Journal Entries MCQ Quiz - Objective Question with Answer for Journal Entries - Download Free PDF

The correct answer is 

Depreciation Account Dr

To Asset Account

Key Points In this entry:

• The Depreciation Expense Account is debited to recognize the expense, which reduces the book value of the asset.
• The Asset Account is credited to reflect the decrease in the value of the asset.

This journal entry adheres to the basic accounting principle that expenses should be recognized when they are incurred. Depreciation is considered an expense because it represents the allocation of the cost of the asset over its useful life.

Additional Information

• Depreciation Expense Account (Debit): When a company records depreciation, it acknowledges that a portion of an asset's value has been consumed over time. This consumption is an expense for the company, and as per the accrual accounting principle, expenses should be recognized in the accounting period in which they are incurred. Depreciation is no exception; hence, it's debited to reflect this expense.

Debiting the Depreciation Expense Account reduces the company's net income, reflecting the cost associated with using the asset to generate revenue.

• Asset Account (Credit): By crediting the Asset Account, you acknowledge that the value of the asset has decreased. This reduction in the asset's book value reflects its decreased worth due to wear and tear, obsolescence, or the passage of time.

The credit entry offsets the asset's value, which is on the balance sheet's asset side. This, in turn, reduces the total assets of the company.
The overall effect of this journal entry is to match the recognition of an expense (depreciation) with the reduction in the asset's value. Over time, as depreciation accumulates, it aligns the asset's book value more closely with its actual economic value.

Remember that companies may use different methods to calculate depreciation (e.g., straight-line, declining balance) and might have different policies regarding whether or not to maintain a Provision for Depreciation Account. However, the basic principle of recording depreciation as an expense remains consistent.

The correct answer is Bank A/C      Dr.           ₹11,00,000
                                        To Debentures A/C                    ₹10,00,000
                                        To Securities Premium A/C       ₹1,00,000

Key Points

• Company XYZ issues 10,000 debentures of ₹100 each at a 10% premium, meaning each debenture is issued for ₹110.
• The 'Bank A/C' is debited with ₹11,00,000 (10,000 debentures × ₹110) to record the cash received.
• The 'Debentures A/C' is credited with ₹10,00,000 to reflect the face value of the debentures issued.
• The 'Securities Premium A/C' is credited with ₹1,00,000 (10,000 debentures × ₹10) to record the premium received on issuance.
• Hence, the correct entry is: Bank A/C Dr. ₹11,00,000 / To Debentures A/C ₹10,00,000 / To Securities Premium A/C ₹1,00,000.

Important Points

• Option A: Bank A/C Dr. ₹10,00,000 / To Debentures A/C ₹10,00,000
  • This entry implies that the debentures were issued at par, with no premium.
  • The cash received should be ₹11,00,000, not ₹10,00,000, due to the 10% premium.
  • This misrepresents the transaction by not accounting for the premium received.
  • The correct accounts should include the 'Securities Premium A/C'.
• Option B: Bank A/C Dr. ₹11,00,000 / To Debentures A/C ₹11,00,000
  • This entry records the cash received correctly but overstates the face value of the debentures issued.
  • The face value of 10,000 debentures should be ₹10,00,000, not ₹11,00,000.
  • It fails to account for the premium component separately.
  • The correct entry needs to reflect both the face value and the premium received.
• Option D: Securities Premium A/C Dr. ₹1,00,000 / To Debentures A/C ₹1,00,000
  • This entry incorrectly debits the 'Securities Premium A/C', which should be credited.
  • The 'Debentures A/C' should reflect the full face value of ₹10,00,000, not just the premium portion.
  • This entry misrepresents the nature of the premium as an expense, not an income.
  • The proper entry should separate the face value and premium, crediting them accordingly.

