Class 11 Accountancy (Financial Accounting) Chapter 4 Recording of Transactions – II

Key Concept: Debit Note Details

d) Payment terms

[Solution Description] A debit note issued for returned goods typically includes details such as the name of the party involved, details of the goods being returned, and the reason for their return. Payment terms are generally not included as they pertain to sales or purchase agreements rather than returns documentation.

Key Concept: Dishonour of a Cheque

b) Debit Discount Allowed, Credit Bank

[Solution Description] When a cheque is dishonoured, any discount that was previously allowed must be reversed. In this case, we need to debit the account where the discount was initially recorded (Discount Allowed) and credit the Bank account to reflect the cancellation of the cheque.

Key Concept: Supplier Identification

a) Green Supplies Co.

[Solution Description] The question requires identifying the name of the supplier associated with a specific transaction. According to the transaction records provided in this context, the purchase recorded on July 15, 2023, was made with “Green Supplies Co.”

Key Concept: Transaction Identification

b) Purchases

[Solution Description]

A purchase transaction generally results in the customer’s account being debited as this indicates an expense or outgoing payment for goods/services acquired.

Key Concept: Transaction Recording

d) Credit side of bank column

[Solution Description] Dishonoured cheques, which are returned unpaid by the bank, are recorded on the credit side in the bank column since they effectively reduce the balance available in the bank account.

Key Concept: Balancing Petty Cash Book

c) Actual cash on hand with the petty cashier

[Solution Description] The balance in the petty cash book represents the actual cash available with the petty cashier after accounting for all payments made and any amounts reimbursed under the imprest system.

Key Concept: Contra Entry Basics

b) A transaction that affects both cash and bank accounts

[Solution Description] A contra entry involves both the cash and bank accounts in a transaction. It can be an internal transfer, such as depositing cash into the bank or withdrawing cash from the bank for office use. Contra entries are marked with a ‘C’ in the cash book to indicate they affect both accounts but do not reflect in the ledger.

Key Concept: Basic Concept

d) To record returns of goods to suppliers

[Solution Description]

The Purchases Return Account is used to record goods that have been returned to suppliers after being purchased. This account helps in tracking returns and adjusting overall purchase figures.

Key Concept: Simple Definition

c) A book for recording transactions not fitting in special journals

[Solution Description] A Journal Proper is used for recording transactions that do not fit into any specific special journal such as cash book, purchases or sales journals. These include opening entries, adjustment entries, rectification entries, transfer entries, etc.

Key Concept: Basic Concept

d) To record opening balances of assets, liabilities, and capital

[Solution Description] The primary purpose of opening entries is to record the opening balances of assets, liabilities, and capital at the beginning of a new accounting period. This helps in accurately reflecting the financial position from the outset.

Key Concept: Format Identification

b) Customer’s Name

[Solution Description] The Purchases Return (Journal) Book format includes Date, Debit Note No., Name of Supplier, L.F. (Ledger Folio), and Amount. “Customer’s Name” is not a component of this book’s format.

Key Concept: Date Identification

d) Apr. 20

[Solution Description] To determine the date of the return transaction with Vikas Ltd., we must look at the journal entries and identify which entry corresponds to this specific return. Once located, note down the associated date.

Key Concept: Basic Definition

c) Defects

[Solution Description] The reasons for product returns typically include defects, incorrect items, and dissatisfaction. Among the given options, a defect is a common reason for returning a product.

Key Concept: Source Document

b) Credit Note

[Solution Description] The sales return book records entries using credit notes as the source document. A credit note is issued when goods sold are returned by the customer, indicating the amount credited back to them.

Key Concept: Contra Entries

b) An entry that affects both cash and bank columns

[Solution Description] Contra entries reflect transactions involving both the cash and bank columns of the cash book. An example is when cash is deposited into the bank or withdrawn from the bank for office use; this affects both accounts without impacting the overall financial standing.

Key Concept: Complex Scenario Analysis, Real-world Application

b) Inventory and expense accounts may be overstated, affecting COGS and reducing net income.

