Recording of Transactions 1: NCERT Solutions

SimplyAcad has curated the set of NCERT solutions for both short and long answer type questions. Students can now prepare for their upcoming examinations through the provided materials in Chapter 3 Recording of Transactions 1. The solutions will help students significantly to understand the procedures and methods of recording transactions for business. 

NCERT Solutions Recording of Transactions 1 contains all the required material for answering different types of questions asked in the paper. Students can easily access them by scrolling below.

NCERT Class 11  Recording of Transactions 1 Class 11 Chapter 3

Short Answers: 

Question 1: State the three fundamental steps in the accounting process.

The fundamental steps of the accounting process are:

1. Identifying and analyzing business transactions.
2. Recording of business transactions.
3. Classifying and summarizing their effect and communicating the same to the interested users of business information.

Question 2: Why is the evidence provided by source documents important to accounting?

The importance of source documents in accounting is due to the following reasons:

1. It provides evidence of the transaction that has taken place.
2. It acts as a backup in times of auditing and tax assessment.
3. It acts as primary legal evidence, as journal entries are based on data from source documents.

Question 3: Should a transaction be first recorded in a journal or ledger? Why?

The practice of recording a transaction in the journal, in the first instance, provides for a complete record of each transaction and also keeps a track of all debits and credits related to each transaction.

Question 4: Are debits or credits listed first in journal entries? Are debits or credits indented?

Debit gets recorded in the journal first before credit, but both debit and credit are recorded in the journal before being recorded in the ledger. Debit entry is recorded without any margin, indent or spacing. However, for a credit entry, some spacing, margin or indent is essential. The symbol Dr. for debit entry is right aligned.

Question 5: Why are some accounting systems called double accounting systems?

Accounting systems are called double accounting systems as they have two aspects to each transaction. Every transaction is recorded on the debit and credit sides simultaneously.

Question 6: Give a specimen of an account.

The specimen of an account can be represented as:

Question 7: Why are the rules of debit and credit same for both liability and capital?

Liability is towards creditors, while capital is the liability of a business towards its owners. Hence the same rules of debit and credit apply to both liability and capital.

Question 8: What is the purpose of posting JF numbers that are entered in the journal at the time entries are posted to the accounts?

The number entered in a ledger at the time of posting entries into each account is called JF Number. It determines if transactions are properly posted or not. It is recorded at the time of posting. The purpose of posting JF in the ledger is to locate entries in the journal book and also to ensure that recording has been done in books of original entry.

Question 9: What entry (debit or credit) would you make to: (a) increase revenue (b) decrease in expense, (c) record drawings (d) record the fresh capital introduced by the owner.

a. Increase in revenue: It will be credited as an increase in revenue increases capital.

b. Decrease in expense: It will be credited.

c. Record drawings: Drawings must be debited as it results in a decrease of capital

d. Record of fresh capital introduced by the owner: An increase in capital will be credited as it increases the liability of the business towards owners.

Question 10: If a transaction has the effect of decreasing an asset, is the decrease recorded as a debit or as a credit? If the transaction has the effect of decreasing a liability, is the decrease recorded as a debit or as a credit?

Transactions that have a decreasing effect on an asset are always recorded on the credit side, and transactions that have a decreasing effect on the liabilities are recorded on the debit side.

Long Answers:

Question 1: Describe the events recorded in accounting systems and the importance of source documents in those systems.

Events that are recorded into the accounting system are those events that can be measured in monetary terms. Some examples include the installation of machinery after purchase, and payment of salaries to employees. The importance of source documents in the accounting system is as follows:

1. It provides evidence of the transaction that has taken place.
2. It acts as a backup in times of auditing and tax assessment.
3. It acts as primary legal evidence, as journal entries are based on data from source documents.
4. It protects against faulty transactions
5. It helps in resolving conflicts related to any transaction.

Question 2: Describe how debits and credits are used to analyse transactions.

All transactions must be measured in monetary terms to be recorded. All such transactions have a dual aspect, i.e., both debit and credit. Therefore when recording transactions, both the debit and credit amounts should be the same. In the recording of transactions, debit and credit determine whether they should be placed on the left or right side of the account. Amount entered on the left side is debit and is represented by the notation Dr. while credit is recorded on the right side of an account, abbreviated as Cr.

