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The correct option of this multiple choice question is (B), as a Source Document provides evidence of a financial event that a Business Transaction took place between or among parties. It is the basis of recording business transaction into the accounting system i.e., once a monetary event occurred it now becomes part of accounting records and a business transaction is recorded in the Books of Accounts . That transaction is firstly recorded in Journal and then posted in concerned Ledger’s accounts. No monetary transactions are entered into the accounting system without a source document. Now, due to computerized accounting system, it is very easy to generate source documents whenever business transaction occurred between two parties. For example, if Mr. A sold goods to Mr. B for cash $500, then it is a monetary transaction, which took place between Mr. A and Mr. B for business purposes. Mr. A is a seller while Mr. B is a buyer. Here source document is used from seller, Mr. A, who is...

The correct statements of this multiple choice question (mcq) are A, B and C, as A T-Account (TA) is a simplified form of a Ledger’s Account to easily calculate the closing balance of a particular account for the current accounting period. In this way, one can easily see the debit and credit side of a t-account and the effects of Business Transactions . The debit side or left side represents that the account (a/c) (for which the t-account is preparing) is debited while credit side or right side shows that the account is credited. When a transaction is occurred, it is posted in TA of a particular account. If the a/c is debited in a transaction, then we debit it with the amount in its TA and write the opposite a/c which is the reason. For example, if goods sold to Mr. A for cash $300, then in Sales t-account, we credit the amount with $300 and write alongwith cash account which is the reason as shown below:             ...

In this multiple choice question, the true statement about “ Prepaid Expenses (PE) ” is option (B), as PE are also called prepaid accounts and are considered as Current Assets to be shown on the assets side of balance sheet. Prepaid means payment made in advance against which the services not yet received. For example, if the prepaid phone card is purchased then the payment is made in advance but the phone card is still not used i.e., no phone call is made so no benefit is received during the period. As the probable benefits will be received in near future so it is considered as Current Asset from the points view of the business. Other examples of PE include Prepaid Rent, Salary, etc. PE are also known as unexpired assets as these are not consumed and their benefits are not yet enjoyed by the business during the current accounting period. The option (B) is incorrect choice as PE are not prepaid liabilities and categorized as liabilities. The option (C) is also wrong choice here a...

Cash flows from operating activities show that cash is generated (inflows) or used (outflows) from normal business operations over a specified accounting period. When cash is received from such activities i.e., during daily working activities of business, there is cash inflow or cash is increasing. On the other hand, when it is paid due to such activities, then there are outflows which means cash is decreasing. These activities include cash received from customers (inflows) and cash paid to creditors or suppliers or employees (outflows). The correct options of this multiple choice question are (D) and (G), as cash paid for prepaid rent is related with the operations of the business and payment of salaries is also related with the operating activities of employees working in the business property. These are the cash outflows as the cash is going out of the business, so these are increased and cash is decreasing, so these are deducted from Net Income in Statement of Cash Flows . ...

The correct choices for this multiple choice question (mcq) are c, f and k, as all of these accounts are increased on credit side or right side of their T-Accounts . These have credit balances normally which are positive or favorable balances for these Kinds of Accounts . Sales Revenue is a direct source of revenue for a business. When the business sold goods for cash to customers, the sales revenue account is increased, so we credit it. Owner’s Capital is increasing on the right side of its T-Account when the sole proprietor made initial investments for the business or make additional investments into the business during the accounting period. Accounts Payable or Sundry Creditor, which is a Current Liability, is also increasing on right side of their T-Account. When the business incurred a liability, we credit it as it is increasing. So, a liability account has a favorable or normal credit balance. All other options of this mcq are incorrect here. Sales Returns and Allowances and...

The correct option is (A), as all of these accounts have normal debit or usual debit balances. Here these Accounts include Expenses , Owner’s Withdrawals / Drawings and Cash. All the expenses are debited when these are incurred, so these have positive, usual or favorable balances on debit side of T-Account . Owner’s Withdrawals are the withdrew of money or goods from the business for his own personal use and debited when these are created. These are the reversal of owner’ capital. So, withdrawals accounts have debit balances normally and increase on this side of a T-Account. Due to withdrawals, the cash or goods are going out of the business and as a result, the cash is decreasing and goods stored in the godown are also decreasing. Cash account also has normal debit balance. Cash, as a Current Asset, is increasing on debit of its t-account. It is decreasing on the credit side. If it has credit balance then it is not a favorable balance which shows that the business has no cash t...

