Tag: accounting procedures - rules of debit and credit

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Multiple choice commercial studies accounting procedures - rules of debit and credit modern approach of rules of accounts meaning and classification of accounts classification of accounts

The accounts of expenses and losses is _________.

  1. Real

  2. Personal

  3. Nominal

  4. None of the above
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Accounts which are related to expenses, losses, incomes or gains are called Nominal accounts. 

The dictionary meaning of the word "nominal" is "existing in name only" and the meaning remains absolutely true in accounting sense too, because nominal accounts do not really exist in physical form, but behind every nominal account money is involved.
E.g. Purchase A/c, Salary A/c, Sales A/c, Commission Received A/c, etc.

Multiple choice commercial studies accounting procedures - rules of debit and credit modern approach of rules of accounts meaning and classification of accounts classification of accounts

Loan account is personal account.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Personal accounts are related to individuals, firms, companies, etc. A few examples of personal accounts are debtors, creditors, banks, outstanding/prepaid accounts, accounts of credit customers, accounts of goods suppliers, capital, drawings, etc.

Personal accounts are classified into three subcategories: Artificial, Natural, and Representative.
Representative accounts represent a certain person or group directly or indirectly.
Loan account is a representative personal account, as it represents the person from whom the loan is obtained or to whom the loan is given. Hence, it is classified as a personal account.

Multiple choice commercial studies accounting procedures - rules of debit and credit modern approach of rules of accounts meaning and classification of accounts classification of accounts

Outstanding Wages A/c is Nominal A/c.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Accounts which are related to expenses, losses, incomes and gains are called nominal accounts. Examples of nominal accounts are Purchase A/c, Sales A.c, Salary A/c etc.

The final result of all nominal accounts is either profit or loss which is the transferred to the capital account. The golden rule for nominal accounts is: Debit all expenses and losses; Credit all incomes and gains.

Outstanding wages is classified as a personal account and not a nominal account. This account represents the accounts of all those persons to whom wages have not been paid and hence, are outstanding. Therefore, it is termed as  "Representative Personal Account" or simply personal account.

Multiple choice commercial studies accounting procedures - rules of debit and credit modern approach of rules of accounts meaning and classification of accounts classification of accounts

Nominal A/c is debited when business incurs expenses.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Accounts which are related to expenses, losses, incomes or gains are called Nominal accounts. The dictionary meaning of the word "nominal" is "existing in name only" and the meaning remains absolutely true in accounting sense too, because nominal accounts do not really exist in physical form, but behind every nominal accounts money is involved. E.g. Purchase A/c, Salary A/c, Sales A/C. Commission Received A/c, etc.

The final result of all nominal accounts is either profit or loss which is then transferred to the capital account. 
The golden rule for nominal account is : Debit all expenses and losses; Credit all incomes and gains.

Multiple choice commercial studies accounting procedures - rules of debit and credit modern approach of rules of accounts meaning and classification of accounts classification of accounts

Commission received is Nominal Account.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Nominal accounts are the temporary accounts, such as the income statement accounts. In other words, nominal accounts are the accounts that report revenues, expenses, gains, and losses. 

Nominal or temporary accounts are closed at the end of each accounting year. This means that their account balances are transferred to a permanent account. This closing process allows the nominal accounts to start the next accounting year with zero balances.
Nominal accounts consist of the following types of accounts:
a. Insurance account
b. Wages account
c. Interest paid or received account
d. Commission paid or received account
e. Telephone expense account
f. Salary account.
Hence, commission received is a nominal account.

Multiple choice commercial studies accounting procedures - rules of debit and credit modern approach of rules of accounts meaning and classification of accounts classification of accounts

Conventional system of accounting cannot give a complete picture of all transactions.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Under conventional system of Accounting  :-

  • Since only one cash book is kept, personal and business transactions will be recorded together.
  • Real and Nominal accounts will be ignored by this system.
  • Profit or Loss can be ascertained but we cannot represent the financial position of the organization
  • No trial balance is prepared, so arithmetical accuracy of accounts cannot be verified
  • So, conventional or single entry system of accounting cannot give a complete picture of all transactions. 

Multiple choice commercial studies accounting procedures - rules of debit and credit modern approach of rules of accounts meaning and classification of accounts classification of accounts

Drawing account is real account.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Drawings account is a personal account. 

Personal accounts are classified as :-
a) Natural person, 
b) Artificial person 
c) Representative personal accounts.
 A representative personal account represents a person/persons.

Drawings account is a representative personal account. 
Some examples of representative personal accounts are capital, outstanding wages, prepaid salaries. 

Multiple choice commercial studies accounting procedures - rules of debit and credit modern approach of rules of accounts meaning and classification of accounts classification of accounts

The rule of personal account states that Debit the receiver and Credit the giver.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Personal accounts are related to individuals, firms, companies, etc. A few examples of personal accounts include debtors, creditors, banks, outstanding/prepaid accounts, accounts of credit customers, accounts of goods suppliers, capital, drawings, etc.

Natural personal accounts are the simplest to understand out of all and includes all God's creations who have ability to deal, who, in  most cases, are people. E.g. Kumar's A/c, Adam's A/c, etc.
Artificial personal accounts are created artificially by law, such as corporate bodies and institutions, are called Artificial personal accounts.
Representative personal accounts represent a certain person or group directly or indirectly.
The golden rule for personal accounts: Debit the receiver; Credit the giver.

Multiple choice commercial studies accounting procedures - rules of debit and credit modern approach of rules of accounts meaning and classification of accounts classification of accounts

Examples of real account.

  1. Creditor account

  2. Goodwill account

  3. Capital account

  4. Salary account
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

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 be touched and felt physically. Few examples of tangible real accounts are building, machinery, stock, land, etc.
Intangible real accounts are related to things that can't be touched and felt physically. Few examples of such real accounts are goodwill, patents, trademarks, etc.
Golden rule for real accounts are: Debit what comes in; Credit what goes out.
Hence, of all the options above, goodwill account is a real account.

Multiple choice commercial studies accounting procedures - rules of debit and credit modern approach of rules of accounts meaning and classification of accounts classification of accounts

Which one of the following statements is correct?

  1. Capital of the firm is reduced by borrowing

  2. Nominal accounts refer to false transactions

  3. When there is no change In proprietors capital, it is an indication of loss in business.

  4. Real accounts relate to the assets of a business
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

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.