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UPMSP Vocational Accountancy & Auditing study materials
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UPMSP Vocational Accountancy & Auditing practice questions

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Question 1Accounting Fundamentals and Journal

In the double entry system of bookkeeping, every business transaction affects how many accounts, and in what manner?

  1. One account only, recorded twice in the same ledger folio
  2. Two accounts, always one asset and one liability
  3. Three accounts, one for each party involved
  4. At least two accounts, with total debits equal to total credits Correct answer.

Explanation

The double entry principle requires that each transaction be recorded in at least two accounts, and the total of debits must equal the total of credits so that the accounting equation stays balanced. The two accounts need not be one asset and one liability; for example, cash purchases affect cash and purchases, both being asset and expense accounts.

Question 2Accounting Fundamentals and Journal

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

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

Explanation

Furniture is an asset and it increases, so the rule for assets applies: debit what comes in. Cash is an asset that decreases, so Cash A/c is credited. The entry is therefore Furniture A/c Dr. to Cash A/c.

Question 3Accounting Fundamentals and Journal

Which of the following is classified as a nominal account in accounting?

  1. Debtors account
  2. Bank loan account
  3. Machinery account
  4. Rent paid account Correct answer.

Explanation

Nominal accounts relate to expenses, losses, incomes and gains, and are closed to the profit and loss account at year end. Rent paid is an expense, so it is nominal. Bank loan is a liability, debtors is an asset and machinery is a fixed asset, all of which are real or personal accounts.

Question 4Accounting Fundamentals and Journal

According to the traditional rules of debit and credit, how is a nominal account treated?

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

Explanation

For nominal accounts the rule is: debit all expenses and losses, credit all incomes and gains. This follows because expenses reduce owner's equity while incomes increase it. The receiver-and-giver rule applies to personal accounts and the come-in-go-out rule applies to real accounts.

Question 5Accounting Fundamentals and Journal

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

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

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 firm. Cash sales go to the cash book and credit purchases go to the purchases book, while the journal proper handles residual entries.

Question 6Accounting Fundamentals and Journal

What does the term 'narration' mean in a journal entry?

  1. The date on which the transaction took place
  2. A brief explanation written below the entry describing the transaction Correct answer.
  3. The total amount of the debit and credit columns
  4. The ledger folio number of the account debited

Explanation

Narration is the short description written beneath each journal entry, usually beginning with 'Being', which explains the nature and reason for the transaction. It helps a reader understand the entry later without referring to source documents.

Question 7Accounting Fundamentals and Journal

Which of the following is a contra entry in a three-column cash book?

  1. Cash paid to a creditor
  2. Cash withdrawn from bank for office use Correct answer.
  3. Salary paid by cheque
  4. Cash received from a debtor

Explanation

A contra entry affects both the cash and bank columns of the cash book simultaneously, so it is recorded on both sides and marked with 'C'. Withdrawal of cash from bank for office use debits the cash column and credits the bank column. Payments to creditors, receipts from debtors and salary payments affect only one column.

Question 8Accounting Fundamentals and Journal

Goods worth Rs. 5,000 were returned by a customer. Where should this be recorded?

  1. Purchases return book, debited to the supplier's account
  2. Journal proper, as a bad debt
  3. Cash book, as a receipt of Rs. 5,000
  4. Sales return book, credited to the customer's account Correct answer.

Explanation

Goods returned by a customer are sales returns, also called returns inward, and are recorded in the sales return book. The customer's personal account is credited because the amount due from that debtor is reduced.

Question 9Accounting Fundamentals and Journal

A transaction is recorded as: Rent A/c Dr. 8,000; to Landlord A/c 8,000. Which accounting rule justifies this entry?

  1. Debit all incomes and credit all expenses
  2. Debit what comes in and credit what goes out
  3. Credit the receiver and debit the giver
  4. Debit the receiver and credit the giver, combined with debit expenses Correct answer.

Explanation

Rent is an expense, so it is debited under the nominal account rule, while the landlord is a personal account who is the receiver of the benefit, so he is credited. The entry combines the nominal rule for rent with the personal rule for the landlord.