[Solution Description] Failure to record accurate purchases returns can lead to an overstatement of both inventory and expenses in financial statements. This impacts the cost of goods sold (COGS), leading to understated net income. Inaccuracies might result from improper handling of debit notes or errors in recording periodical totals. Over time, such discrepancies could mislead stakeholders regarding the company’s profitability and liquidity.

Key Concept: Basic Definition

b) Recording transactions that do not fit in special journals

[Solution Description] The Journal Proper is used to record transactions that do not fit into special journals. Special journals are designed to record specific types of transactions like cash receipts, cash payments, sales, and purchases. Transactions that don’t neatly fall into these categories are recorded in the Journal Proper.

Key Concept: Simple Posting Understanding

a) Debit

[Solution Description] When cash is received from a customer, the customer’s account is debited because it reduces the amount owed by that customer (a liability reduction).

Key Concept: Basic Concept

c) To record return of goods by customers on credit

[Solution Description] The primary purpose of a Sales Return (Journal) Book is to record returns made by customers when they send back goods initially purchased on credit. This helps maintain accurate accounting records by acknowledging these returns and adjusting the customer’s account accordingly.

Key Concept: Purpose Identification

c) To track small cash expenses

[Solution Description]

The Petty Cash Book serves to record small, routine expenditures such as office supplies or minor expenses, which do not warrant separate entries in the main cash book due to their relatively low value.

Key Concept: Basic Definition

b) Credit purchases of goods

[Solution Description] The Purchases (Journal) Book is used to record all credit purchases of goods. This is because only credit transactions related to goods are included here, and cash purchases are not recorded in this book.

Key Concept: Basic Concept

c) To record returns of goods by customers on credit

[Solution Description] A sales return journal book records returns of goods by customers on credit.

Key Concept: Definition Recall

c) To record specific types of repetitive transactions.

[Solution Description] Special Purpose Books, like Cash Book, Purchases Book, etc., are designed to efficiently record specific types of transactions, enabling clear categorization and easy tracking of financial activities.

Key Concept: Balancing Process

b) \$1,500

[Solution Description]

To find the ‘balance c/d’, we subtract the total of the credit side from the total of the debit side because the debit exceeds the credit: $\text{‘Balance c/d’} = \$10,000 – \$8,500 = \$1,500$

This indicates the amount needed to equalize both sides of the account.

Key Concept: Basic Concept

c) Carried forward balance

[Solution Description] The term ‘balance c/d,’ or “carried down,” signifies the balance of an account that is carried to the next period on the opposite side. This indicates where the balance will be brought down in the following period.

Key Concept: Dishonoured Cheque

c) In the bank column on the credit side

[Solution Description] A dishonoured cheque is recorded in the bank column on the credit side of the cash book because it represents an amount that was previously considered deposited but is now not available.

Key Concept: Basic Definition

c) To record transactions not covered in special journals

[Solution Description] The primary function of Journal Proper is to record transactions that do not fit into any special journals. This includes transactions such as opening entries, adjustment entries, rectification entries, and other miscellaneous transactions.

Key Concept: Source Document

d) Invoice

[Solution Description] The source documents for recording entries in the Purchases Book are invoices or bills received. These documents provide details such as the date, supplier’s name, and the amount involved in the transaction.

Key Concept: Petty Cash Reimbursement

c) \$2,450

[Solution Description] Under the imprest system, the reimbursement amount is equal to the amount spent by the petty cashier. Here, the petty cashier initially received \$3,000 and has spent \$2,450. Hence, at the end of the month, the cashier must be reimbursed for the amount spent. Therefore, the reimbursement amount is \$2,450.

Key Concept: Bearer vs Order Cheque

b) By endorsement and delivery

[Solution Description]

An order cheque is different from a bearer cheque in that it requires endorsement, which involves signing the back of the cheque by the original payee to transfer it to someone else. This process is needed for legal transfer and recognition by banks.

Key Concept: Cash Book Entries

b) Credit side

[Solution Description] In a Cash Book, all cash payments are recorded on the credit side. This is because when cash is paid out, it decreases the cash balance, which is reflected on the credit side.

