Final Exam- Fundamantals Of Accounting

The correct answer is "Credit" because capital represents the owner's investment in the business. It is considered a liability or credit to the business because the owner has provided funds to the business.

Capital represents the amount invested by the owner into the business. It is the owner's contribution to the company, either in the form of cash or assets, to start or expand the business. Capital is a crucial component of the business as it provides the initial funds necessary for operations, purchasing assets, and covering expenses. It is distinct from revenue, which is the income generated from the business's operations, and assets, which are the resources owned by the business.

A barter transaction is one where items are exchanged for other items without the use of cash or credit. In a barter system, individuals or businesses trade goods or services directly with each other, without the need for a medium of exchange like money. This type of transaction was commonly used in ancient times and is still practiced in some societies or in situations where currency is scarce.

The correct answer is d. All these. This means that source documents include vouchers, receipts, and bills. In accounting, source documents are the original records that provide evidence of a transaction. Vouchers are used to authorize and document expenses, receipts are used to record the receipt of cash or other assets, and bills are used to document amounts owed for goods or services. Therefore, all of these documents are considered source documents in accounting.

Payment of monthly rent to the land is considered an economic event because it involves a financial transaction where money is exchanged for the use of land. This transaction has an impact on the economy as it contributes to the income of the landowner and affects the financial position of the tenant. It is a part of the economic activities that occur within a market system, involving the production, distribution, and consumption of goods and services.

In every business transaction, there are at least two parties involved. This means that there must be a minimum of two individuals or entities participating in the transaction. This could include a buyer and a seller, a borrower and a lender, or any other combination of parties involved in a business transaction.

Capital expenditures are recorded in the balance sheet because they represent long-term investments made by a company to acquire or improve its fixed assets. These expenditures are not immediately expensed but are instead capitalized and recorded as assets on the balance sheet. By recording capital expenditures on the balance sheet, the company can track its investments in fixed assets over time and assess their impact on the overall financial position of the company.

A bank account is considered as a personal accounting because it is a financial account that is held by an individual or a business entity. It is used for the purpose of depositing and withdrawing money, as well as keeping track of transactions and managing personal finances. Personal accounting involves recording and organizing financial activities related to an individual's personal assets, liabilities, income, and expenses, which aligns with the function and purpose of a bank account.

A debit in the asset means there has been an increase in the value of the asset. Debit is a term used in accounting to record an increase in assets, such as cash, inventory, or equipment. When an asset is debited, it indicates that there has been a positive change in the asset's value, typically due to an acquisition or an inflow of resources. This increase in the asset's value is reflected in the financial statements and helps provide a more accurate representation of the company's financial position.

The word "purchase" is used to describe the act of buying goods or acquiring them in exchange for money. In this context, "purchase" is the most appropriate term to denote goods that are brought for sale, as it implies that the goods have been acquired for the purpose of reselling them. The other options, "sales" and "expenses," do not accurately convey the concept of goods being acquired for sale.

Sales return appearing in the trial balance are deducted from Sales because sales return represents the goods that were previously sold but have been returned by the customers due to various reasons such as defects, dissatisfaction, or incorrect delivery. These returns need to be subtracted from the total sales amount to accurately reflect the net sales figure, which represents the actual revenue earned by the company after deducting the returns. By deducting sales returns from sales, the trial balance ensures that the revenue and expense accounts are properly balanced and the financial statements present a true and accurate representation of the company's financial performance.

A collection of all accounts is referred to as a ledger. A ledger is a book or a computerized record that contains a complete record of all financial transactions of a business. It serves as a central repository for organizing and summarizing the financial information of an organization. The ledger includes individual accounts for assets, liabilities, equity, revenue, and expenses, which are updated with every transaction. By maintaining a ledger, businesses can easily track and analyze their financial activities, prepare financial statements, and ensure accurate and reliable financial reporting.

