, Ledger, Trial Balance

In a journal entry, what does the narration explain?

  1. The rate of tax applicable to the transaction
  2. The nature and reason for the transaction recorded Correct answer.
  3. The name of the accountant who wrote the entry
  4. The page number of the ledger where posting is made

Explanation

A narration is a brief description written below each journal entry to explain the nature of the transaction and the reason for the debit and credit. It helps anyone reading the journal later to understand the entry.

Question 49Recording of Business Transactions: Journal, Ledger, Trial Balance

A firm pays Rs. 12,000 as rent by cheque. Which journal entry correctly records this transaction?

  1. Bank account Dr. Rs. 12,000; To Rent account Rs. 12,000
  2. Rent account Dr. Rs. 12,000; To Bank account Rs. 12,000 Correct answer.
  3. Rent account Dr. Rs. 12,000; To Cash account Rs. 12,000
  4. Cash account Dr. Rs. 12,000; To Rent account Rs. 12,000

Explanation

Rent is an expense and is debited, while the bank balance decreases and is therefore credited. The entry debits rent account and credits bank account with Rs. 12,000.

Question 50Recording of Business Transactions: Journal, Ledger, Trial Balance

Goods worth Rs. 5,000 were returned by a customer. In which subsidiary book is this recorded?

  1. Purchases return book
  2. Sales book
  3. Purchases book
  4. Sales return book Correct answer.

Explanation

When a customer returns goods sold to them, it is a sales return and is recorded in the sales return book, also called the returns inward book. The customer's personal account is credited as a result.