A-AS Level (CIE) Accounting Paper-1: Specimen Questions with Answers 8 - 9 of 93

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Question 8

Question

MCQ▾

Nominal Accounts are related to:

Choices

Choice (4)

a.

Assets and Liabilities

b.

Expenses, losses, and incomes

c.

Debtors, Creditors etc.

d.

Question does not provide sufficient data or is vague

Answer

b.

Explanation

“Debit the expense and losses and credit the income and gains”

Nominal accounts refer to the accounts which do not exist and are in name only. These accounts are opened simply to explain the nature of head for which Cash has been paid. Absence of nominal accounts will cause difficulty for the management to keep record of the amount paid separately on account of rent, salary, commission etc. As such, the nominal accounts reveal the information regarding the following items:

  • Amount spent on various heads in a particular period.
  • Income received on various heads in a particular period.

Question 9

Question

MCQ▾

Goods given away as charity would be credited to:

Choices

Choice (4)

a.

Goods A/c

b.

Charity A/C

c.

Purchases Alc

d.

Sales Alc

Answer

c.

Explanation

  • Goods are the things which are purchased for the purpose resale. For example, if a cloth merchant purchases cloth, the cloth will be termed as “purchases” . But if the same cloth merchant purchases some furniture, say chairs and a sofa set for the seating of customers, the furniture so purchased will not be termed as purchases, but will be an asset of his business and in this case “Furniture A/c” will be debited instead of Purchases A/c. It means that the purchases of asset are not termed as purchases in accounting terminology because these assets are not meant for sale.
  • Purchases A/c:- When goods are purchased, instead of debiting Goods A/c “Purchase A/c” is debited. While passing a Journal entry “Purchase A/c” should always be debited because of the rule of Debit what comes in.
  • Charity is an expense of the business, as such charity account will be debited. Goods are going out of business at cost price; hence purchases are reduced to that extent and as such purchases are reduced to that extent and as such purchases will be credited.

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