Methods to prepare accounts - class-IX

The cars sent on sale or return are still inventory of the company until the customer accepts them. They must be valued at cost. Since there are 2 cars at Rs 50,000 cost each, the total value is Rs 1,00,000.

Current ratio = Current Assets / Current Liabilities. (I) Payment to creditors reduces both by same amount, increasing ratio. (II) Selling machinery for cash increases current assets, increasing ratio. (III) Purchasing goods for cash has no effect on total current assets. (IV) Issuing equity shares increases cash, increasing ratio.

 The major difference between the accrual accounting method and the cash accounting method is the way in which revenue and expenses are recorded in the accounts of the business. This difference consequently leads to a different profit result for a given period depending on the approach adopted. 

· Cash-basis - Using the cash-basis, revenue is only recorded when the cash is actually exchanged i.e. when revenue is received as cash and when expenses are actually paid.

Accounting is defined as the process of identifying, measuring, recording, and communicating financial information to enable informed judgments and decisions by users of the information.

The sale price is cost + 25% of cost. If sale price is 200, then 1.25 * Cost = 200, so Cost = 160 per article. Total cost for 200 articles = 200 * 160 = 32,000.

Monopoly will discourage the depositors from putting money in the bank-this being the main reason. The saving rate of the economy together with the lending activities of the bank will also get hampered.

Depositor's approval is must for renewal of deposit. This statement is True. Reasons : 

Accruing wages means recognizing an expense that has been incurred but not yet paid or recorded. This is a classic adjusting entry to match expenses to the period they relate to.

The accrual system of accounting recognizes financial effects of transactions in the period they occur, regardless of when cash is exchanged.

The accrual system provides a more accurate picture of an organization's performance over a specific period by matching revenues and expenses to the time they actually occur.

Cash is an asset. Assets have debit balances. Therefore, the cash column in a cash book always shows a debit balance.

Adjustment entries are made at the end of the accounting period to ensure that revenues and expenses are recorded in the correct period, including items like outstanding expenses and accrued income.

Accrual accounting involves matching costs against revenues for the relevant period and carrying forward uncharged costs, as stated in options B and C.

Accounting only records events that can be expressed in monetary terms. Non-monetary events, despite their impact, are not recorded in the books.

Accrual accounting recognizes revenues when earned and costs when incurred, regardless of the timing of cash payments or receipts.

The total of the purchases return book represents goods returned to suppliers. Since purchases have a debit balance, returns have a credit balance.

Goodwill is an intangible asset that does not have physical substance but has value, making it an intangible real account.

The standard accounting period for financial reporting and tax purposes is 12 months (one year).

Accounting policies encompass both the specific principles chosen by an entity and the methods used to apply those principles.

Servicing vehicles is a revenue expenditure (maintenance), not a capital expenditure. It should be debited to Vehicle Maintenance A/c. Since it was wrongly debited to Motor Vehicles A/c, we must credit Motor Vehicles A/c to remove the error and debit Vehicle Maintenance A/c to record the expense.

When an accounting policy change has a material effect, the entity must disclose the fact of the change to ensure transparency. While the amount of the change is also relevant, the fundamental requirement is to disclose that a change has occurred.

The accrual concept requires that expenses be recognized when they are incurred, regardless of when the cash is paid. Since Mr. Ashok bought clothing worth 50,000, the full amount is an expense at the time of purchase.

The sale was 1,020 but recorded as 1,200, meaning Madhav's account was over-debited by 180. To rectify this before the trial balance, we must credit Madhav's account to reduce the balance, noting the reason for the adjustment.

Accounting policies are changed only when required by law, accounting standards, or when the change results in a more appropriate presentation of financial statements. All these options represent valid justifications.

Historical cost, current cost, and realizable value are standard valuation principles used in accounting. Future value is a financial calculation concept rather than a primary valuation principle for assets in financial statements.

The primary legislation governing companies in India is the Companies Act, 2013, which replaced the previous 1956 Act.

Doctrine of ultra vires relates to the Memorandum of Association (3), Doctrine of indoor management relates to the Articles of Association (1), and the Doctrine of golden rule relates to the Prospectus (2).

Liquidity refers to how easily an asset can be converted into cash. Cash is the most liquid asset because it is already in the form of currency.

Opening stock is a debit item in the trading account. Overvaluing it increases the total debits, which in turn decreases the calculated gross profit for that period.

A current ratio of 2:1 means current assets are double current liabilities. Borrowing money on a promissory note increases both current assets (cash) and current liabilities (notes payable) by the same amount, which mathematically improves the ratio when the initial ratio is greater than 1:1.

