Practice Questions: Unit I - Introduction (Financial Accounting, B.Com Hons)

Here are questions based on the provided notes for Unit I: *Introduction* in Financial Accounting 1 (B.Com Hons). 

Topic : Scope of Accounting


  1. On 1st April 2024, a company purchased furniture worth ₹20,000 in cash. Prepare the journal entry.

  2. A company receives ₹10,000 in cash from a customer for services provided. Record the journal entry.

  3. Partner A introduces ₹50,000 in cash into the business. Pass the journal entry for the same.

  4. ABC Ltd. purchased goods worth ₹15,000 on credit from XYZ Ltd. Prepare the journal entry.

  5. The company paid ₹5,000 for office rent. Record the journal entry for this payment.

  6. The company deposited ₹20,000 in the bank. Prepare the journal entry.

  7. A business sold goods worth ₹30,000 to a customer on credit. Record the journal entry for the transaction.

  8. The company paid ₹12,000 to a creditor by cheque. Prepare the journal entry.

  9. A company received ₹8,000 in cash from a debtor. Pass the journal entry for this receipt.

  10. The company recorded depreciation of ₹3,000 on machinery. Pass the necessary journal entry.

  11. A company sells goods for ₹40,000 in cash but the goods are delivered next month. How would you recognize the revenue? Prepare the journal entry based on accrual accounting.

  12. On 1st March 2024, a company purchases goods worth ₹10,000, and on 31st March 2024, it sells the same goods for ₹15,000. Prepare the necessary journal entries for both the purchase and sale.

  13. In the books of XYZ Ltd., the opening balance of accounts payable is ₹50,000. A payment of ₹20,000 is made during the month. How will this be recorded in the journal?

  14. Partner A has invested ₹50,000 in the business, and the agreed interest on capital is 10%. Calculate and prepare the journal entry for interest on capital.

  15. The company has outstanding wages of ₹8,000 at the end of the accounting period. Pass the necessary journal entry for outstanding wages.

  16. A business earned ₹50,000 in revenue in March 2024 but will receive the payment only in April 2024. How would you account for this transaction under accrual accounting principles?

  17. The company prepaid ₹6,000 for an insurance policy covering 12 months, effective from 1st January 2024. How will you record this transaction in the journal? Also, record the expense for one month (January 2024).

  18. ABC Ltd. takes a loan of ₹1,00,000 from the bank on 1st April 2024 at an interest rate of 10% per annum, repayable in 12 equal monthly installments. Prepare the journal entries for the first month’s installment and interest.

  19. The business owner withdrew ₹20,000 for personal use. Prepare the journal entry to adjust this withdrawal in the business books at the end of the period.

  20. At the year-end, ABC Ltd. reports an outstanding liability of ₹30,000 for electricity. Prepare the journal entry to recognize the accrued expense and show the corresponding effect on the Profit and Loss Account.

Topic : Accounting Principles, Concepts, and Conventions

  1. A business paid ₹50,000 as salary for the month of January 2024, and ₹25,000 in December 2023. When should the expense be recognized in the books?

  2. ABC Ltd. purchased goods worth ₹100,000 on 1st January 2024. The goods were sold in February 2024 for ₹150,000, and the payment was received on 1st March 2024. When should the sale and expense be recognized?

  3. XYZ Ltd. sells a product for ₹1,00,000, with payment terms where the customer will pay in 90 days. When should XYZ Ltd. recognize the revenue?

  4. A company spent ₹20,000 on the installation of machinery and ₹5,000 on its repair in the same year. How should these expenditures be treated in the books of accounts?

  5. A company has been using the straight-line method for depreciation for years. This year, they decided to switch to the reducing balance method. How should the change in depreciation method be handled?

  6. Company XYZ has been reporting continuous losses and is considering winding up its operations. How does the going concern concept apply in this situation?

  7. A company has received a legal notice indicating the possibility of a loss from a lawsuit. The amount of loss is uncertain but could be substantial. How should this be treated in the books?

  8. A company provides services worth ₹80,000 to a customer in December 2024, but the payment will only be received in January 2025. How should the transaction be recorded in December 2024?

  9. XYZ Ltd. purchases machinery worth ₹2,00,000 and pays for it in cash. How should this transaction be recorded?

  10. A company has changed its policy for valuing inventory from FIFO to Weighted Average Cost. How should this change be disclosed in the financial statements?

  11. In the books of ABC Ltd., the opening balance of ₹10,000 was incorrectly recorded in the wrong side of the capital account. How would this error be rectified in the next accounting period?

  12. A company fails to match the revenue generated from a product with the related expenses in the same period. What impact would this have on the financial statements?

  13. A company has a receivable from a customer due in 3 months, but the customer’s financial condition is poor. How should this be reflected in the financial statements?

  14. ABC Ltd. is involved in a lawsuit where it is probable that they will lose, and the estimated loss is ₹2,00,000. If ABC Ltd. does not recognize this liability, what impact would it have?

  15. A company sold goods worth ₹200,000 to a customer in December 2024. The customer has the right to return unsold goods within 30 days. When should the revenue be recognized?

  16. A business follows the cash basis of accounting. During 2024, it recorded income of ₹1,00,000 in cash receipts but only ₹80,000 worth of goods were sold. How does this impact financial reporting compared to accrual accounting?

  17. ABC Ltd. owns a building, and a portion of it is being rented out. The company also spends ₹1,00,000 on repairing and maintaining the building. How should these costs be recognized?

  18. A company spends ₹500 on office supplies in a year, which is relatively insignificant compared to its total annual revenue of ₹10,00,000. Should the company recognize this expense as a capital or revenue item?

  19. XYZ Ltd. sold goods for ₹5,00,000 on installment terms, where payments will be made over the next 12 months. How should XYZ Ltd. recognize revenue?

  20. A company changed the useful life estimate of an asset from 5 years to 8 years in the current year. How should this be disclosed in the financial statements?

