Account 4 Marks Question

No.	Basic	Trade Discount	Cash Discount
1.	Nature	It is allowed on sale or purchase of certain quantity.	It is allowed on payment being made on or before a certain date.
2.	Nature of Transaction	It is allowed on both cash and credit sales or puechases.	It is allowed only on payment.
3.	Recording	Trade discount is not recorded separately in the books of account.	Cash discount is recorded separately in the books of account.
4.	Deduction from Invoice	The amount of the trade discount is deducted from the invoice.	It is not deducted from the invoice.
5.	Consideration	The consideration for allowance is purchases.	The consideration for allowance is payment.
6.	Relation	It is related to sale and purchase of goods.	It is related to payment.

Solution is as follow:

J.F. number is the number that is entered in the ledger at the time of posting entries into their respective accounts. It helps in determining whether all transactions are properly posted in their accounts. It is recorded at the time of posting and not at the time of recording the transactions.
The purpose of entering J.F. number in the ledger is because of the below given benefits.

1. J.F. number helps in locating the entries of accounts in the journal book. In other words, J.F number helps to locate the position of the related journal entry and subsidiary book in the journal book.
2. J.F. number in accounts ensures that recording in the books of original entry has been posted or not.

	Transactions	Nature of Account
i.	Ganesh started business with cash	Cash A/c- Debit (Asset) Capital A/c- Credit (Liability)
ii.	Purchased goods for cash	Purchases- Debit (Expense) Cash A/c- Credit (Asset)
iii.	Sold goods for cash	Cash A/c- Debit (Asset) Sales A/c- Credit (Revenue)
iv.	Purchased goods from Nakul on credit	Purchases A/c- Debit (Expense) Nakul A/c- Credit (Liability)
v.	Sold goods to Bhushan on credit	Bhushan A/c- Debit (Asset) Sales A/c- Credit (Revenue)
vi.	Paid cash to Nakul	Nakul A/c- Debit (Liability) Cash A/c- Credit (Asset)
vii.	Received Cash from Bhushan	Cash A/c- Debit (Asset) Bhushan A/c- Credit (Asset)
viii.	Paid salary	Salary A/c- Debit (Expense) Cash A/c- Credit (Asset)

IGST: It is levied on inter-state sales, i. e. sales of goods and services outside the state. It is also levied on import of goods and services into India and export of goods and services from India. For example, a dealer of Rajasthan sells goods to a dealer in Madhya Pradesh worth 50,000. Suppose, the IGST rate is 12%. In such a case, the seller will charge 36,000 as IGST and this entire amount will go to Central Government.
GST collected under IGST is divided between Central and State Governments as per the rates specified by the Government.

The fundamental steps in the accounting process are diagrammatically presented below.

Solution is as follow:

Voucher is a document evidencing a business transaction. It flows from the above definition that when a transaction is entered into, an evidence to that effect is also established. Such evidences are Source Documents. On the basis of Source Documents, a voucher detailing the accounts that are debited and credited is prepared.

Increase in Cash (being an asset) will be shown on the debit side and decrease in cash will be recorded on the credit side of the Cash Account.

Increase in Debtors (being an asset) will be shown on the debit side and decrease in them will be recorded on the credit side of the Debtors Account.

Increase in Creditors (being a liability) will be shown on the credit side and decrease in the creditors will be recorded on the debit side of the Creditors Account.

Solution is as follows.

A transaction should be recorded first in a journal because journal provides complete details of a transaction in one entry. Further, a journal forms the basis for posting the transactions into their respective accounts into ledger. Transactions are recorded in journal in chronological order, i.e. in the order of occurrence with the help of source documents. Journal is also known as ‘book of original entry’, because with the help of source document, transactions are originally recorded in books.
The process of recording the transactions in journal and then in ledger is presented in the below-given flow chart.

