NCERT MOST IMPORTANT QUESTIONS CLASS – 11 | ACCOUNTANCY IMPORTANT QUESTIONS | CHAPTER –10 Financial Statements – I| EDUGROWN |

NCERT Most important question:

Q1. Why adjustments are necessary for financial accounting?

Ans: A single transaction might have an impact on the cost and income of multiple financial periods. As a result, accounting adjustments are used to comply with the accrual concept. 

It can also be utilized if a transaction occurred during the period but was not recorded. Only a few incomes and costs from the current year need to be recorded in the company’s books of accounts.

Q2. Give details of few items which need adjustments.

Ans: The following are the things in the books of accounts that need to be adjusted:

• Defaulted debts
• Depreciation is the second type of depreciation.
• Earnings that have been accumulated
• Capital interest
• Earnings of the manager
• Closing the stock market

Q3. Pass the adjustment entry of the following items:

a. Closing stock

b. Outstanding expenses

c. Prepaid expenses

d. Accrued income

e. Income received in advance

Ans: Adjustment entries for the following items are as follows:

a. Closing stock :

Particular	Amount	Amount
Closing Stock A/c                       Dr.To Trading A/c	–	–

b. Outstanding expenses:  

Particular	Amount	Amount
Concerned Expenses A/c              Dr.To Outstanding expenses A/c	–	–

c. Prepaid expenses:

Particular	Amount	Amount
Prepaid expenses A/c               Dr. To Concerned  Expenses A/c	–	–

d. Accrued income:

Particular	Amount	Amount
Accrued income A/c          Dr. To Concerned income A/c	–	–

e. Income received in advance :

Particular	Amount	Amount
Concerned income A/c                  Dr.To Income received in advance  A/c	–	–

Q4. Give an example of Provision for bad and doubtful debts.

Ans: Provision for doubtful debts is shown on the balance sheet and deducted from the company’s debtors on the asset side. Rishi, for example, believes that 6% of his creditors from March will default on their payments in the coming year. The current year’s bad debts total Rs 13,000. This indicates that bad debts total Rs. 780 (13,000 * 6%).

Q5. What will be the adjustment entry of rent received in advance of Rs. 5,000?

a. Credit the rent account and debit the rent received in the advance account.

b. Debit rent account and credit rent received in the advance

account.

c. Debit profit and loss account and credit rent account.

d. All of the above.

Ans: The correct answer is b, which debits the rent account and credits the rent received in the advance account.

Q6. Explain the following items with adjustments entry:

a. Closing Stock

b. Outstanding expenses

c. Income earned but not received

d. Income received in advance

e. Depreciation

f. Manager’s commission

Adjustment Entry Treatment in

Ans: 

Adjustment	Adjustment Entry	Treatment in the balance sheet
Closing stock	Closing stock A/c          Dr.  To trading A/c	Shown on the asset side
Outstanding expenses	Expenses A/c                 Dr. To outstanding A/c  Expenses	Shown on the liabilities side
Income earned but not received	Accrued Income A/c     Dr. To Income A/c	Shown on the asset side
Income received in advance	Income A/c                   Dr. To Income received in Advance A/c	Shown on the liabilities side
Depreciation	Depreciation A/c        Dr. To Assets A/c	Deduction from the value of assets
Managers commission	Manager commission A/c To  o/s commission A/c	Shown on the liabilities side

Q7. From the following balances prepare a Profit and loss account.

Debit Balance	Amount	Credit balance	Amount
PurchaseWagesFuel andpowerOpeningstockSalariesGeneralexpensesInsurance	2,5842,35421,48824,20012,412 4,124 12,900	SalesRent	65,00070,000

Ans:

Expenses/ losses	Amount	Profit/gain	Amount
OpeningstockPurchaseWagesFuel andpowerGross profitc/d SalariesGeneralexpensesInsuranceNet profit	24,200 2,5842,35421,48814,374 65,000 12,4124,124 12,90054938	Sales Gross profitb/d Rent	a
	84,374

Q8. From the following balances, prepare the Profit and loss account and balance sheet.

