Tag: understand the classification of accounts

Questions Related to understand the classification of accounts

Small firms may adopt _________.

elements of book keeping and accountancy nature of accounts and rules of debit and credit meaning, advantages and limitations of journals understand the classification of accounts introduction to books of prime entry

  1. The subsidiary book system

  2. Journal system

  3. Ledger

  4. None of these

Show answer
Correct Option: B
Explanation:

Recording of transactions helps to make the financial statement accurate. Recording of transaction in journal helps small firms to keep their track of transactions upto date. Hence small firms may adopt the journal system.

The following comments each relate to the recording of journal entries. Which statement is true?

elements of book keeping and accountancy nature of accounts and rules of debit and credit meaning, advantages and limitations of journals understand the classification of accounts introduction to books of prime entry

  1. For any given journal entry. debits must exceed credits

  2. It is customary to record credits on the left and debits on the right

  3. The chart of accounts reveals the amount to debit and credit to the affected accounts

  4. Journalization is the process of converting transactions and events into debit/credit format

Show answer
Correct Option: D
Explanation:

All business transaction which are of monetary value need to be recorded in journal in chronological order.The process of making the journal entries is called as journalization. All the transactions are having two affects i.e. debit and credit.

The following comments all relate to the recording process. Which of these statements is correct?

elements of book keeping and accountancy nature of accounts and rules of debit and credit meaning, advantages and limitations of journals understand the classification of accounts introduction to books of prime entry

  1. The general ledger is a chronological record of transactions

  2. The general ledger is posted from transactions recorded in the general journal

  3. The trial balance provides the primary source document for recording transactions into the general journal

  4. Transposition is the transfer of information from the general journal to the general ledger

Show answer
Correct Option: B
Explanation:

Journal is a book in which all the business transactions are recorded in chronological order. All entries from journal are transferred to the ledger account. The process of transferring the entries from journal to ledger is called posting.

Journal means _______________.

elements of book keeping and accountancy nature of accounts and rules of debit and credit meaning, advantages and limitations of journals understand the classification of accounts introduction to books of prime entry

  1. A daily record of business transactions

  2. Book of original entry

  3. Both (A) and (B)

  4. Purchase book

Show answer
Correct Option: C
Explanation:

Journal has been derived from the french word 'jour' which means day. Journal is a book of original entry which records day to day transactons of a firm. It is the book where transactions are recorded for the first time. Hence, it is called book of original entry.

The French word 'Jour' means ___________.

elements of book keeping and accountancy nature of accounts and rules of debit and credit meaning, advantages and limitations of journals understand the classification of accounts introduction to books of prime entry

  1. Day

  2. Book

  3. Record

  4. Transaction

Show answer
Correct Option: A
Explanation:

Journal has been derived from the french word 'jour' which means day. Journal is a book of original entry which records day to day transactons of a firm. Hence, the french word 'jour' means day.

Which of the followings is not a book of original entry?

elements of book keeping and accountancy nature of accounts and rules of debit and credit meaning, advantages and limitations of journals understand the classification of accounts introduction to books of prime entry

  1. Cash book

  2. Ledger

  3. Sales journal

  4. Bill receivable book

Show answer
Correct Option: B
Explanation:

Books of original entry refers to the accounting journal in which business transactions are initially recorded. The information in these books is the summarized into a general ledger, from which financial statements are produced. Each accounting journal contains detailed records for the types of accounting transactions pertaining to a specific area. Examples of these accounting journals are:

(i) Cash journal
(ii) General journal
(iii) Purchase book
(iv) Sales book
(v) Cash book
The general ledger is not considered a book of original entry, if it contains summarized entries posted to it from one of the underlying accounting journals. However, if transactions are recorded directly into the general ledger, it can be considered one of the books of original entry. Books of original entry are extremely useful for investigating individual accounting transactions, and are commonly accesses by auditors, who verify a selection of business transactions to ensure that they were recorded correctly.