The International Monetary Fund (IMF) plays a central role in monitoring global financial stability and promoting international monetary cooperation, which facilitates the globalisation of financial services.

Demand drafts are traditional banking instruments that existed long before electronic banking. ATM, ECS, and SPMS are core components of modern e-banking systems.

The logical management sequence starts with defining the Objective (2), followed by setting Policies (1) to achieve them, then creating Programmes (3) to implement those policies, and finally establishing Procedures (4) for execution.

Comparative financial statements analyze changes in financial data over time for the same firm or between different firms, allowing for both absolute and percentage comparisons.

Cash is an asset account. According to the rules of debit and credit, asset accounts normally have a debit balance.

The fundamental principle of double-entry bookkeeping is that every debit must have a corresponding credit, ensuring the accounting equation remains balanced.

The Fisher equation for real interest rate is: (1 + nominal rate) / (1 + inflation rate) - 1. Calculation: (1.19 / 1.12) - 1 = 1.0625 - 1 = 0.0625 or 6.25%.

Cash discount is allowed by the firms to speed up the cash collections. 

Banks are to recognize their income on accrual basis in respect of income on performing assets and on cash basis in respect of income on non-performing assets (NPA). Any interest accrued and credited to income account must be cancelled by a reverse entry once the credit facility comes under the category of NPAs.

In accounting, income is recognized based on the accrual concept, which encompasses income earned, received, or receivable during the period.

Capital budgeting has five principles that plays a crucial role in the allocation of money and the process of capital budgeting.

If the rate of interest is not given (the cash price and amount of each instalment being given), interest will be calculated on the basis that the interest for each year will be in the ratio of amounts outstanding.

Financial accounting is based on dual concept. On the basis of dual concept, all business transactions are recorded in the books of accounts. This signifies that, every business transaction will affect two accounts while making an accounting entry. Its basically a double entry system of accounting. For every debit, there will be a credit and vice versa.

Accrual Accounting is the base of present accounting. It is also known as the mercantile system of accounting, wherein the transactions are recognised, as and when, they take place. 

Under this method, the revenue is recorded when it is earned, and the expenses are reported when they are incurred.

Dual aspect accounting is a concept which assumes that every business transaction will give two effects, i.e. debit and credit. For every debit there will be a credit, and vice versa. Double entry system of accounting is commonly used by all the organizations. Small concerns who are not well versed with double entry system are following the single entry system, in which they maintained only account of debtors and creditors and bank account. 

Accounting equation is the foundation of double entry system of book-keeping. It displays that all the assets are either financed by borrowing money or paying from the shareholder's equity. The balance sheet being the complex version shows explain the equation very clearly and it shows that total assets is equal to total liability plus shareholder's equity. The basis for this equation is the principle of rights.

Mercantile system is the system which states that revenue and expenditure must be recorded at the time they are recognized or incurred. Mercantile is followed by Merchants, trade and industry as they get arithmetic accurate financial statements and it helps them to take important decisions.

An artificial person consists of any institution, which can be bank, educational institute or a firm.
Representative personal account means, an account which represents a person which can be prepaid insurance, outstanding wages.etc.
Tangible real account is an account, which is related to the assets that can be felt and seen by eyes.
Intangible real account is an account, which cannot be seen and felt.

Dual aspect is the foundation or basic principle of accounting. It provides the very basis for recording business transactions into the book of accounts. This concept states that every transaction has a dual or two-fold effect and should therefore be recorded at two places. In other words, at least two accounts will be involved in recording a transaction.

The double-entry system also requires that for all transactions, the amounts entered as debits must be equal to the amounts entered as credits.

Dual aspect is the foundation or basic principle of accounting. It provides the very basis for recording business transactions into the book of accounts. 

This concept states that every transaction has a dual or two-fold effect and should therefore be recorded at two places. In other words, at least two accounts will be involved in recording a transaction.

The double-entry system also requires that for all transactions, the amounts entered as debits must be equal to the amounts entered as credits.

There are two ways of accounting: 

A cash transaction is a transaction where there is an immediate payment of cash for the purchase  of an asset, goods or services. It differs from other types of transaction that involve delayed payment, credit transaction etc. 

Under the accrual concept, is the fundamental concept of accounting in which revenues are recorded when they are earned and not received in cash, and recording expenses when they are incurred and not actually paid. 

Convertibility means that a foreign currency can be converted into domestic currency and vice versa without any restrictions. If the convertibility is restricted to certain foreign currencies transactions and/or people, it is termed as partial convertibiltiy.

Bonus shares can be issued out of the Securities Premium Account as per the Companies Act. Therefore, statement 3 is incorrect, making it the correct answer to the question asking which is not correct.