The correct answer is Bank A/C                                                           Dr.                            ₹9,00,000
                                    Discount on Issue of Debentures A/C           Dr.                            ₹1,00,000
                                                      To Debentures A/C                                                                ₹10,00,000

Key Points

• Company XYZ issues 10,000 debentures of ₹100 each at a 10% discount, meaning each debenture is issued for ₹90.
• The 'Bank A/C' is debited with ₹9,00,000 (10,000 debentures × ₹90) to record the cash received.
• The 'Discount on Issue of Debentures A/C' is debited with ₹1,00,000 (10,000 debentures × ₹10) to record the discount given.
• The 'Debentures A/C' is credited with ₹10,00,000 to reflect the total face value of the debentures issued.
• Hence, the correct entry is: Bank A/C Dr. ₹9,00,000 / Discount on Issue of Debentures A/C Dr. ₹1,00,000 / To Debentures A/C ₹10,00,000.

Important Points on Incorrect Options

• Option A: Bank A/C Dr. ₹10,00,000 / To Debentures A/C ₹10,00,000
  • This entry implies that the debentures were issued at par, with no discount.
  • The cash received should be ₹9,00,000, not ₹10,00,000, due to the 10% discount.
  • This misrepresents the transaction by not accounting for the discount given.
  • The correct accounts should include the 'Discount on Issue of Debentures A/C'.
• Option B: Bank A/C Dr. ₹9,00,000 / To Debentures A/C ₹9,00,000
  • This entry records the cash received correctly but underreports the face value of the debentures issued.
  • The total face value of 10,000 debentures should be ₹10,00,000, not ₹9,00,000.
  • It fails to account for the discount on issue separately.
  • The correct entry has to reflect both the face value and the discount component.
• Option D: Debentures A/C Dr. ₹10,00,000 / To Bank A/C ₹9,00,000 / To Discount on Issue of Debentures A/C ₹1,00,000
  • This entry incorrectly debits the 'Debentures A/C', which should be credited to show the liability.
  • It correctly includes the discount but misrepresents the nature of the debenture as a liability by debiting it.
  • The 'Bank A/C' should be debited, not credited, for cash received.
  • The correct entry should have 'Debentures A/C' credited for the full face value.

The correct answer is Machinery A/C    Dr.       ₹10,00,000                                                                                                                                                                                                                       To Debentures A/C           ₹10,00,000.

Key Points

• Company XYZ issues 10,000 debentures of ₹100 each to purchase machinery worth ₹10,00,000.
• The 'Machinery A/C' is debited with ₹10,00,000 to record the addition of machinery as an asset.
• The 'Debentures A/C' is credited with ₹10,00,000 to reflect the liability created by issuing the debentures.
• This entry does not involve any cash transaction as the exchange is between debentures and machinery.
• Hence, the correct entry is: Machinery A/C Dr. ₹10,00,000 / To Debentures A/C ₹10,00,000.

Important Points on Incorrect Options

• Option B: Debentures A/C Dr. ₹10,00,000 / To Machinery A/C ₹10,00,000
  • This entry incorrectly debits the 'Debentures A/C' and credits the 'Machinery A/C'.
  • The 'Machinery A/C' should be debited to record the asset addition.
  • The 'Debentures A/C' should be credited to recognize the liability.
  • This option misstates the nature of the transaction and does not reflect the asset acquisition correctly.
• Option C: Machinery A/C Dr. ₹10,00,000 / To Bank A/C ₹10,00,000
  • This entry incorrectly involves the 'Bank A/C', suggesting that the machinery was purchased with cash.
  • No cash transaction is involved; the machinery is acquired in exchange for debentures.
  • This misrepresents the transaction and affects the bank balance incorrectly.
  • The correct accounts to be affected are 'Machinery A/C' and 'Debentures A/C'.
• Option D: Bank A/C Dr. ₹10,00,000 / To Debentures A/C ₹10,00,000
  • This entry implies that the debentures were issued for cash, which is not the case.
  • The transaction involves acquiring machinery in exchange for debentures, not cash.
  • This option fails to recognize the asset purchase and treats the transaction as a cash inflow.
  • The appropriate accounts to be affected are 'Machinery A/C' and 'Debentures A/C'.