Debit Balance	Amount	Credit Balance	Amount
PurchaseWagesOpening stockSalariesPostagePrinting andstationeryBills receivables	90,0007,88021,60012,4126,35412,900 5,640	SalesClosing stockOffice expensesSundry debtorsSundry creditorsCash at Bank	165,00070,0001,24714,50021,02013,487

Ans:

Trading Profit and loss A/c

Expenses/profit	Amount	Profit /gain	Amount
Opening stockPurchaseWagesGross profit c/dSalariesOffice expensesPostagePrinting andstationeryNet profit	21,60090,0007,8801,15,5202,35,000 12,4121,2476,35412,90082,607	SalesClosing stockGross profit b/d	165,00070,0002,35,000 1,15,520
	1,15,520		1,15,520

Balance sheet as of March 31

liabilities	Amount	Asset	Amount
Sundry creditorsAdd: Net profit	21,02082,607	Cash at bankBills receivablesSundry debtorsClosing stock	13,4875,64014,50070,000
	1,03,627		1,03,627

Q9. From the following balances, prepare the Profit and loss account and balance sheet.

Debit Balance	Amount	Credit Balance	Amount
PurchaseWagesOpening stockSalariesPostageBad debtsPrinting andstationeryBuildingBills receivablesRate and insurance	70,0005,98011,20021,1008,7991,99015,500 30,00015,0002,900	SalesOffice expensesSundry debtorsSundry creditorsCash at BankRent (Cr.)	198,0006,21415,85715,21015,2006,530

Prepare profit and loss account and Balance sheet keeping in regards the following adjustment:

a. Write off further bad debts with Rs. 780.

b. Rent receivables of Rs. 650.

c. Unexpired insurance Rs. 390.

Ans: Trading Profit and loss A/c

Expense/profit	Amount	Profit/gain	Amount
Opening stockPurchaseWagesGross profit c/d SalariesOffice expensesPostagePrinting andstationeryRate and insurance2,900 Less: unexpired insurance 390 Bad debts 1,990 Add: Further bad debts 780 Net profit	11,20070,0005,9801,10,820 1,98,000 21,1006,2148,79915,500 2,510 2,770  61,107	Sales Gross profit b/dRent 6,530Add: Accruedrent 650	198,000 1,98,000 1,10,820 7,180
	1,18,000		1,18,000

Balance sheet as of March 31

Liabilities	Amount	Assets	Amount
Sundry creditors Add: Net profit	15,210 61,107	Cash at bank Bills receivables Building Sundry debtors 15,857 Less: Bad debts 780 Accrued rent Unexpired insurance	15,200 15,000 30,000 15,077 650 390
	76,317		76,317

Q10. Define following terms with adjustment entries : 

Ans: Following terms are defined with their adjustment entries:

A. Provisions for bad and doubtful debts. 

Provision for bad and doubtful debts occurs when there is a possible reason for debtors who are doubtful that they will not pay the debts on time.

Particular	Amount
Profit and loss A/c                                                      Dr	–
To provision for doubtful debts          A/c	–

B. Depreciation:

Depreciation means the value of an asset is declined due to its usage in the passage of time +9*or wear and tear. It is usually treated as business expenses and is debited in profit and loss account. 

Particular	Amount
Depreciation A/c                                    Dr. To Concerned Asset A/c	–       –

C. Accrued income: The items of income that are earned during the accounting year but actually it is not received at the end of the same year.

Particular	Amount
Accrued income A/c                              Dr. To Concerned Income A/c	–     –

D. Prepaid expenses: Prepaid expenses are the expense need to be paid in future but they are paid in advance.

Particular	Amount
Prepaid expenses A/c                           Dr.   To Concerned Expenses A/c	–    –

E. Outstanding expenses: Prepaid expenses are the expense need to be paid in future but they are paid in advance.

Particular	Amount
Expenses A/c (Required)                      Dr. To Outstanding expenses A/c	–    –