NCERT Solutions for Class 11 Accountancy Chapter 3 Recording of Transactions 1

Q.1 State the three fundamental steps in the accounting process.

Ans.

The fundamental steps in the accounting process are:

1. Identifying financial transactions.
2. Recording in the books of accounts.
3. Classifying the recorded entries.
4. Preparing financial statements
5. Communicating to internal and external users

Q.2 Why is the evidence provided by source documents important to accounting?

Ans.

A source document is of prime importance in accounting because accounting is based on factual financial information, i.e., evidence. For example, a cash memo showing cashes sales or an invoice showing sales of goods on credit.

The source documents are the information about the transaction based on which accounts are debited or credited with the transaction amount.

Source documents acts as a proof in the court of law.

Q.3 Should a transaction be first recorded in a journal or ledger? Why?

Ans.

A journal is the primary book of accounts in which transactions are first recorded in a chronological order, i.e., as they are entered into, while Ledger is a master record of all the accounts of a business firm and is prepared from Journal.

Q.4 Are debits or credits listed first in journal entries? Are debits or credits indented?

Ans.

As per the rule of double entry system,, there are two columns of ‘Amount’ in the journal format namely ‘Debit amount’ and ‘Credit amount’.

Journal entry is recorded in journal format in which the ‘Debit amount’ column is listed before the ‘Credit amount ‘column.

In the particulars column, the account title to be debited is written on the first line beginning from the left hand corner and the word ‘Dr.’ is written at the end of the column. The account title to be credited is written on the second line leaving sufficient margin on the left side with a prefix ‘To.’

Credits are indented. Indentation is leaving a space before writing any word. Journal entry has its own jargon. While journalising in the ‘particulars column of journal format, debit amount column records the amount against the account to be debited and similarly the credit amount column records the amount against the account to be credited.

Q.5 Why some accounting systems are called double accounting systems?

Ans.

Double accounting system refers as the system which recognize and records both aspects i.e., debit and credit of a transaction. In this system, one aspect is debited and the other aspect is credited following the rules of debit and credit.The double entry system has proved to be a scientific and complete system of accounting.

Q.6 Give a specimen of an account.

Ans.

Q.7 Why are the rules of debit and credit same for both liability and capital?

Ans.

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.

The concept of business entity assumes that business has a distinct entity from its owners.

Q.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?

Ans.

In ledgers, Folio column is used to provide a reference back to the journal from where the posting has been made so that if accountant is not sure about the posting then he /she can go back and check it from the journals as well as he/she will not only have the amount but also the date, description and the other accounts being affected in the transaction.

Q.9 What entry (debit or credit) would you make to:

1. increase revenue.
2. decrease in expense.
3. record drawings.
4. record the fresh capital introduced by the owner.

Ans.

1. Increase revenue: Credits (Increases in revenue or income is credit and decreases are debits)
2. Decrease in expense: Credits (Increases in expenses are debits and decreases are credits)
3. Record drawings: Debit (Capital account is debited when the proprietor makes drawings)
4. Record the fresh capital introduced by the owner: Credit (Capital account is credited when the proprietor introduces further capital)

Q.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?

Ans.

• If a transaction has the effect of decreasing an asset, is credited.
• If the transaction has the effect of decreasing a liability, is debited.

Q.11 Describe the events recorded in accounting systems and the importance of source documents in those systems?

Ans.

Events that are expressed in monetary terms are recorded in the books of accounts. However, the non-monetary events are not recorded in accounts. For example, promotion of staff cannot be recorded but increment in salary can be recorded at the time when salary is paid or due.

Transactions are recorded in the books of accounts on the basis of evidence which are bills of purchases, invoices for sales, debit and credit notes, etc. These evidences being the basis of recording entry are known as source documents.

Example:

1. Purchased furniture for 10,000 vide cash memo No. 123
2. Purchased garments on credit from ABC Store for 20,000 vide bill No. 111
3. Withdrew 5,000 for personal use by cheque No. 12314

Importance of source documents:

1. It provides evidence that transaction have taken place.
2. It provides information about the date, amount and parties involved and other details of a particular transaction.
3. It acts as evidence in the count of law.
4. The most common source documents are cash memo, invoice or bill, receipt, pay-in-slip, cheque, debit and credit note.

Q.12 Describe how debits and credits are used to analyse transactions.

Ans.

Debit and credit are simply additions to or subtractions from an account. Debit refers to the left side of an account and credit refers to the right side of an account.