The accounting system is a system of double entry , which means that every business transaction that is to be recorded or have been recorded, always have dual impact. This system is more accurate because of the following reasons:

Under accrual basis of accounting, expenses are matched with the related revenues and/ or are reported when the expense occurs, not when the cash is paid. The result of accrual accounting is an income statement that better measures the profitability of a company during a specific time period.

• A basis of accounting is the time various financial transactions are recorded. The cash basis (EU VAT vocabulary Cash accounting) and the accrual basis is the two primary methods of tracking income and expenses in accounting.
• In accounting, the convention of conservatism, also known as the doctrine of prudence, is a policy of anticipating possible future losses but not future gains. 
• Profitability ratio is used to evaluate the company's ability to generate income as compared to its expenses and other cost associated with the generation of income during a particular period. 
  
• The cash flow statement or statement of cash flows measures the sources of a company's cash and its uses of cash over a specific time period.
  

Break-even analysis helps in formulating price policy, determining the amount of overhead cost to be charged at various levels of operations and forecasting profit.

Accrual system is an accounting method that records revenues and expenses when they are incurred, regardless of when cash is exchanged. For example -In a credit sale, the sale is entered into the books when the invoice is generated rather than when cash is collected. 

Under accrual basis of accounting, expenses are matched with the related revenues and/ or are reported when the expense occurs, not when the cash is paid. The result of accrual accounting is an income statement that better measures the profitability of a company during a specific time period.

There are two methods of accounting on the basis of business transactions are recorded i.e. cash system and accrual system.

False. In the books of accounts, transactions whether cash or on credit both are recorded in the books of accounts. Accrual basis of accounting records transactions by recognizing economic events regardless whether cash is received or not. 

Dual aspect is the foundation or basic principle of accounting. It provides the very basis for recording business transactions into the book of accounts. This concept states that every transaction has a dual or two-fold effect and should therefore be recorded at two places. In other words, at least two accounts will be involved in recording a transaction.

The double-entry system also requires that for all transactions, the amounts entered as debits must be equal to the amounts entered as credits.

Accrual accounting is the base of present accounting. It is also known as the mercantile system of accounting wherein the transactions are recognized as and when they take place. 

There are two methods of accounting on the basis of business transactions are recorded i.e. cash system and accrual system.

Dual aspect is the foundation or basic principle of accounting. It provides the very basis for recording business transactions into the book of accounts. This concept states that every transaction has a dual or two-fold effect and should therefore be recorded at two places. In other words, at least two accounts will be involved in recording a transaction.

The double-entry system also requires that for all transactions, the amounts entered as debits must be equal to the amounts entered as credits.

Cash accounting is an accounting method in which payment receipts are recorded during the period they are received, and expenses are recorded in the period in which they are actually paid.

Under the cash basis, entries in the book of accounts are made when cash is received or paid and not when the receipt or payment become due. The cash basis is a method of recording accounting transactions for revenue and expenses only when the corresponding cash is received or payments are made.

The above statement is fully false as cash transactions are those transaction where there is an immediate payment of cash for the purchase of an asset. 

Dual aspect is the foundation or basic principle of accounting. It provides the very basis for recording business transactions into the book of accounts. This concept states that every transaction has a dual or two-fold effect and should therefore be recorded at two places. In other words, at least two accounts will be involved in recording a transaction.

The double-entry system also requires that for all transactions, the amounts entered as debits must be equal to the amounts entered as credits.

An amount of money received by a company for goods or services, is called as cash receipts. 

The purpose of an accounting system are interpret, classify the effects of transaction to facilitate the preparation of reports and to summarize and communicate information to decision makers.

In a joint venture, abnormal losses are typically not recorded in the Joint Venture Account because the venture is temporary and the loss is usually borne by the venturers directly or handled outside the venture's operating account.

Under the cash basis of accounting, revenue is recognized only when the cash is actually received from the customer, regardless of when the sale occurred.

In hire-purchase transactions, the interest and principal are collected over time. The cash basis is often used to recognize revenue as installments are received.

The consignment accounting is made on Accrual basis.

Cash accounting is an accounting method in which payment receipt are recorded during the period they are received, and expenses are recorded in the period in which they are actually paid. Hence, in this question accounting adjustment is not required for accrual/outstanding expenses/incomes.

The act by members of a trade union, persuading others not to work is called as strike. A strike is a type of refusal by the workers to work so that the employers can approve their demands. 

Cost per bag is 1,000. 10% above cost is 1,100 per bag. Selling 60 bags at 1,100 each results in 60 * 1,100 = 66,000.

