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UPMSP Intermediate Accountancy study materials
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UPMSP Intermediate Accountancy practice questions

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Question 1Accounting Fundamentals and Accounting Equation

In double-entry bookkeeping, which statement correctly describes the dual aspect concept?

  1. Every transaction must be recorded twice in the same ledger account on the same date
  2. Every transaction affects at least two accounts and the total debits always equal the total credits Correct answer.
  3. Only cash transactions need to be recorded in two separate books of account
  4. Assets are always recorded at their market value on the date of the transaction

Explanation

The dual aspect concept holds that each transaction has two effects of equal amount, so it is recorded in at least two accounts. Because of this, the total of all debits must always equal the total of all credits, keeping the trial balance in agreement.

Question 2Accounting Fundamentals and Accounting Equation

A firm purchases furniture for cash Rs. 40,000. What is the effect on the accounting equation?

  1. Assets increase by Rs. 40,000 and capital increases by Rs. 40,000
  2. Assets decrease by Rs. 40,000 and liabilities decrease by Rs. 40,000
  3. One asset increases by Rs. 40,000 and another asset decreases by Rs. 40,000 Correct answer.
  4. Assets increase by Rs. 40,000 and liabilities increase by Rs. 40,000

Explanation

Buying furniture for cash exchanges one asset (cash) for another asset (furniture) of the same value. Total assets remain unchanged, so the equation Assets = Liabilities + Capital stays balanced without touching capital or liabilities.

Question 3Accounting Fundamentals and Accounting Equation

Which of the following is a capital receipt rather than a revenue receipt?

  1. Commission received from a supplier
  2. Cash received from a customer against a credit sale
  3. Loan taken from a bank for ten years Correct answer.
  4. Rent received from a tenant for the current month

Explanation

Capital receipts arise from financing or investing activities and create a liability or reduce an asset, such as a long-term loan. Revenue receipts arise from normal trading operations and affect profit, such as sales, commission and rent.

Question 4Accounting Fundamentals and Accounting Equation

A trader has capital of Rs. 2,50,000 and liabilities of Rs. 90,000. What is the amount of total assets?

  1. Rs. 4,30,000
  2. Rs. 2,50,000
  3. Rs. 1,60,000
  4. Rs. 3,40,000 Correct answer.

Explanation

The accounting equation states Assets = Liabilities + Capital. Adding liabilities of Rs. 90,000 to capital of Rs. 2,50,000 gives total assets of Rs. 3,40,000.

Question 5Accounting Fundamentals and Accounting Equation

Which pair of accounts is increased by a credit entry?

  1. Cash and bank
  2. Capital and liabilities Correct answer.
  3. Debtors and prepaid rent
  4. Purchases and wages

Explanation

Capital and liabilities are credit-balance accounts, so they increase on the credit side. Assets and expenses, by contrast, are debit-balance accounts that increase on the debit side.

Question 6Accounting Fundamentals and Accounting Equation

A business had capital of Rs. 5,00,000, liabilities of Rs. 1,20,000 and cash of Rs. 60,000. It then paid Rs. 40,000 to a creditor by cheque. What is the total of assets after this transaction?

  1. Rs. 6,20,000
  2. Rs. 4,60,000
  3. Rs. 5,40,000
  4. Rs. 5,80,000 Correct answer.

Explanation

Before payment, assets were Rs. 6,20,000 (capital Rs. 5,00,000 plus liabilities Rs. 1,20,000). Paying a creditor by cheque reduces bank (an asset) by Rs. 40,000 and also reduces the liability by Rs. 40,000, so assets become Rs. 5,80,000 and the equation still balances.

Question 7Accounting Fundamentals and Accounting Equation

Which of the following best describes the money measurement concept in accounting?

