Important Questions for CBSE Class 11 Accountancy Chapter 10 - Financial Statements 2

Very short answer questions – 1 Mark

1. What are prepaid expenses?

Ans: The cash received in advance of meeting the obligations is referred to as the advance. They're classified as short-term liabilities. Future expenditures that have been paid in advance are known as prepaid expenses. To put it another way, prepaid expenses are charges that have been paid but have not yet been used or expired.

2. Pass the journal entry of interest on capital

Ans: Journal entry of interest on capital:

3. Why is provision for discount on debtors allowed?

Ans: Provision for discount on debtors is an accounting phrase that refers to the amount set aside to compensate for losses incurred as a result of debtor discounts. In order to obtain payment from their clients faster, businessmen provide a discount to consumers who pay before the debt's maturity date.

4. On what basis company pay’s commission to the manager?

Ans: The net profit of the company is used to calculate the manager commission.

5. What do you understand by term closing stocks?

Ans: The amount of items that remain unsold at the conclusion of the accounting year is referred to as closing stock.

Short Answer Questions – 2 Marks

1. What do you understand by advance received?

Ans: The cash received in advance of meeting the obligations is referred to as the advance. They're classified as short-term liabilities.

2. Why do we need adjustments in financial statements?

Ans: Adjusting entries are used to bring accounts into compliance with the accrual principle. Some revenue and costs may not have been recorded or updated at the end of the accounting period, necessitating the adjustment of account balances.

Some revenue, cost, asset, and liability accounts may not represent their real values as presented in the financial statements if correcting entries are not created. As a result, altering entries is required.

3. What are outstanding expenses?

Ans: Outstanding expenses are those that have not been paid at the conclusion of the fiscal year. They're essentially in relation to income earned during the current financial year. This expenditure becomes due to the firm when the benefit has been received but the associated payment has not been made at the same time.

4. Pass the following journal entries;

a. Closing stock

b. Outstanding expenses

Ans: Journal entries are as follows:

a. Closing stock

b. Outstanding expenses

5. What do you mean by accrued income?

Ans: Money that has been earned but not yet received is referred to as accrued income. By definition, mutual funds or other pooled assets that accrue revenue over time but only payout to owners once a year are accumulating income.

Earned income is divided into two categories: 

(1) items of income earned during the year, and

(2) items of However, it is not received at the end of the accounting year.

the same year's end.

Short answer questions – 3 Marks

1. Why adjustments are necessary for financial accounting?

Ans: A single transaction might have an impact on the cost and income of multiple financial periods. As a result, accounting adjustments are used to comply with the accrual concept. 

It can also be utilized if a transaction occurred during the period but was not recorded. Only a few incomes and costs from the current year need to be recorded in the company's books of accounts.

2. Give details of few items which need adjustments.

Ans: The following are the things in the books of accounts that need to be adjusted:

• Defaulted debts

• Depreciation is the second type of depreciation.

• Earnings that have been accumulated

• Capital interest

• Earnings of the manager

• Closing the stock market

3. Pass the adjustment entry of the following items:

a. Closing stock

b. Outstanding expenses

c. Prepaid expenses

d. Accrued income

e. Income received in advance

Ans: Adjustment entries for the following items are as follows:

a. Closing stock :

b. Outstanding expenses:  

c. Prepaid expenses:

d. Accrued income:

e. Income received in advance :

4. Give an example of Provision for bad and doubtful debts.

Ans: Provision for doubtful debts is shown on the balance sheet and deducted from the company's debtors on the asset side. Rishi, for example, believes that 6% of his creditors from March will default on their payments in the coming year. The current year's bad debts total Rs 13,000. This indicates that bad debts total Rs. 780 (13,000 * 6%).

5. What will be the adjustment entry of rent received in advance of Rs. 5,000?

a. Credit the rent account and debit the rent received in the advance account.

b. Debit rent account and credit rent received in the advance

account.

c. Debit profit and loss account and credit rent account.

d. All of the above.

Ans: The correct answer is b, which debits the rent account and credits the rent received in the advance account.

Long Answer Questions - 5 Marks

1. Explain the following items with adjustments entry:

a. Closing Stock

b. Outstanding expenses

c. Income earned but not received

d. Income received in advance

e. Depreciation

f. Manager’s commission

Adjustment Entry Treatment in

Ans: 

2. From the following balances prepare a Profit and loss account.

Ans:

3. From the following balances, prepare the Profit and loss account and balance sheet.

Ans:

Trading Profit and loss A/c

Balance sheet as of March 31

4. From the following balances, prepare the Profit and loss account and balance sheet.

Prepare profit and loss account and Balance sheet keeping in regards the following adjustment:

a. Write off further bad debts with Rs. 780.

b. Rent receivables of Rs. 650.

c. Unexpired insurance Rs. 390.

Ans: Trading Profit and loss A/c

Balance sheet as of March 31

5. Define following terms with adjustment entries : 

Ans: Following terms are defined with their adjustment entries:

A. Provisions for bad and doubtful debts. 

Provision for bad and doubtful debts occurs when there is a possible reason for debtors who are doubtful that they will not pay the debts on time.

B. Depreciation:

Depreciation means the value of an asset is declined due to its usage in the passage of time +9*or wear and tear. It is usually treated as business expenses and is debited in profit and loss account. 

C. Accrued income: The items of income that are earned during the accounting year but actually it is not received at the end of the same year.

D. Prepaid expenses: Prepaid expenses are the expense need to be paid in future but they are paid in advance.

E. Outstanding expenses: Prepaid expenses are the expense need to be paid in future but they are paid in advance.