Double Entry System — Important Questions

Intangible Real Account

Step 1: Real Accounts are of two types — Tangible and Intangible. Step 2: Tangible Real Accounts relate to things that can be seen, touched, and measured — e.g., Building, Cash, Furniture, Computer (hardware). Step 3: Intangible Real Accounts relate to things that CANNOT be seen or touched but can be measured in money terms and bought/sold — e.g., Goodwill, Trademarks, Computer Software, Patents. Step 4: Computer Software cannot be physically touched but has monetary value and is an asset — hence it is an Intangible Real Account. Step 5: Note the difference: Computer (hardware) = Tangible Real

Mohan's A/c (Personal) Dr.; Sales A/c (Nominal) Cr.

Step 1: Transaction — Goods sold on credit to Mohan. Two accounts are affected: Mohan's Account and Sales Account. Step 2: Mohan's Account is a Natural Personal Account (he is a debtor — he receives goods). Rule: Debit the Receiver. So, Mohan's A/c is DEBITED. Step 3: Sales Account is a Nominal Account (it represents income/gain for the business). Rule: Credit all Incomes and Gains. So, Sales A/c is CREDITED. Step 4: Option A is wrong — Mohan's account is Personal, not Real. Option B is wrong — Sales A/c should be credited (income), not debited. Option D is wrong — Cash is not involved as the

Source Documents → Journal → Ledger → Trial Balance → Financial Statements

Step 1: The Accounting Cycle is the complete sequence of steps from recording transactions to preparing financial statements. Step 2: It begins with identification of transactions through Source Documents (cash memo, invoice, pay-in-slip, etc.). Step 3: Based on source documents, entries are first recorded in the Journal (or subsidiary books). This is called 'journalising'. Step 4: Journal entries are then posted to respective accounts in the Ledger — this is called 'posting' or 'classifying'. Step 5: Ledger account balances are used to prepare the Trial Balance (summarising), and finally Fina

Outstanding Salary A/c Dr. (Representative Personal); Cash A/c Cr. (Real)

Step 1: 'Outstanding Salary' was already recorded as a liability in the previous period using the entry: Salary A/c Dr. | To Outstanding Salary A/c Cr. Step 2: When outstanding salary is NOW PAID, we are clearing this liability. Outstanding Salary A/c (liability) gets settled — it receives the cash payment (liability is reduced/closed). Step 3: Outstanding Salary A/c is a Representative Personal Account. When the liability is paid off, this account is DEBITED (the receiver of payment). Rule: Debit the Receiver. Step 4: Cash Account (Real Account) goes out. Rule: Credit what goes out. Step 5: O