Accounting Principles and Practices

This question is identical to Q431719. The double entry system provides complete transaction records (A), arithmetical accuracy checks (B), and detailed profit/loss preparation (C). Since all are valid merits, 'All of the above' is correct.

When a salary is paid to a proprietor, it is treated as a withdrawal or an expense. The entry involves debiting the proprietor's salary/drawings account and crediting the cash account, which effectively reduces the capital account.

Adjustments at the end of the accounting period must follow the double entry principle to ensure that the financial statements remain balanced and accurate.

Real account is an record of an asset. An asset can be current asset such as cash, a fixed asset such as building and intangible asset such as goodwill. Real account relate to the assets & liabilities of a business.

The fundamental concept of the double entry system is that every transaction has two sides: a debit and a credit, which must be equal in amount.

When an owner introduces cash into the business, the business receives an asset (Cash) and the owner's equity increases (Capital). Therefore, Cash is debited and Capital is credited.

Since the Liability shows credit balance as per the accounting equation. When a liability is reduced or decreased, it is recorded on the debit side of the liability account.

Secret Reserve is not shown but its effects are seen as follows :
a) undervaluation of closing stock
b) charging Continent liabilities as actual liabilities.

As per the Companies Act 2013, CRR is created from the Profits of the company which only includes the Free Reserves.

Hence, Free Reserve includes following items:

1. Profit and loss accounts

2. General Reserve funds

3. Contingency reserve

4. Dividend equalisation reserve

5. Workmen compensation fund

6.  Workmen accident fund

Therefore, CRR can be created from the above mentioned accounts in the same order of preference.

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. Hence, recording of all business transactions is based on accounting equation.

Accounting equation states that assets is equal to equity. Equity consists of liabilities and shareholder's capital. Hence, it is a formula .i.e. Assets = Equity.

A typewriter is a fixed asset (office equipment). When an office asset is sold, the credit should be made to the asset account (Office Equipment) to remove its value from the books, not to a sales account which is reserved for inventory.

There are mainly three types of accounts: Real, Personal and Nominal accounts. Personal accounts are classified into three subcategories: Artificial, Natural and Representative. All assets of a firm, which are tangible or intangible, fall under the category "Real Accounts". Tangible real accounts are related to things that can b touched and felt physically, e.g., building, machinery, stock, land, etc. Intangible real accounts are related to things that can't be touched and felt physically, e.g., goodwill, patents, trademarks, etc.

An unexpired expense (prepaid expense) represents a benefit to be received in the future, so it is recorded as an asset. The portion that has expired is recorded as an expense in the Profit and Loss account.