Question 10Accounting Fundamentals and Journal

A firm started business with cash Rs. 2,00,000 and stock Rs. 50,000. Which journal entry correctly records this?

  1. Stock A/c Dr. 50,000; to Cash A/c 50,000
  2. Cash A/c Dr. 2,50,000; to Capital A/c 2,50,000
  3. Capital A/c Dr. 2,50,000; to Cash A/c 2,00,000; to Stock A/c 50,000
  4. Cash A/c Dr. 2,00,000; Stock A/c Dr. 50,000; to Capital A/c 2,50,000 Correct answer.

Explanation

Both cash and stock are assets coming into the business, so both are debited, while the owner's capital account is credited with the total. The entry is therefore a compound entry debiting two accounts and crediting one.

Question 11Accounting Fundamentals and Journal

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

  1. An entry was posted twice in the same account
  2. A debit of Rs. 900 was posted as Rs. 90 to the correct side
  3. A transaction was completely omitted from the books Correct answer.
  4. A credit sale was recorded as a credit purchase

Explanation

A trial balance detects only errors that disturb the equality of debits and credits. A complete omission keeps both sides out equally, so it goes undetected. Posting a wrong amount to the correct side, double posting and recording a sale as a purchase all keep the trial balance in agreement.

Question 12Accounting Fundamentals and Journal

Which of the following is the correct order of the accounting cycle?

  1. Trial balance, journal, ledger, final accounts
  2. Journal, ledger, trial balance, final accounts Correct answer.
  3. Journal, trial balance, ledger, final accounts
  4. Ledger, journal, trial balance, final accounts

Explanation

Transactions are first recorded in the journal, then posted to the ledger, after which a trial balance is prepared to check arithmetical accuracy. Finally, final accounts are prepared from the trial balance and adjustments.

Question 13Accounting Fundamentals and Journal

A firm buys goods on credit from Ravi for Rs. 20,000. Which entry is correct?

  1. Ravi A/c Dr. 20,000; to Cash A/c 20,000
  2. Purchases A/c Dr. 20,000; to Cash A/c 20,000
  3. Purchases A/c Dr. 20,000; to Ravi A/c 20,000 Correct answer.
  4. Ravi A/c Dr. 20,000; to Purchases A/c 20,000

Explanation

Goods bought for resale are an expense and are debited to Purchases A/c, while Ravi becomes a creditor and is credited under the personal account rule. The entry records a credit purchase, so cash is not involved.

Question 14Accounting Fundamentals and Journal

Which source document supports the recording of a credit purchase of goods in the purchases book?

  1. Pay-in-slip lodged with the bank
  2. Invoice received from the supplier Correct answer.
  3. Debit note issued by the firm
  4. Cash memo given to the customer

Explanation

A credit purchase is evidenced by the supplier's invoice, which shows the goods supplied and the amount payable. The purchases book is written up from such inward invoices, which are then posted to the supplier's account.

Question 15Accounting Fundamentals and Journal

A firm received a cheque of Rs. 15,000 from a debtor and deposited it in the bank the same day. In the cash book, how is this recorded?

  1. Bank column debit and the debtor's account credited in the ledger Correct answer.
  2. Bank column credit and the debtor's account debited in the ledger
  3. Cash column debit only, with no ledger posting needed
  4. Cash column debit and the debtor's account credited in the ledger

Explanation

A cheque received and banked increases the bank balance, so the bank column is debited in the cash book and the debtor's personal account is credited in the ledger. The cash column is unaffected because no cash was handled.

Question 16Accounting Fundamentals and Journal

Which of the following pairs consists of both a real account and a nominal account respectively?

  1. Capital A/c and Drawings A/c
  2. Outstanding salary A/c and Prepaid rent A/c
  3. Bank A/c and Debtors A/c
  4. Building A/c and Commission received A/c Correct answer.

Explanation

Building is a tangible asset and therefore a real account, while commission received is an income and therefore a nominal account. The pair correctly matches one real and one nominal account.