Topic : Capital and Revenue Expenditure

  1. Identify whether the following expenditures are capital or revenue in nature:

    • Purchase of land for ₹5,00,000.
    • Annual repairs of machinery costing ₹10,000.
    • Salaries of factory workers for a month amounting to ₹50,000.
    • Legal fees for defending a patent for ₹25,000.
    • Installation cost of machinery amounting to ₹50,000.

  2. A company spent ₹2,00,000 on acquiring a building for business expansion. How should this be classified in the books of accounts and why?

  3. Impact of Capital and Revenue Expenditures
    How does the treatment of capital and revenue expenditure affect the Profit and Loss Account and Balance Sheet?

  4. Journal Entry for Revenue Expenditure:
    Journalize the following transactions related to revenue expenditure:

    • Repairs on machinery costing ₹8,000.
    • Wages paid for installation of machinery ₹15,000.

  5. Journal Entry for Capital Expenditure:
    Journalize the following capital expenditures:

    • Purchase of land for ₹3,00,000.
    • Legal charges on land acquisition ₹10,000.

  6. Deferred Revenue Expenditure:
    A business spent ₹1,20,000 on advertising its new product. The benefit is expected to last for 3 years. How would you treat this expenditure in the books?

  7. Nature of Expenditure:
    Identify whether the following expenses are capital or revenue in nature:

    • Cost of constructing a new building.
    • Cost of repairing a vehicle used for office purposes.

  8. Expenditure Classification:
    A company has incurred the following expenses in the year:

    • ₹20,000 for purchasing office furniture.
    • ₹5,000 for minor repairs to machinery.
    • ₹12,000 for annual insurance.

    Classify them as capital or revenue expenditure.

  9. Effect on Profitability:
    If a company charges capital expenditure to the profit and loss account, what would be the effect on the company's profitability?

  10. Capitalization of Expenditure:
    A company spent ₹75,000 on the installation of new equipment. The equipment is expected to generate benefits for the next 10 years. Should this be capitalized or expensed? Why?

  1. Capital vs Revenue Expenditure: Practical Application:
    The company purchased a machine for ₹5,00,000 and spent ₹50,000 on its installation. The machine is expected to last for 10 years. How should these expenditures be treated? Provide journal entries.

  2. Change in Expenditure Nature:
    A company purchased a machine for ₹100,000. It incurred ₹10,000 in transport costs, ₹5,000 on installation, and ₹20,000 for repairs to the machinery before use. Classify each of these expenditures and explain their treatment.

  3. Capitalizing Interest on Borrowed Funds:
    A company took a loan of ₹50,000 at an interest rate of 10% per annum to purchase equipment. The equipment is being installed and is expected to be ready for use in 6 months. Should the interest be capitalized or expensed? How will this affect the balance sheet and profit and loss account?

  4. Accounting for Repairs and Maintenance
    A business spends ₹10,000 each year for regular repairs of its factory machinery, and ₹1,00,000 on major repairs, which extend the life of the machinery by 5 years. How would these be treated in the books?

  5. Capitalization of Pre-operating Expenses
    XYZ Ltd. is setting up a new factory. It incurred the following pre-operating expenses:

    • ₹2,00,000 for legal fees related to factory registration.
    • ₹1,00,000 for inspection of machinery.
    • ₹50,000 for employees' training. How should these be treated in the accounts?

  6. Amortization of Deferred Revenue Expenditure
    A company spent ₹2,40,000 on market research for a new product. The company expects benefits from the research for 4 years. How would this expenditure be accounted for in the books?

  7. Comparison of Capital and Revenue Expenditure
    Explain the difference between capital expenditure and revenue expenditure with examples. How do these affect the company’s profit and loss statement and balance sheet?

  8. Accounting for Major Improvements
    A company spent ₹1,50,000 on enhancing the efficiency of its machinery by adding a new feature that extends the life of the machinery by 3 years. Is this a capital or revenue expenditure, and how should it be accounted for?

  9. Deferred Revenue Expenditure: Treatment
    A business paid ₹80,000 for training its employees in advanced technology, expecting benefits for 5 years. How will this deferred revenue expenditure be treated in the financial statements?

  1. Complex Expenditure Classification
    XYZ Ltd. incurred the following costs for a newly acquired building:

    • ₹5,00,000 for purchase of the building.
    • ₹1,00,000 for legal charges.
    • ₹50,000 for repairs and renovation to make the building usable for the business.
    • ₹20,000 for transportation of goods to the new premises.

    Classify each expenditure and provide journal entries for the same. Also, explain the effect of this treatment on the financial statements.

  2. Impact of Revenue and Capital Expenditure on Financial Ratios
    How do revenue and capital expenditures affect key financial ratios such as Return on Assets (ROA), Return on Equity (ROE), and Gross Profit Margin? Illustrate with examples.

  3. Capitalization of Borrowing Costs
    ABC Ltd. borrowed ₹20,00,000 to finance the construction of a building. The borrowing cost is ₹1,00,000 for the first year. The building is expected to take two years to complete. How should the borrowing cost be treated under capital expenditure principles?

  4. Practical Application of Capital and Revenue Expenditures in Case Study
    Consider a company that spent ₹50,000 on purchasing office furniture, ₹1,00,000 on building a new factory, ₹30,000 for annual repairs, and ₹5,00,000 for setting up a new software system for operations. How would you treat each expense from a capital and revenue perspective, and how would these affect the company’s financial statements?

  5. Accounting for Expenses Incurred on Leasehold Property
    XYZ Ltd. took a lease for 20 years on a building for ₹2,00,000. The company paid ₹50,000 for legal charges and ₹1,00,000 for making the building suitable for its operations. How should the expenses be classified, and how should they be accounted for in the books of accounts?

  6. Accounting for Research and Development Expenditure
    A company spent ₹2,00,000 on research and development to develop a new product. It estimates that the product will generate benefits for 5 years. How should the expenditure be treated, and what impact will it have on the financial statements?

