• Fundamentals of Accounting - 3
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Fundamentals of Accounting - 3

Description: Fundamental of Accounting
Number of Questions: 25
Created by:
Tags: CA CPT Accountancy Accounting Basic of Accounting Advanced Accounting Accounting Process
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Purchase Book records

  1. cash purchase of goods

  2. credit purchase of goods

  3. cash purchase of assets

  4. credit purchase of assets

Show answer
Correct Option: B
Explanation:

 Credit Purchase of Goods is recorded in the Purchase Book.

Which of the following expenses is/are of capital nature?

  1. Purchase of goods

  2. Normal repairing expenses

  3. Monthly rent of factory

  4. Wages paid for installation of furniture

Show answer
Correct Option: D
Explanation:

 Wages paid for installation of furniture is a capital expense.

ABC Traders paid a total of Rs. 40,000, by way of cheques, as Advance Tax during the year. On 31st March 2011, ABC Traders made a provision of Rs. 85,000 as the firm's tax. Which of the following entries need not be passed in the account book?

  1. Dr. advance tax and Cr. bank A/c.

  2. Dr. profit and loss A/c and Cr. provision for taxation A/c.

  3. Dr. provision for taxation A/c, Cr. advance tax A/c and bank A/c.

  4. Dr. income tax A/c and Cr. bank A/c.

Show answer
Correct Option: D
Explanation:

 No need to open Income Tax a/c for the payment of Income Tax.

Which of the errors takes place when a transaction is not recorded at all in the books of original entry?

  1. Error of commission

  2. Error of omission

  3. Error of principle

  4. Compensatory error

Show answer
Correct Option: B
Explanation:

 When a transaction is not recorded at all or partially recorded in the books of original entry, both it's debit and credit aspects would be ommitted.

When an item of a nominal account is entered into a real account or vice versa, which type of error is it?

  1. Error of commission

  2. Error of omission

  3. Error of principle

  4. Compensatory error

Show answer
Correct Option: C
Explanation:

 In this type of error, an item of nominal account is entered into a real account or vice versa.

An invoice of purchase from Ajit for Rs. 20,000 was not recorded in the books. Which is the correct entry to rectify this error, if the error was found before the preparation of the Trial Balance?

  1. Dr. purchase A/c and Cr. cash A/c.

  2. Dr. purchase A/c and Cr. Ajit A/c.

  3. Dr. purchase A/c and Cr. suspense A/c.

  4. Dr. profit and loss adjustment A/c and Cr. Ajit A/c.

Show answer
Correct Option: B
Explanation:

The transcation is not recorded, so the rectifying entry is the same as it is recorded in the books when the transaction occured.

In which type of error is the posting of an item made to the correct side of a wrong account?

  1. Error of commission

  2. Error of omission

  3. Error of principle

  4. Compensatory error

Show answer
Correct Option: A
Explanation:

 Such errors include entries of the transactions in a wrong account of the same class. It means the posting of an item is made to the correct side of a wrong account.

An invoice of purchase from Ajit for Rs. 20,000 was not recorded in the books. Which is the correct rectifying entry, if the error is found out after preparation of the Trial Balance but before the preparation of the Balance Sheet?

  1. Dr. purchase A/c and Cr. cash A/c

  2. Dr. purchase A/c and Cr. Ajit A/c

  3. Dr. purchase A/c and Cr. suspense A/c

  4. Dr. profit and loss adjustment A/c and Cr. Ajit A/c

Show answer
Correct Option: B
Explanation:

 The entry is not recorded in the books,  so we need to pass the original entry.

An invoice of purchase from Ajit for Rs. 20,000 was not recorded in the books. Which is the correct rectifying entry, if the error is found after the preparation of the Balance Sheet?