Question 17Accounting Fundamentals and Journal

A firm paid Rs. 12,000 as insurance premium for one year on 1 July, of which Rs. 9,000 relates to the following accounting year. How should this be treated at year end?

  1. Prepaid insurance of Rs. 3,000 is an asset and Rs. 9,000 is charged as expense
  2. Prepaid insurance of Rs. 9,000 is an asset and Rs. 3,000 is charged as expense Correct answer.
  3. The whole Rs. 12,000 is shown as a liability in the balance sheet
  4. The whole Rs. 12,000 is charged as an expense in the current year

Explanation

The matching principle requires that only the expense relating to the current period be charged to the profit and loss account. The unexpired portion of Rs. 9,000 benefits future periods, so it is carried forward as a prepaid asset.

Question 18Accounting Fundamentals and Journal

A firm's trial balance shows total debits of Rs. 80,000 and total credits of Rs. 78,000. Where would the difference normally be placed pending investigation?

  1. Suspense account, debited with Rs. 2,000
  2. Suspense account, credited with Rs. 2,000 Correct answer.
  3. Capital account, credited with Rs. 2,000
  4. Profit and loss account, debited with Rs. 2,000

Explanation

When a trial balance does not agree, the difference is temporarily placed in a suspense account so that the trial balance can be completed. Since credits are short by Rs. 2,000, the suspense account is credited to balance the two sides.

Question 19Accounting Fundamentals and Journal

Goods worth Rs. 6,000 sold to Mohan were recorded in the sales book as Rs. 600. Which type of error is this?

  1. Error of complete omission
  2. Compensating error
  3. Error of partial omission Correct answer.
  4. Error of principle

Explanation

Recording a transaction with a wrong amount, where part of the value is omitted, is an error of partial omission. It affects the total of the sales book and the debtor's account, so the trial balance will not agree.

Question 20Accounting Fundamentals and Journal

A firm purchased a delivery van for Rs. 4,00,000 and debited the amount to the Delivery Expenses account. Which error has been committed and what is its effect?

  1. Error of omission; the trial balance will not agree
  2. Error of commission; profit is overstated
  3. Error of principle; profit is understated and the asset is not recorded Correct answer.
  4. Compensating error; the trial balance will agree

Explanation

Treating a capital expenditure as a revenue expense is an error of principle. The van, a fixed asset, is never recorded, and the full amount is wrongly charged as an expense, so profit and owner's equity are understated.

Question 21Accounting Fundamentals and Journal

A firm's cash book shows a debit balance of Rs. 25,000, but the bank statement shows a credit balance of Rs. 27,000. Which item could explain this difference?

  1. Interest credited by the bank directly
  2. Cheques deposited but not yet cleared by the bank
  3. A direct deposit by a customer into the bank account
  4. Cheques issued but not yet presented for payment Correct answer.

Explanation

Cheques issued by the firm are recorded immediately in the cash book, but the bank statement balance remains higher until they are presented. This makes the bank statement show a credit balance larger than the debit balance in the cash book.

Question 22Accounting Fundamentals and Journal

A firm maintains a petty cash book on the imprest system with a float of Rs. 5,000. During the month it spent Rs. 3,200. How much is reimbursed at the start of the next month, and what happens to the float?

  1. Rs. 3,200 is reimbursed and the float is restored to Rs. 5,000 Correct answer.
  2. Rs. 1,800 is reimbursed and the float remains at Rs. 1,800
  3. Rs. 5,000 is reimbursed and the float becomes Rs. 8,200
  4. No reimbursement is made and the float remains at Rs. 1,800

Explanation

Under the imprest system the petty cashier is reimbursed exactly the amount spent during the period, so that the cash in hand returns to the original float. Spending Rs. 3,200 leaves Rs. 1,800, and reimbursing Rs. 3,200 restores the float to Rs. 5,000.

Question 23Accounting Fundamentals and Journal

Which of the following transactions would require a journal proper entry rather than a subsidiary book entry?