For recording transactions, accounts are classified into the following types:

• Assets
• Liabilities
• Capital
• Expenses/Losses
• Revenues/Gains

The following rules are used for recording transactions to an account:

For Assets/ Expenses or Losses: Increase in Assets, Expenses or losses is debited while a decrease is credited. For Liabilities/Capital/Revenues or Gains, the increase is credited, while a decrease is debited.

Question 3: Describe how accounts are used to record information about the effects of transactions?

All monetary transactions contain a source document, and these transactions get recorded in the journal. Thus each transaction is in one place and helps link the credit and debit transactions. This process is known as journalising. These recorded transactions get moved to individual ledgers, which is called the principal book of entry through posting. The following steps are taken while posting the accounts. Let’s understand it with an example.

The journal has an entry in the Books of Wadia Bros wherein goods worth of Rs.5000 were sold to Raheja Bros. on credit on 15-Mar-2019, and payment of Rs.5000 received from Raheja Bros on 20-Mar-2019.

The following steps are included:

• Identify this account’s page in the ledger
• If this entry is the first one on the ledger account page, the balance carried forward (balance C/F) from the previous page, if any, is brought forward (balance b/f) to this page.
• Fill in the date in the column in which sales occurred on the debit side.
• Fill details of the transaction.
• Record the page number of the journal in the JF column where the transaction occurs.
• Fill monetary value in the amount column, which is Rs.5,000.
• Enter the date on which the transaction occurred
• Enter the particulars of the transaction.
• Enter the page number on which this transaction appears in the journal.
• Enter the monetary value of the transaction in the Amount column. In this case, it is Rs.5,000
• Calculate the totals of both the debit and credit sides of the transaction.
• If this is the last transaction entry in the ledger account, compute the difference in the amounts and enter the balance c/f. This should be carried over to the next page.

Question 4: What is a journal? Give a specimen of journal showing at least five entries.

A journal is the book of original entry which records transactions as they take place. Such an entry into the journal must contain a source document. Maintaining a journal ensures all transactions are recorded and in one place, and debit and credit for each transaction are linked properly. A journal consists of the following sections:

Date − Transaction date based on when the transaction has taken place.

Particulars − Details of the transaction recorded

L.F. − Page number of the ledger where entry is posted.

Debit Amount − Debited amount as per transaction.

Credit Amount − Credit amount as per transaction

5. Differentiate between source documents and vouchers.

6. Accounting equation remains intact under all circumstances. Justify the statement with the help of an example.

As per accounting, the assets of a business always equal the sum of its capital and liabilities.

Assets = Capital + Liabilities

The accounting equation depicts the fundamental relationship that exists among the components of the balance sheet, it is also referred to as the Balance Sheet Equation. A balance sheet is a statement of liabilities, capital and assets.

At any given point in time, the resources of the business must be equal to the claims of those who have financed those resources. Resources of the business are provided by proprietors and outsiders. The claim of the proprietors is called capital, and that of the outsiders is known as liabilities.

Consider an example

Mohit started a business with a cash of Rs. 6,00,000.

Opened a bank account with an amount of Rs. 5,80,000.

Bough furniture for Rs. 60,000 and issued cheque for the same.

Bought Plant and Machinery from Ramlal for the business for Rs. 1,25,000, and an advance of Rs. 10,000 in cash is given.

The transactions upon tabulation show that the accounting equation remains the same

7. Explain the double entry mechanism with an illustrative example.

In a double-entry mechanism, every transaction impacts and gets recorded in two accounts. While recording the transactions in double entry, it is ensured that the total debit amount must equal the total credit amount.

The increase of an item is recorded on the left side, abbreviated as Dr and the decrease is recorded on the right side, abbreviated as Cr.

The following rules are taken into consideration when recording a transaction into an account.

For Assets or Expenses/Losses:

Increase is debited and Decrease is credited.

For Liabilities/Capital/Revenues or Gains:

Increase is credited and Decrease is debited

Let us understand this with one example

Ronit started a business with a cash of Rs. 4, 00,000

This transaction increases cash on one hand while increasing capital on the other. Therefore cash account is debited, and the capital account is credited.

These were the long answer type questions from chapter 3  Recording of Transactions 1.

