NCERT Solutions for Class 11th: Ch 3 Recording of Transactions - I Accountancy
Page No: 79Questions for practice
Short Questions
1. State the three fundamental steps in the accounting process.
Answer
The fundamental steps in the accounting process are:
• Analyzing each transaction in terms of its effect on the accounts.
• Recording the transaction in journal
• Posting to individual account in the principal book, Ledger.
2. Why is the evidence provided by source documents important to accounting?
Answer
The evidence provided by the source document is important because:
→ It provides evidence that a transaction has actually occurred.
→ It provides important and relevant information about date, amount, parties involved and other details of a particular transaction.
→ It acts as a proof in the court of law.
→ It helps in verifying transactions during the auditing process.
3. Should a transaction be first recorded in a journal or ledger? Why?
Answer
A transaction should be recorded first in a journal as it is book of original entry. It provides complete record of each transaction in one place and links the debits and credits for each transaction. It forms the basis for posting the transactions into their respective accounts into ledger. Transactions are recorded in journal in chronological order, i.e. in the order of occurrence with the help of source documents.
4. Are debits or credits listed first in journal entries? Are debits or credits indented?
Answer
The debit are listed first in Journal entries then after Credits is written in second column leaving some space.
The credits entry indented to the right.
5. Why are some accounting systems called double accounting systems?
Answer
Some accounting systems are called double accounting systems because according to this system every business transaction affects atleast two accounts in opposite directions. If one account is debited then another account must be credited with equal amount.
6. Give a specimen of an account.
Answer
Page No: 80
7. Why are the rules of debit and credit same for both liability and capital?
Answer
Every business acquires funds from internal as well as from external sources. According to the business entity concept, the amount borrowed from the external sources together with the internal sources like, capital invested by the proprietor, is termed as liability to the business. Business entity concept treats business and business owner separately. Capital of the owner is treated as liability to the business because the business has to repay the amount of capital to the owner, in case of closure of the business. As liability incurred is credited, in the same way, fresh capital introduced and net profit increases the owner's capital, and so, capital is credited. On the other hand, if liability is paid, it reduces liability, and so, it is debited. Similarly, drawings from capital and net loss reduce the capital, and so, capital is debited. Thus the rules of debit and credit are same for both liability and capital.
8. What is the purpose of posting J.F numbers that are entered in the journal at the time entries are posted to the accounts?
Answer
The purpose of entering J.F. number in the ledger is because of the below given benefits.
→ J.F. number helps in locating the entries of accounts in the journal book. In other words, J.F number helps to locate the position of the related journal entry and subsidiary book in the journal book.
→ J.F. number in accounts ensures that recording in the books of original entry has been posted or not.
9. What entry (debit or credit) would you make to: (a) increase revenue (b) decrease in expense, (c) record drawings (d) record the fresh capital introduced by the owner.
Answer
(a) Increase in revenue is credited as it increases the capital. Capital has credit balance and if capital increases, then it is credited.
(b) Decrease in expense is credited as all expenses have debit balance. If expense decreases, then it is credited.
(c) Capital has credit balance; if the capital increases, then it is credited. If capital decreases, then it is debited. Drawings are debited as they decrease the capital.
(d) Capital has credit balance, if capital increases, then it is credited. The introduction of fresh capital increases the balance of capital, and so, it is credited.
10. If a transaction has the effect of decreasing an asset, is the decrease recorded as a debit or as a credit? If the transaction has the effect of decreasing a liability, is the decrease recorded as a debit or as a credit?(b) Decrease in expense is credited as all expenses have debit balance. If expense decreases, then it is credited.
(c) Capital has credit balance; if the capital increases, then it is credited. If capital decreases, then it is debited. Drawings are debited as they decrease the capital.
(d) Capital has credit balance, if capital increases, then it is credited. The introduction of fresh capital increases the balance of capital, and so, it is credited.
Answer
If a transaction has a decreasing effect on an asset, then this decrease is recorded as credit. This is because, as all assets have debit balance and if assets decrease, then it is credited. For example, sale of furniture results in decrease in furniture (asset), so, the sale of furniture will be credited.
If a transaction has a decreasing effect on a liability, then this decrease is recorded as debit. This is because all liabilities have credit balance. If the liability increases, then it is credited and if the liability decreases, then it is debited. For example, payment to the creditors results in a decrease in the creditors (liability); so, the creditors account will be debited.
Long Answers
1. Describe the events recorded in accounting systems and the importance of source documents in those systems?
Answer
After purchasing a computer, the dealer gives a cash memo along with the computer and in
exchange your father makes cash payment of Rs. 35,000. Purchase of computer for cash is an
example of a transaction, which involves reciprocal exchange of two things:
(i) payment of cash,
(ii) delivery of a computer.
Hence, the transaction involves this aspect, i.e. Give and Take. Payment of cash involves give aspect
and delivery of computer is a take aspect.
Thus, business transactions are exchanges of economic consideration between parties and have two-fold effects that are recorded in at least two accounts. Business transactions are usually evidenced by appropriate documents such as Cash memo, Invoice, Sales bill, Pay-in-slip, Cheque, Salary slip, etc. A document which provides evidence of the transactions is called the Source Document or a Voucher.
Source Document or a Voucher is important in accounting because:
→ It provides evidence that transaction has actually occurred.
→ It provides information about the date, amount and parties involved and other details of a particular transactions.
→ It acts as an evidence in the count of law.
→ It helps in verifying the transaction during the auditing process.