Topic : Journal

Easy Level

  1. Purchase of goods on credit
    Bought goods worth ₹50,000 on credit from XYZ Ltd.

  2. Payment of rent
    Paid ₹10,000 as rent for the office space for the month of March 2024.

  3. Cash Sales
    Sold goods for ₹20,000 in cash.

  4. Payment of wages
    Paid ₹5,000 as wages to workers.

  5. Payment of utility bill
    Paid ₹2,000 for electricity and water charges.

  6. Receipt from debtors
    Received ₹15,000 from Mr. Arvind (Debtor) in full settlement.

  7. Owner’s capital introduction
    Mr. Ramesh introduces ₹1,00,000 as capital into his business.

  8. Purchases returns
    Returned goods worth ₹5,000 to suppliers.

  9. Bank deposit
    Deposited ₹25,000 into the bank account from the business cash.

  10. Interest received on bank deposit
    Received ₹1,000 as interest from the bank.

Intermediate Level

  1. Purchase of fixed asset on credit
    Purchased machinery for ₹1,50,000 from ABC Ltd. on credit.

  2. Prepaid insurance payment
    Paid ₹12,000 for insurance, covering the period from 1st March 2024 to 1st March 2025.

  3. Goods sold on credit
    Sold goods worth ₹40,000 on credit to XYZ Traders.

  4. Payment of salary
    Paid ₹50,000 salary to employees through the bank.

  5. Depreciation on asset
    Charged depreciation of ₹10,000 on machinery purchased earlier.

  6. Receipt of loan from bank
    Borrowed ₹5,00,000 from the bank at an interest rate of 8% per annum.

  7. Creation of provision for doubtful debts
    Created a provision for doubtful debts at 5% of total debtors of ₹2,00,000.

  8. Accrued interest on loan
    Accrued interest of ₹40,000 on the loan taken from the bank.

Hard Level

  1. Sale of fixed asset at a loss
    Sold a piece of machinery worth ₹1,00,000 (book value ₹1,20,000) for ₹90,000 in cash.

  2. Transfer of profit to reserves
    Transferred 20% of the net profit of ₹2,50,000 to General Reserve.

  3. Issue of shares at premium
    Issued 10,000 shares of ₹10 each at a premium of ₹5 each.

  4. Payment of creditors with a discount
    Paid ₹50,000 to creditors in full settlement of a liability of ₹60,000, receiving a 10% discount.

  5. Recording of contingent liability
    Estimated a contingent liability of ₹2,00,000 due to pending litigation, which is not yet certain.

  6. Advance payment from customers
    Received ₹30,000 as advance for goods to be supplied next month.

  7. Purchase of goods on installment basis
    Purchased goods worth ₹75,000 from ABC Ltd. with a 30% down payment and the balance in 6 monthly installments.

  8. Revaluation of assets
    Revalued land from ₹2,00,000 to ₹2,50,000.

  9. Bad debt written off
    Written off ₹10,000 as bad debt from the account of Mr. Rajesh (debtor).

  10. Creation of provision for taxation
    Created a provision for taxation amounting to ₹30,000 as estimated tax liability for the year.

Very Hard Level

  1. Consolidation of financial statements
    Prepare journal entries for the consolidation of the following financial statements:

    • Parent company: Assets ₹10,00,000, Liabilities ₹5,00,000, Equity ₹5,00,000.
    • Subsidiary company: Assets ₹4,00,000, Liabilities ₹2,00,000, Equity ₹2,00,000.

  2. Accounting for an exchange of assets
    Exchanged an old truck (book value ₹1,00,000) for a new truck worth ₹1,50,000. The company paid ₹50,000 in cash and transferred the old truck.

  3. Accounting for revaluation of liabilities
    Revalued long-term liabilities of ₹4,00,000 to ₹3,50,000 due to a decrease in interest rates.

  4. Recording the issuance of bonus shares
    Issued bonus shares of 1:1 ratio (10,000 shares) to existing shareholders, each having a face value of ₹10.

  5. Accounting for a foreign currency transaction
    Imported machinery from the USA for $10,000, paid 30 days later. Record the journal entry on the transaction date, and also on the payment date, assuming the exchange rate is ₹75 per dollar on the transaction date and ₹77 per dollar on the payment date.

  6. Accounting for impairment of assets
    Impaired the value of an asset (building) from ₹5,00,000 to ₹4,00,000 due to structural damage. Record the journal entry.

  7. Accounting for a business combination
    ABC Ltd. acquired XYZ Ltd. for ₹10,00,000, of which ₹7,00,000 was paid in cash, and ₹3,00,000 in shares of ABC Ltd. at ₹50 per share. Record the journal entry.

  8. Accounting for a lease under Ind AS 116
    ABC Ltd. enters into a lease agreement to lease a building for ₹50,000 per month for 5 years, with an option to purchase the building at the end of the lease term. Prepare the journal entries for the first month’s lease payment.

  9. Accounting for intangible assets (Amortization)
    Purchased a patent for ₹2,00,000 with a useful life of 10 years. The company follows the straight-line method of amortization. Record the journal entry for the first year.

  10. Accounting for an investment in subsidiary
    ABC Ltd. purchased 80% shares in XYZ Ltd. for ₹10,00,000. The fair value of identifiable net assets is ₹8,00,000. Record the journal entries for the acquisition.

  11. Accounting for a forward exchange contract
    Entered into a forward exchange contract to buy 100,000 USD at ₹75 per USD for settlement in 3 months. On settlement, the exchange rate is ₹78. Record the journal entry.

  12. Accounting for a discontinued operation
    Discontinued the operations of a segment with assets worth ₹2,00,000 and liabilities of ₹1,50,000. The company receives ₹50,000 in cash for the discontinued operations. Prepare the journal entry.

Topic : Cash Book and Bank Reconciliation Statement

Easy:

  1. Simple Cash Book Entries: On 1st January 2024, A & Co. started business with cash ₹10,000. During January, the following transactions took place:

    • Sold goods for ₹4,000 (Cash).
    • Purchased goods for ₹3,000 (Cash).
    • Paid wages ₹1,000 (Cash).
    • Received rent ₹2,000 (Cash).

