Cash Basis of Accounting

Q.

Briefly explain three causes of difference in the Cash Book and Pass Book balances.

Q. Pass the rectification entries for the following transactions:
(i) Repairs to plant amounting to ₹ 2, 000 had been charged to Plant and Machinery Account.
(ii) Wages paid to the firm's workmen for making certain additions to machinery amounting to ₹ 1, 340 were debited to Wages Account.
(iii) A cheque for ₹ 7, 500 received from S. Desai was credited to the account of R. Gupta.
(iv) Goods to the value of ₹ 7, 000 returned by X were included in closing stock, but no entry was made in the books.
(v) Goods costing ₹ 5, 000 were purchased for various members of the staff and the cost was included in 'Purchases'. A similar amount was deducted from the salaries of the staff members concerned and the net payments to them debited to Salaries Account.
(vi) Credit purchase of old machinery from Sohan for ₹ 1, 70, 000 was entered in the Purchase Book as purchase from Mohan for ₹ 7, 10, 000. ₹ 30, 000 paid as repairing charges on the reconditioning of a newly purchased second had machinery were debited to General Expenses Account.
(vii) Debit and Credit totals of discount columns in the Cash Book which come to ₹ 400 and ₹ 370 respectively have not been posted to Discount Accounts.

Q. Answer in one sentence.

What is meant by Final Accounts?

Q.

There are 2 students studying in the same class. The teacher has given them an assignment to analyze a situation & find out the profit. Student A follows cash system of accounting & Student B follows accrual basis of accounting. What shall be difference between the profits as calculated by both of them for the period ending 31st March 2017?

Situation:
Sales of the company during the year is Rs 5, 00, 000 out of which cash sales is Rs 4, 00, 000. The company has paid a rent in the month of January 2017 for 1 year @ Rs 30, 000 per month.

1. Rs 3, 70, 000

2. Rs 4, 00, 000

3. Rs 1, 00, 000

4. Rs 4, 50, 000

Q.

Which of the following shall not be recorded if the entity is following cash basis of accounting?

1. Sale of goods for cash in the year

2. Amount of interest Mr. X has promised to pay in the next year

3. Amount of interest Mr. X has paid in this year

4. Amount received from bank in form of loan

Q. Suppose that a sole proprietorship is earning total revenues of Rs. 1, 00, 000 and is incurring explicit costs of Rs. 75, 000. If the owner could work for another company for Rs. 30, 000 a year, we would conclude that:

1. The firm is incurring an economic loss.
2. The total economic costs are Rs. 1, 00, 000.
3. Implicit costs are Rs. 25, 000.
4. The individual is earning an economic profit of Rs. 25, 000.