  1. Goods taken by the proprietor for personal use Correct answer.
  2. Credit purchase of goods from a supplier
  3. Cash received from a debtor
  4. Credit sale of goods to a customer

Explanation

Drawings in the form of goods do not fit into any of the specialised subsidiary books, so they are recorded in the journal proper with the entry Drawings A/c Dr. to Purchases A/c. Credit sales, credit purchases and cash receipts are recorded in the sales book, purchases book and cash book respectively.

Question 24Accounting Fundamentals and Journal

A firm's trial balance agrees even though it recorded a credit sale of Rs. 5,000 as a credit purchase. Why does the trial balance still agree, and why is the error serious?

  1. Both entries affect only asset accounts, so the trial balance cannot detect them
  2. The error is arithmetical and is automatically corrected by the suspense account
  3. Both entries credit a personal account and debit a nominal account, so totals agree but sales and purchases are both misstated Correct answer.
  4. The error cancels out because cash is debited in both cases

Explanation

In both the correct and the wrong entry, a personal account is credited and a nominal account is debited, so the totals of the trial balance remain equal. However, sales are understated and purchases are overstated, which distorts gross profit and the financial statements.

Question 25Ledger and Trial Balance

In double-entry bookkeeping, which of the following transactions is recorded by debiting one account and crediting another account?

  1. Purchase of furniture for cash
  2. Receipt of cash from a debtor Correct answer.
  3. Sale of goods on credit
  4. Owner introducing capital into the business

Explanation

Every transaction affects two accounts, one debited and one credited. When cash is received from a debtor, the Cash account is debited and the debtor's personal account is credited, so this is a genuine two-account entry. The other listed events also involve two accounts, but the question asks which is recorded by debiting one and crediting another in the specific sense of a cash receipt from a debtor.

Question 26Ledger and Trial Balance

A ledger account shows a debit balance of ₹18,000. In which column of the trial balance should this balance be entered?

  1. Debit column Correct answer.
  2. It should be omitted from the trial balance
  3. Either column, depending on the account type
  4. Credit column

Explanation

The trial balance is prepared by listing debit balances in the debit column and credit balances in the credit column. A debit balance of ₹18,000 is therefore entered in the debit column. Its placement does not depend on the nature of the account but on the side on which the balance actually falls.

Question 27Ledger and Trial Balance

Which of the following is a nominal account?

  1. Rent paid account Correct answer.
  2. Bank loan account
  3. Machinery account
  4. Capital account

Explanation

Nominal accounts relate to expenses, losses, incomes and gains, and are closed to the profit and loss account at year end. Rent paid is an expense, so it is a nominal account. Machinery is a real account, while bank loan and capital are personal accounts.

Question 28Ledger and Trial Balance

The purchase of stationery for office use was wrongly debited to the Purchases account. Which type of error is this?

  1. Error of original entry
  2. Error of principle Correct answer.
  3. Compensating error
  4. Error of omission

Explanation

An error of principle occurs when a transaction is entered in an account of a different class from the one it belongs to. Stationery is a revenue expense and should be debited to Stationery, not to Purchases, which is a trading account. The amount is correct and both sides are recorded, so it is a classification error rather than an omission or a compensating error.

Question 29Ledger and Trial Balance

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

  1. Posting a credit sale to the wrong customer's account
  2. Omitting a cash sale from the books completely
  3. Entering a purchase of ₹2,000 as ₹200 in both accounts
  4. Recording a sale of ₹5,000 in the Sales account only Correct answer.

Explanation

The trial balance agrees only when total debits equal total credits. If a sale is recorded in the Sales account without a corresponding debit in the customer's account, the credit side exceeds the debit side by ₹5,000 and the trial balance will not agree. The other errors affect both accounts equally or affect only one side in a way that keeps totals equal.

Question 30Ledger and Trial Balance

A credit balance in a ledger account normally indicates that the account has been:

  1. Debited more often than credited
  2. Used only for cash transactions
  3. Credited more than debited Correct answer.
  4. Closed to the trading account

Explanation

A ledger account balance is the difference between the total of its debit side and the total of its credit side, and it falls on the heavier side. A credit balance therefore means credits exceed debits. This rule applies to any account, whether personal, real or nominal.

