UGC NET (Financial Accounting)
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For
By: Dheeraj Kumar Singh Ph. No: 9717168088 Address: 71, Main Road G.T.B. Nagar (Near Bank of Baroda) Delhi 100009
Financial & Management Accounting
1
By – Dheeraj Kr. Singh
UGC NET (Financial Accounting)
www.innovative.org.in
© All Rights Reserved with Author No part of this book may be Xeroxed or reproduced in any other form without the written permission of the author
Every effort has been made to avoid errors or mistakes in this book. Inspite of this some errors might have crept in. It is noted that author will not be responsible for any damage or loss.
Financial & Management Accounting
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By – Dheeraj Kr. Singh
UGC NET (Financial Accounting)
www.innovative.org.in
Syllabus FINANCIAL & MANAGEMENT ACCOUNTING Financial & Corporate Accounting: Basic Accounting concepts, Capital and Revenue, Financial Statements. Partnership Accounts: Admission, Retirement, Death, Dissolution and Cash Distribution. Advance Company Accounts: Issue, forfeiture, Purchase of Business, Liquidation, Valuation of shares, Amalgamation, Absorption and Reconstruction, Holding Company Accounts. Cost & Management Accounting: Ratio Analysis, Funds Flow Analysis, Cash Flow Analysis , Marginal Costing and BreakEven analysis, Standard costing, Budgetary control, Costing for decision- making. Responsibility accounting
Test Schedule 1st Test 2nd Test 3rd Test 4th Test 5th Test 6th Test 7th Test
1 to 4 Chapter 5 to 8 Chapter 1 to 10 Chapter 11 to 14 Chapter 15 to 16 Chapter 17 to 22 Chapter 1 to 22 Chapter
Financial & Management Accounting
50 Questions 50 Questions 100 Questions 50 Questions 30 Questions 40 Question 100 Questions
3
By – Dheeraj Kr. Singh
UGC NET (Financial Accounting)
www.innovative.org.in
Index S. NO.
1 2 3 4 5 6 7
No. of M.C.Q. Previous Previous Year Year M.Com N.E.T.
Chapter
Page No.
General M.C.Q.
Accounting Terminology
5 - 14
19
7
1
27
15 - 21
37
4
3
44
22 - 27
13
5
1
19
28 - 39
37
4
1
42
40 - 46
47
–
–
47
47 - 56
35
2
–
37
57 - 63
17
1
1
19 31 9
Rules of Double Entry Book– Keeping Classification of Accounts Accounting Process Journal Ledger Trial Balance Subsidiary Books
Total
8
Cash Book
64 - 70
30
1
–
9
Rectification of Errors
71 - 83
7
2
–
10
Meaning and Scope of Accounting
92 - 96
26
8
–
34
97 - 107
33
17
8
58
108 - 113
14
4
1
19
114 - 116
11
2
–
13
117 - 124
38
2
6
46
125 - 139
21
7
2
30
140 - 151
27
9
1
37
152 - 173
56
15
3
74
174 - 191
43
1
1
45
192 - 199
10
1
–
11
200 - 213
25
2
4
31
214 - 227
23
–
3
26
228 - 246
18
2
2
22
11 12 13
14
15 16 17
18 19 20 21 22
Accounting Concepts, Principles and Conventions Accounting Standard -Concepts, objectives, Benefits Accounting Policies
Capital and Revenue Expenditure and Receipts
Depreciation Accounting Inventory Valuation Final Accounts
Introduction to Partnership Accounts Treatment of Goodwill Admission of New Partner Retirement and Death of a Partner Dissolution of Partnership Firm Total
Financial & Management Accounting
4
By – Dheeraj Kr. Singh
UGC NET (Financial Accounting)
www.innovative.org.in
Chapter 1 Accounting Terminology
There is certain basic accounting terms which are daily used in the business world. Before starting the study of accounting it is essential to understand these terms as these terms have their specific meaning in Accounting. These basic terms are called “Accounting Terminology”.
1. Business: -
regular occupation, profession or trade. Any occupation or activity in which people regularly engage with a view to earn profit is called business. It is very important that only those activities are called businesses which are done on “Regular basis”. Occasional activities are not cover under business.
2. Owner: –
The person who makes the investments and bears all the risks (loss) and rewards (profits) connected with the business is called the owner. In Case of Sole Proprietorship Proprietor is the owner; in case of partnership partners are the owner; in case of company shareholder are the owner of the business. If Mr. X invests money in the business Mr. X is the owner of the business.
3. Capital / Additional Capital / Fresh Capital / Further Capital: – The term Capital is used for the “Business point of View”. It means the amount which proprietor has invested in the business is called capital. Proprietor has right to refund his capital from the business at any time. Capital introduced by proprietor may be in cash or in kind (in form of Furniture, Goods, Building, Plant and Machinery etc.)
Capital is the Internal Liability of the business. It is the liabilities towards Proprietor. Capital is also known as Owner’s Equity or Net Worth. For Example: - If Ram Started Business with Cash Rs.50,000 and Furniture worth Rs.30,000 then Total Capital of Firm becomes Rs.80,000 (50,000 + 30,000)
Example of Separate Business Concept Business Firm
Business Firm After the investment
Capital (Liability of Business)
Cash or Other type of Assets
Transactions are recorded in Business at “Business Point of view” and not from “proprietor point of view” Financial & Management Accounting
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4. Internal Liability: -These represent proprietor’s equity, i.e. all those amount which are entitled to the proprietor, e.g., Capital, Reserves, Undistributed Profits, etc.