Assets = 20,000 + 8,200 + 1,500 = ₹ 29,700
Liabilities = ₹ 10,000
Capital = ₹ 19,700

As per the rule of double entry system, there are two columns of ‘Amount’ in the journal format namely ‘Debit Amount’ and ‘Credit Amount’. The way of recording in a journal is quite different from normal recording. Journal entry is recorded in journal format in which the ‘Debit Amount’ column is listed before the ‘Credit Amount’ column.
Credits are indented. Indentation is leaving a space before writing any word. Journal entry has its own jargon. While journalising, in the ‘Particulars’ column of journal format, debited account is written first and credited account is in the next line leaving some space, which is indentation.

Assets = 16,000 + 4,600 = ₹ 20,600
Liabilities = 2,000 + 200 = ₹ 2,200
Capital = ₹ 18,400

These taxes are levied on intra-state sales, i.e. within the same state. For example, a dealer of Rajasthan sells goods to a dealer (or consumer) in Rajasthan worth 50,000. Suppose, the GST rate on the goods is 12%. This rate will comprise of CGST at 6% and SGST at 6%. The seller has to collect 12% of ₹ 50,000 i.e. ₹ 36,000 out of which ₹ 3,000 will be CGST which will go to the Central Government and ₹ 33,000 will be SGST which will go to the Rajasthan Government.

Assets = 84,000 + 25,000 + 18,000 = ₹ 1,27,000
Liabilities = ₹ 30,000
Capital = ₹ 97,000

Document is an evidence of a transaction or an event and are known as Source Documents based on which accounts are debited or credited with the transacted amount. Source document is of prime importance in accounting because accounting is based on factual financial information, i.e., evidence. For example, a cash memo showing cash sales, an invoice showing sales of goods on credit, bills of purchases showing purchases of goods on credit, a receipt made out by the receiver for cash received, etc. These documents are Source Documents and are evidence in support of a transaction. They are also sometimes called supporting documents.

1. Developing Common National Market by having One Indirect Tax: GST is a step towards development of Common National Market by levy of one Indirect Tax (GST) and thus, facilitating free flow of goods and/or services across India.
2. Decrease in Cost of Goods by Removing Cascading Effect of Indirect Taxes: GST Paid (Input GST) is set off against GST Collected (Output GST). Thus, in effect, GST is charged on the value added in the subsequent sales. As a result, cascading effect is removed. With the removal of cascading effect of indirect taxes (tax on tax effect) and allowing credit of GST Paid against GST Collected, goods and/or services shall cost less.
3. Ease of Doing Business: GST is a comprehensive indirect tax meaning that almost all the indirect taxes (except tax on petroleum, duties on alcohol for human consumption, customs duty and taxes levied by local bodies) are merged into it. Also, with improved harmonised indirect tax administration, setting up and carrying on of business has become easier.
4. Attracting Foreign Direct Investment (FDI): GST will attract foreign investment as a major barrier for attracting FDI is removed.

If a transaction has a decreasing effect on an asset, then this decrease is recorded as credit. This is because, as all assets have debit balance and if assets decrease, then it is credited. For example, sale of furniture results in decrease in furniture (asset); so, the sale of furniture will be credited.
If a transaction has a decreasing effect on a liability, then this decrease is recorded as debit. This is because all liabilities have credit balance. If the liability increases, then it is credited and if the liability decreases, then it is debited. For example, payment to the creditors results in a decrease in the creditors (liability); so, the creditors account will be debited.

1. Cash Memo: Cash Memo is prepared by the seller when goods are sold against cash. It has details of goods sold, quantity, rate of each item and the total amount received, besides the date of transaction and other terms and conditions, if any. It is an evidence for the purchaser for, goods purchased against cash, and for the seller, it is an evidence of sales for cash.

A specimen of a Cash Memo is as follows:

2. Invoice or Bill: An Invoice or Bill is prepared by the seller when the goods are sold on credit. It has details of the party to whom goods are sold, goods sold and the total sale amount. The original copy of the sales invoice is sent to the purchaser and a duplicate copy is retained as an evidence of the sales for recording it in the books of account and for future reference. For the purchaser, credit purchases are evidenced by bill received from the supplier. A specimen of a Invoice or a Bill is as follows: