FINANCIAL

ACCOUNTING
PART A
1.

2.

3.

4.

5.

6.
7.

Double Entry System: According to this system,

every transaction has two aspects. One is receiving
aspect & the other one is giving aspect.
Journal: Journal means a daily record of business
transactions. It is a book of Primary Entry &
Original Entry.
Ledger: According to L.C.Cropper, The book which
contains a classification and Permanent record of all
business transactions is called the Ledger.
Trial Balance: Trail Balance is a statement,
prepared with debit & credit balances of ledger
account to test the arithmetical accuracy of the
books.
J.R. Batli boi
BRS: Bank Reconciliation statement is a list in which
the various items that cause a difference between
bank balance as per cash book & pass book on any
given date are indicated.
Kinds of Errors: i) Errors of Principles ii) clerical
Error.
Errors of Principle: Transactions are recorded as
per generally accepted accounting principles. If any
of these principles is violated or ignored, errors
resulting from such violations are known as Errors of
Principles.

Clerical Errors: These errors arise because of

mistakes committed in the ordinary course of
accounting works.
9. Book Keeping: Book keeping is a part of accounting
and is concerned with record keeping of maintenance
of books of accounts.
10. Suspense Account: When it is difficult to locate the
mistakes before preparing the final accounts, the
difference in the trial balance is transferred to newly
open temporary account called Suspense Account.
11. Accounting: American Accounting Association
defines accounting as The process of identifying,
Measuring, & communicating economic information
to users.
12. Aim of BRS: The aim of Bank Reconciliation
Statement is to link the gap between the balance
shown by the cash book and the passbook.
13. Trading Account: Trading means buying and selling.
The Trading Account shows the result of buying and
selling of goods.
14. Outstanding Liabilities: These are certain
liabilities which relate to a particular accounting
period but they are not paid in that accounting
period due to certain reasons.
15. Adjustments: All items (i.e. closing stock,
outstanding expenses, prepaid expenses) need to be
brought into books of account at the time of
preparing final accounts are called adjustments.
16. Adjusting Entries: Journal entries passed to effect
the required adjustments are known as adjusting
entries.
8.

17. Balance

sheet: A Balance sheet is a statement of

the financial position of a firm at a given date.
18. Bad debts: debts which cannot be recovered are
called Bad debts. It is a loss for the business.
19. Final Accounts: Final accounts are the means of
conveying the profitability and financial position to
management, owners and interested outsiders of the
business.
20. Prepaid Expenses: Expenses which have been paid
in advance are called as prepaid (unexpired)
expenses.
21. Manufacturing Account: Manufacturing account is
the account employed to show the cast of
manufacture or production.
22. Purpose of preparing the final accounts: The
purpose of preparing the final accounts is to know
the profitability and the financial soundness of the
business.
23. Non-profit organization or Non-trading
concerns: Non-profit organizations are created for
promotion of arts, culture, games and sports, fine
arts, hospital etc.
24. State the motto of Non-trading concerns:
i)
To render services to its members.
ii)
To meet some socially desirable goals.
25. What are the accounts prepared by
Non-trading concern?
i)
Receipts and payments accounts.
ii)
Income and expenditure accounts.
iii)
Balance sheet.
26. Average Due Date: Average Due Date is the date
on which several debts due on different dates can be

paid by a single payment without any loss of interest

either to debtor or creditor.
27. Define bill of exchange: According to the
Negotiable instruments act, 1881. A bill of exchange
is an instrument in writing containing an
unconditional order, signed by the maker, directing a
certain person to pay a certain sum of money only or
to the orders of a certain persons or to the banker of
the instrument.
28. Is grace days are available in bill of
transactions? And how many days?
Yes, Grace days are available in bills of transactions.
Three days.
29. Endorsement: An Endorsement is the process by
which a bill is transferred from one person to another.
30. Account Current: An Account current is a running
statement of transactions between two parties for a
given period of time and includes interest allowed or
charged on various items.
31. Interest Table Method: Interest is calculated by
using interest tables with the help of interest table,
one can calculated interest of different amounts at
different rates for different periods.
32. Forward Method: Under this method, the days are
counted from due date of transactions to the closing
date of account current.
33. Backward of Epoque Method: In this method,
days are counted from the due date of transaction to
the opening date of account current.
34. Daily Balance method or Periodical Balance
method:

