A-AS Level (CIE) Accounting Paper-1: Specimen Questions with Answers 10 - 11 of 93

Question 10

Question

MCQ▾

Real accounts are related to:

Choices

Choice (4)

a.

Debtors, Creditors etc.

b.

Assets

c.

Expenses, losses, and incomes

d.

All of the above

Answer

b.

Explanation

  • The accounts of all those things whose value can be BOOKS OF ORIGINAL ENTRY-JOURNAL measured in terms of money and which are the properties of the business are termed as Real Accounts. Such as, Cash A/c, Furniture A/c, Goodwill A/c. Machinery A/c, Building A/c, etc.
  • Rule: Rule for recording a transaction in real account is ‘Debit what comes in and credit what goes out’ . According to this rule, whenever any property comes into the business, it is debited and when it goes outside the business, it is credited.
  • For example, if furniture for $ 5,000 has been purchased for cash, furniture account should be debited according to the rule of “Debit what comes in” , while cash account should be credited according to the rule of “credit what goes out” . Entry will be:

Furniture A/c Dr.

To cash a/c Cr.

Question 11

Question

MCQ▾

Payment of $ 6,000 as wages to workmen for installation of a machine should be debited to:

Choices

Choice (4)

a.

Machinery Alc

b.

Wages Alc

c.

Repairs Alc

d.

Cash A/c

Answer

a.

Explanation

Expenditure on the installation of Machinery and on Building: the erection of Machinery and Building are the assets of the business. As such, any expenditure incurred on the carriage and installation of machinery such as freight, transit expenses, installation expenses, wages paid for the installation etc. is treated as capital expenditure and is debited to the Machinery Account. Similarly, any expenditure incurred for the construction of a Building such as the purchase of materials and the payment of wages are also treated as capital expenditure and as such debited to the Building Account. However, repair charges incurred on an asset which is already appearing in the books are debited to repairs account.

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