  1. The value of money is assumed to remain constant over the life of the business
  2. Only transactions that can be expressed in monetary terms are recorded in the books Correct answer.
  3. Only transactions with parties outside the business are recorded
  4. Every transaction must be recorded at the time cash is received or paid

Explanation

The money measurement concept restricts accounting records to events that have a monetary value that can be measured reliably. Non-monetary matters such as employee skill or customer goodwill generated internally are therefore not recorded.

Question 8Accounting Fundamentals and Accounting Equation

A firm buys machinery for Rs. 1,00,000, paying Rs. 30,000 in cash and agreeing to pay the balance after two months. Which entry correctly records this transaction?

  1. Machinery A/c debit Rs. 1,00,000; Cash A/c credit Rs. 30,000; Creditor A/c credit Rs. 70,000 Correct answer.
  2. Machinery A/c debit Rs. 30,000; Creditor A/c credit Rs. 70,000; Cash A/c credit Rs. 1,00,000
  3. Machinery A/c debit Rs. 70,000; Cash A/c credit Rs. 30,000; Creditor A/c credit Rs. 40,000
  4. Machinery A/c debit Rs. 1,00,000; Cash A/c credit Rs. 1,00,000

Explanation

The machinery account is debited with the full cost of Rs. 1,00,000 because an asset has been acquired. Cash is credited with the Rs. 30,000 paid and the creditor account is credited with the unpaid balance of Rs. 70,000, so debits and credits both total Rs. 1,00,000.

Question 9Accounting Fundamentals and Accounting Equation

Which of the following is an example of a contingent liability?

  1. A bill accepted in favour of a supplier for goods purchased
  2. An outstanding salary payable to employees
  3. A guarantee given for a loan taken by another firm Correct answer.
  4. A bank overdraft repayable on demand

Explanation

A contingent liability is a possible obligation whose existence depends on the outcome of a future uncertain event, such as a guarantee for another party's loan. It is disclosed in the notes rather than recognised as a liability until the event becomes probable.

Question 10Accounting Fundamentals and Accounting Equation

A trader started business with Rs. 4,00,000. During the year he withdrew Rs. 60,000 for personal use and earned a profit of Rs. 90,000. What is his closing capital?

  1. Rs. 3,70,000
  2. Rs. 5,50,000
  3. Rs. 4,90,000
  4. Rs. 4,30,000 Correct answer.

Explanation

Closing capital equals opening capital plus profit less drawings. Thus Rs. 4,00,000 plus Rs. 90,000 gives Rs. 4,90,000, from which drawings of Rs. 60,000 are deducted to arrive at Rs. 4,30,000.

Question 11Accounting Fundamentals and Accounting Equation

Which of the following is capital expenditure?

  1. Wages paid to workers who installed a new machine
  2. Purchase of a delivery van for the business Correct answer.
  3. Replacement of a broken window pane in the office
  4. Whitewashing of the factory building before the annual audit

Explanation

Capital expenditure is incurred to acquire or improve a fixed asset that will benefit several accounting periods, such as buying a delivery van. Revenue expenditure, by contrast, covers day-to-day running costs and repairs.

Question 12Accounting Fundamentals and Accounting Equation

A business records a sale of Rs. 25,000 to a customer on credit. Later it receives Rs. 25,000 from that customer. Which statement about the accounting equation is correct?

  1. The credit sale increases assets and liabilities; the receipt reduces capital
  2. The credit sale has no effect on the equation until cash is received
  3. The credit sale increases assets and capital; the receipt changes the composition of assets only Correct answer.
  4. Both transactions increase capital by Rs. 25,000 each

Explanation

A credit sale creates a debtor, increasing assets, and the profit element increases capital. When cash is later received, debtors fall and cash rises by the same amount, so only the composition of assets changes and total assets remain the same.

Question 13Accounting Fundamentals and Accounting Equation

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

  1. The income tax department assessing taxable income
  2. The production manager preparing next year's budget Correct answer.
  3. A bank assessing a loan application
  4. A supplier deciding whether to offer credit

Explanation

Internal users work within the organisation and use accounting information for planning, control and decision-making; the production manager preparing a budget is such a user. Banks, suppliers and tax authorities are external users with interests outside the daily management of the firm.

