Accountancy Test - 1

The correct answer is CASH RECEIPTS AND PAYMENTS.

Important Points

• Receipts and Payments A/c: 
  • ​​It is a mere summary of the cash book for a year.
  • It begins with the cash in hand at the commencement and ends with that at the close of the year.
  • Similar to cash accounts, in receipts and payments account receipts are shown on the debit side while payments are shown on the credit side, without any distinction between capital and revenue.
  • Moreover, it does not include an unpaid expenditure not any unrealized income relating to the period under review and so fails to reveal the financial position on the concern. Thus, it is a Real A/c.
  • It is prepared by the not-for-profit organization.

The correct answer is Capital expenditure

Key PointsCapital Expenditure: The expenditure which tends to increase the financial assets or reduce the financial liabilities are called Capital Expenditure. These are not of recurring nature. Capital Expenditure is incurred to increase the earning capacity of the business.

Important Points

•  Since Rs. 50,000 is spent on increasing the seating capacity of the business, this will, in turn, increase the earning capacity of the cinema hall. This will result in an increase in the value of assets. 
• So this will be considered as Capital Expenditure.

Additional Information

1. Revenue Expenditure: These are those expenditures that are incurred in the normal course of business. These expenditures are for the short term and are recurring in nature. These expenditures neither create any asset nor reduce any liability. For example- Salaries of the employees, Electricity bills, etc.
2. Deferred Revenue Expenditure: The expenses which are incurred in present, but its benefits are expected to be received in the future is called Deferred Revenue Expenditure. This expense could be written off in the same fiscal year or several years. For Example- The amount spend on advertisement.

The correct answer is CREDIT SIDE OF INCOME AND EXPENDITURE ACCOUNT.

• Non-for-profit organisation: 
  • ​A not-for-profit organization (NFPO) is one that does not earn profit for its owners.
  • All money earned through pursuing business activities or through donations goes right back into running the organization. 
  • Non-profit organizations are often used for trusts, cooperatives, advocacy, charity, environmental and religious groups.
• Income and Expenditure: 
  • ​It is the account prepared by the non-profit organisation to ascertained their surplus or deficit during the financial year.
  • It is prepared on an accrual basis.
  • All incomes and expenses relating to the accounting year, whether they are actually received and paid or not, are taken into consideration.
  • Expenditure is recorded on the debit side and income is recorded on the credit side. It records all the transactions related to Revenue nature only.
• Subscription: It is a membership fee paid by the member on annual basis. This is the main source of income of not-for-profit organizations such as Clubs, NGOs, Schools, etc.
  • Subscription paid by the members is shown as receipt in the Receipt and Payment Account and as income in the Income and Expenditure Account.

Additional Information

• Balance Sheet: It is the summary of the financial balances of an individual firm consisting all the available assets and liabilities of the firm; showing their financial position to the users.
  • Assets- Anything (whether physical or not) that is holding any value in the market in terms of cash and which is owns by the company or any person.
  • Liability- An amount which is borrowed by any individual or a person and to be repaid after a specified period of time.

The correct option is It is outside the Double Entry System.

Key Points

Income and Expenditure: An Income and Expenditure Account is a complete breakdown of all income and expenses incurred by a non-profit organization over the course of a fiscal year.

Characteristics of Income and Expenditure account:

• It is prepared by a not-for-profit organization.
• Only the revenue items are recorded in this account. No capital item is included.
• It is based on the accrual basis of accounting.
• It is prepared the same way as a Profit and Loss account is prepared in a for-profit business entity.
• It is prepared by stringently following the double-entry system.
• All expenses are recorded on the Debit side and all revenues on the credit side of the Income & Expenditure Account.

The correct answer is Rs. 2,47,400.