An item recorded on the debit side of an account is said to be debited to the account, a debit entry signifies that value has flowed to the named account, e.g., payment to a creditor signifies that payment has been made for the goods purchased from him/her.

An item recorded on the credit side of an account is said to be credited to the account. A credit entry signifies that value has flown from the source indicated by the name of the account, e.g., receipt of cash from a debtor signifies that debtor has made payment for the goods purchased by him/her.

Q.13 Describe how accounts are used to record information about the effects of transactions?

Ans.

All accounts are divided into five categories for the purpose of recording the transactions:

(a) Asset, (b) Liability, (c) Capital, (d) Expenses/Losses and (e) Revenue/Gains.

The rules of debit and credit applicable to the different kinds of accounts:

For recording changes in Assets/Expenses (Losses):

• Increase in asset is debited, and decrease in asset is credited.
• Increase in expenses/losses is debited, and the decrease in expenses/losses is credited.

For recording changes in Liabilities and Capital/Revenue (Gains):

• Increase in liabilities is credited and decrease in liabilities is debited.
• Increase in capital is credited and decrease in capital is debited.
• Increase in revenue/gain is credited and decrease in revenue/gain is debited.

Q.14 What is journal? Give a specimen of journal showing at least five entries.

Ans.

Journal is the basic book of original entry. In this book, transactions are recorded in the chronological order, as and when they take place. Afterwards, transactions from this book are posted to the respective accounts.

Each transaction is separately recorded after determining the particular account to be debited or credited.

A journal is a record which shows complete details of a transaction in one entry.

The format of Journal is:

• The first column in a journal is Date on which the transaction took place.
• In the Particulars column, two aspects of transactions are recorded.
• In the Ledger Folio (L.F.), the number of the ledger page is written to which the amount is posted in the ledger.
• In the Debit amount column, the amount debited is written.
• In the Credit amount column, the amount credited is written.

Q.15  Differentiate between source documents and vouchers.

Ans.

Difference between source documents and vouchers:

Q.16 Accounting equation remains intact under all circumstances. Justify the statement with the help of an example.

Ans.

Accounting equation signifies that the assets of a business are always equal to the total of its liabilities and capital.

The equation is as follows:

Assets = Liabilities + Capital

Or

A = L + C

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).

A – L = C

A – C = L

The accounting equation depicts the fundamental relationship among the components of the balance sheet is also called the Balance Sheet Equation.

Examples:

1. If the capital of a business is 2,00,000 and outside liabilities are 1,20,000, than the total assets of the business will be:

Assets = Liabilities + Capital

= 1,20,000 + 2,00,000

= 3,20,000

2. Goods purchased from Deepika Traders for 60,000.

Analysis of transaction: This transaction increases goods (assets) and increases liabilities (Deepika Traders as creditors) by 60,000.

3. Goods costing 10,000 sold to Mandana ltd. for 30,000.

Analysis of transaction: This transaction decreases stock of goods (assets) by 10,000 and increase assets (Mandana Ltd. as debtors 30,000) and capital (with the profit of 10,000).

Q.17 Explain the double entry mechanism with an illustrative example.

Ans.

The double entry system seeks to record every transaction in money or money’s worth in its double aspect. Every business transaction has a two-fold effect and that it affects two accounts in opposite directions and if a complete record were to be made of each such transaction, it would be necessary to debit one account and credit another account.

Double entry system is based upon the principle that ‘every debit has a credit and every credit has a debit.

For Example, Received 15,000 from Mia. This transaction affects two accounts like Cash A/c and the Mia’s A/c.

Cash account is receiving a benefit (as cash is coming in) and hence cash account will be debited, where Mia is yielding a benefit and hence her account will be credited.

Q.18 Prepare accounting equation on the basis of the following:
(a) Harsha started business with cash 2,00,000.
(b) Purchased goods from Naman for Cash ` 40,000.
(c) Sold goods to Bhanu costing 10,000 at 12,000.
(d) Bought furniture on credit 7,000.

Ans.

Statements showing the effect of various transactions on accounting equation:

Profit on sales of goods will be added to Capital (12,000 – 10,000) = 2,000

Q.19 Prepare accounting equation from the following:

1. Kunal started business with cash 2,50,000.
2. He purchased furniture for cash 35,000.
3. He paid commission 2,000.
4. He purchased goods on credit 40,000.
5. He sold goods (costing 20,000) for cash 26,000.

Ans.

