Account 1 Marks Question

1. Business Promotion Expenses.
2. Insurance Premium.

Contingent Liability.

The principle of valuation of inventory is that inventory is valued at cost or net realizable value, whichever is lower.

Machinery imported for sale in India will be treated as goods. Machinery purchased for production will be treated as fixed asset.

Operating Profit = Net Profit - Non Operating Income + Non Operating Expenses.

The prospective investors are in need of detailed information regarding the progress of the concern because on the basis of the information revealed by financial statements they take decisions regarding the investment to be made in the particular business.
They would like to get information relating to the past and present performance of the business and the decision to be taken for future. After keeping all facts in mind they come forward for investing their funds in the business.

Two examples of Revenue Expenditure are:

1. Payment of rent.
2. Expenditure on repairs and maintenance of assets.

It will be treated as 'Sales' because ownership and risk have been transferred to the Buyer.

Creditors should be first.

Sales and Closing Stock.

1. Stock.
2. Cash in Hand.

Salaries and Wages will be transferred to Profit and Loss Account.

Returns Inward is shown on the credit side of the Trading Account by way of deduction from sales.

1. Cash in Hand.
2. Bills Receivable.
3. Machinery.
4. Land and Building.

1. Land and Building.
2. Computers.

1. Capital Expenditure is incurred for acquisition of fixed assets for use in business while Revenue Expenditure is incurred to conduct the business.
2. Capital Expenditure increases the earning capacity of the business while Revenue Expenditure is incurred for earning profits.

No. Wages and Salaries Account will be transferred to Trading Account because it is assumed that when Wages and Salaries Account is given, it relates to wages.

Capital Receipts and Revenue Receipts:

	Capital Receipt	Revenue Receipt
1	It is the amount realised by sale of fixed assets or receipt as capital or loans taken.	Receipt It is the amount realised by sale of goods and/or rendering of services.
2	It is shown in Balance Sheet.	It is shown in Trading Account or Profit and Loss Account.
3	Capital Receipts are normally of non-recurring nature.	Revenue Receipts are normally of recurring nature.
4	Receipts are the receipts which are not received in course of normal business activities.	Revenue Receipts are received in the course of normal trading operations.
5	Capital Receipts are normally not available for payment.	Revenue Receipts, i.e., net of revenue expenses and expired portion of Capital Expenditure/Deferred Revenue Expenditure are available for distribution to the owner of the business.

Two examples of Capital Receipts are:

1. Contribution towards capital.
2. Loan received by the business.

Net Profit means the excess of all revenue over all expenses and losses of a business enterprise.

It is the excess of selling price of the goods over the cost of goods sold.

No. Closing Stock will not be transferred to Trading Account because it already stands credited to Trading Account as Adjusted Purchases mean Opening Stock + Purchases (Net) - Closing Stock.

Closing stock is given inside the Trial Balance when the entry to incorporate the closing stock in the books has already been passed. It would imply that the Closing Stock must have been deducted out of Purchases Account. Hence, in such a case, Closing Stock will not be shown in the Trading Account but will appear on the Assets side of the Balance Sheet only.

Assets Side.

Horizontal form.

Yes.

No, It is a violation of full disclosure principle because expenses and incomes should be shown separately in the Profit & Loss Account.

Trading Account is the account that reveals gross profit or gross loss. It is credited with the amount of sales of goods and debited with the opening stock of goods along with the direct expenses related to the sales made, i.e., purchases, freight inwards, wages, etc.

Assets and liabilities at a particular date are shown in the Balance Sheet.

Trial Balance is prepared before preparing the Profit and Loss Account.

It means net loss. It is so because all incomes and gains are credited while all expenses and losses are debited. If total of debit side (expense) is more than the total of credit side (income), it will result in loss.

Machinery Account should be debited for wages paid for installation of machinery.

The purpose of Balance Sheet is to measure the financial position of the business as at a particular date.

Provision for Discount on Creditors.

1. Freight Inwards.
2. Manufacturing wages.

Yes.

Wages paid to workers for installing a machinery wrongly debited to Wages Account.

Debit balance in the Profit and Loss Account is a loss because expenses are more than revenue.

Trading Account is prepared to know gross profit or gross loss during the accounting year.

1. Capital Expenditure and Revenue Expenditure:

	Basis	Capital Expenditure	Capital Expenditure
1	Purpose	It is incurred for acquisition of fixed assets for use in business.	It is incurred for running of business.
2	Capacity	It increases earning capacity of the business.	It is incurred for earning profits.
3	Period	Period Its benefit extends to more than one year.	Its benefit is exhausted within the year.
4	Recording	It is debited to related Asset Account	It is debited to related Expense Account.
5	Natue of Account	Nature of it is an Asset Account.	It is an Expense Account.
6	Depiction	It is shown in the Balance Sheet.	It is shown in the Trading or Profit and Loss Account.

Grouping of Balance Sheet means putting items of similar nature under a common heading Marshalling of Balance Sheet means arranging the assets and liabilities in a particular order, i.e., in order of permanence or in order of liquidity.

It means the business has earned profit as revenues are credited whereas expenses are debited.

Net Profit = Operating Profit + Non-operating Incomes - Non operating Expenses.
= ₹ 8,50,000 + ₹ 75,000 - ₹ 1,87,500
= ₹ 7,37,500.

Capital Receipt is the amount received by the business on account of capital, loans or sale proceeds of fixed assets. In other words, they are not revenue for the business.

Marshalling is the arrangement of assets and liabilities in a particular order in the balance sheet. There are two ways of marshalling:

1. Order of Liquidity.
2. Order of Permanence.

Current Assets are those assets of business which are kept temporarily for resale or for converting into cash.

Cost of Goods Sold = Sales - Gross Profit
Alternate Answer
Opening Stock + Purchases + Direct Expenses - Closing Stock

Intangible Assets.