Ch. # 7 FINAL ACCOUNTS

Chapter # 7 FINAL ACCOUNTS   Q.1: What are final accounts? Ans: Accounts which are finally prepared to show the profit and loss and financial position of a business are called final accounts. Q.2: What is trading account? Ans: The account which is prepared to determine the gross profit or loss for a particular period is called trading account. Q.3: Define direct expenses? Ans: The expenses which are related to purchase of goods or to bring the goods in saleable condition are called direct expenses. Q.4: Define profit and loss A/c? Ans: The account which is prepared to determine the net profit or loss for a particular period is called profit and loss A/c. Q.5: Define indirect expenses? Ans: The expenses which are related to sale of goods and also administration expenses etc. are called indirect expenses. Q.6: Define gross profit? Ans: If gross profit and indirect incomes are greater than indirect expenses, the difference represents net profit. Q.7: What do you mean by “Marshalling”? Ans: The order in which assets and liabilities are stated on the balance sheet is known as marshalling. Q.9: What is meant by closing entries? Ans: The journal entries which are passed for the purpose of closing different accounts of business at the end of particular accounting period are called closing entries. Q.10: Define balance sheet? Ans: A statement of assets and liabilities which is prepared on the last date of particular accounting period to show the financial position of the business is called balance sheet. Q.11: Define current assets? Ans: Assets which represent cash or which can be easily converted into cash after some time are called current assets. For example: Cash debtors etc. Q.12: Define fixed assets? Ans: Assets which are purchased for permanent use in the business are called fixed assets. For example: For example: Building, Plant and Machinery etc. Q.13: Define liquid assets? Ans: Assets which can be quickly converted into cash are called liquid assets. For example: Cash at bank, Bill receivable etc. Q.14: Define wasting assets?  Ans: Assets whose value gradually decrease due to use and finally exhausts completely are called wasting asses. For example: Mines, Forests etc. Q.15: Define fictitious assets? Ans: Assets which cannot be used and have no market value are called factious assets. For example: Preliminary expenses, Discount on issue of shares etc.  Q.16: Define contingent assets? Ans: Assets which comes into existence upon happening of a certain event are called contingent assets. Q.17: Define outstanding assets? Ans: Income earned but not received and expenses paid in advance are called outstanding assets. Q.18: Define current liabilities? Ans: The debts which are payable after as short period of time (Normal within year) are called current liabilities. For example: Creditors, Outstanding expenses etc. Q.19: Define long term liabilities? Ans: The debts which are payable after a long period of time are called long t4erm liabilities. Q.20: Define liquid liabilities? Ans: Debts which are normally payable after very short period of time are called illiquid liabilities. Q.21: Define internal liability? Ans: Capital of business is called internal liability. Q.22: Define external liabilities? Ans: Debts which are payable to outsiders are called external liabilities? Q.23: Define contingent liabilities? Ans: The liabilities which are payable only on the happening of certain event are called contingent liabilities. Q.24: Define outstanding liabilities? Ans: Income received but not yet incurred and expenses incurred but not yet paid represent outstanding liabilities. Q.25: Define adjusting entries? Ans: The entries required at the end of particular accounting period to record internal transactions are called adjusting entries. For example depreciation A/c etc. Q.26: Define closing stock and show its accounting treatment? Ans: The unsold goods and purchases at the end of the accounting period is called closing stock. Accounting Treatment: i)       Trading A/c (Credit side) ii)    Balance sheet (Current assets) Q.27: Pass the journal entry for adjustment of closing stock? Ans:             Closing stock A/c                                     To Purchases A/c (Closing stock adjusted against purchases) Q.28: Define outstanding expenses and show their accounting treatment? Ans: The expenses which have been incurred in the business but not yet paid are called outstanding expenses. Accounting Treatment: i)       Trading A/c Profit and loss A/c       (Debit side)                   (Should be added in relevant expenses) ii)    Balance sheet (Liability side under the heading of current liabilities) Q.29: Pass adjusting entry in respect of outstanding expense? Ans: Particular Expense A/c                         To Outstanding expense A/c (outstanding expenses recorded) Q.30: Define prepaid expenses? i)      Define prepaid expenses.  ii)   Pass the adjusting entry for prepaid expenses. iii)  Show their accounting treatment. Ans: i)       Expenses which have been paid before their due date are prepaid expenses. ii)    Prepaid expense A/c                   (Prepaid expense recorded)       (Prepaid expense recorded) iii)  Profit and loss A/c (Debit side should be reduced from particular expense). Q.31: i)      Define unearned income?  ii)   Pas adjusting entry? iii)Show the accounting treatment? Ans: i)       Income received in advance but not yet earned is called unearned income. ii)    Particular income A/c                   To Unearned income A/c       (Income received in advance recorded) iii)   1)       Profit and loss A/c (Credit side should be reduced from particular income)       2)        Balance sheet (Current liability) Q.32: What is bad debt? Ans: The amount which cannot be recover from debtors is called bad debt. Q.33: What do you mean by doubtful debts? Ans: The debts, the recovery of which is uncertain all called doubtful debts. Q.34: What is debt? Ans: The amount due from debtor is called debt. Q.35: Define provision? Ans: A liability of uncertain timing or amount is called provision. Q.36: Define normal loss? Ans: A loss which is unavoidable represent normal loss. For example leakage, wastage. Q.37: Define abnormal loss? Ans: A loss which can be avoided through precautionary measures is called abnormal loss. For example, loss by fire, Accident. Q.38: What are the formula of commission under following cases on net profit? Ans: i)       before charging such commission:                Commission = net profit ii)    after charging such commission Commission = net profit x Q.39: What do you mea n by new provision? Ans: A provision which is allowed after preparing trial balance is called new provision. Q.40: Define work sheet? Ans: A large columnar working paper for the accountants, for analyzing the all accounting data required at the end of the financial period is called work sheet. Q.41: Write any two objectives for preparation of work sheet? Ans: i)       To avoid errors in the permanent records of accounting. ii)    To check accuracy of financial statements. Q.42: The items appearing in the trial a balance are bad debts Rs. 300, Provision for bad debts Rs. 350 and sundry debtors Rs. 12000. It is required to increase the provision for bad debts to 5% of sundry debtors What amount will be subtracted from sundry debtors in balance sheet. Ans: Rs. 600 Q.43: The items appearing in the trial balance are bad debts Rs. 300 OProvision for bad debts Rs. 350 and sundry debtors Rs. 12,000 It is required to increase the provision for bad debts by Rs. 600. Calculate the amount which will be subtracted from sundry debtors in the balance sheet. Ans: Rs. 650