  1. Dr. purchase A/c and Cr. cash A/c

  2. Dr. purchase A/c and Cr. Ajit A/c

  3. Dr. purchase A/c and Cr. suspense A/c

  4. Dr. profit and loss adjustment A/c and Cr. Ajit A/c

Show answer
Correct Option: D
Explanation:

No record of purchase  means increase in the profit, so to adjust the profit  we need to open the profit and loss adjustment A/c and the party's a/c is not affected. So there is no need to record it through party's a/c.

The entry ''Purchased furniture on credit costing Rs. 20,000 from ABC Furnitures'' has been entered in the purchase book. Which kind of error is it?

  1. Error of commission

  2. Error of omission

  3. Error of principle

  4. Compensatory error

Show answer
Correct Option: C
Explanation:

 In this type of error, an item of nominal account is entered in a real account or vice versa. Here,  furniture is a real a/c and purchase is a nominal  a/c.

A furniture costing Rs. 20,000, purchased on credit from ABC Furnitures, has been entered in the purchase book. What is the rectifying entry?

  1. Dr. purchase A/c and Cr. ABC Furnitures

  2. Dr. ABC Furnitures and Cr. purchase A/c

  3. Dr. furniture A/c and Cr. ABC Furnitures

  4. Dr. furniture A/c and Cr. purchase A/c

Show answer
Correct Option: D
Explanation:

This is the error of principle because capital expense is treated as revenue expense. So the purchase A/c has to be credited and the furniture A/c has to be debited.

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

  1. A sum of Rs. 12,000 spent on the extension of a building was debited to building repairs A/c

  2. A sum of Rs. 2,000 received from S & Co. has been entered as received from R & Co.

  3. Machinery was purchased for Rs. 1,00,000 but the transaction was not recorded

  4. Rahul's A/c debited with Rs. 1,500 instead of Rs. 1,200 and Vijay's A/c debited with Rs. 1,700 instead of Rs. 2,000

Show answer
Correct Option: A
Explanation:

Here capital expense is treated as a revenue expense and this is because of wrong application of accounting princples.

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

  1. A sum of Rs. 12,000 spent on the extension of a building was debited to building repairs A/c

  2. A sum of Rs. 2,000 received from S & Co. has been entered as received from R & Co.

  3. Machinery was purchased for Rs. 1,00,000 but the transaction was not recorded

  4. Rahul's A/c debited with Rs. 1,500 instead of Rs. 1,200 and Vijay's A/c debited with Rs. 1,700 instead of Rs. 2,000

Show answer
Correct Option: B
Explanation:

This is the error of commission. It means the posting of an item is made to the correct side but of a wrong a/c i.e. here R & Co.'s a/c instead of S & Co.'s a/c.

A sum of Rs. 2,000, received from S & Co., has beed entered as received from R & Co. What rectifying entry is to be passed?

  1. Dr. cash A/c and Cr. S & Co.

  2. Dr. cash A/c and Cr. R & Co.

  3. Dr. R. & Co. and Cr. S. & Co.

  4. No rectifying entry needs to be passed.

Show answer
Correct Option: C
Explanation:

This is the rectifying entry after the correction of wrong credit to R. & Co. for the amount received from S. & Co.

A sum of Rs. 12,000, spent on the extension of a building, was debited to building repairs A/c. What rectifying entry is to be passed?

  1. Dr. building A/c and Cr. cash A/c

  2. Dr. building repairs A/c and Cr. cash A/c

  3. Dr. building A/c and Cr. building repairs A/c

  4. Dr. building repairs A/c and Cr. building A/c

Show answer
Correct Option: C
Explanation:

This is the rectifying entry because we need to debit the building account and buidling repairs A/c needs to be credited.

Which of the following is an example of compensatory error?

  1. A sum of Rs. 12,000 spent on the extension of a building was debited to building repairs A/c

  2. A sum of Rs. 2,000 received from S & Co. has been entered as received from R & Co.

  3. Machinery was purchased for Rs. 1,00,000 but the transaction was not recorded

  4. Rahul's A/c debited with Rs. 1,500 instead of Rs. 1,200 and Vijay's A/c debited with Rs. 1,700 instead of Rs. 2,000

Show answer
Correct Option: D
Explanation:

 This is a compensatory error because in the first transaction Rs. 300 have been debited more, whereas in the second transaction Rs. 300 have been debited less.