5. Drawings: – It is amount of money or the value of goods, which the proprietor takes (withdraw) for his domestic or personal use. If goods are taken by proprietor then it is valued at purchase cost. Drawings reduce the capital of the proprietor. In case of non-corporate entity (like sole proprietorship and partnership) if any expense of proprietor or partner is paid out of business cash it is treated as drawings. Such as: Income Tax paid, Life Insurance Premium Paid, Tuition Fees Paid for children etc. If any Assets is purchases out of business cash and it is not used in business but used by proprietor or partner for his personal or domestic use it is also treated as drawings.
6. Purchases: - Purchase means purchase of those goods which purpose is to resale either directly in ordinary course of business or used in producing finished goods, which are also to be sold. Purchase does not include purchase of fixed assets or stationery which purpose is not to resale in ordinary course of business.
Purchase can be made in two ways: (i) Cash Purchase: - In this type of purchase goods are purchased on cash basis. It means goods are comes in business and cash is immediately paid or goes out from business
(ii) Credit Purchase: – In this type of Purchase goods are comes in business but cash is not paid immediately. Cash will be paid in future. In case of Credit purchase Creditors will arise.
7. Purchases Return / Return Outward: -
Goods purchased may be returned to the supplier or creditor due to any reason such as “not as per specification” or “defectives” it is known as purchase return or return outward. It has been assume that this facility is only provided when goods are purchase on credit basis. Cash Sales
Cash Purchase
Revenue
Shop or Godowns
Cost Credit Purchase
Creditors
Credit sales Sales Return
Purchase Return
Bills Payable
Current Liabilities
Debtors
Bills Receivable
Remaining Purchase Current Assets
8. Sales: -Sales
means sale of those goods in which firm deals or sale of those goods which was purchase for the purpose of resale. Sales do not include sales of old Fixed Assets and Scrap
Sales can be done in two ways: – (i) Cash Sales: – In this type of sale goods are goes from the business and cash is immediately comes.
(ii) Credit Sales: – In this type of sale goods are goes from the business but cash is not come immediately. Cash will be received in future. In Case of Credit sale Debtors will arise. Financial & Management Accounting
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By – Dheeraj Kr. Singh
UGC NET (Financial Accounting)
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9. Sales Return / Return Inward: - Goods sold when returned by customer or debtors due to any reason such as “not as per specification” or “defectives” it is known as sales return or return inward. It is made when goods are purchase on credit basis. It has been assume that this facility is only provided when goods are sold on credit basis. • If a transaction relates to purchase or sale of goods and the name of the seller or purchaser is given but it is not stated that it is a cash transaction or Credit transactions it is treated as a Credit Transaction. • If a transaction relates to purchase or sale of goods and the name of the seller or purchaser is not given it is treated as a Cash Transaction.
10. Goods Destroyed by Fire: - Certain time fire occurred and destroyed the goods it reduces the stock (purchase of goods) of business. It is the loss for the business.
11. Goods taken for personal use: - Certain time goods are taken by proprietor for personal use it is drawings and it reduce stock (purchase of goods) it is not treated as sales because no profit is earned on such goods. If goods are taken by proprietor then it is valued at purchase cost.
12. Goods given as Charity / Donation: -
Certain time goods are given as charity or Donation (without consideration) it reduce stock (purchase of goods) it is not treated as sales because no profit is earned on such goods. If goods are given as charity then it is valued at purchase cost.
13. Goods distributed as free samples: - Certain time goods are distributed as free sample to marketing purpose and to increase sales it is a way of advertisement it reduce stock (purchase of goods) it is not treated as sales because no profit is earned on such goods. If goods are distributed as free sample then it is valued at purchase cost.
14. Goods used to make or construct assets: - Certain time by using own goods some assets are construct. The goods which are used to construct assets are valued at purchase cost.
15. Trade Debtors: – A person who owes money to the firm generally on account of credit sales of goods is called a Debtor. When goods are sold to Shyam on credit Shyam is the “Debtor “of the firm.
16. Bills Receivable: - It means a bill of exchange accepted by a Debtors showing the particular amount will be received on a particular date. When Bills Receivable is made it decreases the value of Debtors.
17. Trade Receivables: - Amount due from Debtors and Bills Receivables (B/R) is jointly termed as “Trade Receivables” or “Accounts Receivable”
18. Solvent:-A person or a firm is said to be solvent when their assets are more than their liabilities. It means when a person is not in position to pay his debt is called insolvent person.
19. Insolvent: - When the liabilities become more than the assets, that person or a firm is said to be insolvent. In such case all assets & liabilities of insolvent persons is provided to the official receiver or assignee (he is authorised person of courts) and official receiver or assignee sold the assets and paid the liability in proportionate basis. No liability is paid in full only some portion is paid to creditors.
20. Bad Debts written off: - It is that amount of debtors which is irrecoverable. Bad debts are that part of debtors which is not received or recovered by the businessman. It is the loss for the business. It is normally arise when the debtors become insolvent
21. Bad Debts written off earlier Recovered: - Sometimes a debtor whose account had been earlier written off as a Bad Debt pays some amount it is called Bad Debts Recovered. The amount so received is an income for the business because the amount was earlier written off as a loss. This recovery is called Bad Debts Recovered.
22. Trade Creditors: – A person to whom a firm owes money is called a Creditor. When goods are purchased from Mohan on Credit Mohan is the “Creditor” of the firm. Financial & Management Accounting
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By – Dheeraj Kr. Singh
UGC NET (Financial Accounting)
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23. Bills Payable: -
It means a bills of exchange acceptance given by creditor showing that a particular amount will be paid on the particular date. When Bills Payable is made it decreases the value of the creditors.