Misappropriation of cash usually involves under-recording receipts or over-recording payments. Making fictitious entries on the receipt side would actually increase the recorded cash balance, which does not facilitate stealing cash.

The accrual concept requires that transactions be recorded when they occur, regardless of when cash is received or paid. The cash basis of accounting, conversely, only records transactions when cash changes hands.

                                                      Net Profit for the year Ended..

|
        Particular
|
          Amount
|
         Particular
|
         Amount

|
| --- | --- | --- | --- |
|
To Purchase a/c
Cash -400000
Credit-50000
|
450000
|
By Sales a/c
Cash-500000
Credit-25000
|
525000
|
|
To Wages Paid A/c
|
20000
|
 
|
 
|
|
To O/s Expenses A/c
|
10000
|
 
|
 
|
|
To Rent Paid A/c
           5000

• O/s 2000
  |
  7000
  |
   
  |
   
  |
  |
  To Depreciation on building A/c
  |
  10000
  |
   
  |
   
  |
  |
  To loss on sale of fixed assets A/c
  |
  1000
  |
   
  |
   
  |
  |
  To Net profit transferred A/c
  |
  27000
  |
   
  |
   
  |
  |
   
  |
  525000
  |
   
  |
  525000
  |

Under the accrual basis, revenue and expenses are recognized in the period they are earned or incurred, regardless of the timing of cash receipts or payments.

The cash system of accounting is strictly based on the actual movement of cash. Transactions are only recorded when money is physically received or paid out.

In the cash system, the timing of the receipt or payment is the only factor that matters for recording, making the period to which the receipt pertains irrelevant.

Accrual accounting matches costs against revenues in the relevant period (II) and treats uncharged costs as assets to be carried forward (III). Statements (I) and (IV) describe cash-based accounting practices.

The accrual concept dictates that revenue is recognized when earned and expenses are recognized when incurred, matching them to the period they relate to.

Accounting systems are designed to record, classify, and summarize financial data to provide useful information. They do not have the authority to dictate or restrict the types of business transactions an enterprise chooses to engage in.

The matching principle requires that expenses be recognized in the same period as the revenues they help generate. The cash basis violates this because it records expenses only when paid, which may be in a different period than the associated revenue.

L.D. White is the management theorist who defined management as the accomplishment of results through the efforts of other people.

The imprest system involves maintaining a fixed float (A) and requiring documentation/receipts for all disbursements (B) to justify the replenishment of the fund.

GDRs are financial instruments used by companies to raise capital from international markets, specifically by issuing shares to foreign investors.

Accrued income is income that has been earned by providing goods or services during the period, but for which payment has not yet been received.

Materiality is a qualitative characteristic; an item is material if its omission or misstatement could influence the economic decisions of users of the financial statements.

Changing the registered office of a company from one state to another involves altering the Memorandum of Association, which requires a special resolution under the Companies Act.

When a personal account like A's account is incorrectly transferred to a nominal account like Purchase account, both accounts are affected. A's account shows an incorrect debit balance, while Purchase account is overstated. Both need correction entries to reverse the error and record the proper transaction.

Cash book balance = 1500. Add cheques issued but not presented (+150). Subtract cheques deposited but not cleared (-100). Add interest allowed (+50). Add dividend collected (+50). 1500 + 150 - 100 + 50 + 50 = 1650.

An 'Account Sales' is a periodic statement sent by the consignee to the consignor detailing the sales made, expenses incurred, commission earned, and the balance due.

Under the Companies Act, a person cannot be appointed as a managing director of more than two companies at a time.

The social obligation of accounting refers to the responsibility of the accounting function to provide relevant and transparent information to all stakeholders, including employees, creditors, government, and the public.

An allied combination occurs when companies in related or complementary industries (like printing and dyeing) combine to improve efficiency or market position.

In contract costing, the contractee makes payments based on the value of work certified by the architect or engineer.

Account analysis involves examining each cost account to determine whether it is fixed or variable relative to output levels.

Cash basis accounting recognizes revenue only when cash is actually received, regardless of when the sale occurred or services were rendered.

The standard process is: 1) Establish standards, 2) Measure actual performance, 3) Analyze variances, 4) Initiate corrective action.

Standard deviation measures the dispersion of returns. A larger standard deviation indicates higher volatility and a greater range of potential outcomes, including lower returns.

Under GST valuation rules, discounts offered to customers are deductible from the transaction value if they are known at or before the time of supply and are linked to specific invoices.

The Treynor ratio, or excess return to beta ratio, measures the return earned in excess of that which could have been earned on a riskless investment per unit of market risk.

An intrastate supply occurs when the location of the supplier and the place of supply are in the same state.