Q.20 Mohit has the following transactions, prepare accounting equation:

1. Business started with cash 1,75,000.
2. Purchased goods from Rohit 50,000.
3. Sales goods on credit to Manish (Costing 17,500) 20,000.
4. Purchased furniture for office use 10,000.
5. Cash paid to Rohit in full settlement 48,500.
6. Cash received from Manish 20,000.
7. Rent paid 1,000.
8. Cash withdrew for personal use 3,000.

Ans.

Q.21 Rohit has the following transactions:

1. Commenced business with cash: 1,50,000
2. Purchased machinery on credit: 40,000
3. Purchased goods for cash: 20,000
4. Purchased car for personal use: 80,000
5. Paid to creditors in full settlement: 38,000
6. Sold goods for cash costing 5,000 : 4,500
7. Pain rent: 1,000
8. Commission received in advance 2,000.

Prepare the accounting equation to show the effect of the above transactions on the assets, liabilities and capital.

Ans.

Q.22 Use accounting equation to show the effect of the following transactions of M/s Royal Traders:

1. Started business with cash: 1,20,000
2. Purchased goods for cash: 10,000
3. Rent received: 5,000
4. Salary outstanding: 2,000
5. Prepaid Insurance: 1,000
6. Received interest: 700
7. Sold goods for cash (Costing 5,000): 7,000
8. Goods destroyed by fire: 500

Ans.

Q.23 Show the accounting equation on the basis of the following transaction:
(a) Udit started business with:
Cash : 5,00,000
Goods: 1,00,000

(b) Purchased building for cash: 2,00,000
(c) Purchased goods from Himani: 50,000
(d) Sold goods to Ashu (Cost 25,000): 36,000
(e) Paid insurance premium: 3,000
(f) Rent outstanding: 5,000
(g) Depreciation on building: 8,000
(h) Cash withdrawn for personal use: 20,000
(i) Rent received in advance: 5,000
(j) Cash paid to Himant on account: 20,000
(k) Cash received from Ashu: 30,000

Ans.

Q.24 Show the effect of the following transactions on Assets, Liabilities and Capital through accounting equation:
(a) Started business with cash: 1,20,000
(b) Rent received: 10,000
(c) Invested in shares: 50,000
(d) Received dividend 5,000
(e) Purchase goods on credit from Ragani: 35,000
(f) Paid cash for house hold expenses: 7,000
(g) Sold goods for cash (costing 10,000): 14,000
(h) Cash paid to Ragani: 35,000
(i) Deposited into bank: 20,000

Ans.

Q.25 p style=”margin-bottom: 13px;”>Show the effect of following transaction on the accounting equation:
(a) Manoj started business with
Cash: 2,30,000
Goods: 1,00,000
Building: 2,00,000

(b) He purchased goods for cash: 50,000
(c) He sold goods (costing 20,000): 35,000
(d) He purchased goods from Rahul: 55,000
(e) He sold goods to Varun (Costing 52,000): 60,000
(f) He paid cash to Rahul in full settlement: 53,000
(g) Salary paid by him: 20,000
(h) Received cash from Varun in full settlement: 59,000
(i) Rent outstanding: 3,000
(j) Prepaid insurance: 2,000
(k) Commission received by him: 13,000
(l) Amount withdrawn by him for personal use: 20,000
(m) Depreciation charge on building: 10,000
(n) Fresh capital invested: v 50,000
(o) Purchased goods from Rakhi: 60,000

Ans.

Q.26 Transactions of M/s Vipin Traders are given below.

Show the effects on Assets, Liabilities and Capital with the help of accounting equation.

1. Business started with cash: 1,25,000
2. Purchased goods for cash: 50,000
3. Purchase furniture from R.K. Furniture: 10,000
4. Sold goods to Parul Traders (Costing 7,000 vide bill no. 5674): 9,000
5. Paid cartage: 100
6. Cash paid to R.K. Furniture in full settlement: 9,700
7. Cash sales (costing 10,000): 12,000
8. Rent received: 4,000
9. Cash withdrew for personal use: 3,000

Ans.