Land and buildings are examples of fixed assets because they are long-term assets that are not easily converted into cash. Fixed assets are typically used in the production or supply of goods and services, rather than being held for sale. Land and buildings have a physical existence and provide long-term benefits to the company, such as office space or manufacturing facilities. They are not expected to be consumed or sold within the normal operating cycle of the business. Therefore, land and buildings meet the criteria of being fixed assets.

Goodwill is not a tangible asset because it is an intangible asset that represents the reputation, customer base, brand value, and other non-physical assets of a company. It cannot be seen or touched like land or closing stock. Goodwill is typically acquired through business acquisitions or mergers and is recorded on the balance sheet as an intangible asset.

Financial statements are an integral part of accounting. They provide a summary of a company's financial transactions and performance over a specific period of time. These statements include the income statement, balance sheet, cash flow statement, and statement of changes in equity. They are essential for evaluating the financial health of a business, making informed decisions, and meeting regulatory requirements. Therefore, the correct answer is b. Accounting.

A journal is a book where original entries are recorded. It is a personal record or diary where individuals document their thoughts, experiences, and observations. The word "original" implies that the entries in a journal are unique and not copied or derived from any other source. Therefore, option a. "Original" is the correct answer as it accurately describes the nature of a journal.

The closing stock is valued at cost price or market price, whichever is less. This means that the value of the closing stock will be determined by comparing its cost price to its market price, and the lower of the two will be used as the valuation. This approach ensures that the closing stock is not overvalued, as it takes into account any decrease in market value that may have occurred.

When salary is paid by cheque, the account that is credited is the bank account. This means that the money is being transferred from the company's account to the employee's bank account. The bank account is credited because it is receiving the funds.

Accounting is concerned with monetary aspects, which include financial transactions, assets, liabilities, income, and expenses that can be measured in terms of money. Non-monetary aspects refer to items that cannot be measured in monetary terms, such as goodwill, reputation, or employee satisfaction. However, accounting primarily focuses on the monetary aspects as they are quantifiable and can be recorded and analyzed to provide financial information for decision-making purposes.

Capital expenditures are recorded in the balance sheet because they represent long-term investments in assets that will provide benefits to the company over multiple accounting periods. The balance sheet provides a snapshot of a company's financial position at a specific point in time, and it includes the value of the company's assets, liabilities, and shareholders' equity. Capital expenditures increase the value of the company's assets, and therefore, they are recorded on the balance sheet as an increase in the asset value. This allows stakeholders to see the company's investment in long-term assets and assess its financial health and ability to generate future returns.

Financial accounting is the original form of accounting because it focuses on the recording, summarizing, and reporting of financial transactions and information for external stakeholders such as investors, creditors, and regulatory bodies. It involves the preparation of financial statements, such as the balance sheet, income statement, and cash flow statement, which provide a comprehensive view of a company's financial performance and position. Financial accounting is essential for making investment decisions, assessing the financial health of a company, and ensuring transparency and accountability in financial reporting.

When there is an overdraft (O.D.) in the cash book, it means that the cash balance has gone into negative. In accounting, a negative cash balance is represented as a credit balance. Therefore, the correct answer is b. Credit.

Accrued income refers to the income that has been earned but not yet received. This means that the revenue has been recognized in the accounting records, even though the payment has not been received. It is recorded as a current asset on the balance sheet and will be received in the future. This type of income is typically seen in situations where the payment is due at a later date, such as interest on investments or rent receivable.

Credit in the liability means an increase. In accounting, a credit entry is made when there is an increase in a liability account. Liabilities represent the amounts owed by a company to its creditors or other entities. When there is an increase in a liability, it is recorded as a credit entry in the accounting records. Therefore, the correct answer is "increase".

Wages paid for the erection of machinery is debited to Machinery accounting because it is directly related to the cost of acquiring and installing the machinery. By debiting the wages to the Machinery accounting, it accurately reflects the total cost of the machinery, including the labor expenses incurred during its erection. This helps in properly tracking and recording the expenses associated with the machinery, ensuring accurate financial reporting.

