2
Question
State whether the following statements are TRUE or FALSE :
1. Total of payments side can be greater than total of receipts side in case of bank column.
2. Purchase of asset or stationery on credit is recorded in purchase book.
3. When goods are returned by buyer to seller, buyer sends a debit note.
4. Cheque received and deposited into bank on the same day is a contra entry.
5. Simple petty cash book is not very popular.
6. Interest on overdraft charged by bank is recorded in the cash column.
7. It is not necessary to record dishonor of cheques in the cash book.
8. Cheque book facility is available for fixed deposit account.
9. Businessman generally operates savings bank account.
10. A cash book is both a journal as well as ledger.
11. Cash book is a book of original entry.
12. Cash discount allowed is recorded on the debit side of cash book
13. Credit transactions are never recorded in cash book.
14. Endorsed cheques are always recorded on the payment side in the bank column.
15. A person who endorses the cheque is known as endorser.
State whether the following statements are TRUE or FALSE :
1. Total of payments side can be greater than total of receipts side in case of bank column.
2. Purchase of asset or stationery on credit is recorded in purchase book.
3. When goods are returned by buyer to seller, buyer sends a debit note.
4. Cheque received and deposited into bank on the same day is a contra entry.
5. Simple petty cash book is not very popular.
6. Interest on overdraft charged by bank is recorded in the cash column.
7. It is not necessary to record dishonor of cheques in the cash book.
8. Cheque book facility is available for fixed deposit account.
9. Businessman generally operates savings bank account.
10. A cash book is both a journal as well as ledger.
11. Cash book is a book of original entry.
12. Cash discount allowed is recorded on the debit side of cash book
13. Credit transactions are never recorded in cash book.
14. Endorsed cheques are always recorded on the payment side in the bank column.
15. A person who endorses the cheque is known as endorser.
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Solution
(1) True
Explanation:
When the total of the payments side exceeds the total of the receipts side, it will result in overdraft balance. Sometimes, a bank provides overdraft facility to its businessmen. This means that the withdrawal amount can exceed the deposit amount. But it is not possible in the case of cash column of the Cash Book, as a businessman cannot make payments that are greater than his/her receipts.
(2) False
Explanation:
Purchases Book records only the credit purchases of goods. Goods are things that are purchased or produced for resale in which a business deals. Purchase of assets or stationery is not meant for resale and will be held for a long term and increase the profit-earning capacity of the business over various accounting periods. Hence, transactions related to purchase of assets or stationery cannot be recorded in the Purchases Book. It will be recorded in the Journal Proper.
(3) True
Explanation:
A buyer prepares and sends a debit note to the supplier with the returned goods in order to inform him/her about the debit made in his account on account of the returned goods. It is the source document on the basis of which transactions are recorded in the Purchases Return Book.
(4) False
Explanation:
The entries that affect both the columns and sides of the cash book, i.e. Cash and Bank, are termed as contra entries. It involves both the accounts, i.e. Cash and Bank A/c. For example: Cash withdrawn from a bank for office use or deposited in the bank.
When a cheque is received and deposited in the bank, it cannot be termed as contra entry, as it involves two accounts: Bank A/c and the account of the party from whom the cheque is received.
(5) True
Explanation:
A Simple Petty Cash Book is identical to a Cash Book. Any cash that a petty cashier receives is recorded on the debit or receipts side and any cash that he pays is recorded on the credit or payments side. In this type of Cash Book, all the expenses are recorded in one single column. Due to this, postings of all expenses to respective ledger accounts consume a lot of time.
Hence, the Simple Petty Cash Book is not popular because separate columns for various expenses are not maintained.
(6) False
Explanation:
The interest charged by a bank for overdraft will be recorded in the bank column and not in the cash column of the Cash Book.
(7) False
Explanation:
This statement is false because it is necessary to record the dishonour of cheques in the Cash Book. The dishonour of cheques is recorded on the payment side or credit side of the bank column of Cash Book. When a cheque is dishonoured, the Bank A/c is credited and, thus, it is credited in the bank column of the Cash Book.
(8) False
Explanation:
The cheque book facility is not available for fixed deposit accounts. It is available for saving accounts and current accounts. In order to avail the cheque book facility, a minimum balance must be retained in the savings account.
