State whether the following statements are True or False.
1) Prepaid insurance is nominal account.
2) Personal transactions of proprietor are recorded in the books of account of business.
3) Every debit has equal and corresponding credit.
4) Loan account is personal account.
5) Drawing account is a real account.
6) Commission received is a nominal account.
7) Outstanding wages is a nominal account.
8) Bank of India is an example of real account.
9) An order placed for the goods, entry is passed/recorded in the book of account.
10 Every transaction has only on effect
State whether the following statements are True or False.
1) Prepaid insurance is nominal account.
2) Personal transactions of proprietor are recorded in the books of account of business.
3) Every debit has equal and corresponding credit.
4) Loan account is personal account.
5) Drawing account is a real account.
6) Commission received is a nominal account.
7) Outstanding wages is a nominal account.
8) Bank of India is an example of real account.
9) An order placed for the goods, entry is passed/recorded in the book of account.
10 Every transaction has only on effect
1) False
Explanation:
A Prepaid Insurance A/c is a representative personal account. A representative personal account refers to the account that acts as a representative of a certain person. Thus, prepaid insurance represents the amount that is paid in advance to an insurance company.
2) False
Explanation:
This statement is false because personal transactions of a proprietor are recorded in the personal books of the trader and not in the business books. As a business is a separate entity, it is considered different from the owner or proprietor of the business. Hence, only the business transactions are recorded in the books of accounts.
3) True
Explanation:
All the business transactions of a business are recorded on the basis of double-entry system that is based on the dual aspect concept. According to this concept, all the transactions of a business have a dual aspect, i.e. for every debit there must be a corresponding credit. Thus, every debit has an equal and corresponding credit.
4) True
Explanation:
Loan Account represents the amount given or taken as loan to/from a person, firm or company. This account is in the name of the person taking (or granting) the loan. Hence, it is treated as a personal account.
5) False
Explanation:
Drawings Account is a personal account and not a real account. It is the account of the trader of the business that represents the amount withdrawn by him for personal use.
6) True
Explanation:
A nominal account includes all the accounts of incomes and expenses of a business. Commission received represents an income of the business and is credited to the Profit & Loss A/c, following the rule of nominal account.
7) False
Explanation:
Outstanding wages is classified as a personal account and not a nominal account. This account represents the accounts of all those persons to whom wages have not been paid and, hence, are outstanding. Therefore, it is termed as 'Representative Personal Account' or simply personal account.
8) False
Explanation:
Bank of India is an example of personal account and not a real account. All the accounts related to an individual, a firm or a company are termed as personal accounts. Hence, Bank of India is an example of a personal account.
9) False
Explanation:
A transaction is recorded in the books of accounts only when it takes place and if its value can be measured in terms of money. Placing an order is an event and not a transaction. Hence, no entry will be entered in the books of accounts.
10) False
Explanation:
All transactions are recorded in the books of accounts on the basis of the dual-aspect concept. Thus, every transaction affects at least two accounts in opposite directions. There can be no transactions in a business that affect only one account or have only one aspect because the double-entry system of accounting is followed while recording the transactions in the books of accounts. For example, if furniture is purchased for cash, the transaction will affect two accounts, i.e. Furniture A/c, as furniture is increased and Cash A/c, as cash is decreased.
1) False
Explanation:
A Prepaid Insurance A/c is a representative personal account. A representative personal account refers to the account that acts as a representative of a certain person. Thus, prepaid insurance represents the amount that is paid in advance to an insurance company.
2) False
Explanation:
This statement is false because personal transactions of a proprietor are recorded in the personal books of the trader and not in the business books. As a business is a separate entity, it is considered different from the owner or proprietor of the business. Hence, only the business transactions are recorded in the books of accounts.
3) True
Explanation:
All the business transactions of a business are recorded on the basis of double-entry system that is based on the dual aspect concept. According to this concept, all the transactions of a business have a dual aspect, i.e. for every debit there must be a corresponding credit. Thus, every debit has an equal and corresponding credit.
4) True
Explanation:
Loan Account represents the amount given or taken as loan to/from a person, firm or company. This account is in the name of the person taking (or granting) the loan. Hence, it is treated as a personal account.
5) False
Explanation:
Drawings Account is a personal account and not a real account. It is the account of the trader of the business that represents the amount withdrawn by him for personal use.
6) True
Explanation:
A nominal account includes all the accounts of incomes and expenses of a business. Commission received represents an income of the business and is credited to the Profit & Loss A/c, following the rule of nominal account.
7) False
Explanation:
Outstanding wages is classified as a personal account and not a nominal account. This account represents the accounts of all those persons to whom wages have not been paid and, hence, are outstanding. Therefore, it is termed as 'Representative Personal Account' or simply personal account.
8) False
Explanation:
Bank of India is an example of personal account and not a real account. All the accounts related to an individual, a firm or a company are termed as personal accounts. Hence, Bank of India is an example of a personal account.
9) False
Explanation:
A transaction is recorded in the books of accounts only when it takes place and if its value can be measured in terms of money. Placing an order is an event and not a transaction. Hence, no entry will be entered in the books of accounts.
10) False
Explanation:
All transactions are recorded in the books of accounts on the basis of the dual-aspect concept. Thus, every transaction affects at least two accounts in opposite directions. There can be no transactions in a business that affect only one account or have only one aspect because the double-entry system of accounting is followed while recording the transactions in the books of accounts. For example, if furniture is purchased for cash, the transaction will affect two accounts, i.e. Furniture A/c, as furniture is increased and Cash A/c, as cash is decreased.