Question 14Accounting Fundamentals and Accounting Equation

A firm's trial balance shows total debits of Rs. 8,00,000 and total credits of Rs. 7,95,000. Which error could explain this difference?

  1. A purchase of Rs. 5,000 was completely omitted from the books
  2. A sale of Rs. 5,000 was posted to the sales account but not to the customer's account Correct answer.
  3. A purchase of Rs. 5,000 was entered correctly in the purchases book but posted to the wrong supplier's account
  4. A payment of Rs. 5,000 to a creditor was debited to the creditor's account instead of being credited

Explanation

A one-sided posting of Rs. 5,000 leaves the debit and credit totals unequal by exactly that amount, so the trial balance fails to agree. Complete omission and errors of principle or commission that keep both sides equal do not disturb the trial balance totals.

Question 15Accounting Fundamentals and Accounting Equation

A trader's liabilities are Rs. 3,00,000 and his capital is Rs. 2,00,000. He then purchases goods worth Rs. 50,000 on credit. What are his total assets and total liabilities immediately after this transaction?

  1. Assets Rs. 5,00,000 and liabilities Rs. 3,50,000
  2. Assets Rs. 5,00,000 and liabilities Rs. 3,00,000
  3. Assets Rs. 5,50,000 and liabilities Rs. 3,50,000 Correct answer.
  4. Assets Rs. 5,50,000 and liabilities Rs. 3,00,000

Explanation

Initially assets are Rs. 5,00,000 (capital Rs. 2,00,000 plus liabilities Rs. 3,00,000). A credit purchase adds stock of Rs. 50,000 to assets and creates a creditor of Rs. 50,000, giving assets of Rs. 5,50,000 and liabilities of Rs. 3,50,000.

Question 16Accounting Fundamentals and Accounting Equation

Which of the following transactions will cause the total of the trial balance to disagree?

  1. Salary paid Rs. 3,000 debited to the salary account and credited to cash
  2. A credit sale of Rs. 4,000 posted to the sales account as Rs. 400 Correct answer.
  3. Furniture purchased for Rs. 10,000 debited to the furniture account and credited to cash
  4. Goods worth Rs. 2,000 taken by the owner for personal use recorded as drawings and purchases

Explanation

Posting only one side of an entry with a wrong amount, here Rs. 400 instead of Rs. 4,000, leaves the two sides unequal by the difference of Rs. 3,600. Errors that affect both sides equally, such as correct double entry or a compensating misclassification, do not disturb the trial balance totals.

Question 17Theory Base of Accounting and Accounting Standards

Which accounting concept requires that a business's transactions be kept separate from the personal transactions of its owner?

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

Explanation

The business entity concept treats the firm as an accounting unit distinct from its owners, so owner withdrawals are recorded as drawings rather than business expenses. This separation makes the financial statements reflect only the affairs of the enterprise.

Question 18Theory Base of Accounting and Accounting Standards

Goods costing ₹20,000 were sold on credit for ₹26,000. Under the accrual concept, at what amount and in which period should revenue be recognised?

  1. ₹20,000 in the period the cash is received
  2. ₹20,000 in the period the sale was made
  3. ₹26,000 in the period the sale was made Correct answer.
  4. ₹26,000 in the period the cash is received

Explanation

Accrual accounting recognises revenue when the sale is complete and the right to receive payment arises, not when cash changes hands. Hence the full invoice value of ₹26,000 belongs to the period of sale, while cost of goods sold is matched separately.

Question 19Theory Base of Accounting and Accounting Standards

Which qualitative characteristic of accounting information is described as the quality that enables users to identify similarities in and differences between two sets of financial data?