    Prepare a Simple Cash Book for January 2024.

  2. Cash Book with Discount Entries: On 5th March 2024, B Ltd. purchased goods for ₹15,000 and received a 10% discount on cash payment. On 10th March, B Ltd. received ₹5,000 in cash from a debtor, giving a 5% discount.

    Prepare a Cash Book showing both the discount entries.

  3. Cash Book with Bank Column: C & Co. started business with a cash balance of ₹5,000 and opened a bank account with a deposit of ₹10,000 on 1st April 2024. During the month, the following transactions occurred:

    • Paid ₹1,200 for rent by cheque.
    • Received ₹8,000 from a customer by cheque.
    • Paid ₹3,000 for stationery by cash.

    Prepare a Cash Book with Cash and Bank columns for April 2024.

Moderate:

  1. Cash Book with Bank Overdraft: On 1st June 2024, D Ltd. had a cash balance of ₹3,000 and a bank overdraft of ₹2,000. During the month, the following transactions occurred:

    • Sold goods for ₹10,000 in cash.
    • Received ₹5,000 from a debtor by cheque.
    • Paid ₹2,500 for electricity by cheque.

    Prepare a Cash Book with Cash and Bank columns, considering the overdraft balance.

  2. Cash Book with Interest: E Ltd. had the following transactions in June 2024:

    • Bank balance on 1st June: ₹4,000.
    • Interest credited to the bank on 10th June: ₹500.
    • A cheque of ₹2,000 deposited on 15th June.
    • Cash withdrawal on 20th June: ₹1,000.

    Prepare a Cash Book with Cash and Bank columns for June 2024.

  3. Cash Book with Bank Charges: F Ltd. received ₹10,000 from a customer and deposited it into the bank. The bank charged ₹500 for processing the cheque.

    • Cash transactions: Paid ₹2,000 for office supplies, Received ₹4,000 from a debtor.

    Prepare the Cash Book with both Cash and Bank columns, including the bank charge.

  4. Petty Cash Book: G Ltd. maintains a petty cash book. The following transactions occurred in February 2024:

    • Starting petty cash balance: ₹2,000.
    • Paid ₹200 for postage.
    • Paid ₹150 for tea and snacks.
    • Paid ₹500 for transport.

    Prepare the Petty Cash Book for February 2024.

Hard:

  1. Cash Book with Bank Reconciliation: On 1st October 2024, H Ltd. had a cash balance of ₹10,000 and a bank balance of ₹15,000. The following transactions occurred:

    • Sold goods for ₹7,000 and deposited the cheque in the bank.
    • Paid ₹5,000 by cheque for office rent.
    • Deposited ₹6,000 in cash to the bank.

    Prepare the Cash Book and bank reconciliation statement on 31st October 2024, given that the bank statement shows a balance of ₹16,500, and there are unpresented cheques worth ₹2,000.

  2. Cash Book with Dishonoured Cheques: I Ltd. had the following transactions in May 2024:

    • Sold goods worth ₹20,000 on credit, received a cheque which was dishonoured.
    • Paid ₹5,000 in cash for utilities.
    • Paid ₹7,000 to creditors by cheque.
    • A cheque of ₹8,000 was deposited but not cleared.

    Prepare the Cash Book and show the dishonoured cheque treatment.

  3. Cash Book with Bank Reconciliation (Advanced): J Ltd. had the following transactions during the month of June 2024:

    • Opening balance (Bank): ₹12,000.
    • Received a cheque of ₹6,000 from a debtor and deposited it into the bank.
    • A payment of ₹3,000 was made via cheque for repairs.
    • Bank charged ₹100 as a processing fee for an overdraft.

    Prepare a Cash Book and Bank Reconciliation Statement as of 30th June 2024, given that the bank statement shows a balance of ₹10,500.

Bank Reconciliation Statement Questions

Easy:

  1. Simple Bank Reconciliation: K Ltd. had a bank balance of ₹20,000. The bank statement shows ₹18,500 as the closing balance. The following differences were noted:

    • A cheque of ₹3,000 was deposited but not reflected in the bank statement.
    • Bank charges of ₹200 were recorded by the bank but not by the company.

    Prepare a Bank Reconciliation Statement.

  2. Bank Reconciliation with Deposits in Transit: On 31st January 2024, the cash book showed a balance of ₹30,000, and the bank statement showed ₹28,500. The following differences were noted:

    • Deposits in transit of ₹5,000.
    • Cheques issued but not presented for payment amounting to ₹2,500.

    Prepare the Bank Reconciliation Statement.

Moderate:

  1. Bank Reconciliation with Errors: M Ltd. had the following balances on 31st March 2024:

    • Cash Book Balance: ₹10,000.
    • Bank Statement Balance: ₹8,500.
    • Errors:
      • A cheque of ₹500 was wrongly recorded as ₹5,000 in the cash book.
      • A cheque of ₹1,000 was not recorded by the bank.
      • Bank charged ₹200 as bank charges, which was not recorded in the cash book.

    Prepare the Bank Reconciliation Statement.

  2. Bank Reconciliation with Direct Deposits: N Ltd. had a balance of ₹12,000 as per the cash book. The bank statement showed a balance of ₹10,500. The following transactions occurred:

    • A customer deposited ₹1,000 directly into the bank.
    • Bank charges ₹300.
    • Unpresented cheque of ₹2,500.

    Prepare the Bank Reconciliation Statement.

Hard:

  1. Bank Reconciliation with Multiple Differences: On 31st August 2024, O Ltd. had the following balances:

    • Cash Book: ₹15,000.
    • Bank Statement: ₹13,500. The following differences existed:
    • Bank credited ₹2,000 by mistake.
    • A cheque for ₹1,500 was deposited but not yet credited by the bank.
    • A standing order of ₹500 was recorded by the bank but not by the company.

    Prepare a Bank Reconciliation Statement.