Question 31Ledger and Trial Balance

A firm's trial balance shows total debits of ₹4,50,000 and total credits of ₹4,49,700. The difference was placed in a suspense account. What is the amount of the suspense account?

  1. ₹300 credit Correct answer.
  2. ₹300 debit
  3. ₹700 debit
  4. ₹700 credit

Explanation

The suspense account is opened for the difference between the two sides of the trial balance. Debits exceed credits by ₹300, so a credit of ₹300 is needed to make the totals agree. The suspense account therefore carries a credit balance of ₹300.

Question 32Ledger and Trial Balance

Goods worth ₹12,000 were returned by a customer. Which entry correctly records this in the seller's books?

  1. Debit Purchases Returns and credit the customer's account
  2. Debit Sales Returns and credit the customer's account Correct answer.
  3. Debit the customer's account and credit Sales Returns
  4. Debit Cash and credit Sales Returns

Explanation

When a customer returns goods, the seller's sales are reduced, so Sales Returns (a nominal account) is debited. The customer now owes less, so the customer's personal account is credited. This keeps the ledger in balance and reflects the reduction in the receivable.

Question 33Ledger and Trial Balance

From the following balances, calculate the closing balance of the Cash account: opening balance ₹8,000 debit; cash received ₹45,000; cash paid ₹39,000.

  1. ₹6,000 debit
  2. ₹2,000 debit
  3. ₹14,000 debit Correct answer.
  4. ₹14,000 credit

Explanation

The Cash account is debited with the opening balance and all receipts, giving ₹53,000 on the debit side. Payments of ₹39,000 are credited, leaving a debit balance of ₹14,000. A debit balance in Cash is normal because cash is an asset.

Question 34Ledger and Trial Balance

A purchase of goods for ₹9,000 from Ramesh was entered in the books as ₹900 in both the Purchases account and Ramesh's account. What is the effect on the trial balance?

  1. The trial balance will not agree by ₹900
  2. The trial balance will agree but the accounts are understated Correct answer.
  3. The trial balance will not agree by ₹8,100
  4. The trial balance will agree and the accounts are correctly stated

Explanation

This is an error of original entry: the same wrong amount is posted to both the debit and the credit. Because both sides are reduced by the same ₹8,100, the trial balance still agrees. However, purchases and creditors are both understated, so the error must be corrected even though the trial balance gives no signal.

Question 35Ledger and Trial Balance

Which of the following is the correct treatment of a debit balance in a supplier's account in the trial balance?

  1. Show it in the debit column Correct answer.
  2. Ignore it until the supplier confirms the balance
  3. Show it in the credit column as a liability
  4. Transfer it to the capital account

Explanation

The trial balance lists each account's balance on the side where it actually falls, regardless of the account's normal nature. A supplier's account normally shows a credit balance, but if it shows a debit balance, that balance belongs in the debit column. It may indicate an overpayment or a return not yet adjusted.

Question 36Ledger and Trial Balance

A firm paid ₹15,000 for insurance, but the amount was posted to the Insurance account as ₹1,500 and to the Cash account as ₹15,000. Which account will show a balance and of what amount?

  1. Cash account, ₹13,500 credit
  2. Insurance account, ₹13,500 debit
  3. Suspense account, ₹13,500 credit Correct answer.
  4. Suspense account, ₹13,500 debit

Explanation

The debit side is short by ₹13,500 because only ₹1,500 was posted to Insurance while ₹15,000 was credited to Cash. To make the trial balance agree, the suspense account is credited with ₹13,500. The error is later corrected by debiting Insurance and crediting Suspense with ₹13,500.

Question 37Ledger and Trial Balance

Which of the following errors is disclosed by a trial balance?

  1. A sale of ₹4,000 completely omitted from the books
  2. Goods taken by the owner for personal use not recorded
  3. A credit sale posted to the wrong customer's account
  4. A purchase of ₹4,000 posted to the Purchases account only Correct answer.

Explanation

A trial balance detects only errors that make total debits differ from total credits. Posting a purchase to only one account creates a one-sided entry, so the totals will not agree. Omission of a whole transaction, drawings not recorded, and posting to the wrong personal account keep both sides equal.

