CBSE Class 11 Accountancy — NCERT Solutions

Information in financial reports is based on Economic Transactions.

Explanation: Accounting records only those events that can be expressed in monetary terms and that arise from economic transactions of the business entity.

Internal users are the Management/Employees of the business entity.

Explanation: Internal users are those who are within the organisation, such as owners, managers, and employees, who use accounting information for planning, controlling, and decision-making.

Correct Answer: (c) Accounting period

The accounting period concept states that the life of a business is divided into definite time intervals (usually one year) at the end of which financial statements are prepared. Since financial statements are produced periodically during the life-time of an entity, this is the relevant concept.

Correct Answer: (d) None of the above

When information about two different enterprises is prepared and presented in a similar manner, it exhibits the characteristic of Comparability. Since comparability is not listed among options (a), (b), or (c), the correct answer is (d) None of the above.

The correct answer is (iii): Every transaction must be recorded with equal debits equal total credits.

Justification: Double entry accounting is based on the principle that for every debit there must be an equal and corresponding credit. This ensures that the accounting equation (Assets = Liabilities + Capital) always remains balanced. Option (i) is not always true because a debit to an asset can also be offset by a credit to another asset. Option (ii) is not always true because a debit to a liability can be offset by a credit to another liability or capital.

Transactions that INCREASE Capital:

1. Fresh capital introduced by the owner (additional investment).
2. Net Profit earned during the period (revenues exceed expenses).
3. Interest on capital credited to the capital account.

Transactions that DECREASE Capital:

1. Drawings — when the owner withdraws cash or goods for personal use.
2. Net Loss suffered during the period (expenses exceed revenues).
3. Interest on drawings charged to the capital account.

In summary:
$$\text{Closing Capital} = \text{Opening Capital} + \text{Fresh Capital} + \text{Net Profit} - \text{Drawings} - \text{Net Loss}$$

Correct Answer: (iv) Bank and cash account in the ledger

Justification: The cash book itself serves the purpose of both a journal and a ledger for cash and bank transactions. When a firm maintains a cash book, it acts as the Cash Account and Bank Account in the ledger, so there is no need to open separate Bank and Cash accounts in the ledger.

The causes of difference are identified as follows:

Explanation:

• (1) When cheques are issued but not yet presented for payment, there is a time lag between recording in the cash book and the bank honouring the cheque — Time Gap.
• (2) The cheque was for ₹5,000 but recorded as ₹500 in the cash book — this is a recording error by the business firm — Error.
• (3) The bank credits interest in the passbook, but the firm has not yet recorded it in the cash book — Time Gap.
• (4) Cheque deposited but not yet cleared by the bank — Time Gap.
• (5) Bank charges are debited by the bank in the passbook; the firm records them only when it receives the passbook — Time Gap.

Step 1: Identify the nature of each balance (Debit or Credit)

The rule is:

• Assets, Expenses, Losses, Drawings → Debit balance
• Liabilities, Capital, Income, Gains → Credit balance

Step 2: Prepare the Trial Balance

Trial Balance as at March 31, 2014

The Trial Balance agrees at ₹5,17,000.

True. Depreciation does not involve any cash outflow. It is merely the process of writing off the capital expenditure already incurred on a fixed asset over its useful life. No actual payment is made when depreciation is recorded.

False.

Gross profit is NOT total revenue. Gross profit is calculated as:
$$\text{Gross Profit} = \text{Net Sales} - \text{Cost of Goods Sold}$$
Total revenue refers to the total sales/income earned, whereas gross profit is the excess of net sales over the cost of goods sold. Hence the statement is False.

Correct Answer: (c) ₹1,000 (Credit)

Working:

Step 1 – Find the new required provision:
$$\text{Required Provision} = ₹1,000$$

Step 2 – Adjust for bad debts already written off in the trial balance:
Bad debts already recorded = ₹2,000 (already debited to P&L via trial balance)

Step 3 – Calculate the net effect on Profit & Loss Account:
$$\text{Existing Provision} = ₹4,000$$
$$\text{New Required Provision} = ₹1,000$$
$$\text{Excess Provision to be written back} = ₹4,000 - ₹1,000 = ₹3,000$$

The bad debts of ₹2,000 are already in the trial balance (already charged to P&L). The existing provision of ₹4,000 needs to be reduced to ₹1,000.

Journal entry:
$$\text{Provision for Doubtful Debts A/c} \quad Dr. \quad ₹3,000$$
$$\quad \text{To Bad Debts A/c} \quad ₹2,000$$
\quad \text{To Profit & Loss A/c} \quad ₹1,000

Since the existing provision (₹4,000) exceeds bad debts (₹2,000) + new provision (₹1,000) = ₹3,000, the surplus of ₹1,000 is credited to Profit & Loss Account.

Answer: (c) ₹1,000 (Credit)