Recording of Transactions – I – Class 11 Accountancy notes, important questions and MCQs

Chapter overview

Every business transaction is supported by a source document and affects at least two accounts. Its effect can be shown through the accounting equation (Assets = Liabilities + Capital). Using the rules of debit and credit, transactions are first recorded in the journal in date order and then posted to the ledger, where accounts are balanced.

Source documents and the accounting equation

• Source documents such as cash memos, invoices, receipts, pay-in-slips and vouchers are evidence of transactions.
• A voucher is a document prepared on the basis of source documents that records the debit and credit accounts.
• Every transaction keeps the equation Assets = Liabilities + Capital in balance.

Rules of debit and credit

• Assets: increase is debited, decrease is credited.
• Liabilities and capital: increase is credited, decrease is debited.
• Expenses and losses are debited; revenues and gains are credited.
• Drawings are debited because they reduce capital.

Journal and ledger

• The journal is the book of original entry; entries are made in date order with date, particulars, ledger folio, debit amount, credit amount and narration.
• A compound entry has more than one debit or credit account.
• The ledger is the principal book containing all accounts; transferring entries from the journal to the ledger is called posting.
• Accounts are balanced by finding the difference between debit and credit totals and writing it as 'Balance c/d'.

Key terms

Source document

written evidence of a transaction, such as an invoice or cash memo

Accounting equation

Assets = Liabilities + Capital

Journal

the book of original entry in which transactions are first recorded in date order

Ledger

the principal book that contains all accounts

Posting

transferring entries from the journal to the respective ledger accounts

Important questions with answers

Quick revision

• Source documents and vouchers.
• A = L + C always balances.
• Assets and expenses: debit for increase; liabilities, capital and revenue: credit for increase.
• Journal → posting → ledger → balancing.

Exam tips

• Make a debit/credit chart for the five types of accounts and revise it daily.
• Always write a short narration below each journal entry.

Practice MCQs

1. The book of original entry is the

   1. ledger
   2. balance sheet
   3. journal
   4. trial balance
   Show answer

   Answer: (c) journal. Transactions are first recorded here.

2. An increase in an asset is

   1. debited
   2. credited
   3. not recorded
   4. shown as revenue
   Show answer

   Answer: (a) debited. Assets have debit balances.

3. The principal book of accounts is the

   1. ledger
   2. journal
   3. cash memo
   4. voucher
   Show answer

   Answer: (a) ledger. All accounts are kept in it.

4. When goods are purchased for cash, the entry is

   1. Cash A/c Dr. to Purchases A/c
   2. Capital A/c Dr. to Cash A/c
   3. Purchases A/c Dr. to Cash A/c
   4. Sales A/c Dr. to Cash A/c
   Show answer

   Answer: (c) Purchases A/c Dr. to Cash A/c. Purchases increase, cash decreases.

5. The owner starts a business with cash of ₹50,000. The account credited is

   1. Cash
   2. Capital
   3. Drawings
   4. Sales
   Show answer

   Answer: (b) Capital. Capital increases.

6. Transferring journal entries to ledger accounts is called

   1. balancing
   2. casting
   3. posting
   4. narration
   Show answer

   Answer: (c) posting. Each account gets its share.

7. If assets are ₹80,000 and liabilities are ₹30,000, capital is

   1. ₹50,000
   2. ₹1,10,000
   3. ₹30,000
   4. ₹80,000
   Show answer

   Answer: (a) ₹50,000. Capital = Assets − Liabilities.

8. Rent paid in cash is recorded as

   1. Cash A/c Dr. to Rent A/c
   2. Capital A/c Dr. to Rent A/c
   3. Rent A/c Dr. to Cash A/c
   4. Rent A/c Dr. to Capital A/c
   Show answer

   Answer: (c) Rent A/c Dr. to Cash A/c. Expense increases (debit), asset decreases (credit).