In this method, days are calculated from the due

date of one transaction to the due date of the next
transaction.
35. Red Ink Interest: It may happen that the due date
of a transaction falls after the closing date of account
current. The interest is written in Red ink. Hence the
interest is known as Red ink Interest.
36. Consignment: Consignment is the transfer of goods
to an agent for the purpose of storage and sales.
37. Consigner: The person who sends the goods is
known as the consigner or the principal.
38. Consignee: The person to whom the goods are sent
for sales is known as the consignee or the agent.
39. Simple or Ordinary Commission: Ordinary
Commission is paid to consignee by consumer. It is
calculated as per terms laid down by the consigners.
40. Special or Over Riding commission: Over-riding
commission is paid to give further incentive for
increasing the sales. It is paid to consignee when he
overrides the specified amount of sales.
41. Del-credere commission: If consignee makes
credit sales and if there incurs any less by way of bad
debts then such less should be accepted by the
consigner. To avoid such a less extra les commission
is given to the consignee, this extra commission is
called Del-credere commission.
42. Invoice price: The consigner may send the goods at
a price higher than the cost price. This price is known
as Invoice price or Selling price.
43. Normal Loss: When goods are lost or damaged due
to evaporation, leakage, breakage, dusting,

weightment, drying etc. These losses are called as

Normal Losses.
44. Abnormal Losses: When loss or damage of goods is
caused by unnatural and unexpected reason, then
such losses is treated as abnormal loss.
45. Account Sales: When the goods consigned are sold
by the consignee, the consignee will send to the
consigner a statement which is called Account
Sales.
46. Joint Venture or Joint Adventure or Joint Trade:
Joint venture is an agreement between two or more
persons to share profits or Losses in an agreed
proportion.
47. Join Bank Account:
The Co-Venturers to the joint venture usually
contribute their share of money to carry out the joint
venture dealings. The money is put into a joint bank
account.
48. Memorandum Joint ventures Account:
Memorandum Joint venture account is just a
combination of joint venture accounts prepared by all
the co-ventures.
49. Which account is a Memorandum Joint venture?
Memorandum Joint venture Account is just like a
trading and profit and Loss Account.
50. Depreciation: Depreciation means the reduction in
the book value of fixed assets during a given period.
(or)
Carter defines depreciation as The gradual and
permanent decrease in the value of an asset from
any cause.

51. Cause

or reason of Depreciation:
i)
Wear and Tear
ii)
Lapse of time
iii)
Obsolescence
iv)
Non-use
v)
Maintenance
vi)
Market Trend.
52. Straight Line Method: (Fixed installment method
or Original cost method) under this method,
depreciation is charged evenly every year throughout
the effective life of an asset.
53. Written down value method: In this method,
depreciation is charged at fixed rate on the reducing
balance of asset every year.
54. Revaluation method: This is the simplest method
with the help of experts; compare the value of the
assets at the end of the year with the value in the
beginning of the year.
55. Reserve: Reserve is an appropriation out of profits.
Reserves are undistributed, accumulated profits.
56. Provision: Provision means the setting aside of
certain amount to meet some contingencies which
may be expected but not yet incurred.
57. Is there any difference between Provision &
Reserve?
Yes, there is slight difference between provision &
reserve.
58. Single Entry system: Any method of Book Keeping
which does not follow the principles of double entry
system is single entry system.

59. Statement

of Affairs: Statement of affairs is

prepared when accounts are maintained under single
entry system of accounting.
60. Merits of single entry column:
i)
It helps sole traders and partnership firms to
maintain the books of accounts through its
system.
ii)
All transactions are not recorded in the book of
account.
iii)
Profit under this system is only an estimate.
61. Demerits of single entry column:
i)
Incomplete and unscientific method.
ii)
Trial balance cannot be prepared.
iii)
True financial positions cannot be ascertained.
iv)
Unacceptable to tax authorities.
62. How business transactions are recorded in
single entry system?
Debit and credit aspects of all business transactions
are not recorded.
63. Opening stock + purchase- cost of goods
sold=?
Opening stock+ purchase- cost of goods sold= gross
profit.
64. Drew goods for personal use Rs. 500.
Journalise this
Drawings
A/c
Dr.
500
To Purchase
A/c
500
65. Rules of Double Entry:
i)
Personal A/c - Debit the receiver.
Credit the giver.
ii)
Real
A/c - Debit what comes in.
Credit what goes out.
iii)
Nominal A/c - Debit all expenses and losses.

Credit all gains and incomes.

66. Specimen of Journal book:
Date

Particulars

LF

Debit

Credit

Rs.

Rs.