The correct options of this multiple choice question (mcq) are a, b, c, e, f, h and i. Let’s briefly explain each option one by one: For option (a), assets can be used for Dividend purposes. It is paid in the form of cash, assets, additional owner investments and other assets. For option (b), it decreases equity as it is deducted from equity as a Contra Equity Account . The option (c) is related with option (a) as when it is paid out of profits in the form of assets, then it increases. The option (d) is incorrect, as it is decrease when owner investments are made as it is a contra equity account i.e., with the increase in owner investments, it decreases and vice versa. e. This statement is “True”, as it has normal balance on debit side of its T-Account, so it increases on left side and decreases on right side of its T-Account. f. This statement is also “True”, as it decreases Retained Earnings because it is deducted from opening retained earnings in the calculation of closing ret...

Answer Of True And False (T&F) Question With Brief Explanation The answer to this statement is “False”, as the rectifying or correcting entry (CE) will include a credit to miscellaneous expense account which was wrongly debited, now credited it to cancel the effect of Miscellaneous Expense Account and Rent Expense Account is debited in the CE. The correct journal entry, which should be recorded, for rent paid for cash includes a debit to rent expense account and a credit to cash account as shown below:                                             RE expense a/c  XXX                                                                           Cash a/c XXX         ...

All those accounts which are closed or zero out at the end of the current accounting period are recorded in Income Statement i.e., all the Temporary Accounts or Income Statement Accounts / Items while those accounts which are closed at the end of the accounting period are not recorded in Income Statement but on the balance sheet as these are Permanent Accounts or Balance Sheet Accounts / Items . So, the correct options of this multiple choice question are D, F, H, I, J and L, as all of the revenue and expense accounts are temporary accounts (Revenues, Expenses, Income & Losses) and closed to Income Summary Account at the end of the accounting period. These accounts have no balances at the end of the accounting cycle so these are zero out. Cost of Goods Sold or Cost of Sales (direct expense), Service Revenue, Net Income, Gas Expense, Utilities Expense and Salaries Expense are temporary accounts, so these should be included on Income Statement for the period. Net Income is ...

The correct answer of this multiple choice (mcq) is (D), as a Trial Balance is a confirmation that the sum of all the debit accounts’ balances, which include Expenses and Assets, equals to the sum of all the credit accounts’ balances, which include Revenues, Liabilities and Equity. This equality should maintain throughout the accounting period under the Double Entry System of Bookkeeping . So, we get the monetary value of list of all accounts at one place. After trial balance is prepared which is an Unadjusted Trial Balance , Adjusting Trial Balance in order to get the updated value of all the accounts that need Adjustments . This ADT forms the basis for the preparation of Financial Statements which are reported to Users of Accounting Information. A TB is prepared for the current accounting period. The advantage of TB is that it detect posting errors, casting errors, one-sided errors, transposition errors, (where amounts are exchanged in part of other i.e., write the amount inc...

The correction option of this multiple choice question MCQ is (B), as Revenues are positive for the business means there is cash inflows for the business when goods or services sold for cash or when sales on account is made and the business earned the revenue by providing goods or delivered services to customers / clients. Due to increase in sales, the net income or net profit increases which ultimately increase the Equity Account . Equity is recorded on the right side of the Accounting Equation so sales is also added to equity on the right side of the accounting equation. Increase in revenue is recorded on the right side or credit side of a revenue t-account. Increase in revenue account is credited and other account (Cash or Accounts Receivable) is debited according to the Rules of Debit And Credit . For example, if a sole proprietor earned revenue of $1,000 for cash, then revenue account for the business increases and as a result the equity account also increased by $1,000 as ...

The correct statement about Expenses is (D), as these are increased on left side or debit side of their T-Account and when expenses incurred these are increasing on left side of T-account . As expenses are outflows for the business, as the cash is paid out and it is going out of the business which decrease the net profit, so these directly decrease the Equity Account . Examples of expenses include Rent paid, electricity bill paid, fees paid, salaries paid, etc. In T-account of expenses, we debit the expense account on left side and then the closing balance is calculated. In their T-account, debit side is higher than credit side and resulted is a debit balance which is finally closed to Income Summary Account as these are temporary accounts which are zero out at the end of the current accounting period. The option (A) is incorrect as expenses are reported on the right side or liabilities & equity side of the Accounting Equation and these are deducted from equity. For example,...