(9) False
Explanation:
A businessman generally opens a current account because there are various transactions that take place in a day and current accounts do not have any restriction on the number of deposits and withdrawals during a day. Overdraft facility is also available to the current account holders. It is the facility that allows the account holder to withdraw money in excess of the amount deposited. No overdraft facility is provided to the savings account holders. Thus, businessmen generally operate current bank accounts.
(10) True
Explanation:
A Cash Book is both a Journal as well as a Ledger. The Cash Book is a Journal because it records the cash transactions from the source document for the first time and then these are posted in the respective ledger accounts. The Cash Book is a ledger in the sense that it serves the purpose of a cash account also. When the Cash Book is prepared, the Cash A/c is not required to be prepared. Thus, the Cash Book serves the purpose of a Subsidiary Book as well as the Principal Book.
(11) True
Explanation:
A Cash Book is a book of original entry because it is the subsidiary book that records all the cash transactions of the business from the source document. Hence, cash transactions of a business are first recorded in the Cash Book, and thus, it is termed as a book of original entry.
(12) The statement can be either true or false depending on the type of Cash Book that is prepared. Since in the question, it is not mentioned whether the Cash Book is Single Columned, Double Columned or Triple Columned, so we have provided the explanation of this statement in all types of Cash Books. (See explanation below)
Explanation:
Discount allowed by a seller is a loss to him, since he is receiving lesser amount than what he could have received without allowing discount. Hence, at the time of receiving the payment, discount allowed is recorded in the ‘Discount’ column on the debit side (or receipts side) of the Double Column Cash Book (with Cash and Discount Columns). This statement also holds valid in case of Triple Column Cash Book (with Cash, Discount and Bank Columns).
However, in case of Simple Cash Book with only Cash Column, the statement stands false. This is because in Simple Cash Book, transactions related only to cash are recorded. Hence, cash discount allowed is not recorded in the Cash Book. On the other hand, in case of Double Column Cash Book with Cash and Bank Columns, the statement holds false, as in this Cash Book, discount column does not exist.
(13) True
Explanation:
A Cash Book records the transactions related to cash receipts and cash payments. Thus, it records only those transactions that involve cash inflows or outflows. Credit transactions are not recorded in the Cash Book as it does not involve any cash inflows or outflows.
(14) False
Explanation:
Endorsed cheques are always recorded on the payments side in the cash column (and not in the bank column) of the Cash Book. The endorsed cheques so received are treated as Cash-in-Hand and when these cheques are endorsed, then Cash A/c is credited. Thus, the above statement is false.
(15) True
Explanation:
Endorsement means putting one’s signature on the back of a cheque to specify someone as the payee. The person who endorses the cheque is known as endorser and to whom the cheque is endorsed is known as endorsee.
Explanation:
When the total of the payments side exceeds the total of the receipts side, it will result in overdraft balance. Sometimes, a bank provides overdraft facility to its businessmen. This means that the withdrawal amount can exceed the deposit amount. But it is not possible in the case of cash column of the Cash Book, as a businessman cannot make payments that are greater than his/her receipts.
When the total of the payments side exceeds the total of the receipts side, it will result in overdraft balance. Sometimes, a bank provides overdraft facility to its businessmen. This means that the withdrawal amount can exceed the deposit amount. But it is not possible in the case of cash column of the Cash Book, as a businessman cannot make payments that are greater than his/her receipts.
(2) False
Explanation:
Purchases Book records only the credit purchases of goods. Goods are things that are purchased or produced for resale in which a business deals. Purchase of assets or stationery is not meant for resale and will be held for a long term and increase the profit-earning capacity of the business over various accounting periods. Hence, transactions related to purchase of assets or stationery cannot be recorded in the Purchases Book. It will be recorded in the Journal Proper.
Purchases Book records only the credit purchases of goods. Goods are things that are purchased or produced for resale in which a business deals. Purchase of assets or stationery is not meant for resale and will be held for a long term and increase the profit-earning capacity of the business over various accounting periods. Hence, transactions related to purchase of assets or stationery cannot be recorded in the Purchases Book. It will be recorded in the Journal Proper.