2. Describe how debits and credits are used to analyze transactions.
Answer
In double entry accounting, every transaction affects and is recorded in at least two accounts. When recording each transaction, the total amount debited must equal to the total amount credited. In accounting, the terms — debit and credit indicate whether the transactions are to be recorded on the left hand side or right hand side of the account. In a T-form Balance sheet assets are recorded on the right hand side and capital and liabilities are recorded on the left hand side. At any point of time, the total of the both sides of the Balance sheet is always equal.
For example, in the books of a customer all goods sold shall appear on the left (debit) side of customer’s account and all payments received on the right (credit) side. The difference between the totals of the two sides is called as balance It represents the amount due to the customer.
3. Describe how accounts are used to record information about the effects of transactions?
Answer
All accounts are divided into five categories for the purposes of recording the
transactions: (a) Asset (b) Liability (c) Capital (d) Expenses/Losses, and (e)
Revenues/Gains.
Two fundamental rules are followed to record the changes in these accounts:
(1) For recording changes in Assets/Expenses (Losses):
(i) “Increase in asset is debited, and decrease in asset is credited.”
(ii) “Increase in expenses/losses is debited, and decrease in expenses/losses is credited.”
(2) For recording changes in Liabilities and Capital/Revenues (Gains):
(i) “Increase in liabilities is credited and decrease in liabilities is debited.”
(ii) “Increase in capital is credited and decrease in capital is debited.”
(iii) “Increase in revenue/gain is credited and decrease in revenue/gain is debited.”
4. What is a journal? Give a specimen of journal showing at least five entries.
Answer
Journal is a basic book of original entry. In this book, transactions are recorded in the chronological order, as and when they take place with the help of source documents.Afterwards, transactions from this book are posted to the respective accounts in the ledger.
Date
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||
1)
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Started business with cash Rs 1,00,000
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April 01
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2)
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Open a bank account Rs 20,000
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April 03
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3)
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Purchase goods for cash Rs 25,000
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April 04
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4)
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Goods sold for cash Rs 30,000
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April 05
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5)
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Goods sold to Mr. X Rs 2,000
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April 06
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Journal Entry of above transactions:
5. Differentiate between source documents and vouchers.
Answer
Basis of Difference
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Source Documents
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Vouchers
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Meaning
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It refers to the documents in writing, containing the details of events or transactions.
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When source document is considered as evidence of an event or transaction, then it is called voucher.
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Purpose
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It is used for preparing accounting vouchers.
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It is used for analysing the transactions.
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Recording
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It acts as a basis for preparing accounting voucher that helps in recording.
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It acts as a basis for recording transactions.
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Preparation
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It is prepared at the time when an event or a transaction occurs.
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It can be prepared either when an event or a transaction occurs, or later on.
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Legality/Validity
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It can be used as evidence in the court of law.
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It can be used for assessing the authentication of transactions.
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Prepared By
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It is prepared by the persons who are directly involved in the transactions, or who are authorised to prepare or approve these documents.
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It is prepared by the authorised persons or by the accountants.
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Examples
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Cash memo, invoice, and pay-in-slip, etc.
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Cash memo, invoice, pay-in-slip (if used as evidence), debit note, credit note, cash vouchers, transfer vouchers, etc.
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6. Accounting equation remains intact under all circumstances. Justify the statement with the help of an example.
Answer
Accounting equation signifies that the assets of a business are always equal to the total of its liabilities and capital (owner’s equity). The equation as follows:
A = L + C
Where,
A = Assets
L = Liabilities
C = Capital
The above equation can also be presented in the following forms as its derivatives to enable the determination of missing figures of Capital(C) or Liabilities(L).
(i) A – L = C
(ii) A – C = L
At any point of time resources of the business entity must be equal to the claims of those who have financed these resources. Thus, In any circumstance the above equation cannot be changed. For example,
1. Business started with cash Rs 1,00,000
Assets = Liabilities + Capital
Cash
1,00,000 = 1,00,000
Here, assets decreases as cash is invested in the business which increases the capital. Therefore, there is LHS = RHS remains intact.
2. Goods purchased on credit Rs 20,000
Assets = Liabilities + Capital
Cash + Stock
1,00,000 + 20,000 = 20,000 + 1,00,000
Here, Assets and liability both increases without affecting the equality.
3. Paid cash for goods purchased on credit Rs 20,000
Assets = Liabilities + Capital
Cash + Stock
1,00,000 + 20,000 = 20,000 + 1,00,000
(-20,000) + = (-20,000) + 1,00,000
Here, Cash decreases as well as liabilities also decreases by the same amount. Therefore, it not affects the equality, LHS = RHS remains intact.
7. Explain the double entry mechanism with an illustrative example.
Answer
According to this system every business transaction affects at least two accounts in opposite directions. For Example, if the furniture is purchased in the business, furniture is increased while cash is decreased. There can be no transaction in the business which affects only one account or which has only one aspect. Thus, both the aspects of every transaction are recorded under this system. Two accounts are affected by a transaction - one account receiving a benefit and the other account yielding a benefit. The person or the account receiving a benefit is debited and the person or the account who gives something to the business is credited. The amount of every transaction is written twice, once as a debit and again as a credit.
For Example: A business received Rs 1,00,000 from Shyam. This transaction affects two accounts - Cash account and the Shyam's account. Cash account is receiving a benefit and hence, cash account will be debited while Shyam is yielding a benefit and hence his account is credited.
NCERT Solutions of Ch 3 Recording of Transactions - I (Analysis of Transactions)
NCERT Solutions of Ch 3 Recording of Transactions - I (Journalising)
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