Question 38Ledger and Trial Balance

A firm maintains a suspense account. Which correction requires an entry in the suspense account?

  1. A credit sale of ₹6,000 posted to the wrong customer's account
  2. A credit sale of ₹6,000 omitted from the Sales account but correctly posted to the customer Correct answer.
  3. A credit sale of ₹6,000 posted to the customer's account as ₹600
  4. A credit sale of ₹6,000 recorded in the Sales Day Book at ₹600 and posted at ₹600 to both accounts

Explanation

The suspense account is used only for errors that caused the trial balance to disagree. Omitting the credit to Sales while debiting the customer leaves the credit side short, so the difference sits in suspense and the correction must clear it. The other errors either affect both sides equally or affect only personal accounts, so the trial balance still agrees.

Question 39Ledger and Trial Balance

The trial balance of a trader shows total debits of ₹8,20,000 and total credits of ₹8,16,000. The difference was posted to the credit side of the suspense account. Later it was found that the purchases book had been undercast by ₹4,000. What is the correct rectifying entry?

  1. Debit Purchases and credit Cash with ₹4,000
  2. Debit Suspense and credit Capital with ₹4,000
  3. Debit Purchases and credit Suspense with ₹4,000 Correct answer.
  4. Debit Suspense and credit Purchases with ₹4,000

Explanation

An undercast purchases book means the debit side of the trial balance is short by ₹4,000, which is exactly the amount placed in suspense. To correct it, Purchases must be debited to restore the missing debit and Suspense credited to clear the balance. After this entry the suspense account closes and the trial balance agrees.

Question 40Ledger and Trial Balance

A firm's trial balance agreed even though the following errors existed: (i) a credit sale of ₹10,000 was posted to the sales account as ₹1,000, and (ii) a credit purchase of ₹10,000 was posted to the purchases account as ₹1,000. What is the combined effect on profit?

  1. No effect on profit Correct answer.
  2. Profit overstated by ₹9,000
  3. Profit understated by ₹18,000
  4. Profit overstated by ₹18,000

Explanation

Both errors are equal in amount and opposite in effect. Sales are understated by ₹9,000, which reduces profit, while purchases are also understated by ₹9,000, which increases profit by the same amount. The two effects cancel, leaving reported profit unchanged, although both the sales and purchases figures are wrong.

Question 41Ledger and Trial Balance

A trader's trial balance showed a difference of ₹5,400 which was placed in a suspense account on the credit side. It was later found that goods returned to a supplier worth ₹5,400 had been entered in the purchases returns book but posted to the debit of the supplier's account. What is the net effect of the correction on the suspense account?

  1. The suspense balance is cleared by debiting the supplier with ₹5,400
  2. Suspense account is debited with ₹10,800
  3. Suspense account is credited with ₹5,400
  4. Suspense account is debited with ₹5,400 and no further entry is needed Correct answer.

Explanation

The purchases returns book was correct, so the credit to Purchases Returns is already in order. Only the posting to the supplier's account was reversed, and debiting that account with ₹5,400 clears the suspense credit. No further entry is required because the original credit in the returns book stands.

Question 42Ledger and Trial Balance

Which of the following statements about the trial balance is correct?

  1. A trial balance proves the arithmetical accuracy of the ledger but not the absence of errors Correct answer.
  2. A trial balance is prepared before the ledger accounts are balanced
  3. A trial balance is a summary of all cash transactions for the year
  4. A trial balance replaces the profit and loss account at year end

Explanation

The trial balance checks that total debits equal total credits, which demonstrates arithmetical accuracy of the ledger postings. It cannot reveal errors that affect both sides equally, such as errors of principle or complete omission. It is therefore a checking device, not proof that the books are free from error.

Question 43Ledger and Trial Balance

A firm's ledger shows the following: Capital ₹80,000 credit, Drawings ₹5,000 debit, Sales ₹1,20,000 credit, Purchases ₹70,000 debit, Rent ₹6,000 debit, Cash ₹9,000 debit, Bank overdraft ₹10,000 credit. What is the total of the debit column of the trial balance?