Recording of transaction in the ledger is called posting. This is the process of transferring the information from the journal to the appropriate accounts in the ledger. It involves entering the relevant details of the transaction, such as date, description, and amount, into the respective account in the ledger. Posting ensures that all transactions are properly recorded and organized in the ledger, allowing for accurate financial reporting and analysis.

When old furniture is sold, the amount received from the sale should be credited to the Furniture account. This is because the Furniture account is used to track the cost and value of furniture owned by a company. By crediting the Furniture account, we are reducing its value to reflect the fact that some furniture has been sold and is no longer owned by the company. This helps to accurately represent the financial position of the company and the value of its remaining furniture assets.

Journalizing refers to the process of recording transactions in the journal. The journal is a chronological record of all financial transactions that occur in a business. It is the first step in the accounting cycle and involves recording the date, description, and amount of each transaction in the journal. Journalizing helps to maintain a systematic and organized record of all business transactions, which is essential for accurate financial reporting and analysis.

Current assets are assets that can be converted into cash within a year. These assets include cash, cash equivalents, accounts receivable, inventory, and prepaid expenses. They are important for determining a company's liquidity and short-term financial health. Fixed assets, on the other hand, are long-term assets that are not easily converted into cash, such as buildings, machinery, and vehicles. Wasting assets refer to assets that have a limited useful life and depreciate over time, such as natural resources or patents. Therefore, the correct answer is a. Current.

A short description of every transaction made in the journal is called narration. Narration provides details about the nature and purpose of the transaction, including the parties involved, the date, and any additional relevant information. It helps in understanding and analyzing the entries in the journal, making it easier to track and review financial transactions.

A balance sheet is prepared at the end of the accounting period to show the financial position of a business. It provides a snapshot of the company's assets, liabilities, and shareholders' equity at a specific point in time. It helps stakeholders understand the company's financial health and its ability to meet its financial obligations. The balance sheet includes information such as cash, accounts receivable, inventory, property, and equipment on the asset side, as well as liabilities like accounts payable, loans, and accrued expenses. The shareholders' equity section shows the owners' investment in the business.

A creditor is a person or entity to whom a business owes money. They have provided goods or services to the business on credit, and the business is obligated to repay the debt. The term "creditor" is commonly used in the context of financial transactions and refers to someone who has extended credit or loaned money to another party. In this case, the correct answer is "creditor" because it accurately describes the person or entity that a business owes money to.

Sale is the major source of revenue for any business as it represents the income generated from selling products or services to customers. This revenue is crucial for covering expenses, making profits, and sustaining the business operations. Purchase, interest, and commission are also important components of a business, but they do not directly contribute to the primary source of revenue like sales do.

Mines, land, and closing stock are all examples of wasting assets. A wasting asset is an asset that has a limited lifespan and decreases in value over time. Mines are finite resources that will eventually be depleted, land can lose value due to factors such as erosion or development, and closing stock refers to inventory that will eventually be sold or used up. Therefore, all three options listed (mines, land, and closing stock) are examples of wasting assets.

When a person withdraws more money from their bank account than the amount they have deposited, it creates a negative balance in their account. This negative balance is known as an overdraft. It is essentially borrowing money from the bank, allowing the account holder to spend more than what they have in their account. The bank charges interest on the overdraft amount until it is repaid. Overdrafts are typically used for short-term borrowing and can be a convenient way to cover unexpected expenses or temporary cash flow issues.

Working capital refers to the excess of current assets over current liabilities. It represents the amount of funds available to a business for its day-to-day operations. A positive working capital indicates that a company has enough assets to cover its short-term obligations, while a negative working capital suggests that the company may have difficulty meeting its short-term financial obligations. Therefore, the correct answer is "Working."