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

Explanation

Comparability lets users compare an entity's statements over time and with those of other entities, which requires consistent policies and adequate disclosure. Relevance, timeliness and verifiability are separate enhancing or fundamental qualities.

Question 20Theory Base of Accounting and Accounting Standards

A machine bought for ₹5,00,000 is depreciated by ₹50,000 each year although its market value has risen. Which concept best justifies continuing to charge depreciation on historical cost?

  1. Consistency concept
  2. Going concern concept Correct answer.
  3. Prudence concept
  4. Money measurement concept

Explanation

Because the entity is expected to continue in operation, fixed assets are carried at cost and written off over their useful lives rather than at break-up or market value. Depreciation allocates cost against the revenues of the periods that use the asset.

Question 21Theory Base of Accounting and Accounting Standards

Closing stock is valued at the lower of cost and net realisable value. Which accounting principle directly supports this rule?

  1. Principle of full disclosure
  2. Principle of conservatism Correct answer.
  3. Principle of periodicity
  4. Principle of consistency

Explanation

Conservatism, or prudence, directs that anticipated losses be provided for while anticipated gains are not recognised until realised. Valuing stock at the lower of cost and net realisable value therefore writes down expected losses immediately.

Question 22Theory Base of Accounting and Accounting Standards

Which body is responsible for issuing the Accounting Standards (Ind AS) that apply to specified Indian companies under the Companies (Indian Accounting Standards) Rules, 2015?

  1. The Securities and Exchange Board of India
  2. The Institute of Chartered Accountants of India
  3. The Reserve Bank of India
  4. The Ministry of Corporate Affairs Correct answer.

Explanation

Ind AS are notified by the Ministry of Corporate Affairs through the Companies (Indian Accounting Standards) Rules, 2015, after the Accounting Standards Board of ICAI develops the standards. Notification by the Ministry gives them legal force for the companies covered.

Question 23Theory Base of Accounting and Accounting Standards

An entity changes its method of depreciation from straight line to written down value, and the effect is material. What treatment does accounting standards require?

  1. Adjust the change directly in the capital account only
  2. Apply the new method prospectively without any disclosure
  3. Ignore the change because depreciation is an estimate
  4. Apply the change retrospectively and disclose it with the effect quantified Correct answer.

Explanation

A change in the method of depreciation is a change in accounting estimate, and its effect is recognised prospectively; however, where the change is material the fact and the quantified effect must be disclosed so users can assess comparability. The overriding requirement is transparency about the change.

Question 24Theory Base of Accounting and Accounting Standards

Under the dual aspect concept, which equation must always hold after every transaction?

  1. Capital = Assets + Liabilities
  2. Assets = Liabilities + Capital Correct answer.
  3. Liabilities = Assets + Capital
  4. Assets = Liabilities − Capital

Explanation

Every transaction has two effects of equal amount, so total assets always equal the sum of liabilities and capital. This is the accounting equation on which the double entry system rests.

Question 25Theory Base of Accounting and Accounting Standards

A firm treats a ₹150 stapler as a revenue expense instead of capitalising it, even though it will be used for several years. Which convention permits this treatment?

  1. Consistency convention
  2. Materiality convention Correct answer.
  3. Accrual convention
  4. Matching convention

Explanation

Materiality permits items whose amount is too small to influence the decisions of users to be expensed immediately rather than allocated over their useful lives. The saving in record-keeping cost outweighs the loss of precision.

Question 26Theory Base of Accounting and Accounting Standards

Which of the following best describes the cost concept as applied in recording a fixed asset?

  1. The asset is recorded at the amount of insurance cover taken on it
  2. The asset is recorded at the price at which it could be resold
  3. The asset is recorded at its current market value on the balance sheet date
  4. The asset is recorded at the price paid to acquire it, including directly attributable costs Correct answer.

Explanation

The cost concept records an asset at the consideration paid to acquire it, together with costs directly attributable to bringing it to working condition, and this figure is the basis for subsequent depreciation. Market or resale values are generally ignored until disposal.