24. Trade Payables: - Amount due to Creditors and for Bills Payable (B/P) is jointly termed as “Trade Payables” or “Accounts Payable”.
25. Payment in Full settlement: - It means total dues are settled and no balance is remaining. Generally some discount is received at the time of payment in full settlement. For example credit purchase of goods for Rs. 20,000 payment made to creditors in full settlement Rs. 19,000. In this situation no dues is balance and Rs. 1,000 is discount received.
26. Stock / Inventory: – At the end of year balance of purchase (remaining goods) is transferred to stock. These are the physical items of trade. It is those items which are purchased for the purpose of resale or it is those items in which firm deals. In other words stock means goods held by the firm for the purpose of sale in ordinary course of business or for the purpose of using it in the production of goods meant for sale or services to be rendered. Goods / Stock
Purchases
Sales
Merchandise means goods for resale
Purchases Returns
Sales Returns
Stock may be Opening Stock or Closing Stock (i)
Opening Stock: –Stock lying at the godowns at the beginning of the year is called opening stock.
(ii)
Closing Stock: – Stock lying at the godowns at the end of the year is called closing stock.
Inventories for Manufacturer
Raw materials Work in progress Finished Goods
Inventories for Trader
Stock in Trade
Stock in Trade means goods in which firm deals. These are those goods which firm normally purchase and sold without any modifications.
27. Cost: – It is the amount of expenditure incurred on a specified article, product or activity. When an item is purchased the value that is paid for it is called Cost.
28. Revenue: – It is the Gross inflow of Cash or receivables arising from a transaction. When the goods are sold the total amount in which goods are sold is called Revenue.
29. Profits: – It is surplus of revenue of a business over its cost. Profit = Revenue – Cost Profit may be classified in two types: – Gross Profits: – Gross Profit is the difference between Sales Revenue and cost of goods sold. Net Profits: – Net Profit is the Profit made after allowing for all expenses.
30. Gains: – It is the profit that is arising from transactions that are incidental or occasional or rare to business. It is not arise from normal business transactions and in normal course of business. It is arise from sale of investments or Fixed Assets at more than their book Value.
It is arise from sale of Investments or Fixed Assets When these items are sold at more than their Book Value
Financial & Management Accounting
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By – Dheeraj Kr. Singh
UGC NET (Financial Accounting)
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It is not arise in Normal course of Business
Gain = Sale Price of Fixed Assets or Investments – Book Value / Cost of Fixed Assets or Investments
31. Incomes: – It a very wide term. It is the earning during a particular period of time. Income is generally measured in terms of period includes both profit and gain. For example: - Daily income, monthly income or Yearly Income.
Income Received: - (Benefit is provided and payment is received):– These are those incomes, which have been earned and received by the business. For example: - Rent Received Accrued Income / Income Accrued but not due (Benefit is provided but payment is not received): - These are those incomes, which have been earned by the business during the accounting year but has not yet become due and, therefore, has not been received. This is the Assets of the business. For example: - Accrued Rent. Income received in Advance / Unearned Income (Payment is received without providing benefits): - These are those incomes, which have been received by the business during the accounting year before being earned. This is the liability of the business. For example: - Rent received in Advance.
32. Expenses: –
Expenses is the amount spent in order to produce and sell the goods and services which produce Revenue. In other words Expenses are incurred to generate and earn revenue. For example payment of Salaries, Wages, Rent etc. are expenses.
Difference between Expenses and Loss • Expenses are incurred to generate revenue whereas Loss does not incur to generate revenue. For example:Expenses Salary paid to worker Depreciation on Machine Purchase of Machine
Loss Cash embezzled by a worker Selling of Machine below than its book value Theft of Machine
Expenses Paid (Benefit is availed and payment is also made):– amount paid in order to produce and sell the goods and services which produce Revenue. For example: - Salary Paid
Outstanding Expenses (Benefit is availed but payment is not made):– These are those expenses which have become due during the accounting period but which have not yet been paid. This is the liability of the business. For example: - Salary Outstanding / Outstanding Salary
Prepaid Expenses / Unexpired Expenses (Payment is made without availing he benefits): These are those expenses, which have been paid in advance. In this case payment is made before the due date. This is the Assets of the business. For example: - Prepaid Salary Sundry Expenses: - Generally petty (small) expenses are incurred in a business such as refreshment, postage & stamp, conveyance etc. These expenses are normally debited in one account for convenience in Sundry Expenses Account.
33. Loss: – Loss is the excess of expenses of a period over its related revenue. Loss may be arising in normal business transactions or occasional transactions. Loss may be arise from sale of Investments or Fixed Assets
Loss = Cost – Revenue 34. Discount: –
Discount is allowed to customer by businessman. It is the reduction in price of goods. Discounts are Two Types
1. Trade Discount Financial & Management Accounting
2. Cash Discount
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UGC NET (Financial Accounting)
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35. Assets: –
Assets are the resource owned by the business with the purpose of using it for generating future profits. It means the property or legal right owned by the business. An item only becomes assets of the business when businesses have “its ownership rights” and enable the organization to get cash or a benefit in future.
An items becomes an assets when
Businesses have “its ownership rights” Used in its production or service process and Gives the benefits to the organization
According to Finny and Miller, “Assets
are future economic benefits, the rights, which are owned and controlled by an organization or an individual”. Normal Classification of Assets
Fixed Assets
Current Assets
Tangible Assets
Intangible Assets
Wasting Assets
Fictitious Assets
Liquid Assets
(i) Fixed Assets: – Fixed assets are those assets which are “purchased for the purpose of operating the business” and not for resale in ordinary course of business. For example: • • • • • • • • • •
Land, Buildings, Machinery, Furniture, Goodwill, Brand value, Trademarks, Computer Software, Mining Rights, Copyrights etc.