Numerical Answers for NCERT Solution for Class 11: Chapter 3  Recording of Transactions 1

1 .Prepare accounting equation on the basis of the following:

(a) Harsha started business with cash Rs 2, 00,000

(b) Purchased goods from Naman for cash Rs 40,000

(c) Sold goods to Bhanu costing Rs 10,000/- Rs 12,000

(d) Bought furniture on credit Rs 7,000

The solution is as follows:

2. Prepare accounting equation from the following:

 

The solution is as follows:

 

 

3. Mohit has the following transactions, prepare accounting equation:Your Content Goes Here

 

The solution is as follows:

 

4. Rohit has the following transactions:

 

Prepare the Accounting Equation to show the effect of the above transactions on the assets, liabilities and capital.

 

The solution is as follows:

5. Use accounting equation to show the effect of the following transactions of M/s Royal Traders:

 

Solution:

 

6. Show the accounting equation on the basis of the following transaction:

The solution is as follows:

7. Show the effect of the following transactions on Assets, Liabilities and Capital through accounting equation:

The solution is as follows:

8. Show the effect of following transaction on the accounting equation:

The solution is as follows:

9. Transactions of M/s. Vipin Traders are given below.

Show the effects on Assets, Liabilities and Capital with the help of the accounting Equation

The solution is as follows:

10. Bobby opened a consulting firm and completed these transactions during November, 2014

Invested ₹ 4,00,000 cash and office equipment with ₹ 1,50,000 in a business called Bobbie Consulting.

Purchased land and a small office building. The land was worth ₹ 1,50,000 and the building worth ₹ 3,50,000. The purchase price was paid with ₹ 2,00,000 cash and a long-term note payable for ₹ 8,00,000

Purchased office supplies on credit for ₹ 12,000

Bobbie transferred title of motor car to the business. The motor car was worth ₹ 90,000.

Purchased for ₹ 30,000 additional office equipment on credit.

Paid ₹ 7,500 salary to the office manager.

Provided services to a client and collected ₹ 30,000

Paid ₹ 4,000 for the month’s utilities.

Paid supplier created in transaction c.

Purchase new office equipment by paying ₹ 93,000 cash and trading in old equipment with a recorded cost of ₹ 7,000

Completed services of a client for ₹ 26,000. This amount is to be paid within 30 days.

Received ₹ 19,000 payment from the client created in transaction k.

Bobby withdrew ₹ 20,000 from the business.

Analyse the above stated transactions and open the following T-accounts:

Cash, client, office supplies, motor car, building, land, long term payables, capital, withdrawals, salary, expense and utilities expense.

1. Invested ₹ 4, 00,000 cash and office equipment with ₹ 1, 50,000 in a business called Bobbie Consulting.

1. Purchased land and a small office building. The land was worth ₹ 1, 50,000 and the building was worth ₹ 3, 50,000. The purchase price was paid with ₹ 2, 00,000 cash and a long term note payable for ₹ 8, 00,000

Analysis of Transaction: The land purchased is an asset. An increase in the asset has to be debited.

2. Similarly, the purchase of the building increases the asset and hence should be debited.

3. For purchasing the above two assets, another asset, i.e. cash, is spent and hence decreased. And a decrease in the asset should be credited.

4. At the same time, there is a long-term note payable for ₹ 8,00,000. This is a liability. An increase in liability should be credited.

5. Purchased office supplies on credit for ₹ 12,000 Analysis of transaction: Purchase of office supplies is an expense, and hence an increase in the expenses should be debited.

6. For purchasing the office supplies, a liability is created. Hence the accounts payable will be increased, and an increased liability should be credited.

7. Bobbie transferred the title of the motor car to the business. The motor car was worth ₹ 90,000. Analysis of the transaction: Motor car will be an asset, and hence an increase in the asset should be debited.

8. Transferring the title of the motor car will increase the capital. An increase in capital should be credited.

9. Purchased for ₹ 30,000 additional office equipment on credit. Analysis of the transaction: Office equipment is an asset, and hence an increase in the asset will be debited.

 

10. This office equipment is purchased on credit, so the liability of the accounts payable account will be increased. An increase in liability should be credited.

 

11. Paid ₹ 7,500 salary to the office manager.Analysis of the transaction: Salary is an expense, and hence an increase in the expense should be debited.

12. Payment of salary will reduce the cash. A decrease in the cash asset should be credited.

 

1. Provided services to a client and collected ₹ 30,000Analysis of the transaction: Providing services for cash should be debited to the cash account.