The book that records small payments is called a petty cash book. Petty cash is a small amount of money kept on hand for minor expenses, and the petty cash book is used to track and record these transactions. It typically has a simple format with columns for date, description of the expense, amount, and a column for the running balance. This book helps in maintaining an organized record of small payments and facilitates the reconciliation of petty cash at the end of a specific period.

A person who owes money to the business is referred to as a creditor. This means that they have borrowed money from the business and are obligated to repay it.

When goods are destroyed by fire, it results in a loss for the business. In accounting, losses are typically recorded by crediting the respective account. Therefore, in this case, the total value of loss due to the destruction of goods by fire would be credited to the trading account.

A ledger is a book of secondary entry because it is used to record the summarized and classified information from the original source documents, such as the journal entries. The ledger provides a centralized record of all the transactions and their respective accounts, allowing for easy reference and analysis.

A fixed asset is an asset that is acquired for a long period of time in a business. It is a tangible or intangible asset that is expected to be used in the business for more than one accounting period. Examples of fixed assets include buildings, land, machinery, vehicles, and patents. These assets are not intended for immediate sale or conversion into cash and are used for the production or provision of goods and services.

Trade discount is not shown in the journal entry. Trade discount is a reduction in the selling price of goods or services offered by the seller to the buyer. It is not recorded in the accounting books or journals. Only the net amount after deducting the trade discount is recorded in the journal entry. Therefore, the statement is false.

Bills receivable is classified as a current asset because it represents the amount of money that a company expects to receive from its customers within a short period of time, typically within one year. Current assets are assets that are expected to be converted into cash or used up within one year or one operating cycle, whichever is longer. Since bills receivable are typically short-term financial instruments that are expected to be converted into cash within a year, they are considered as a current asset on a company's balance sheet.

The balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time. It presents the company's assets, liabilities, and shareholders' equity. It is called a statement because it presents information in a structured and organized format, following specific accounting principles and guidelines. The balance sheet is an important tool for investors, creditors, and other stakeholders to assess a company's financial health and make informed decisions.

A creditor is a person or entity to whom the business owes money. They have provided goods or services to the business on credit and are awaiting payment. In contrast, a debtor is someone who owes money to the business. An investor, on the other hand, is someone who provides funds or resources to the business in exchange for ownership or a share of profits, but they may not necessarily be owed money by the business.

Revenue expenditure is increased to maintain the business or to keep the assets in good working condition. This includes expenses such as repairs, maintenance, and operating costs that are necessary for the day-to-day operations of the business. Capital expenditure, on the other hand, refers to investments in long-term assets or projects that are expected to generate benefits over a longer period of time. Therefore, revenue expenditure is the correct answer as it specifically relates to expenses incurred to maintain the business or assets in good working condition.

A trading account is a nominal account. Nominal accounts are used to record income, expenses, gains, and losses. A trading account specifically tracks the buying and selling of goods or services, and the resulting gains or losses from those transactions. It is considered a nominal account because it relates to revenue and expenses, which are temporary in nature and are closed at the end of an accounting period.

Income tax is debited to the Drawings account because it is considered a personal expense of the business owner. Drawings account is used to record any withdrawals made by the owner for personal use. Since income tax is a liability that the owner needs to pay from their personal funds, it is debited to the Drawings account to reflect the decrease in the owner's equity in the business. This helps in maintaining accurate records of the owner's personal expenses and the financial position of the business.

If both the aspects of the same transaction appear in one account, it is called a compound entry. This means that both the debit and credit entries for a transaction are recorded in the same account, rather than being split between two different accounts. This is typically done when there are multiple components or elements to a single transaction that need to be recorded together.

A balance sheet is prepared to provide a snapshot of a company's financial position on a specific date. It shows the company's assets, liabilities, and shareholders' equity at that particular moment. By focusing on a specific date, the balance sheet allows stakeholders to assess the company's financial health and evaluate its ability to meet its short-term and long-term obligations. It provides valuable information for decision-making and financial analysis.