  2. Complex Bank Reconciliation with Adjustments: On 31st December 2024, P Ltd. had:

    • Cash Book Balance: ₹25,000.
    • Bank Statement Balance: ₹24,000. The following differences exist:
    • An unrecorded cheque of ₹1,000 was issued to a creditor.
    • A cheque for ₹5,000 deposited in the bank is not yet reflected in the statement.
    • Bank charges ₹500 and interest earned of ₹300 not recorded in the books.

    Prepare the Bank Reconciliation Statement.

Very Hard:

  1. Bank Reconciliation with Opening and Closing Balances: Q Ltd. had the following balances:

    • Opening balance (Cash Book): ₹18,000.
    • Closing balance (Cash Book): ₹22,000.
    • Opening balance (Bank Statement): ₹15,500.
    • Closing balance (Bank Statement): ₹19,000. The following items need to be reconciled:
    • A cheque for ₹4,000 was issued but not presented.
    • A direct bank deposit of ₹3,000 was recorded in the bank but not in the cash book.
    • Bank charges of ₹100 and interest income of ₹200 were omitted from the cash book.

    Prepare the Bank Reconciliation Statement for both opening and closing balances.

  2. Bank Reconciliation with Errors and Transactions: R Ltd. had the following balances:

    • Cash Book (Bank): ₹50,000.
    • Bank Statement: ₹48,500. The following items need to be adjusted:
    • An error in the cash book where ₹2,000 was recorded as ₹20,000.
    • A cheque for ₹3,000 was deposited but not yet credited by the bank.
    • Bank charges of ₹500 and interest income of ₹300.

    Prepare the Bank Reconciliation Statement.

  3. Bank Reconciliation with Overdrafts and Direct Transfers: S Ltd. had a bank overdraft of ₹5,000 on 1st November 2024. The cash book shows ₹8,000 as the balance on 31st November. The bank statement shows ₹6,000 on the same date. Adjustments:

    • A direct bank transfer of ₹1,500 was made to a supplier but not recorded in the books.
    • Bank charges ₹300 were omitted from the cash book.

    Prepare the Bank Reconciliation Statement.

  4. Complex Bank Reconciliation with Multiple Transactions: T Ltd. had the following balances:

    • Opening balance (Cash Book): ₹40,000.
    • Closing balance (Cash Book): ₹45,000.
    • Opening balance (Bank Statement): ₹35,500.
    • Closing balance (Bank Statement): ₹41,500. There were:
    • Unpresented cheques of ₹2,500.
    • A direct deposit of ₹5,000 by a customer not recorded in the books.
    • A bank fee of ₹300 and interest earned of ₹500 not recorded in the books.

    Prepare the Bank Reconciliation Statement for both opening and closing balances.


Topic : Subsidiary Books and Ledger

1. Simple Cash Book Entry

ABC Ltd. received ₹10,000 in cash from a customer and paid ₹2,000 for office supplies.
Prepare the cash book for ABC Ltd. for this transaction.

2. Simple Purchase Journal Entry

On 5th January 2024, XYZ Ltd. purchased goods worth ₹50,000 on credit from Mr. A.
Prepare the purchase journal for XYZ Ltd. on 5th January 2024.

3. Sales Journal Entry

On 10th January 2024, PQR Ltd. sold goods worth ₹30,000 on credit to Mr. B.
Prepare the sales journal for PQR Ltd. on 10th January 2024.

4. Petty Cash Book

The petty cashier of XYZ Ltd. spent ₹500 on stationery and ₹200 on transportation.
Prepare the petty cash book of XYZ Ltd. (using the impressed system).

5. Bank Book

On 1st February 2024, DEF Ltd. deposited ₹20,000 into the bank and issued a cheque for ₹10,000 to pay a creditor.
Prepare the bank book for DEF Ltd. on 1st February 2024.

6. Combined Cash and Bank Book

XYZ Ltd. received ₹5,000 in cash from a customer and deposited ₹3,000 in the bank.
Prepare the combined cash and bank book for XYZ Ltd.

7. Write-Off of Bad Debts

ABC Ltd. wrote off a bad debt of ₹2,000 on 31st March 2024.
Pass the journal entry and show its effect on the ledger.

8. Cash Discount in Sales

On 15th February 2024, PQR Ltd. sold goods for ₹20,000 to Mr. X and allowed a cash discount of 5%.
Record the transaction in the sales journal and show the necessary ledger entries.

9. Purchase Returns Journal Entry

XYZ Ltd. returned goods worth ₹5,000 to supplier Mr. Y on 20th March 2024.
Record the purchase return in the purchase returns journal.

10. Sales Returns Journal Entry

On 25th April 2024, DEF Ltd. received goods returned by Mr. Z worth ₹3,000.
Record the sales return in the sales returns journal.

11. Cash Book with Bank Column

On 10th May 2024, ABC Ltd. received ₹8,000 in cash from a customer and issued a cheque for ₹4,000 to pay for expenses.
Prepare the cash book with a bank column for ABC Ltd.

12. Journalizing a Contra Entry

On 15th June 2024, XYZ Ltd. withdrew ₹10,000 from the bank for office use.
Prepare the contra entry in the cash book and post it to the ledger.

13. Compound Journal Entry

On 20th July 2024, ABC Ltd. purchased goods worth ₹15,000 from Mr. X, paid ₹2,000 in cash, and the balance is on credit.
Pass the compound journal entry for this transaction.

14. Transfer Between Cash and Bank

On 1st August 2024, XYZ Ltd. transferred ₹5,000 from its cash account to the bank account.
Prepare the necessary journal entry and post it to the ledger.

15. Posting to Subsidiary Books

On 5th September 2024, ABC Ltd. made the following transactions:

  • Purchased goods worth ₹25,000 from Mr. A on credit.
  • Sold goods worth ₹15,000 to Mr. B on credit.
  • Paid ₹5,000 in cash for electricity bills.
    Record these transactions in the appropriate subsidiary books and post them to the ledger.

16. Ledger Posting for a Compound Transaction

On 10th October 2024, XYZ Ltd. purchased goods worth ₹10,000 from Mr. X, paid ₹2,000 in cash, and the balance was paid by cheque.
Post the compound transaction to the appropriate ledger accounts.