(ii) Current Assets: – Current assets are those assets of a business which are kept for short term / period with a purpose of resale or converted them into cash. For example: • • • • • •
Bank Balance, Unsold Stock, Debtors, Bills Receivable, Prepaid Expenses, Accrued Income etc.
(iii) Tangible Assets: – Tangible assets are those assets which have physical form/ existence or they can be seen and touched. For example: • • • • •
Land, Buildings, Machinery, Furniture, Computer etc.
(iv) Intangible Assets: – Intangible assets are those assets which do not have any physical form/ existence or they cannot be seen and touched. For example: • • • • • •
Goodwill,, Brand value, Trademarks, Computer Software, Mining Rights, Copyrights,
Financial & Management Accounting
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UGC NET (Financial Accounting) • • • • • •
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Licences and Franchise, Patents and other Intellectual Property Rights, Service and Operating Rights, Recipes, Formulae, Models and Designs etc.
(v) Wasting Assets: – Wasting assets are those assets which are natural resources consumed during the process of use. For example: • Mines, • Forest, • Oil Wells etc.
(vi) Fictitious Assets: - Assets which cannot be sold or assets which have Zero market value are called Fictitious Assets. They are losses written off not in the year in which they are incurred but in more than one accounting year. These assets are also known as “Deferred Revenue Expenditure”. These are neither tangible assets nor intangible assets. For example: • • • • •
Advertisement Expense, Shares Issue Expenses, Underwriting Commission, Preliminary Expenses, Loss / Discount on issue on Shares or Debenture etc.
(vii) Liquid Assets: - Those assets which can be converted into cash within a short span of time are known as Liquid Assets. For example: • • • •
Cash in hand, Cash at Bank, Debtors, Bills Receivable etc.
In other words: Liquid Assets = Currents Assets – (Stock + Prepaid Expenses) All animals are classified under Livestock Account
36. Depreciation: - It is the systematic allocation of the depreciable amount of an asset over its useful life. Depreciation is charged due to fall or decrease in value of a Fixed Asset and “the diminution in the utility of fixed Assets”. It is the Loss for the business. There are following reasons of charging depreciation. Due to use With the passage of time By accident By obsolesce
37. Investment: - Amount invested in Shares or Debentures or in any other organization is called investment. When Shares are purchased it means new Investment is purchased and when shares are sold it means Investment are sold
38. Liabilities: –
These are the obligations or debts that the enterprise must pay in money or services at some time in the future. Liabilities are debts, the amount, which the business owes to outsiders except the proprietor. For example: - amount due to creditors, bank overdrafts, bills payable, loans etc.
According to Finny and Miller, “Liabilities are debts, they are amounts owed to creditors.” Non-Current Liabilities or Long Term Liability:These are those liabilities which are payable after a long term (generally more than a year). For example: - Long Term Loans, Debentures etc.
Current Liabilities or Short Term Liability: – These are those liabilities which are payable in near future (generally within a year). For example: - Bank overdrafts, Creditors, Bills Payables etc. Financial & Management Accounting
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By – Dheeraj Kr. Singh
UGC NET (Financial Accounting)
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Contingent Liability: It represents a potential obligation that could be created depending on the outcome of an event. E.g. if supplier of the business files a legal suit, it will not be treated as a liability because no obligation is created immediately. If the verdict of the case is given in favour of the supplier then only the obligation is created. Till that it is treated as a contingent liability. Please note that contingent liability is not recorded in books of account, but disclosed by way of a note to the financial statements.
39. Securities Deposit Received: -
Security is received when a facility is provided to the users. When the user stop to use the facility security money will be refunded. When security is received it is the liability of the receiver.
40. Accounting Year: - The entire life of a business is divided into time intervals consisting of 12 months. Such a time period is known as an accounting year. It may be Calendar Year or Financial Year. It is period for which performance of business is determined in terms of Profit, Capital, Assets and Liability
41. Transaction: It means an event or a business activity which involves exchange of
money or money’s worth between parties. The event can be measured in terms of money and changes the financial position of a person e.g. purchase of goods would involve receiving material and making payment or creating an obligation to pay to the supplier at a future date. Transaction could be a cash transaction or credit transaction. When the parties settle the transaction immediately by making payment in cash or by cheque, it is called a cash transaction. In credit transaction, the payment is settled at a future date as per agreement between the parties.
42. Entry: - Recording of a transaction and events in the books of accounts is called entry. Every transaction is recorded in books of accounts from business point of view.
43. Books of Original Entry: - These are those books in which transactions are recorded in “First Time” from a source document. Transactions are first recorded first in Journal or Subsidiary Books.
44. Account: -
It is a statement in which all like (or one nature transaction) transactions are recorded in one place. It is prepared from Journal or Subsidiary Books.
45. Revenue Receipt: - It is an amount which is received from the regular transaction of a business. It is the amount received from the sale of goods and services. It is the main source of income. It is a regular type of income. It is shown on the credit side of the trading and profit and loss accounts. Revenue receipt is of recurring nature.
46. Capital Receipt:-
is the amount received from the sale of assets, shares and debentures. Capital receipt is of non-recurring nature.
47. Debits and Credits: - The words debit and credit are the words used in the 15th century in Italy by “Luca Pascioli”. The term Debit and Credit are used as follows: Debit indicates that an amount should be entered on the left side of an account Credit indicates that an amount should be entered on the right side of an account In short, debit means left, credit means right. An increase in an asset account is recorded with a debit amount. In other words, the amount should be entered on the left side of the account.