(3) True
Explanation:
A buyer prepares and sends a debit note to the supplier with the returned goods in order to inform him/her about the debit made in his account on account of the returned goods. It is the source document on the basis of which transactions are recorded in the Purchases Return Book.
A buyer prepares and sends a debit note to the supplier with the returned goods in order to inform him/her about the debit made in his account on account of the returned goods. It is the source document on the basis of which transactions are recorded in the Purchases Return Book.
(4) False
Explanation:
The entries that affect both the columns and sides of the cash book, i.e. Cash and Bank, are termed as contra entries. It involves both the accounts, i.e. Cash and Bank A/c. For example: Cash withdrawn from a bank for office use or deposited in the bank.
When a cheque is received and deposited in the bank, it cannot be termed as contra entry, as it involves two accounts: Bank A/c and the account of the party from whom the cheque is received.
The entries that affect both the columns and sides of the cash book, i.e. Cash and Bank, are termed as contra entries. It involves both the accounts, i.e. Cash and Bank A/c. For example: Cash withdrawn from a bank for office use or deposited in the bank.
When a cheque is received and deposited in the bank, it cannot be termed as contra entry, as it involves two accounts: Bank A/c and the account of the party from whom the cheque is received.
(5) True
Explanation:
A Simple Petty Cash Book is identical to a Cash Book. Any cash that a petty cashier receives is recorded on the debit or receipts side and any cash that he pays is recorded on the credit or payments side. In this type of Cash Book, all the expenses are recorded in one single column. Due to this, postings of all expenses to respective ledger accounts consume a lot of time.
Hence, the Simple Petty Cash Book is not popular because separate columns for various expenses are not maintained.
A Simple Petty Cash Book is identical to a Cash Book. Any cash that a petty cashier receives is recorded on the debit or receipts side and any cash that he pays is recorded on the credit or payments side. In this type of Cash Book, all the expenses are recorded in one single column. Due to this, postings of all expenses to respective ledger accounts consume a lot of time.
Hence, the Simple Petty Cash Book is not popular because separate columns for various expenses are not maintained.
(6) False
Explanation:
The interest charged by a bank for overdraft will be recorded in the bank column and not in the cash column of the Cash Book.
The interest charged by a bank for overdraft will be recorded in the bank column and not in the cash column of the Cash Book.
(7) False
Explanation:
This statement is false because it is necessary to record the dishonour of cheques in the Cash Book. The dishonour of cheques is recorded on the payment side or credit side of the bank column of Cash Book. When a cheque is dishonoured, the Bank A/c is credited and, thus, it is credited in the bank column of the Cash Book.
This statement is false because it is necessary to record the dishonour of cheques in the Cash Book. The dishonour of cheques is recorded on the payment side or credit side of the bank column of Cash Book. When a cheque is dishonoured, the Bank A/c is credited and, thus, it is credited in the bank column of the Cash Book.
(8) False
Explanation:
The cheque book facility is not available for fixed deposit accounts. It is available for saving accounts and current accounts. In order to avail the cheque book facility, a minimum balance must be retained in the savings account.
The cheque book facility is not available for fixed deposit accounts. It is available for saving accounts and current accounts. In order to avail the cheque book facility, a minimum balance must be retained in the savings account.
(9) False
Explanation:
A businessman generally opens a current account because there are various transactions that take place in a day and current accounts do not have any restriction on the number of deposits and withdrawals during a day. Overdraft facility is also available to the current account holders. It is the facility that allows the account holder to withdraw money in excess of the amount deposited. No overdraft facility is provided to the savings account holders. Thus, businessmen generally operate current bank accounts.
A businessman generally opens a current account because there are various transactions that take place in a day and current accounts do not have any restriction on the number of deposits and withdrawals during a day. Overdraft facility is also available to the current account holders. It is the facility that allows the account holder to withdraw money in excess of the amount deposited. No overdraft facility is provided to the savings account holders. Thus, businessmen generally operate current bank accounts.
