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Recording of Transactions - I Test 10

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Recording of Transactions - I Test 10
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  • Question 1
    1 / -0
    Excess of assets over liabilities is known as ____________ .
    Solution
    Amount invested by the owner in his firm is known as capital. It may be brought in the form of cash or assets by the owner for the business entity capital is an obligation and a claim on the assets of business. It is, therefore, shown as capital on liabilities side of the balance sheet It refers to the money or money's worth introduced or invested by the proprietor in the business. It is the excess of assets over liabilities.  It is also called as owner's equity.
  • Question 2
    1 / -0
    Mr. Kulkarni's Capital Account is a ____________ account.
    Solution
    Personal accounts can be identified very easily as they are simply the accounts of those parties that a business normally deals with. They are opened in the names of those parties. They are usually suppliers and customers of the business or creditors and debtors. The balances at the financial year end are carried forward to the next accounting period. The debtors appear in the asset side of the balance sheet, whereas creditors in the liabilities and equity portion.
    Mr Kulkarni's Capital Account is the account of a natural person, i.e. an account of a person who is alive. Hence, it can be classified as a personal account.
  • Question 3
    1 / -0
     Cash discount is ___________.
    Solution
    Amount which is deducted by the seller from the amount due at the time of the receipt is called cash discount. it is given to encourage prompt payment.
  • Question 4
    1 / -0
    Freight Account is __________.
    Solution
    The nominal accounts are all those that are in nature of incomes and expenses of a business. These accounts are closed at the financial year end with the income and expense summary to arrive at the net profit or loss amount. Nominal accounts start at the year end with zero balances (or no balance) and ends with no balance to carry forward (as all is transferred to income summary)
    Examples of nominal accounts are Sales Revenue, Service Revenue, Cost of Goods Sold, Selling and Administrative Expenses, Gains and Losses accounts. Freight account is hence classified as a nominal account.
  • Question 5
    1 / -0
    Goodwill Account is _________.
    Solution
    Real accounts are the accounts that refer to the possessions of a business. The possessions may be tangible or intangible. The possessions are assets of a business. 
    Normally the books of business contains tangible assets that have physical existence. However, there are intangible assets as well as that can appear in the books of accounts. For instance, Copyrights, Trademarks, Goodwill, Patents are intangible nature but a business certainly possess them. The balances of these real accounts are not closed at the financial year end but are carried forward as opening balances of the new financial year. 
    Goodwill is an intangible asset, and hence it is classified as real account.
  • Question 6
    1 / -0
    Export Duty Account is __________.
    Solution
    Nominal accounts in accounting are the temporary accounts, such as the income statement accounts. In other words, nominal accounts are he accounts that report revenues, expenses, gains, and losses. 
    Nominal or temporary accounts are closed at the end of each accounting year. This means that their account balances are transferred to a permanent account. This closing process allows the nominal accounts to start the next accounting year with zero balances.
    Export Duty Account is an indirect expense and hence, it is classified as a nominal account.
  • Question 7
    1 / -0
    Accounts of property is __________.
    Solution
    Real accounts are the accounts that refer to the possessions of a business. The possessions may be tangible or intangible. The possessions are assets of a business. 
    Examples of real accounts include Building, Furniture & Fixtures, Vehicles, Inventory, Cash, etc.
    Normally the books of business contains tangible assets that have physical existence. However, there are intangible assets as well that can appear in the books of accounts for instance Copyrights, Trademarks, Goodwill, Patents are intangible nature but a business certainly possess them.
    The balances of these real accounts are not closed at the financial year end but are carried forward as opening balances of the new financial year.
  • Question 8
    1 / -0
    Sundry Expenses Account is _________.
    Solution
    The word "Sundry" is used for items which are unimportant to be mentioned individually. Sundry expenses are costs incurred for small things which cannot be categorized under a specific heading.
    Sundry expenses may also be referred to as"Miscellaneous Expenses". They can be related to a particular area within a business such as sundry office expenses, sundry retail expenses, etc.
    Accounts which are related  to expenses, losses, incomes or gains are called Nominal accounts. The final result of all nominal accounts is either profit or loss which is then transferred to the capital account.
    Sundry Expenses Accounts is a miscellaneous expenses and hence, it is classified as a nominal account.
  • Question 9
    1 / -0
    Bank Charges Account is _____.
    Solution
    The term bank charge covers all charges and fees made by a bank to their customers. In common parlance, the term often relates to charges in respect of personal accounts or checking account. These charges may take many forms , including monthly charges for the provision of an account, charges for specific transactions (other than overdraft limit excess), interest in respect of overdrafts, and charges for exceeding authorised overdraft limits, or making payments. 
    Bank charges account is hence classified as a nominal account.
  • Question 10
    1 / -0
    Profit on Sale of Furniture Account __________.
    Solution
    Accounts relating to income, revenue, gain, expenses and losses are termed as  nominal accounts. These accounts are also known as fictitious accounts as they do not represent any tangible asset. A separate account is maintained for each head or expense or loss and gain or income. Wages account, Rent account, Commission account are some examples of nominal accounts. The rule for Nominal accounts is: Debit all expenses and losses; Credit all incomes and gains.
    Profit on sale of Furniture account is the indirect income or gain for a business since profit is earned on the sale of furniture and hence, it is classified as  a nominal account.
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