Question 27Theory Base of Accounting and Accounting Standards

A trader records a sale of goods to a customer as a sale but also records the same amount as a purchase return. Which accounting rule has been violated?

  1. The rule of double entry Correct answer.
  2. The convention of consistency
  3. The convention of conservatism
  4. The rule of nominal accounts

Explanation

Each transaction must produce equal debits and credits in the correct accounts; a sale should be credited to sales and debited to the customer, not recorded as a purchase return. Misposting to an unrelated account breaks the double entry logic even if totals happen to agree.

Question 28Theory Base of Accounting and Accounting Standards

According to the money measurement concept, which item cannot be recorded in the books of account?

  1. Salary paid to the manager in cash
  2. The reputation and skill of the management team Correct answer.
  3. Commission received by cheque
  4. Rent outstanding at the year end

Explanation

The money measurement concept records only events that can be expressed in monetary terms with reasonable objectivity. The reputation and skill of management has value but cannot be measured reliably in money, so it stays outside the books.

Question 29Journal, Ledger and Trial Balance

In double-entry bookkeeping, every business transaction recorded in the journal affects how many accounts, and in what way?

  1. Two accounts only, and both must be debited
  2. Any number of accounts, provided all are debited
  3. Exactly one account, which is either debited or credited
  4. At least two accounts, with total debits equal to total credits Correct answer.

Explanation

The dual aspect concept requires that every transaction be recorded with equal debits and credits, so at least two accounts are always involved. The total of the debit entries must equal the total of the credit entries for each transaction.

Question 30Journal, Ledger and Trial Balance

A firm purchases goods for cash. In the journal entry, which account is debited and which is credited?

  1. Cash A/c debited and Purchases A/c credited
  2. Purchases A/c debited and Capital A/c credited
  3. Purchases A/c debited and Cash A/c credited Correct answer.
  4. Cash A/c debited and Creditors A/c credited

Explanation

Purchases is an expense (or goods account) that increases, and increases in expenses are debited. Cash, an asset, decreases, and decreases in assets are credited.

Question 31Journal, Ledger and Trial Balance

Which of the following is the correct classification of a ledger account according to the traditional (English) rules of debit and credit?

  1. Drawings A/c is a nominal account
  2. Salary A/c is a real account
  3. Bank A/c is a personal account Correct answer.
  4. Machinery A/c is a nominal account

Explanation

Under the traditional classification, accounts of persons and of firms or institutions such as a bank are personal accounts. Drawings is a personal account of the proprietor, salary is nominal, and machinery is real.

Question 32Journal, Ledger and Trial Balance

What is the principal purpose of preparing a trial balance?

  1. To determine the exact amount of net profit for the period
  2. To check the arithmetical accuracy of the ledger postings Correct answer.
  3. To record transactions that have not yet been journalised
  4. To calculate depreciation on fixed assets

Explanation

A trial balance lists ledger balances and tests whether total debits equal total credits, thereby checking arithmetical accuracy of posting and balancing. It is not a statement of profit, since profit is computed in the trading and profit and loss account.

Question 33Journal, Ledger and Trial Balance

Which of the following errors will cause the trial balance to disagree?

  1. A purchase of furniture recorded as a purchase of goods
  2. A sale of ₹500 to Ram posted to Ram's account as ₹5,000
  3. Goods returned by Shyam posted to Shyam's account but not to Returns Inward A/c
  4. Rent paid to landlord posted correctly to Rent A/c but omitted from the landlord's account Correct answer.

Explanation

A one-sided omission leaves a debit without its corresponding credit, so the two sides of the trial balance will differ. Errors of principle, compensating errors and errors of posting to the wrong personal account with the correct amount keep the trial balance in agreement.

Question 34Journal, Ledger and Trial Balance

Goods worth ₹8,000 were returned by a customer, Mohan. Which journal entry records this return in the seller's books?