Which of the followings shows the chronological record of transactions ?

elements of book keeping and accountancy nature of accounts and rules of debit and credit meaning, advantages and limitations of journals understand the classification of accounts introduction to books of prime entry

  1. Journal

  2. Ledger

  3. Trial balance

  4. None of these

Show answer
Correct Option: A
Explanation:

After analyzing and preparing business documents, the transactions are then recorded in the books of the company. A journal entry is the recording of a business transaction in the journal. A journal entry shows all the effects of a business transaction as expressed in debit(s) and credit(s) and may include an explanation of the transaction. A transaction is entered in a journal and before it is entered in ledger accounts. In double-entry accounting transactions are recorded in the journal through journal entries. A journal, also known as Books of Original Entry, keeps records of business transactions in a systematic order. Transactions are recorded in the journal in chronological order, i.e. as they occur; one after the other.

Computer Account is _________.

elements of book keeping and accountancy nature of accounts and rules of debit and credit meaning, advantages and limitations of journals understand the classification of accounts introduction to books of prime entry

  1. Nominal

  2. Real

  3. Personal

  4. None of the above

Show answer
Correct Option: B
Explanation:

Accounts relating to properties or assets are known as "Real accounts". A separate account is maintained for each asset. E.g. Cash, Machinery, Building, etc. Real accounts can be further classified into tangible and intangible.

1. Tangible Real Accounts: Theses accounts represent assets and properties which can be seen, touched, felt, measured, purchased and sold. For e.g. Machinery account, Cash account, Furniture account, etc.
2. Intangible Real Accounts: These accounts represent assets and properties which cannot be seen, touched or felt but they can be measured in terms of money. For e.g., Goodwill accounts, Patents accounts, etc.
Patent account is anaccount whose value can be  measured in terms of money and treated as an asset of the business, hence, is classified as a real account.

Loan Account is __________.

elements of book keeping and accountancy nature of accounts and rules of debit and credit meaning, advantages and limitations of journals understand the classification of accounts introduction to books of prime entry

  1. Real

  2. Personal

  3. Nominal

  4. All of the above

Show answer
Correct Option: B
Explanation:

Personal accounts are related to individuals, firms, companies, etc. A few examples of personal accounts include debtors, creditors, banks, outstanding/prepaid accounts, accounts of credit customers, accounts of goods suppliers, drawings, capital, etc.

Representative personal accounts represent a certain person or group directly or indirectly. E.g. Let's say that wages are paid in advance to an employee - a wage prepaid account will be opened in the books of accounts. This wages prepaid account is a representative personal account indirectly linked to the person. 
Loan Account is  a representative personal account, as it represents the person from whom the loan is obtained or to whom the loan is given. Hence, it is classified as a personal account.

Audit Fees Account is ________.

elements of book keeping and accountancy nature of accounts and rules of debit and credit meaning, advantages and limitations of journals understand the classification of accounts introduction to books of prime entry

  1. Real

  2. Personal

  3. Nominal

  4. All of the above

Show answer
Correct Option: C
Explanation:

As per various laws, the audit of accounts is being done by the competent and professionally qualified persons. The audit of accounts record is done by qualified accountants and authorized by the concerned government . For example, cost audit is done by cost accountant, statutory audit and tax audit is done by chartered accountants, etc/. These professionals charge their fees for auditing of accounts. The amount, which is paid to the auditors for auditing the accounts, is called as audit fees.

Representative account are related to expenses, losses, incomes or gains are called as nominal accounts. The dictionary meaning of the word "nominal" is "existing in name only" and the meaning remains absolutely true in accounting senses too, because nominal accounts do not exist in physical form, but behind every nominal account money is involved. The final result of all nominal accounts is either profit or loss which is then transferred to the capital account.
Golden rule for nominal accounts is: Debit all expenses and losses; Credit all incomes and gains.
Examples of nominal accounts are Audit Fees A/c, Purchase A/c, Salary A/c, Sales A/c, etc.