48.Net worth: It represents excess of total assets over total liabilities of the business. Technically, this amount is available to be distributed to owners in the event of closure of the business after payment of all liabilities. That is why it is also termed as Owner’s equity. A profit making business will result in increase in the owner’s equity whereas losses will reduce it.
Financial & Management Accounting
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By – Dheeraj Kr. Singh
UGC NET (Financial Accounting)
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MCQ 1. Money owed from an outside is a : (a) Assets (c) Expenses (b) Liability (d) Capital 2. Money owed to an outside is a : (a) Assets (c) Expenses (b) Liability (d) Capital 3. The obligation of an enterprise towards owner’s fund are known as: (a) Assets (c) Capital (b) Liability (d) None of these 4. Which of the following is not an Asset? (a) Stock of stationery (c) Profit and Loss Account (Credit Balance) (d) Accounts Receivable (b) Goodwill 5. Which of the following is / are fixed asset (s)? (a) Closing inventory (c) Patents (d) Prepaid expenses (b) Deposits in a bank 6. Bank Overdraft is shown as a : (a) Current Liability (c) Unsecured Loan (b) Contingent Liability (d) Provision 7. Which of the following assets is a fictitious asset : (a) Goodwill A/c (c) Outstanding Salary A/c (d) Preliminary expenses A/c (b) Prepaid Rent A/c 8. Computers taken on hire by a business for a period of twelve months should be classified as : (a) Current assets (c) Deferred revenue expenditure (d) Not an asset (b) Intangible assets 9. Current Liabilities mean — (a) Liabilities which are payable within 12 months (b) Liabilities which are payable immediately (c) Liabilities which are payable after one accounting year (d) Liabilities which are repayable within 3 months 10. Goodwill of business is : (a) Capital (c) Profit (d) Intangible Assets (b) Fictitious Assets 11. Fixed Assets are : (a) Immovable assets like land, building etc. (c) Assets which a business firm gets in the beginning of the year (b) Long term assets where benefit in the (d) Assets which a firm has purchased operations of the firm is likely to extend beyond one accounting period 12. Which of the following is not included in the category of Intangible Assets : (a) Copy rights (c) Competitive benefit and privileges (d) Lease Rights (b) Franchises 13. Assets which are expected to be converted in to cash or to be used in the business within one year : (a) Fixed Assets (c) Current Assets (d) Wasting Assets (b) Fictitious Assets 14. Which of the following statements is true in relation to liabilities : (c) It must be capable of being expressed in money (a) Claims against the resources terms (b) Currently existing obligations which (d) All of the above firm intends to meet at some time in the future 15. Animals are grouped under : (a) Mics. Expenses (c) Intangible Assets (d) Wasting Assets (b) Livestock Financial & Management Accounting
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UGC NET (Financial Accounting)
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16. Merchandise means : (a) Goods for resale (c) Worker (d) Creditor (b) Owner 17. A person who owes money to a firm is called a : (a) Creditor (c) Owner (d) Manager (b) Debtor 18. Which of the following is not the internal liability : (a) Creditor (c) Reserve (d) Un-distributed profit (b) Capital 19. Which of the following is not the liquid assets : (a) Debtors (c) Bank Overdraft (d) Goodwill (b) Stock
M.Com (Entrance) Previous Year Questions 1. The obligation of an enterprise other than owner’s fund are known as: M.Com (Entrance 2010) (a) Assets (c) Capital (b) Liability (d) None of these 2. Income Tax paid by sole proprietor is shown : M.Com (Entrance 2010) (a) On the debit side of profit and loss (c) By way of deduction from capital in Balance account Sheet (d) On Liability side of Balance sheet (b) On the debit side of account 3. Brand Value for a business is : M.Com (Entrance 2012) (a) Capital (c) Profit (d) Liabilities (b) Assets 4. Which account causes the main difference between a merchandiser’s adjusting and closing process and that of a service business : M.Com (Entrance 2012) (a) Advertising expenses (c) Inventory (d) Accounts receivable (b) Interest revenue 5. Which of the following elements represents an economic resource? M.Com (Entrance 2015) (a) Assets (c) Liabilities (d) Retained earnings (b) Owner’s equity 6. Money receiving from customers for products to be delivered in the future is recorded as : M.Com (Entrance 2015) (a) Revenue and an assets (c) Revenue and a liability (d) Neither revenue nor liability (b) An assets and a liability 7. The following is a non-current account : M.Com (Entrance 2016) (a) Inventory (c) Debtors (d) Accounts Receivable (b) Plant and Machinery
U.G.C. N.E.T. Previous Year Questions
1. Which of the following is a non-current liability? UGC-NET Paper II (December 2008) (a) Bills Payable (c) Bank Overdraft (d) Long Term Loans (b) Sundry Creditors
Financial & Management Accounting
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By – Dheeraj Kr. Singh
UGC NET (Financial Accounting)
www.innovative.org.in
Chapter 2 Rules of Double Entry Book–Keeping
Transactions: - which affect our financial position. Transactions analyzed in terms of money and supported by proper documents are recorded in the books of accounts under double entry system. To analyze the dual aspect of each transaction, two approaches can be followed: (1) Accounting Equation Approach / Modern Approach / American Approach (2) Traditional Approach / British Approach / Double Entry System
Double Entry system:This system was developed in the 15th century in Italy by “Luca Pascioli”. Double Entry system of BookKeeping has emerged in the process of evaluation of various accounting techniques. It is the most scientific, complete and perfect system of keeping records. Every transaction has two fold aspects - Debit and Credit and both the aspect are recorded in the books of accounts. According to this system, every business transaction involves two accounts, one receiving the benefit and other giving the benefit.
