Question

State whether the following statements are true or false:

(1) A journal voucher is must for all transactions recorded in the journal.
(2) Journal is a book of secondary entry.
(3) Narration is not necessary for each and every journal entry.
(4) Every transaction is recorded first in the journal.
(5) Live Stock A/c is a Nominal A/c.
(6) Bank of Maharashtra A/c is a Nominal A/c.
(7) Brokerage paid on sale of goods is debited to brokerage A/c.
(8) If the goods are sold the entry should be recorded in the journal.
(9) Goods withdrawn by the proprietor from business is debited to the Drawing A/c.
(10) Cash discount does not appear in the books of accounts.
(11) If rent is paid to the landlord, landlord’s A/c should be debited.
(12) Book keeping records monetary transactions only.
(13) Drawings made by the proprietor increases his capital.
(14) Premium paid on the life policy of the proprietor should be debited to insurance premium account.

Answer 1

(1) True

Explanation:
The above statement is true, since vouchers act as the base for the recording of all the transactions. Vouchers are regarded as the source documents, based on which the transactions are recorded in the Journal book in form of Journal entries. Thus, for all the transactions that are recorded in the Journal book, corresponding voucher is a necessary condition.

(2) False

Explanation:
A Journal is a book of original or prime entry and not a book of secondary entry. All the business transactions are first recorded in the Journal, and then postings are made in the respective Ledger Accounts, i.e. secondary books. Thus, a Journal is a book of original entry.

(3) False

Explanation:
This statement is false because narration is a brief explanation of a transaction, together with necessary details that are provided with the Journal entry, which helps to understand the account which is to be debited or credited. Thus, a narration is necessary for each and every Journal entry, as it provides the details of the Journal entry and helps understand the entry.

(4) True

Explanation:
Every business transaction is first of all recorded in a Journal or Subsidiary Books known as books of original or prime entry and then postings are made in the relevant ledger accounts from which the final accounts are prepared. Thus, every transaction is recorded first in the Journal.

(5) False

Explanation:
Livestock A/c records the monetary value of the domestic animals used in a business such as dog, horse, cow etc. Thus, it is a fixed asset of a business and all the assets of the business whose value can be measured in terms of money are classified under the real account, whereas , the nominal account includes the accounts related to expenses, losses, incomes and gains. Therefore, the Live Stock A/c is a real account and not a nominal account.

(6) False

Explanation:
All the accounts of persons, companies or institutions are classified as personal accounts. The Bank of Maharashtra A/c is related to the banking firm, which is an artificial person, and all the accounts related to people, whether artificial or natural, are termed as personal accounts.

(7) True

Explanation:
Brokerage is a fee or commission paid to a broker who is engaged in buying and selling shares and securities. Hence, it is an indirect expense for a business that is to be accounted under Brokerage A/c. Being an expense for the business, it should be debited to the Profit and Loss A/c, according to the rule of nominal account.

(8) True

Explanation:
When goods are sold, the transactions should be recorded in the book of original entry, i.e. Journal. All the business transactions of a business are recorded in the Journal and, thus, it is called the book of original entry. Hence, the entries for the goods sold should be recorded in the Journal.

(9) True

Explanation:
Drawings A/c shows all the withdrawals made by a proprietor from the business for his/her personal use. The withdrawals may be in the form of cash or goods. Thus, goods withdrawn by the proprietor are debited to Drawings A/c.

(10) False

Explanation:
A cash discount is the discount given to the customers for early payments. It is provided at the time of receiving the payment. Thus, it should be recorded in the books of accounts. Thus, the cash discount appears in the books of accounts, whereas, the trade discount does not appear in the books of accounts.

(11) False

Explanation:
If rent is paid to a landlord, Rent A/c should be debited and not the Landlord’s A/c. It is an expense for the business and should be accounted under Rent A/c. Rent is an expense for the business and falls under the category of nominal accounts. Hence, Rent A/c should be debited.

(12) True

Explanation:
Book keeping records only those transactions whose value can be measured in terms of money.
Note:
As we all know that all those transactions which can be measured in monetary terms are recorded in the books of accounts. Thus, the above statement is true and the solution provided in the book is incorrect.

(13) False

Explanation:
This statement is false because drawings made by a proprietor decrease his capital. Drawings are the cash or goods that are withdrawn by a proprietor from business for his/her personal use. Thus, it will reduce or decrease the capital of the proprietor in the business.

(14) False

Explanation:
Premium paid on the life policy of a proprietor is regarded as the personal expense of the proprietor and, thus, should be treated as drawings. Hence, it should be debited to Drawings A/c instead of Insurance Premium A/c.