(10) True
Explanation:
A Cash Book is both a Journal as well as a Ledger. The Cash Book is a Journal because it records the cash transactions from the source document for the first time and then these are posted in the respective ledger accounts. The Cash Book is a ledger in the sense that it serves the purpose of a cash account also. When the Cash Book is prepared, the Cash A/c is not required to be prepared. Thus, the Cash Book serves the purpose of a Subsidiary Book as well as the Principal Book.
A Cash Book is both a Journal as well as a Ledger. The Cash Book is a Journal because it records the cash transactions from the source document for the first time and then these are posted in the respective ledger accounts. The Cash Book is a ledger in the sense that it serves the purpose of a cash account also. When the Cash Book is prepared, the Cash A/c is not required to be prepared. Thus, the Cash Book serves the purpose of a Subsidiary Book as well as the Principal Book.
(11) True
Explanation:
A Cash Book is a book of original entry because it is the subsidiary book that records all the cash transactions of the business from the source document. Hence, cash transactions of a business are first recorded in the Cash Book, and thus, it is termed as a book of original entry.
A Cash Book is a book of original entry because it is the subsidiary book that records all the cash transactions of the business from the source document. Hence, cash transactions of a business are first recorded in the Cash Book, and thus, it is termed as a book of original entry.
(12) The statement can be either true or false depending on the type of Cash Book that is prepared. Since in the question, it is not mentioned whether the Cash Book is Single Columned, Double Columned or Triple Columned, so we have provided the explanation of this statement in all types of Cash Books. (See explanation below)
Explanation:
Discount allowed by a seller is a loss to him, since he is receiving lesser amount than what he could have received without allowing discount. Hence, at the time of receiving the payment, discount allowed is recorded in the ‘Discount’ column on the debit side (or receipts side) of the Double Column Cash Book (with Cash and Discount Columns). This statement also holds valid in case of Triple Column Cash Book (with Cash, Discount and Bank Columns).
However, in case of Simple Cash Book with only Cash Column, the statement stands false. This is because in Simple Cash Book, transactions related only to cash are recorded. Hence, cash discount allowed is not recorded in the Cash Book. On the other hand, in case of Double Column Cash Book with Cash and Bank Columns, the statement holds false, as in this Cash Book, discount column does not exist.
Discount allowed by a seller is a loss to him, since he is receiving lesser amount than what he could have received without allowing discount. Hence, at the time of receiving the payment, discount allowed is recorded in the ‘Discount’ column on the debit side (or receipts side) of the Double Column Cash Book (with Cash and Discount Columns). This statement also holds valid in case of Triple Column Cash Book (with Cash, Discount and Bank Columns).
However, in case of Simple Cash Book with only Cash Column, the statement stands false. This is because in Simple Cash Book, transactions related only to cash are recorded. Hence, cash discount allowed is not recorded in the Cash Book. On the other hand, in case of Double Column Cash Book with Cash and Bank Columns, the statement holds false, as in this Cash Book, discount column does not exist.
(13) True
Explanation:
A Cash Book records the transactions related to cash receipts and cash payments. Thus, it records only those transactions that involve cash inflows or outflows. Credit transactions are not recorded in the Cash Book as it does not involve any cash inflows or outflows.
A Cash Book records the transactions related to cash receipts and cash payments. Thus, it records only those transactions that involve cash inflows or outflows. Credit transactions are not recorded in the Cash Book as it does not involve any cash inflows or outflows.
(14) False
Explanation:
Endorsed cheques are always recorded on the payments side in the cash column (and not in the bank column) of the Cash Book. The endorsed cheques so received are treated as Cash-in-Hand and when these cheques are endorsed, then Cash A/c is credited. Thus, the above statement is false.
Endorsed cheques are always recorded on the payments side in the cash column (and not in the bank column) of the Cash Book. The endorsed cheques so received are treated as Cash-in-Hand and when these cheques are endorsed, then Cash A/c is credited. Thus, the above statement is false.
(15) True
Explanation:
Endorsement means putting one’s signature on the back of a cheque to specify someone as the payee. The person who endorses the cheque is known as endorser and to whom the cheque is endorsed is known as endorsee.
Endorsement means putting one’s signature on the back of a cheque to specify someone as the payee. The person who endorses the cheque is known as endorser and to whom the cheque is endorsed is known as endorsee.
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