QUALITY QUESTION OF NEB 11 ACCOUNTS | SAPHAL, KRISHNA, PRAMOD & INESH | DUE DATE APRIL 6
Mastering the Accounting Cycle
From Journal to Final Accounts: The Ultimate Practice Set
Question 1: The Tricky Journal, Ledger & Trial Balance
Mr. Sharma started a wholesale business. Record the following transactions in the Journal, post them into appropriate Ledger accounts, and extract a Trial Balance as of 31st Baishakh.
| Date | Transactions |
|---|---|
| Baishakh 1 | Started business with Cash Rs. 5,00,000, Bank Balance Rs. 3,00,000, and Goods worth Rs. 2,00,000. |
| Baishakh 5 | Purchased goods from Hari for Rs. 1,50,000 at a 10% trade discount. |
| Baishakh 8 | Paid Life Insurance Premium of Mr. Sharma for Rs. 15,000 and Fire Insurance Premium for the business godown for Rs. 25,000 by a single cheque. |
| Baishakh 12 | Goods costing Rs. 40,000 were completely destroyed by a massive fire in the godown. |
| Baishakh 15 | The Insurance Company admitted a claim for the fire loss at 75% of the value. |
| Baishakh 18 | Received a cheque from the Insurance Company in full settlement of the admitted claim. |
| Baishakh 22 | Sold goods to Sita costing Rs. 80,000 at a profit of 25% on cost, allowing a 5% cash discount as she paid half the amount immediately through a bank transfer. |
| Baishakh 25 | Paid Hari his due amount in full settlement by issuing a cheque of Rs. 1,32,000. |
| Baishakh 30 | Paid monthly salary Rs. 30,000, but Rs. 5,000 is still outstanding for the month. |
Question 2: Comprehensive Adjusted Trial Balance
The unadjusted Trial Balance of Global Enterprises as of 31st Chaitra is as follows:
| Particulars | Debit (Rs.) | Credit (Rs.) |
|---|---|---|
| Cash and Bank | 1,20,000 | |
| Sundry Debtors | 2,50,000 | |
| Prepaid Insurance | 48,000 | |
| Machinery | 5,00,000 | |
| Opening Stock | 90,000 | |
| Purchases & Sales | 6,00,000 | 10,50,000 |
| Wages & Salaries | 1,50,000 | |
| Rent Expense | 60,000 | |
| Capital Account | 7,00,000 | |
| 10% Bank Loan | 1,00,000 | |
| Commission Received | 30,000 | |
| Sundry Creditors | 38,000 | |
| Total | 18,18,000 | 18,18,000 |
Additional Information (Adjustments):
- Closing stock is valued at Rs. 1,10,000.
- Insurance premium of Rs. 36,000 has expired during the year.
- Commission of Rs. 10,000 was received in advance (unearned).
- Write off Rs. 10,000 as bad debts and create a provision for doubtful debts @ 5% on remaining debtors.
- Provide depreciation on Machinery at 15% p.a.
- Interest on the 10% Bank Loan has not been paid for the entire year.
Required: Adjusted Trial Balance.
Question 3: Lengthy Final Accounts (With Complex Adjustments)
From the following Trial Balance of Gandaki Suppliers, prepare a Trading Account, Profit & Loss Account, and Balance Sheet for the year ended 31st Ashad.
| Debit Balances | Rs. | Credit Balances | Rs. |
|---|---|---|---|
| Drawings | 25,000 | Capital | 4,50,000 |
| Opening Stock | 1,30,000 | Sales | 8,80,000 |
| Purchases | 4,80,000 | Return Outwards | 15,000 |
| Return Inwards | 20,000 | Sundry Creditors | 85,000 |
| Carriage on Purchases | 18,000 | 12% Loan (Taken on Poush 1) | 1,00,000 |
| Carriage on Sales | 12,000 | Provision for Bad Debts | 8,000 |
| Factory Power | 35,000 | Rent Received | 24,000 |
| Productive Wages | 90,000 | Discount Received | 6,000 |
| Salaries | 1,10,000 | ||
| Sundry Debtors | 1,60,000 | ||
| Furniture & Fixtures | 80,000 | ||
| Plant & Machinery | 3,50,000 | ||
| Cash at Bank | 45,000 | ||
| Advertising | 13,000 | ||
| Total | 15,68,000 | Total | 15,68,000 |
Adjustments:
- Closing Stock is valued at Rs. 1,45,000.