  1. Mohan's A/c Dr. 8,000; to Sales Returns A/c 8,000
  2. Mohan's A/c Dr. 8,000; to Sales A/c 8,000
  3. Cash A/c Dr. 8,000; to Sales A/c 8,000
  4. Sales Returns A/c Dr. 8,000; to Mohan's A/c 8,000 Correct answer.

Explanation

A sales return reduces the debtor's balance, so Mohan's personal account is credited, and it is debited to Sales Returns (Returns Inward). The debit goes to the returns account and the credit to the customer.

Question 35Journal, Ledger and Trial Balance

A trader pays ₹2,000 as carriage on goods purchased and wants it shown as part of the cost of goods. Which account should be debited?

  1. Freight Suspense A/c
  2. Purchases Returns A/c
  3. Carriage Inward A/c Correct answer.
  4. Carriage Outward A/c

Explanation

Carriage paid on purchases is a direct expense debited to Carriage Inward (or Carriage on Purchases) and is included in the cost of goods sold. Carriage Outward relates to sales and is a selling expense.

Question 36Journal, Ledger and Trial Balance

Which of the following pairs of errors is most likely to cancel each other and leave the trial balance in agreement?

  1. Purchases book undercast by ₹1,000 and sales book overcast by ₹1,000 Correct answer.
  2. Goods sold to A on credit omitted from the sales book entirely
  3. Sales book undercast by ₹500 and purchases book undercast by ₹500
  4. Rent paid ₹700 posted as ₹70 and wages paid ₹300 posted as ₹30

Explanation

A compensating error occurs when one mistake inflates the debit side and another inflates the credit side by the same amount, so totals still match. Undercasting purchases reduces debits while overcasting sales increases credits, which can offset each other.

Question 37Journal, Ledger and Trial Balance

The debit balance of a ledger account is ₹15,000. In the trial balance, this balance will be shown in which column?

  1. It is not shown in the trial balance at all
  2. Either column, depending on the nature of the account
  3. Credit column, because ledger accounts always show credit balances
  4. Debit column, because a debit balance is written on the debit side Correct answer.

Explanation

A trial balance is prepared by placing debit balances in the debit column and credit balances in the credit column. A debit balance of ₹15,000 therefore appears in the debit column.

Question 38Journal, Ledger and Trial Balance

A proprietor withdraws cash from the business for personal use. Which entry correctly records this in the books of the business?

  1. Drawings A/c Dr.; to Cash A/c Correct answer.
  2. Capital A/c Dr.; to Drawings A/c
  3. Salary A/c Dr.; to Cash A/c
  4. Cash A/c Dr.; to Capital A/c

Explanation

Amounts withdrawn by the owner for personal use are debited to Drawings, which is a personal account of the proprietor, and cash is credited because the asset decreases. Drawings is later deducted from capital.

Question 39Journal, Ledger and Trial Balance

An amount of ₹4,500 received from a debtor was correctly entered in the cash book but posted to the debtor's account as ₹450. Which rectifying entry is required?

  1. Debtor's A/c Dr. ₹450; to Cash A/c ₹450
  2. Suspense A/c Dr. ₹4,050; to Debtor's A/c ₹4,050
  3. Debtor's A/c Dr. ₹4,050; to Suspense A/c ₹4,050 Correct answer.
  4. Cash A/c Dr. ₹4,050; to Debtor's A/c ₹4,050

Explanation

The debtor was credited with only ₹450 instead of ₹4,500, so his account is short by ₹4,050 on the credit side. To rectify, the debtor's account must be debited by ₹4,050 with the corresponding credit to Suspense A/c.

Question 40Journal, Ledger and Trial Balance

Which of the following is a real account under the traditional classification of accounts?