The correct answer is Bank A/C                                                                 Dr.                   ₹5,00,000                                                                                                                                                   Discount on Issue of Debentures A/C                  Dr.                   ₹1,00,000                                                                                                                                                               To Debentures A/C                                                                    ₹6,00,000.

Key Points

• Company XYZ issues zero-coupon debentures worth ₹5,00,000, redeemable at ₹6,00,000 after 5 years.
• The difference between the issue price (₹5,00,000) and the redemption price (₹6,00,000) is ₹1,00,000, considered as the discount on issuance.
• The 'Bank A/C' is debited with ₹5,00,000 to reflect the cash received from issuing the debentures.
• The 'Discount on Issue of Debentures A/C' is debited with ₹1,00,000 to account for the discount.
• The 'Debentures A/C' is credited with ₹6,00,000 to record the liability for the total amount payable at redemption.
• Hence, the correct entry is: Bank A/C Dr. ₹5,00,000 / Discount on Issue of Debentures A/C Dr. ₹1,00,000 / To Debentures A/C ₹6,00,000.

Important Points on Incorrect Options

• Option A: Bank A/C Dr. ₹5,00,000 / To Debentures A/C ₹5,00,000
  • This entry does not account for the discount of ₹1,00,000 on issuance.
  • It fails to reflect the total liability of ₹6,00,000 at the time of redemption.
  • The discrepancy between the issue price and the redemption value is ignored.
  • This option incorrectly represents the financial transaction by not including the discount component.
• Option B: Bank A/C Dr. ₹6,00,000 / To Debentures A/C ₹6,00,000
  • This entry incorrectly reflects the cash received as ₹6,00,000 rather than ₹5,00,000.
  • It does not account for the discount on the issue of debentures.
  • The actual cash inflow and outflow are misstated.
  • This option also fails to capture the difference between the issue price and the redemption price.
• Option D: No entry is necessary at issuance
  • This entry overlooks the need to record the transaction at the time of issuance.
  • Issuing debentures involves recording both the cash inflow and the liability created.
  • Ignoring the entry at issuance misrepresents the company’s financial position.
  • This option fails to comply with accounting principles that require transactions to be recorded when they occur.

The correct answer is Both personal accounts

Important Points

When Furniture is purchased from Ramesh on credit for personal use, the following journal entry will be passed:

Explanation:

• When the furniture is purchased for personal use, it is considered as drawings of the proprietor. Therefore, the amount must be debited to Drawings A/c. Drawings A/c is Representative Personal Account 
• As the furniture is purchased on credit from Ramesh, he is the giver, so his account will be credited. Ramesh A/c is a Personal account. 

So, when Furniture is purchased from Ramesh for personal use, two personal accounts will be affected.

Additional Information

Three Golden Rules

• Personal Account - debit the receiver, credit the giver
• Real Account - debit what comes in, credit what goes out
• Nominal Account - debit all the expenses and losses, credit all the incomes and gains

The correct answer is credited by Rs. 2200.

Important PointsThere is following two errors in this entry:

1. The wrong amount has been posted.
2. Entry has been posted to the wrong side.

To rectify the error first neutralizing the credit amount in Harish's Account for Rs. 200 is necessary by debiting Rs. 200. Then the actual Rs. 2000 shall be debited to Harish A/c. The whole effect of Rs 2200 shall be credited to Suspense A/c

So the Rectifying entry shall be

The correct answer is posting

Key PointsLedger:

• Ledger is that book of account; in which all types of accounts relating to assets, liabilities, capital, expenses, and revenues are maintained.
• A ledger is a complete set of accounts of a business enterprise.
• It is an account book that contains various accounts to which various business transactions of a business enterprise are posted.
• A ledger is a book of final entry because the transactions that are first entered in the journal or special purpose Books are finally posted in the ledger.