17. Balancing of Accounts in the Ledger

The Cash Book of ABC Ltd. shows a debit balance of ₹30,000 and a credit balance of ₹10,000. The bank ledger shows a debit balance of ₹15,000 and a credit balance of ₹5,000.
Prepare the trial balance and balance the ledger accounts.

18. Accrual Entries for Sales

On 30th November 2024, PQR Ltd. made credit sales of ₹12,000 but the payment is due on 15th December 2024.
Pass the journal entry and post to the ledger for this sale.

19. Application of Discounts in Sales and Purchases

On 5th December 2024, DEF Ltd. sold goods worth ₹40,000 to Mr. A with a 10% trade discount and received ₹30,000 in cash.
Record this transaction in the sales journal and the cash book, and post the entries to the ledger.

20. Preparation of Trial Balance from Subsidiary Books

The following details are provided for XYZ Ltd. for the month of December 2024:

  • Cash received from debtors: ₹50,000
  • Credit sales: ₹40,000
  • Bank deposits: ₹30,000
  • Purchases on credit: ₹25,000
  • Rent paid: ₹5,000
    Prepare a trial balance based on the above subsidiary books entries.

Topic : Trial Balance and Rectification of Errors

Easy Questions:

  1. Trial Balance Preparation: Prepare a trial balance from the following ledger balances:

    • Cash: ₹25,000
    • Accounts Receivable: ₹15,000
    • Accounts Payable: ₹8,000
    • Capital: ₹30,000
    • Sales: ₹50,000
    • Purchases: ₹40,000
    • Rent Expense: ₹5,000
    • Bank Loan: ₹20,000

  2. Error Identification (Simple): From the following trial balance, identify any errors:

    • Cash: ₹40,000
    • Accounts Payable: ₹10,000
    • Rent Expense: ₹15,000
    • Sales: ₹50,000
    • Purchases: ₹60,000
    • Bank Loan: ₹30,000
    • Capital: ₹25,000 (Total Debits = ₹170,000, Total Credits = ₹160,000)

  3. Rectifying Errors – Omission of Transaction: A purchase of ₹5,000 made on 10th January was not recorded in the books. How will the trial balance be affected, and what rectifying entry should be made?

  4. Correcting Wrong Posting: A sales entry of ₹2,000 was recorded on the debit side of the Purchases Account. Identify the error and prepare the correct journal entry.

  5. Error in Balancing Accounts: The Rent Account was incorrectly credited with ₹3,000 instead of debited. What will be the effect on the trial balance, and how would you rectify it?

Medium Difficulty Questions:

  1. Preparation of Trial Balance with Adjustments: Prepare a trial balance from the following information:

    • Cash: ₹10,000
    • Capital: ₹25,000
    • Sales: ₹50,000
    • Purchases: ₹40,000
    • Rent Expense: ₹5,000
    • Wages Payable: ₹3,000
    • Accounts Receivable: ₹20,000
    • Accounts Payable: ₹15,000

  2. Rectification of Error: A cheque payment of ₹1,000 to a supplier was recorded as ₹10,000. How will this error affect the trial balance? What is the rectifying journal entry?

  3. Transposition Error in Trial Balance: The amount ₹2,000 was posted as ₹20,000 to the Sales Account. Identify the error and explain its effect on the trial balance.

  4. Effect of Double Posting: An amount of ₹4,000 was posted to both the Sales Account and the Cash Account for the same transaction. How will this affect the trial balance, and how will you rectify it?

  5. Rectification of Omitted Entry: A purchase of ₹8,000 was not posted to the Purchases Account. How will this omission affect the trial balance, and what journal entry should be passed?

Difficult Questions:

  1. Identifying Errors in Trial Balance: Given the following trial balance, identify and rectify the errors:

    • Sales: ₹80,000
    • Purchases: ₹50,000
    • Rent Expense: ₹7,000
    • Accounts Payable: ₹12,000
    • Capital: ₹60,000
    • Accounts Receivable: ₹30,000 (Total Debits = ₹170,000, Total Credits = ₹160,000)

  2. Trial Balance with Suspense Account: A trial balance shows a difference of ₹5,000. A suspense account is opened to balance the trial balance. After a detailed review, the following errors are identified:

    • A sales return of ₹2,000 was posted as ₹200.
    • A payment of ₹1,000 was recorded as ₹10,000 in the Cash Account.
    • A purchase of ₹1,500 was omitted. Rectify the errors and prepare the corrected trial balance.

  3. Rectifying Double-Entry Error: An amount of ₹3,000 was entered on both the debit side of the Cash Account and the credit side of the Bank Loan Account. How will this affect the trial balance, and how would you rectify the entry?

  4. Errors in Trial Balance – Under- or Over-Posting: In a trial balance, the Purchases Account is overposted by ₹2,000, and the Sales Account is underposted by ₹2,000. How do these errors affect the trial balance? Pass the rectifying journal entries.

  5. Effect of Incorrect Opening Balance: The opening balance of a bank account was incorrectly carried forward as ₹5,000 instead of ₹3,000. How does this affect the trial balance, and what rectifying entry should be made?

Very Hard Questions:

  1. Suspense Account with Multiple Errors: The trial balance shows a difference of ₹7,000. After reviewing the books, the following errors are discovered:

    • A purchase of ₹2,500 was omitted.
    • A payment of ₹1,200 was posted as ₹2,100.
    • Rent expense of ₹3,000 was not recorded.
    • A sale of ₹1,500 was entered in the Purchases Account. Rectify the errors and prepare a corrected trial balance.

  2. Multiple Errors – Impact on Net Profit: The following errors were found in the books:

    • A sale of ₹5,000 was omitted.
    • A purchase return of ₹2,000 was recorded as ₹20,000.
    • Wages expense of ₹3,000 was debited to the Capital Account.
    • An amount of ₹4,000 was recorded as a liability but was actually a capital expenditure. Determine the effect on the trial balance and net profit and suggest rectifications.