Now a day’s Double Entry System is followed in almost all over the world, in our country still some organization follows Single Entry System.
Features of Double Entry system:(i) It maintains a complete record of each transaction (ii) It recognizes two fold aspect of every transaction (iii) In this system, one aspect is debited and other aspect is credited following the rules of Debit and Credit (iv) Since one aspect of a transaction is debited and the other is credited, total of all debits is always equal to total of all credits. It helps in establishing arithmetical accuracy by preparing a Trial Balance.
Accounting Equation Approach:The relationship of Assets with that of liability and owners’ equity in the equation form is known as “Accounting Equation” Basic Accounting Equation comes into picture when sum total of capital and liabilities equalizes assets Where Assets are what that business owns and Capital and Liabilities are what the business owes An Accounting Equation is a statement which shows that Assets = Liabilities + Capital. It is based on the dual aspect concept. In this concept every business transactions has a two-sided effect either on the assets of the business or on the liabilities of the business. The total Claims will always equal the total Assets of the firm. Financial & Management Accounting
15
By – Dheeraj Kr. Singh
UGC NET (Financial Accounting)
www.innovative.org.in
ASSETS = EQUITIES / Owner’s Equity / Shareholder’s Equity
(TOTAL CLAIMS)
or ASSETS = Internal Equities/Claims + External Equities/Claims or ASSETS = CAPITAL (Owners’ Equity / Equity) + LIABILITIES or Fixed Assets + Current Assets = Capital + (Current Liabilities + Non- Current Liabilities)
or Long Term Assets + Short Term Assets = Capital + (Short Term Liabilities + Long Term Liabilities) The above relationship is known as the “Accounting Equation” or the “Balance sheet” Equation. « Capital = Assets – Liability « Liability = Assets – Capital
Procedure for Developing Accounting Equation STEP 1: – Ascertain the Items which are involve STEP 2: – Find out the effect on the items STEP3:– Grouping the items as ASSETS or LIABILITIES or CAPITAL In Accounting Equation effects are taken on
ASSETS
LIABILITIES
CAPITAL
Important Terms and its effect on Accounting Equation: – 1. Outstanding Expense: - These are those expenses which have become due during the accounting period but which have not yet been paid. This is the liability of the business.
2. Prepaid Expenses: – These are those expenses, which have been paid in advance. In this case payment is made before the due date. This is the Assets of the business.
3. Accrued Income: - These are those incomes, which have been earned by the business during the accounting year but has not yet become due and, therefore, has not been received. This is the Assets of the business
4. Income received in Advance: - These are those incomes, which has been received by the business before being earned. This is the liability of the business
Financial & Management Accounting
16
By – Dheeraj Kr. Singh
UGC NET (Financial Accounting)
www.innovative.org.in
S. No
Item
Effect on Accounting Equation
1
Outstanding Expenses Accrued Income Income Received in Advance Pre- Paid Expenses
Increase in Liabilities (as a separate head such as Outstanding Rent; Outstanding Salary ) and Decrease in Capital Increase in Assets (as a separate head such as Accrued Interest ; Accrued Commission) and Increase in Capital Increase in Assets (as a Cash) and Increase in Liabilities (as a Separate head such as Commission Received in Advance; Fees Received in Advance)
2 3 4
Decrease in Assets (as Cash) and Increase in Assets (as a Separate head such as Prepaid Insurance ; Prepaid Rent Expenses)
Added to the Capital: - These items are added to the capital: Income, Gain, Profit and Introduction of Additional Capital / Fresh Capital. Deducted from the Capital: - These items are deducted from the capital:Losses, Expenses and Drawings
IMPORTANT FORMULA 1. Owner’s Equity = Opening Owner’s Equity + Revenue – Expenses 2. Total Equity = Owner’s Equity + Outside’s Equity / Creditor’s Equity + Revenue – Expenses 3. Total Assets (opening) = Capital + Outside’s Liabilities 4. Total Assets (closing) = Capital + Outside’s Liabilities + Profit / (– Loss) = Capital + Outside’s Liabilities + Revenue – Expenses 5. Closing Capital = Closing Assets – Closing Liabilities 6. Closing Capital = Opening Capital + Additional Capital + Profit / (– Loss) – Drawings S. No
1
Examples
Effects
1. Sale of Fixed Assets / Goods for whether cash or Credit 2. Purchase of Fixed Assets / Goods for Cash 3. Payment received from Accounts Receivable 4. Bills Receivable issued 5. Prepaid Expenses (Expenses paid in advance) 1. Bills Payable Accepted
No Change in Total Liability / Increase in one Liability and Decrease in Other Liability
2
3
4
No Change in Total Assets
1. Sale of Fixed Assets / Goods for cash or Credit 2. Purchase of Fixed Assets / Goods for Cash 3. Payment received from Accounts Receivable 4. Bills Receivable issued 5. Bills Payable Accepted 6. Interest on Capital Provided 7. Interest on Drawings Provided 1. Purchase of Fixed Assets / Goods for Credit 2. Loan taken 3. Income Received in Advance
Financial & Management Accounting
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No Change in Total Capital / Owners Equity