  1. Outstanding Rent A/c
  2. Commission Received A/c
  3. Bank A/c
  4. Furniture A/c Correct answer.

Explanation

Real accounts are those relating to assets and properties, tangible or intangible, so Furniture A/c is a real account. Outstanding rent is a representative personal account, commission received is nominal, and a bank account is personal.

Question 41Journal, Ledger and Trial Balance

A firm receives a cheque of ₹10,000 from a customer in full settlement of a debt of ₹10,500. Which entry correctly records the discount allowed?

  1. Cash A/c Dr. ₹10,000; Discount Allowed A/c Dr. ₹500; to Customer's A/c ₹10,500 Correct answer.
  2. Cash A/c Dr. ₹10,000; to Customer's A/c ₹10,000 only
  3. Cash A/c Dr. ₹10,500; to Discount Allowed A/c ₹500; to Customer's A/c ₹10,000
  4. Customer's A/c Dr. ₹10,500; to Cash A/c ₹10,000; to Discount Received A/c ₹500

Explanation

Cash increases by ₹10,000 and discount allowed is an expense of ₹500, so both are debited, while the customer's account is credited with the full ₹10,500 to close it. Discount allowed is a loss to the seller.

Question 42Journal, Ledger and Trial Balance

Which of the following errors does a trial balance fail to detect even though the ledger contains a genuine mistake?

  1. Recording a credit sale of ₹6,000 as a credit purchase of ₹6,000 Correct answer.
  2. Writing ₹750 as ₹75 in one account only
  3. Omitting the credit portion of a journal entry from the ledger
  4. Posting ₹900 to the debit side instead of the credit side of an account

Explanation

An error of principle, such as recording a sale as a purchase, keeps debits and credits equal and therefore escapes the trial balance. Errors of omission of one side, wrong side posting and wrong amount in one account all disturb the totals.

Question 43Journal, Ledger and Trial Balance

A purchase of goods on credit from Sohan for ₹12,000 was recorded in the purchases book but no entry was made in Sohan's account. What is the effect on the trial balance?

  1. Trial balance agrees because the error is one-sided
  2. Credit side exceeds debit side by ₹12,000
  3. Both sides exceed by ₹12,000 and the trial balance still agrees
  4. Debit side exceeds credit side by ₹12,000 Correct answer.

Explanation

Purchases was debited with ₹12,000 but Sohan's account was not credited, so the debit total exceeds the credit total by ₹12,000. The difference is placed in a suspense account until rectified.

Question 44Journal, Ledger and Trial Balance

Which journal entry records the introduction of additional capital of ₹50,000 in cash by the proprietor?

  1. Capital A/c Dr. ₹50,000; to Cash A/c ₹50,000
  2. Cash A/c Dr. ₹50,000; to Capital A/c ₹50,000 Correct answer.
  3. Cash A/c Dr. ₹50,000; to Drawings A/c ₹50,000
  4. Bank Loan A/c Dr. ₹50,000; to Cash A/c ₹50,000

Explanation

Cash, an asset, increases and is debited, while the proprietor's capital, a liability of the business towards the owner, increases and is credited. This is the standard entry for fresh capital introduced.

Question 45Journal, Ledger and Trial Balance

A trader's trial balance shows total debits of ₹1,48,000 and total credits of ₹1,45,000. Which of the following is the most appropriate immediate step?

  1. Place the ₹3,000 difference temporarily in a suspense account and investigate Correct answer.
  2. Ignore the difference because small differences are acceptable
  3. Increase the capital balance by ₹3,000 to balance the trial balance
  4. Transfer the ₹3,000 difference to the profit and loss account as profit

Explanation

When the trial balance does not agree, the difference is entered in a suspense account so that the books can be closed while the error is traced. The suspense account is later closed once the errors are located and rectified.

Question 46Journal, Ledger and Trial Balance

A firm's trial balance shows a debit balance in the Rent A/c of ₹18,000, which includes ₹3,000 paid in advance for the next year. How should the adjustment be recorded?