  3. Complex Trial Balance Errors: A trial balance with errors is given. You need to:

    • Identify all errors
    • Pass rectifying entries
    • Prepare a revised trial balance.

    Trial balance:

    • Cash ₹12,000
    • Capital ₹35,000
    • Sales ₹50,000
    • Purchases ₹40,000
    • Rent Expense ₹5,000
    • Accounts Receivable ₹30,000
    • Accounts Payable ₹15,000 (Debit Total = ₹130,000, Credit Total = ₹120,000)

  4. Analysis of Errors in Capital and Revenue Accounts: After preparing the trial balance, it was found that:

    • A credit sale of ₹3,000 was posted as ₹30,000.
    • The discount allowed of ₹2,000 was not recorded.
    • A purchase of ₹5,000 was posted twice.
    • A bank loan of ₹10,000 was omitted.

    How would these errors affect the trial balance and the income statement? Rectify the errors.

  5. Trial Balance with Multiple Rectifications: The trial balance shows a difference of ₹10,000. Upon investigation, the following errors were found:

    • A payment of ₹6,000 was recorded on the debit side of both Cash and Accounts Payable.
    • A receipt of ₹4,000 was recorded as ₹400 in the Cash Account.
    • Rent Expense of ₹2,000 was posted to the wrong side of the Rent Account.
    • A purchase of ₹8,000 was not recorded at all.

    Correct the trial balance and pass the necessary journal entries to rectify the errors.

Topic : Provisions and Reserves

Basic Level Questions:

  1. Provision for Bad Debts: ABC Ltd. has a balance of ₹500,000 in Accounts Receivable at the end of the year. The company estimates that 5% of these will be uncollectible.

    Task:

    • Calculate the amount to be provided for Bad Debts.
    • Pass the journal entry for the provision of bad debts.

  2. Reserve for Discount on Debentures: A company issues debentures worth ₹1,00,000 at a discount of 5%. The company creates a reserve for discount on debentures.

    Task:

    • Calculate the reserve amount for discount on debentures.
    • Pass the journal entry for creating the reserve.

  3. Provision for Depreciation: A company purchases a machine for ₹2,00,000. The useful life is estimated at 10 years with a scrap value of ₹20,000. The company applies the straight-line method for depreciation.

    Task:

    • Calculate the annual provision for depreciation.
    • Pass the journal entry for the first year’s depreciation.

  4. Creation of General Reserve: At the end of the financial year, XYZ Ltd. decides to transfer 10% of its net profit of ₹2,00,000 to the General Reserve.

    Task:

    • Calculate the amount to be transferred to the General Reserve.
    • Pass the journal entry for the transfer.

  5. Provision for Taxation: A company’s net profit before tax is ₹1,50,000, and the tax rate is 30%. Calculate the provision for taxation and pass the journal entry.

  6. Reserve for Contingencies: ABC Ltd. estimates that a future liability may arise from a lawsuit, which could cost the company ₹50,000.

    Task:

    • Pass the journal entry for creating a provision for contingencies.
    • Discuss when the provision should be recognized.

Intermediate Level Questions:

  1. Reserve for Doubtful Debts: The balance in Accounts Receivable is ₹800,000. The company estimates that 3% of these accounts may be doubtful. However, there is already a provision for doubtful debts of ₹10,000.

    Task:

    • Calculate the new provision for doubtful debts.
    • Pass the journal entry to adjust the provision.

  2. Bad Debts and Provision for Bad Debts: XYZ Ltd. has written off bad debts of ₹20,000. The balance in the provision for bad debts account is ₹10,000 before the write-off.

    Task:

    • Pass the journal entry to write off bad debts.
    • Adjust the provision for bad debts.

  3. Provision for Warranties: A company estimates that it will have to replace defective goods worth ₹30,000 under warranty claims in the next year.

    Task:

    • Pass the journal entry for creating the provision for warranty.
    • Discuss how this provision is treated in the financial statements.

  4. Reserve for Dividend: XYZ Ltd. declares an interim dividend of ₹50,000, which is payable next month.

    Task:

    • Pass the journal entry for the declaration of the interim dividend.
    • Discuss how this reserve is accounted for.

  5. Creation of Reserve for Unforeseen Losses: A company decides to create a reserve of ₹1,00,000 for unforeseen losses.

    Task:

    • Pass the journal entry for the creation of the reserve.
    • Explain the purpose of such a reserve.

  6. Reversal of Provision for Taxation: ABC Ltd. created a provision for tax of ₹1,00,000 at the beginning of the year. By the end of the year, the actual tax liability is ₹80,000.

    Task:

    • Pass the journal entry to reverse the excess provision for taxation.

  7. Provision for Gratuity: XYZ Ltd. creates a provision for gratuity of ₹30,000 for its employees.

    Task:

    • Pass the journal entry for creating the provision.
    • How does this provision affect the company’s financial statements?

  8. Provisions vs Reserves:

    • Define provisions and reserves.
    • Give two examples each for provisions and reserves, and explain how they differ in terms of accounting treatment.

Advanced Level Questions:

  1. Reserve for Investment Fluctuations: A company holds long-term investments in shares of another company. Due to market conditions, it decides to create a reserve of ₹40,000 to account for possible fluctuations in the market value of the investments.

    Task:

    • Pass the journal entry for the creation of the reserve.
    • Discuss the impact of such a reserve on the company’s financial statements.

  2. Provision for Loss on Sale of Assets: XYZ Ltd. anticipates a loss of ₹1,50,000 on the sale of one of its assets. The company creates a provision for this loss.

    Task:

    • Pass the journal entry to create the provision.
    • How would this provision be reflected in the balance sheet?

  3. Accounting for Creation and Utilization of Reserve for Reconstruction: ABC Ltd. is undergoing a restructuring process and has created a reserve for reconstruction of ₹10,00,000. During the year, it utilized ₹4,00,000 for this purpose.