Q.27 Bobby opened a consulting firm and completed these transactions during November, 2017:
(a) Invested 4,00,000 cash and office equipment with 1,50,000 in a business called Bobble Consulting.
(b) Purchased land and a small office building. The land was worth 1,50,000 and the building worth 3,50,000. The purchase price was paid with 2,00,000 cash and a long term note payable for 3,00,000.
(c) Purchased office supplies on credit for 12,000.
(d) Bobble transferred title of motor car to the business. The motor car was worth ` 90,000.
(e) Purchased for 30,000 additional office equipment on credit.
(f) Paid 7,500 salary to the office manager.
(g) Provided services to a client and collected 30,000.
(h) Paid 4,000 for the month’s utilities.
(i) Paid supplier created in transaction C.
(j) Purchase new office equipment by paying 93,000 cash and trading in old equipment with a recorded cost of 7,000.
(k) Completed services of a client for 26,000. This amount is to be paid within 30 days.
(l) Received 19,000 payments from the client created in transaction K.
(m) Bobby withdrew 20,000 from the business.
Analyse the above stated transactions and open the following T-accounts: Cash, client, office supplies, motor car, building, land, long term payables, capital, withdrawals, salary, expense and utilities expense.

Ans.

(a)

Analysis of Transaction:

The transaction increases cash and office equipments on one hand and increase capital on the other hand. Increase in assets is debited and increase in capital is credited. Hence, the transaction will be recorded with debit the cash and office equipment and credit the capital.

(b)

Analysis of Transaction:

This transaction increases (assets) Land and Building on one hand decreases cash and increases outside liabilities on the other hand. Increases in assets are debited and decrease in assets is credited. On the other side, increase in liabilities will also be credited.

(C)

Analysis of Transaction:

This transaction increases assets on one hand and increases liabilities on another hand. Increase in assets is debited and increase in liabilities is credited. The office supplies will be debited and creditors will be credited.

(d)

Analysis of Transaction:

The transaction increases motor car on one hand and increases capital on the other hand. Increase in assets is debited and increase in capital is credited. The transaction will be recorded as debit the motor car and credit the increase in capital.

(e)

Analysis of Transaction:

This transaction increases office equipment assets on one side and creditors as liabilities on other side. Increase in assets is debited and increases in liabilities are credited.

(f)

Analysis of Transaction:

The payment of salary is an expense which decreases capital thus, are recorded as debit. Credit cash to record decreases in assets.

(g)

Analysis of Transaction:

The transaction will increase assets cash on one side and increase revenue on the other side. Increase in assets cash will be debited and for increase in revenue service account will be credited.

(h)

Analysis of Transaction:

The payment of month’s liabilities is an expense which decreases capital and recorded as debit and record cash as credit to record decreases in assets.

(i)

Analysis of Transaction:

This transaction decreases the assets and also decreases the liabilities. Record decrease in assets case will be credited and decrease in liabilities Creditor’s account will be debited.

(j)

Analysis of Transaction:

In this transaction, one asssets office equipment is increasing and decreasing. The increased cost of equipment will be recorded as debit and decreased cost of equipment is recorded as credit.

On the other hand, difference amount paid by cash will be decrease the assets and recorded in credit side.

(k)

Analysis of transaction:

This transaction increases assets on one side and increase in capital on the other side. Increase in assets Client account will be debited and to record increase in capital service account will be credited.

(l)

Analysis of Transaction:

In this transaction, one asset cash is increasing and recorded as debit and another assets client is decreasing recorded as credit.

(m)

Analysis of Transaction:

In this transaction, asset is decreasing one side cash will be credited to record the transaction and capital on the other side is decreasing will be recorded as debit side.

Q.28 Journalise the following transactions in the books of Himanshu:

Ans.

Q.29 Enter the following transactions in the Journal of Mudit:

Ans.

Q.30 Journalise the following transactions:

Ans.

Q.31 Journalise the following transactions in the books of Harpreet Bros.:

1. 1,000 due from Rohit are now bad debts.
2. Goods worth 2,000 were used by the proprietor.
3. Change depreciation @ 10% p.a. for two month on machine costing 30,000.
4. Provide interest on capital of 1,50,000 at 6% p.a. for 9 months.
5. Rahul become insolvent, who owed is 2,000 a final dividend of 60 paisa in a rupee is received from his estate.

Ans.

Q.32 Prepare Journal from the transactions given below:

1. Cash paid for installation of machine: 500
2. Goods given as charity: 2,000
3. Interest charge on capital @ 7% p.a. when total capital were 70,000
4. Received 1,200 of a bad debts written off last year.
5. Goods destroyed by fire: 2,000
6. Rent outstanding: 1,000
7. Interest on drawings: 900
8. Sudhir Kumar who owed me 3,000 has failed to pay the amount. He pays me a compensation of 45 paise in a rupee.
9. Commission received in advance: 7,000

Ans.

Q.33 Journalise the following transactions, post to the ledger:

Ans.

Q.34 Journalise the following transactions is the journal of M/s Goel Brothers and post them to the ledger.

Ans.