  1. ₹80,000
  2. ₹1,10,000
  3. ₹90,000 Correct answer.
  4. ₹1,00,000

Explanation

The debit balances are Drawings ₹5,000, Purchases ₹70,000, Rent ₹6,000 and Cash ₹9,000, giving a total of ₹90,000. Capital, Sales and the bank overdraft are credit balances and belong in the credit column. The credit column totals ₹2,10,000, so the figures given do not form a balanced trial balance as listed.

Question 44Ledger and Trial Balance

A firm records a cheque of ₹7,500 received from a customer in the Cash Book correctly but fails to post it to the customer's account. Which type of error is this and how is it corrected?

  1. Error of commission; debit Suspense and credit the customer
  2. Error of partial omission; debit the customer and credit Suspense Correct answer.
  3. Error of principle; debit Cash and credit Suspense
  4. Error of complete omission; debit Cash and credit the customer

Explanation

The transaction appears in one book but not in the ledger, which is a partial omission. Because the credit to the customer is missing while Cash was debited, the trial balance disagrees and the difference is held in suspense. The correction is to debit the customer and credit Suspense with ₹7,500.

Question 45Subsidiary Books and Bank Reconciliation Statement

In a three-column cash book, the discount column on the debit side records which of the following?

  1. Discount allowed to customers Correct answer.
  2. Discount received from suppliers
  3. Cash deposited into bank
  4. Bank charges debited by the bank

Explanation

The debit side of the cash book represents receipts, and the discount column there records discount allowed to customers when they pay early. Discount received from suppliers appears in the credit-side discount column because it relates to payments.

Question 46Subsidiary Books and Bank Reconciliation Statement

A petty cash book maintained under the imprest system starts each period with a fixed float of ₹5,000. During the month the petty cashier spends ₹3,650. How much reimbursement will the head cashier give to restore the imprest?

  1. ₹8,650
  2. ₹1,350
  3. ₹5,000
  4. ₹3,650 Correct answer.

Explanation

Under the imprest system the petty cashier is reimbursed exactly the amount spent so that the balance returns to the fixed float. Here the amount spent is ₹3,650, so ₹3,650 is reimbursed and the float is restored to ₹5,000.

Question 47Subsidiary Books and Bank Reconciliation Statement

Which book of original entry is used to record the return of goods by a customer?

  1. Purchases book
  2. Bills receivable book
  3. Sales returns book Correct answer.
  4. Sales book

Explanation

Goods returned by a customer are recorded in the sales returns book, also called the returns inward book. This book captures credit notes issued to customers for goods sent back.

Question 48Subsidiary Books and Bank Reconciliation Statement

A cheque for ₹12,000 deposited by a trader was dishonoured by the bank. In the cash book this dishonour is recorded as which of the following?

  1. A credit in the bank column Correct answer.
  2. A debit in the bank column
  3. A credit in the discount column
  4. A debit in the cash column

Explanation

When a deposited cheque is dishonoured, the bank reverses the earlier credit, so the trader's bank balance falls. A reduction in the bank balance is recorded on the credit side of the bank column.

Question 49Subsidiary Books and Bank Reconciliation Statement

In a bank reconciliation statement prepared starting from the cash book balance, an unpresented cheque issued to a supplier is treated in which way?

  1. Ignored because it is already recorded
  2. Deducted from the cash book balance
  3. Added to the cash book balance Correct answer.
  4. Added only if the cheque is stale

Explanation

An unpresented cheque has already been credited in the cash book, reducing the book balance, but the bank has not yet paid it. Adding it back to the cash book balance reconciles the book figure to the higher pass book balance.

Question 50Subsidiary Books and Bank Reconciliation Statement

The balance shown by a pass book at credit means which of the following?

  1. The bank owes the trader nothing
  2. The trader holds a favourable balance at the bank Correct answer.
  3. The trader has an overdraft with the bank
  4. The cash book and pass book agree exactly

Explanation

A credit balance in the pass book is shown from the bank's point of view: the bank owes that amount to the customer. It therefore represents a favourable balance in the trader's favour.