    Task:

    • Pass the journal entries for both the creation and utilization of the reserve.
    • How does this affect the company’s balance sheet and income statement?

  4. Provision for Bad Debts and Its Impact on Profit: XYZ Ltd. has a provision for bad debts of ₹15,000. In the current year, the company decides to increase the provision by ₹5,000 to account for higher risk.

    Task:

    • Pass the journal entry for the increase in provision.
    • How does this increase affect the profit for the year?

  5. Revaluation Reserve: A company revalues its land from ₹2,00,000 to ₹2,50,000. It creates a revaluation reserve for the increase in value.

    Task:

    • Pass the journal entry for creating the revaluation reserve.
    • Discuss the treatment of revaluation reserve in the financial statements.

  6. Accounting for Provision for Employee Benefits: XYZ Ltd. estimates its obligation for employee benefits at ₹1,00,000 at the end of the year.

    Task:

    • Pass the journal entry for the provision for employee benefits.
    • How does this provision affect the company’s financial position?

Theoretical Questions

Definition and Features of Accounting  

1. Define accounting.  

2. What are the key features of accounting?  

3. Why is the process of identifying transactions important in accounting?  

4. Explain the role of classification in accounting.  

5. What is the significance of summarizing financial data?  

6. How does interpreting financial data benefit stakeholders?  

7. What does "communicating financial information" mean in accounting?  


Accounting Principles  

8. What is the accrual principle? Provide an example.  

9. Explain the consistency principle in accounting.  

10. What does the going concern principle imply?  

11. Define the matching principle.  

12. Why is the conservatism principle important?  

13. How does the matching principle ensure accuracy in financial statements?  


Accounting Concepts  

14. Explain the business entity concept with an example.  

15. What is the money measurement concept?  

16. Why is employee morale not recorded in accounting books?  

17. Describe the dual aspect concept.  

18. Provide an example of a transaction illustrating the dual aspect concept.  

19. What is the cost concept?  

20. Why are assets recorded at their historical cost?  

21. What is the accounting period concept?  

22. How does the accounting period concept help in preparing financial statements?  


Accounting Conventions  

23. What is the full disclosure convention?  

24. Why is the materiality convention significant?  

25. Explain the prudence convention in accounting.  

26. What does the substance over form convention emphasize?  

27. Define the uniformity convention and its importance.  


Journal in Accounting  

28. What is a journal in accounting?  

29. Why is the journal called the "Book of Original Entry"?  

30. Describe the key features of a journal.  

31. What is the purpose of narration in journal entries?  

32. Write the format of a journal entry.  

33. What are the golden rules of accounting?  

34. What is the rule for personal accounts? Provide an example.  

35. Explain the rule for real accounts with an example.  

36. What is the golden rule for nominal accounts?  

37. What are the advantages of maintaining a journal?  


Cash Book  

38. What is a cash book?  

39. List the types of cash books.  

40. What is recorded in a single-column cash book?  

41. How does a double-column cash book differ from a single-column cash book?  

42. What transactions are recorded in a triple-column cash book?  

43. What is the purpose of a petty cash book?  

44. Explain the significance of contra entries in a cash book.  

45. What are the advantages of maintaining a cash book?  


Subsidiary Books  

46. What are subsidiary books?  

47. Why are subsidiary books maintained?  

48. What is recorded in a purchases book?  

49. Write the format of a purchases book.  

50. Differentiate between a purchases book and a sales book.  

51. What is the purpose of a purchases returns book?  

52. What transactions are recorded in a sales returns book?  

53. What is the bills receivable book?  

54. Explain the purpose of a bills payable book.  

55. What are the advantages of subsidiary books?  


Ledger  

56. What is a ledger?  

57. Why is the ledger called the "Book of Final Entry"?  

58. Describe the format of a ledger.  

59. What is the significance of the Ledger Folio (L.F.) column in a ledger?  

60. Explain the steps to prepare a ledger.  

61. How is a ledger balanced?  

62. What does "balance c/d" and "balance b/d" mean in a ledger?  

63. List the advantages of maintaining a ledger.  

64. Write an example of a ledger format for a cash account.  


Capital and Revenue Expenditure  

65. What is capital expenditure?  

66. List the characteristics of capital expenditure.  

67. Provide examples of capital expenditure.  

68. How is capital expenditure treated in accounting records?  

69. Define revenue expenditure.  

70. What are the characteristics of revenue expenditure?  

71. Provide examples of revenue expenditure.  

72. How is revenue expenditure treated in accounting?  

73. Differentiate between capital and revenue expenditure based on nature.  

74. Compare capital and revenue expenditure on the basis of purpose.  

75. How do capital and revenue expenditures impact financial statements?  


Miscellaneous  

76. Why is accounting referred to as the "language of business"?  

77. What is the importance of using consistent accounting methods?  

78. How does the prudence principle affect income reporting?  

79. Why is the dual aspect concept fundamental to double-entry accounting?  

80. Explain the difference between capital expenditure and capital receipts.  

81. What role does the ledger play in preparing a trial balance?  

82. What is the difference between a journal and a ledger?  

83. How do subsidiary books improve efficiency in accounting?  

84. Why is the full disclosure principle critical in financial reporting?  

85. Provide an example where the matching principle is applied.  

86. Why are historical costs preferred in recording assets?  

87. How does the materiality principle influence decision-making?  

88. What is the purpose of preparing financial statements periodically?  

89. How does the substance over form convention affect the treatment of leases?  

90. Why are petty cash books necessary for small businesses?  

91. What is the significance of balancing ledgers at the end of a financial period?  

92. How does the accrual principle differ from the cash basis of accounting?  

93. Provide examples of recurring revenue expenditures.  

94. What is the impact of capital expenditures on a company’s profitability?  

95. How is depreciation related to capital expenditure?  

96. What is the importance of narrations in journal entries?  

97. Why is it important to prepare subsidiary books separately?  

98. What is the role of accounting conventions in standardizing financial reports?  

99. How does the going concern principle affect asset valuation?  

100. What is the importance of error detection in maintaining accurate accounts?  

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