- Included in Sales is an amount of Rs. 20,000 for machinery sold. The machinery was sold on the last day of the year (no depreciation adjustment needed for the sale, but remove it from sales).
- Wages outstanding Rs. 10,000 and Salaries prepaid Rs. 15,000.
- Depreciate Plant & Machinery by 10% and Furniture by 5%.
- Further Bad Debts Rs. 10,000. Create a Provision for Doubtful Debts at 5% and Provision for Discount on Debtors at 2%.
- The manager is entitled to a commission of 10% on Net Profit before charging such commission.
Theory Corner: Trial Balance & Types of Errors
1. What is a Trial Balance?
A Trial Balance is simply a list or a statement that shows the total debit and total credit balances of all the ledger accounts on a specific date.
Why do we make it? To check if our math is correct (arithmetical accuracy). Because of the double-entry system, every debit has an equal credit. Therefore, the total of the debit column must equal the total of the credit column.
2. Types (Methods) of Trial Balance
- Total Method: We write the total amount of the debit side and the total amount of the credit side of each ledger account.
- Balance Method (Most Common): We only write the final balancing figure (difference between debit and credit) of each ledger account. This is the method used 99% of the time in final exams.
3. Types of Accounting Errors (In Very Easy English)
Sometimes, even if the Trial Balance matches, there might still be mistakes! Here are the 4 main types of errors:
A. Error of Omission (The "I Forgot" Error)
You completely forgot to record a transaction in the books.
Example: You sold goods to Ram for Rs. 5,000 but totally forgot to write it in the journal. Your Trial Balance will still match, but your records are missing this sale.
B. Error of Commission (The "Careless Mistake" Error)
You recorded the transaction, but you wrote the wrong number, or did wrong total, or posted it to the wrong person's account.
Example: You paid Rs. 500 to Shyam, but by mistake, you wrote Rs. 5,000. Or, you paid Shyam, but you recorded it in Ram's account.
C. Error of Principle (The "Rule Breaker" Error)
You recorded a transaction breaking the fundamental rules of accounting. Usually, this means confusing an Asset (Capital) with an Expense (Revenue).
Example: You bought a Computer for the office (Asset), but you recorded it as "Office Expenses" in the journal.
D. Compensating Errors (The "Double Lucky" Error)
You made two different mistakes, but magically, one mistake canceled out the other mistake. The Trial Balance will match, hiding the errors.
Example: You accidentally wrote Rs. 1,000 less on the Debit side of the Purchase account. Later, you accidentally wrote Rs. 1,000 less on the Credit side of the Sales account. Both sides are short by 1,000, so they still balance!
💡 Quick Hints for the Practical Questions:
- Journal Q1: Life insurance is a personal expense, so Debit Drawings A/c. Fire insurance is a business expense, so Debit Insurance Premium A/c.
- Journal Fire Loss: Entry 1: Debit Loss by Fire, Credit Purchases. Entry 2: Debit Insurance Co. (75%), Debit P&L A/c (25% loss), Credit Loss by Fire.
- Adjusted TB Q2: Accrued Interest on Loan is Rs. 10,000. Unearned commission moves from income to liability.
- Final Account Q3: Deduct Rs. 20,000 from Sales and from Plant & Machinery. Calculate the 10% depreciation on the remaining machinery balance. Manager's commission is calculated normally (Rate/100) since it says "before" charging.
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