Key Concept: Basic Concept

c) All cash receipts and payments

[Solution Description]

The cash book records all cash receipts and payments. It acts as both a journal and a ledger for cash transactions, ensuring that all cash purchases are documented.

Key Concept: Journal Identification

c) Purchases Journal

[Solution Description] Credit purchases of goods are recorded in the purchases journal as per the syllabus.

Key Concept: Basic Definition

c) Credit sales

[Solution Description] The sales journal is specifically used to record credit sales of goods. It does not include cash sales or other transactions.

Key Concept: Advanced Real-world Application, Petty Cash Book

c) \$300

[Solution Description]

The imprest system aims to restore the petty cash fund to its original level. Initially, the fund has \$500. Total expenses are calculated as follows:

Office supplies cost \$150.

Courier services cost \$100.

Refreshments cost \$50.

Total expenditure is: $150 + 100 + 50 = 300$

To restore the fund to the imprest level, reimburse the spent amount:

Reimbursement needed is \$300.

Key Concept: Document Identification

c) Debit note

[Solution Description] When goods are returned to a supplier, a debit note is used as the source document for the purchases return journal.

Key Concept: Single Column Format

c) Both cash receipts and cash payments

[Solution Description] The single column cash book has one amount column on each side, recording only cash transactions. This includes both cash receipts and cash payments, but it doesn’t include transactions not involving cash.

Key Concept: Column Identification

d) Employee ID

[Solution Description] Common columns in a petty cash book include the date, voucher number, and description of expenses. An ‘Employee ID’ column is typically not included as it’s irrelevant to petty cash transactions.

Key Concept: Basic Concept

c) To record all cash transactions

[Solution Description] A single column cash book is primarily used to record all cash transactions in chronological order, serving as both a journal and ledger for these transactions.

Key Concept: Basic Format

b) Ledger Folio (L.F.)

[Solution Description] The basic components of the sales journal format include Date, Invoice Number, Name of the Customer, Ledger Folio (L.F.), and Amount.

Key Concept: Basic Format

b) Credit purchases of goods

[Solution Description] The purchases journal is used to record all credit purchases of goods only.

Key Concept: Format Identification

a) One

[Solution Description] A single column cash book has only one amount column on each side, representing cash inflow and outflow.

Key Concept: Basic Definition

d) To record cash receipts and payments

[Solution Description] A cash book is primarily used to record all transactions involving cash receipts and payments. It acts as both a journal and a ledger for cash transactions.

Key Concept: Basic Format

c) Ledger Folio (L.F.)

[Solution Description] The sales return book has specific columns for recording information. According to the syllabus, these columns include Date, Credit Note Number, Name of the Customer, Ledger Folio (L.F.), and Amount.

Key Concept: Basic Concept

d) To update ledger accounts on an accrual basis

[Solution Description] The primary purpose of adjustment entries is to update ledger accounts on an accrual basis, ensuring that revenues and expenses are recorded in the period they occur.

Key Concept: Invoice Identification

c) 1023

[Solution Description] Analyzing the purchase transaction data, the specific transaction with XYZ Supplies lists an invoice number of 1023.

Key Concept: Handling Cheques

d) On the credit side

[Solution Description] When a cheque is dishonoured, it means that the bank refuses to honour it due to insufficient funds or other reasons. In a cash book, dishonoured cheques are typically recorded on the credit side to reflect the decrease in expected cash inflow.

Key Concept: Basic Definition

c) Linking journal entries to ledger accounts

[Solution Description] A Ledger Folio (L.F.) is used as a reference or page number to link journal entries to their corresponding ledger accounts, facilitating the tracking and cross-referencing of transactions.

Key Concept: Discount Application

b) Rs.7,200

[Solution Description] First calculate the total purchase amount before discount:

– For books: $30 \times 200 = 6000$

– For notebooks: $40 \times 50 = 2000$

Total purchase amount $= 6000 + 2000 = 8000$.

Trade discount $= 8000 \times \frac{10}{100} = 800$.

Payable amount after discount $= 8000 – 800 = 7200$.

Thus, the total payable amount after applying the trade discount is Rs.7,200.