Increase in Assets and Increase in Liabitilies
By – Dheeraj Kr. Singh
UGC NET (Financial Accounting)
www.innovative.org.in
5
1. Payment of Accounts Payable 2. Payment of all type of Liability (such as payment of o/s Expense
6
1. Expenses Paid 2. Loss 3. In case of Depreciation and Provisions 4. Withdraw from Capital / Drawings
7
1. Income Received 2. Accrued Income 3. Introduced Additional Capital / Fresh Capital
Decrease in Assets and Decrease in Liabitilies Decrease in Assets and Decrease in Capital Increase in Assets and Increase in Capital
1. Conversion of Partners Loan to Capital
Decrease in Liability and Increase in Capital
8 1. Outstanding Expenses provided
Increase in Liability and Decrease in Capital
9
MCQ 1. Double accounting system owes its origin to: (a) Luca Pascioli (c) Kohler (b) Adam Smith (d) Karl Marx 2. Double Entry system of Book- Keeping was developed by : (a) Japan (c) India (b) England (d) Italy 3. Double Entry system of Book- Keeping was developed in the (a) 15th century (c) 19th century th (b) 18 century (d) 20th century 4. In Double Entry system of Book- Keeping every business transaction affect: (a) Two accounts (c) Two side of the same account (b) The same account on two different dates (d) All of the above 5. Which of the following is correct? Owner’s Equity is; (a) (Current Assets + Fixed Assets) + (Current liability + Long term liability) (b) (Current Assets + Fixed Assets – (Current liability + Long term liability) (c) (Current Assets – Fixed assets ) – ( Current liability + Long term liability) (d) None of the above. 6. Capital of Business is Rs. 1,20,000 and Liability is Rs. 45,000 , Total Assets of Business would be (a) Rs. 75,000 (c) Rs. 1,20,000 (b) Rs. 1,65,000 (d) Rs. 45,000 7. If owner’s Capital is Rs. 50,000 Liability is Rs. 30,000 and Fixed Assets is Rs. 70,000, then what is the value of Current Assets? (a) Rs. 80,000 (c) Rs. 1,50,000 (b) Rs. 50,000 (d) Rs. 10,000 8. Innovative Ltd. Purchase Land & Building for Rs. 10,00,000 gave a cheque of Rs. 2,00,000 and accepts a bill of Rs. 8,00,000 due after 90 days. As a result. (a) Total Assets increased by Rs. 10,00,000 & Total Liability decreased by Rs. 10,00,000 (b) Total Assets increased by Rs. 8,00,000 & Total Liability decreased by Rs. 8,00,000 (c) Total Assets increased by Rs. 8,00,000 & Total Liability increased by Rs. 8,00,000 (d) Total Assets increased by Rs. 10,00,000 & Total Liability increased by Rs. 10,00,000 9. Equity Rs. 90,000, Liability Rs. 60,000 and Profit of the years - Rs. 20,000. Find out Total Assets of the business (a) Rs. 1,70,000 (c) Rs. 1,10,000 (b) Rs. 1,50,000 (d) Rs. 80,000 10. If Capital of business is Rs. 2,00,000 ; liabilities are 50,000, Loss Rs. 20,000, Find out Total Assets (a) Rs. 1,80,000 (c) Rs. 2,30,000 (b) Rs. 2,50,000 (d) Rs. 80,000 Financial & Management Accounting
18
By – Dheeraj Kr. Singh
UGC NET (Financial Accounting)
www.innovative.org.in
11. Land and Building was purchased for Rs. 6,60,000. Cash was paid Rs. 1,20,000 and for the balance a bill was accepted for 60 days. What will be the effect on Net Assets (a) Rs. 1,20,000 (c) Rs. 6,60,000 (b) Rs. 5,40,000 (d) Nil 12. Land and Building was purchased for Rs. 6,60,000. Cash was paid Rs. 1,20,000 and for the balance a bill was accepted for 60 days. What will be the effect on Fixed Assets (a) Rs. 1,20,000 (c) Rs. 6,60,000 (b) Rs. 5,40,000 (d) Nil 13. Innovative Ltd. purchase a car for Rs. 10,000 paid Rs. 3,000 as cash and balance amount will be payable in three equal installments. Due to this. (a) Total assets increase by Rs. 10,000 (c) Assets will increase by Rs. 7,000 with (b) Total liability increase by Rs. 3,0000 corresponding increase in liability by Rs. 7,000 (d) Both (a) and (b) 14.Calculate the Total Assets if, Capital is Rs. 90,000; Creditors are Rs.10,000; Revenue during the period is Rs. 60,000 ; Expenses during the period are Rs. 40,000 (a) Rs. 1,20,000 (c) Rs. 2,70,000 (b) Rs. 2,50,000 (d) Rs. 80,000 15. Long term assets being Rs.3,00,000, current Assets Rs.80,000, outside liabilities Rs.1,20,000. Find owners equity(a) Rs.3,50,000 (c) Rs. 2,00,000 (b) Rs. 2,60,000 (d) None 16. Rent of proprietor’s house paid from business account by cash will : (a) Decrease the profit (c) Reduce the capital of business (b) Increase the profit (d) Reduce the Cash as well as Capital of business 17. Cash Purchases (a) Increases Assets (c) Result in no change in the Total Assets (b) Decreases Assets (d) None of these 18. Payment received from debtors / What is the effect of the Net Assets if cash is received from debtors of Rs. 50,000? (a) Increases the Total Assets (c) Results in no change in the Total Assets (b) Decreases the Total Assets (d) None of these 19. Which of the following transactions would cause a change in “Owners’ equity (a) Repayment of Bank Loan (c) Sale of Land on Credit (b) Payments of Dividends and (d) Purchase of Assets and incurrence of Unprofitable Operations Liabilities 20. If outside liabilities and owners’ equity are added we get……… (a) Total Liabilities (c) Shareholders Fund (b) Net worth (d) Gross Block 21. How does depreciation effect basic accounting equation (a) Leads to decreases in assets and shareholders’ equity (b) Leads to decrease in asset only (c) Leads to increase in liability and decrease in assets (d) Leads to decrease in share holders’ equity 22. In which of the following case