Amount to be credited to Income and Expenditure A/c for 2017= Rs. 2,47,400

Additional Information

• Subscription is a regular payment made by the members of the organization. It is generally contributed annually. 
• It is one of the main sources of income for non-profit organizations. 
• Subscriptions received during the year are shown on the debit side i.e. Receipts side of the Receipts and Payments Account. 
• Apart from the amount for the current year, it may include the amount pertaining to the previous year or advance payment for next year.

The correct answer is all of the above. 
Key Points

• Non-profit organizations are the institutions/organizations that are set up with general or specific objectives for rendering services and providing other social activities to enhance the welfare of a general or a particular group of people.
• Non-profit organizations are those which are not engaged in business activities. 
• Their objective is not to make profits but to provide service. 
• Examples of such organizations are schools, hospitals, charitable institutions, welfare societies, clubs, public libraries, resident welfare associations, sports clubs, etc. These are called Not-for-Profit Organisations (NPOs).
• These organizations provide services to their members and to the public in general. 
• Their main source of income is membership fees, subscription, donation, grant-in-aid, etc. 
• As the money is involved in the activities of these organizations, they also maintain accounts. 
• These organizations prepare certain statements to ascertain the results in financial terms of their activities for a particular period say, one year.
• A separate legal entity not owned by any individual or an enterprise.
• The aim of such institutions is not to earn a profit, however, the organizations are capable of earning profit.

The correct answer is Outstanding salary for the current year

Key Points

• Receipts and Payments: The Receipts and Payments Account is similar in nature to the cashbook. The only difference is that Cashbook is prepared in chronological order i.e., it has a date column while Receipts and Payments Account does not have a date column. So, it can be said that the Receipts and Payments Account is a Cashbook without a date column.
• The Receipts and Payments Account only records cash transactions and excludes the non-cash transactions such as depreciation, accrued income, provisions etc.

Important Points

• Non-cash items are those items which do not involve cash, so they are not recorded in cashbook or the Receipts and Payments Account.
• Outstanding salaries for the current year are those salaries which have been due in the current year but have not been paid yet. Since, there is no outflow of cash, they are not recorded in Receipts and Payments Account.

Income And Expenditure Account:

• The income and expenditure account is an account prepared by non-trading concerns to ascertain the surplus or deficit of income over expenditures for a particular period.
• If revenues of a non-trading concern exceed its expenditures during the year, the income and expenditure account shows a surplus balance; and if, on the other hand, the expenditures exceed income, the account shows a deficit balance.
• The surplus balance is also expressed as “excess of income over expenditure” and deficit balance as “excess of expenditure over income”.
• The Income and expenditure accounts of only revenue nature are incorporated in this account. Any income and expenditure of capital nature are not comprehended.

• Like any other account, the income and expenditure account consists of two sides – a debit side to enter expenditures and a credit side to enter revenues or incomes of non-trading concerns.
• Thus, tuition fees and fine collected which is income to the college will be recorded on the credit side, and the cost of equipment/ prizes which is expenditure to the college will be recorded on the debit side.

The correct answer is Revenue Income.

Key Points

An income that neither creates assets nor reduces a liability is categorized as revenue income. If it creates an asset or reduces a liability, it is categorized as capital income.

 Important Points

Therefore, the correct answer is Revenue Income.

The correct answer is accrual.

Key Points

• Income and Expenditure Account is the summary of income and expenditure for the accounting year. 
• It is just like a profit and loss account prepared on an accrual basis in the case of the business organizations. 
• It includes only revenue items and the balance at the end represents surplus or deficit. 
• The Income and Expenditure Account serves the same purpose as the profit and loss account of a business organization. 
• All the revenue items relating to the current period are shown in this account, including the expenses and losses on the expenditure side, and incomes and gains on the income side of the account. 
• It shows the net operating result in the form of surplus (i.e. excess of income over expenditure) or deficit (i.e. excess of expenditure over income), which is transferred to the capital fund shown in the balance sheet.
• The Income and Expenditure Account is prepared on an accrual basis with the help of the Receipts and Payments Account along with additional information regarding outstanding and prepaid expenses and depreciation etc.