IGCSE Accounting Paper-1: Specimen Questions with Answers 228 - 229 of 338

Question number: 228

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MCQ▾

Question

Shivangi, a seller allows cash discount to Vivek on settlement of her account in Vivek’s book. Which of the following double entry is made in the books of Vivek? (Marks 1)

Choices

Choice (4)Response

a.

Debit- Discount Allowed, Credit- Shivangi,

b.

Debit- Shivangi, Credit- Discount Received,

c.

Debit- Cash, Credit- Discount Received,

d.

Debit- Discount Allowed, Credit- Cash,

Answer

b.

Explanation

  • Shivangi is a creditor for Vivek. So, in Vivek’s book, entry for discount RECEIVED will be made.

  • Shivangi is being paid, she is receiver here. So, Shivangi will be debited. And discount received is an income (or a reduction in an expense), so it will be credited.

Question number: 229

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Short Answer Question▾

Write in Short

Name the accounting principle applied in each of the following cases. (Marks 1)

Accounting PrincipleAccounting Principle

Accounting Principle

(I) A businessman gifted his office furniture to his friend and records it on the debit side of drawings A/c

(II) Rent accrued but not paid at the end of the current accounting year should be debited to P&L A/c of the current year

(III) A trader computes the profits of his business every year

(IV) Henry starts his business with $1000 and records it in Capital A/c as well as Cash A/c.

Explanation

Accounting PrincipleAccounting Principle

Accounting Principle

(I) A businessman gifted his office furniture to his friend and records it on the debit side of drawings A/c

Separate Entity

(II) Rent accrued but not paid at the end of the current accounting year should be debited to P&L A/c of the current year

Matching

(III) A trader computes the profits of his business every year

Going Concern

(IV) Henry starts his business with $1000 and records it in Capital A/c as well as Cash A/c.

Duality

  • Separate Entity Principle treats business and owner as two separate entities. So, taking out an asset of the business (furniture) for personal use of the owner (gifting to a friend) should be treated as drawings.

  • Matching Concept says that expenses of a single accounting year only should be matched with the revenues of the same year. When rent is accrued in current year, it is payable in the current year itself so it must be debited to P&L the current accounting year irrespective of the year in which it is paid.

  • As per the going concern, it is assumed that the business will continue to run for an indefinite time in future. It is on the basis of this assumption only that the entire life of business is divided into equal periods say one accounting year at the end of which the owner calculates the profit earned or loss sustained by the business and he does not wait for the closure of business to calculate the profit or loss of business.

  • Duality concept says that every business transaction has two aspects- debit and credit and a single transaction affects atleast two accounts. Double entry system is based on this concept. Accordingly, capital brought in the business in the form of cash will be recorded in both Capital A/c as well as cash a/c.

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