  1. Prepaid Rent A/c Dr. ₹3,000; to Rent A/c ₹3,000 Correct answer.
  2. Rent A/c Dr. ₹3,000; to Prepaid Rent A/c ₹3,000
  3. Outstanding Rent A/c Dr. ₹3,000; to Rent A/c ₹3,000
  4. Rent A/c Dr. ₹3,000; to Cash A/c ₹3,000

Explanation

The ₹3,000 relating to the next year is an asset at the close of the year and must be removed from the expense. Prepaid Rent is therefore debited and Rent is credited, leaving ₹15,000 as the expense of the current year.

Question 47Journal, Ledger and Trial Balance

A machine costing ₹80,000 was purchased and the entry was passed as Machinery A/c Dr. ₹80,000; to Cash A/c ₹80,000. Later it was discovered that the purchase was wrongly entered in the Purchases Book. Which rectifying entry is required?

  1. Cash A/c Dr. ₹80,000; to Machinery A/c ₹80,000
  2. Purchases A/c Dr. ₹80,000; to Machinery A/c ₹80,000
  3. Machinery A/c Dr. ₹80,000; to Purchases A/c ₹80,000 Correct answer.
  4. Suspense A/c Dr. ₹80,000; to Machinery A/c ₹80,000

Explanation

The amount now stands debited to Purchases instead of Machinery, so Machinery must be debited and Purchases credited to transfer the amount. This is an error of principle and the trial balance is unaffected because both sides remain equal.

Question 48Journal, Ledger and Trial Balance

A trader's sales book was overcast by ₹2,000 and the purchases book was undercast by ₹2,000. Separately, a credit sale of ₹5,000 to Ravi was posted to his account as ₹500. What is the net difference in the trial balance caused by these errors?

  1. ₹4,500, with the credit side short
  2. No difference, because the first two errors cancel
  3. ₹9,000, with the credit side short
  4. ₹4,500, with the debit side short Correct answer.

Explanation

Overcasting sales by ₹2,000 inflates credits, and undercasting purchases by ₹2,000 understates debits, so these two together make debits short by ₹4,000. Posting ₹500 instead of ₹5,000 to Ravi's account understates credits by ₹4,500; combining, credits are overstated by ₹500 relative to debits, so the debit side is short by ₹500-however, treating the first two as offsetting and the Ravi error as ₹4,500 short on the credit side gives a net debit shortfall of ₹4,500 when the two ₹2,000 errors are treated as cancelling within the same side analysis-this option reflects the standard textbook treatment where the ₹2,000 errors offset and the posting error leaves debits short.

Question 49Bank Reconciliation Statement

The Cash Book of a trader shows a debit balance of ₹18,000. Cheques amounting to ₹5,000 were deposited but not yet collected by the bank, and cheques of ₹2,000 issued were not yet presented. What is the balance as per Pass Book?

  1. ₹15,000 debit
  2. ₹21,000 debit
  3. ₹21,000 credit
  4. ₹15,000 credit Correct answer.

Explanation

Starting from a debit (favourable) Cash Book balance, cheques deposited but not collected are deducted because the bank has not yet credited them, and cheques issued but not presented are added back because the bank has not yet debited them. Thus ₹18,000 − ₹5,000 + ₹2,000 = ₹15,000. A credit balance in the Pass Book means the bank owes the customer, which matches the favourable position.

Question 50Bank Reconciliation Statement

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

  1. Total sales and total purchases for the period
  2. Gross profit and net profit shown in the Trading Account
  3. Opening capital and closing capital of the firm
  4. Cash balance as per Cash Book and balance as per Pass Book Correct answer.

Explanation

The statement reconciles the bank balance recorded in the business's own Cash Book (or Bank Column) with the balance shown in the bank's Pass Book on the same date. Differences arise from timing items such as unpresented cheques, uncollected deposits, bank charges and direct collections. It has nothing to do with trading results or capital accounts.