there is No Change in Total Liability (a) Payment of Creditors (c) Payment of Outstanding Liability (b) New Bills Payable accepted (d) None of these 23. Withdrawals by proprietor would (a) Reduce both Assets and Owner’s Equity (c) Reduce Owner’s Equity and increase Liabilities (d) Have no effect on the Balance Sheet (b) Reduce Assets and increase Liabilities 24. Which of the following is true? (a) The payment of a Liability causes an increase in Owner’s Equity (b) The collection of an Account Receivable will cause Total Assets to increase (c) The accounting equation may be stated as: Assets + Liabilities = Owners‘ equity (d) The purchase of an asset such as office equipment, either for cash or on credit, does not change the Owners‘ Equity 25. Purchase of goods on credit (a) Increases Liabilities (c) Increases both Assets and Liabilities (d) Decreases Assets (b) Increases Assets Financial & Management Accounting
19
By – Dheeraj Kr. Singh
UGC NET (Financial Accounting)
www.innovative.org.in
26. Purchase of Raw Material for Cash (a) Increases total Assets (c) Increases total Fixed Assets (d) Increases total Current Assets (b) Leaves total Assets unchanged 27. If Office Equipment is purchased for cash, what effects will this transaction have on the financial position of the company? (a) There is no change in the Assets, Liabilities and Owners‘ Equity (b) There is a decrease in Assets, increase in Liabilities and no change in Owners‘ Equity (c) There is a decrease in Assets, no change in Liabilities and a decrease in Owners‘ Equity (d) There is an increase in Assets, decrease in Liabilities and no change in Owners‘ Equity 28. The amount of Owners‘ equity in a business is not affected by (a) The percentage of Total Assets held in cash (b) Investments made in the business by the owner (c) The profitability of the business (d) The amount of dividends paid to Stock holders 29. An Investment in one asset A/c may lead to – (a) Increase in liability A/c (c) Each (a) or (b) (b) Decrease in A/c asset (d) None of these 30. An increase in one liability may lead to (a) Increase in another asset (c) Both (a) and (b) (d) Either (a) or (b) (b) Decrease in liability 31. Decrease in the amount of Creditors results in (a) Increase in Cash (c) Decrease in Cash (d) No Change in assets (b) Decrease in Assets 32. If individual assets is increased, there will be a corresponding (a) Increase of another assets or increase of capital (b) Decrease of another assets or increase of liability (c) Decrease of specific liability or decrease of capital (d) Increase of drawings and liability 33. An increase in one liability may lead to (a) Increase in another asset (c) Both (a) and (b) (d) Either (a) or (b) (b) Decrease in liability 34. Which Financial statement represents the accounting equations (a) Income Statement (c) Balance Sheet (d) None of the above (b) Statement of Cash Flows 35. In Accounting Equation effects are taken on: (i) Assets (ii) Liability (iii) Capital (iv) Revenue (v) Expenses (a) (i) only (c) (i) & (ii) & (iii) & (iv) & (v) (b) (i) & (ii) & (iii) (d) (iv) & (v) 36. Which of the following is true when a debtor pays his dues? (a) The asset side of the Balance Sheet will decrease (b) The asset side of the Balance Sheet will increase (c) The liability side of the Balance Sheet will increase (d) There is no change in total assets or total liabilities 37. When Fixed Assets are sold (a) The Total Assets will increase (c) Total Assets will decrease (b) Total Liability will increase (d) There is no Change in Total Assets
Financial & Management Accounting
20
By – Dheeraj Kr. Singh
UGC NET (Financial Accounting)
www.innovative.org.in
M.Com (Entrance) Previous Year Questions 1. Which of the following does not follow dual aspect? M.Com (Entrance 2010) (a) Increase in one asset, decrease in other (c) Decrease in one assets, decrease in other (b) Increase in both assets and liability (d) Increase in one asset and capital 2. The payment of an account payable (or any other liability) will : M.Com (Entrance 2012) (a) Increase one assets and decrease (c) Decrease an assets and decrease a liability another assets (d) Increase an assets and increase a liabilities (b) Decrease an assets and decrease owner’s equity 3. The payment of liability will M.Com (Entrance 2013) (a) Increase both assets and liabilities (c) Decrease assets and increase liabilities (b) Increase assets and decrease liabilities (d) Decrease assets and decrease liabilities 4. Sale of goods has : M.Com (Entrance 2013) (a) Only revenue effect (c) Both (a) & (b) (b) Only expense effect (d) None of the above
U.G.C. N.E.T. Previous Year Questions 1. Which of the following accounting equations is not correct? UGC Net Paper II (December) 2011 (a) Assets – Liabilities = Equity (c) Assets + Liability = Equity (b) Assets – Equity = Liability (d) Liability + Equity = Assets 2. Owner equity stands for (a) Fixed Assets minus Fixed Liabilities (c) Current Assets minus Fixed Liabilities
(b) Fixed Assets (d) Total Assets minus total outside UGC Net Paper III (December) 2012
3. Dual Aspect Concept results in the following accounting equation UGC Net Paper II (December 2015) (a) Revenue = Expenses (c) Capital + Liabilities = Assets (b) Capital + Profit = Assets + Expenses (d) Capital + Drawings = Owner’s Equity
Financial & Management Accounting
21
By – Dheeraj Kr. Singh