To which account should the depreciation account be transferred in order to close it?

  1. Profit & Loss A/c

  2. Profit & Loss Adjustment A/c

  3. Profit & Loss Appropriation A/c

  4. None of these

Show answer
Correct Option: A
Explanation:

Depreciation account is an allowed expense. So it should be transferred to the Profit & Loss A/c

The purchase book is overcast by Rs. 2,000 and the sales book is undercast by Rs. 3,000. Both the errors are found only after the preparation of final accounts. What amount of profit is to be transferred to the profit and loss adjustment account after rectification of both the errors?

  1. Dr. profit and loss adjustment account by Rs. 2,000

  2. Cr. profit and loss adjustment account by Rs. 3,000

  3. Dr. profit and loss adjustment account by Rs. 5,000

  4. Cr. profit and loss adjustment account by Rs. 5,000

Show answer
Correct Option: D
Explanation:

The overall impect on profit after rectification of both the errors is an increase of Rs. 5,000, so we need to credit the profit and loss adjustment account.

To which of the following assets does 'Amortisation' belong?

  1. Machinery

  2. Trade Mark

  3. Land and building

  4. Furniture

Show answer
Correct Option: B
Explanation:

Trade Mark is an intengible asset and amortisation belongs to it.

Salary paid for 11 months has been recorded but for the 12th month, which is outstanding, has not been recorded in the books. What type of error is this?

  1. Error of commission

  2. Error of omission

  3. Error of principle

  4. Compensatory error

Show answer
Correct Option: B
Explanation:

The 12th month's salary is not recorded in the books of original entry. Both it's debit and credit aspects have be omitted.

In which book, the transaction ''Purchased machinery from M/s Sharma & Sons for Rs. 20,00,000'' is to be passed?

  1. Purchase book

  2. Cash book

  3. Journal proper

  4. No entry is required

Show answer
Correct Option: C
Explanation:

Credit purchase of an asset is recorded in the journal proper.

Repair charges of Rs. 500 for building are incorrectly charged to the building account. Which rectifying entry needs to be passed?

  1. Dr. building account Rs. 500 and Cr. repairs account Rs. 500

  2. Dr. repairs account Rs. 500 and Cr. building account Rs. 500

  3. Dr. suspense account Rs. 500 and Cr. repairs account Rs. 500

  4. Dr. building account Rs. 500 and Cr. suspense account Rs. 500

Show answer
Correct Option: B
Explanation:

The expense is a revenue expense so we need to debit the account of expense and not the asset .

Rectify the following error: 'Sales day book is undercast by Rs. 650'.

  1. Dr. sales account by Rs. 650 and Cr. suspense account by Rs. 650

  2. Dr. suspense account by Rs. 650 and Cr. sales account by Rs. 650

  3. Dr. sales account by Rs. 1,300 and Cr. suspense account by Rs. 1,300

  4. Dr. suspense account by Rs. 1,300 and Cr. sales account by Rs. 1,300

Show answer
Correct Option: B
Explanation:

 This is a one-side error, so we need to open suspense account.

Where does the rectifying entry need to be passed in a nominal account, when the error is detected after the preparation of final account?

  1. Profit and loss account

  2. Profit and loss adjustment account

  3. Profit and loss appropriation account

  4. Respective nominal account

Show answer
Correct Option: B
Explanation:

When any nominal account is affected because of any error, it will affect the profilt, so after prepration of profit and loss account,  we can adjust the profit,  with the profit and loss adjustment account.

“Income received in advance” is a/an

  1. current asset

  2. current liability

  3. investment

  4. secured loan

Show answer
Correct Option: B
Explanation:

Income received in advance is a current liability because you need to pay for this advance amount in the future.

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