Important Points

Ledger Posting:

• Ledger posting refers to transferring debit and credit items from journal entries into their respective accounts. For making this successful we must first ensure that every single item contains a separate account.
• While posting entries, the account which has been debited in the journal entry must be debited in the ledger as well.
• But we have to mention the name of the other account as well.
• In the same manner, the account which is credited in the journal entry is recorded on the credit side of the ledger, but the reference is given to the other account in the entry.
• It is a custom to mention the words “To” and “By” as a prefix before debit and credit accounts respectively.

The correct answer is All of the above

Key Points

• The term "journal" or "book of original entry" refers to the entire set of transactions that are initially recorded in the books.
• Journal is the original entry book where all company transactions are entered in chronological order after adhering to the debit and credit regulations.
• A journal is also called book of first entry, original entry or datewise entry.

Format of Journal:

Debtor: A debtor is an entity that owes a debt to another entity. The entity may be an individual, a firm, a government, a company or other legal person. 

Insolvent: Unable to pay debts owed.

Declaring a Dividend: Companies often payout a portion of its profits as dividends to the shareholders. Dividend payouts are a way to provide shareholders with a return on their investment. The board of directors issues a declaration stating how much will be paid out and over what timeframe.

3 golden rules:

• debit the receiver, credit the giver
• debit what comes in, credit what goes out
• debit all the expenses and losses, credit all the incomes and gains

Reason for debit and credit:

• Debtors A/c - Personal A/c, the debtor is liable to pay to us. He is the giver therefore it's credited
• Bad debts - Nominal A/c - Its the loss to the business, money doesn't receive from the debtor therefore its debited

Journal entry

Bad debts A/c   Dr  2000

        To Debtor A/c         2000

Therefore, if M.Gul a debtor of Rs. 4000 has become insolvent and a dividend of 50% is declared, the entry is Dr Bad Debts 2000 To Debtors 2000.

The correct answer is Chronological basis

Key Points Journal: 

• All business transactions are recorded in a journal after following the rules of debit and credit and keeping them in chronological order.
• As the recording of transactions is done first in the journal, it is also called the book of original entry or prime entry.
• Journalizing is defined as the process of recording transactions in the journal.

The correct answer is Option D 

Important Points

•  The stock of Rs. 4000 is destroyed by fire. Since it was fully insured, the amount will be received by the insurance company. So, the amount will be debited to the Insurance claims account.
• Since goods destroyed by fire reduces the stock, the trading account must be credited.

Additional Information

• Option 1, denotes an increase in stock. Since, no stock has increased, it is not a correct option.
• Option 2, denotes transfer of loss from trading account to P&L account. Since full loss has been covered by the Insurance company, this option is also incorrect. 
• Option 3, denotes debiting of trading account. This shall mean increase in stock or any other direct expense. Since nothing as such has happened, this option is incorrect.

The correct answer is Drawings account.

Key PointsWhen cash is withdrawn by the proprietor for his personal use, it is called a "draw" and should be debited to the drawing account.

Important PointsWhenever proprietor withdraws cash and goods from a business for their personal use, it is treated as a drawing.

The journal entry is as follows :—

Confusion Points

When the proprietor or partner withdraws cash from the business for personal use, the amount is debited to the drawings account and credited to the cash account.

At the end of the accounting period, an adjustment entry is passed to transfer the balance of the drawings account to the capital account.

The correct answer is Cash Book without the date column.​
Key Points

Cashbook: Cashbook is a financial record of all cash transactions made by the company. It records all the receipts and payments carried out in cash or through a bank account.

The Debit side of the cashbook denotes receipts of the company and the credit side records all the payments made by the company. 

The Receipts and Payments Account is similar in nature to the cashbook. The only difference is that Cashbook is prepared in chronological order i.e., it has a date column while Receipts and Payments Account does not have a date column. So, it can be said that the Receipts and Payments Account is a Cashbook without a date column.

Additional Information

•  Trading Account: A trading account is a statement that is prepared by a business firm to record all the transactions related to the Stock, purchasing of materials, manufacturing expenses, and selling of goods. All the direct expenses like wages, electricity charges, etc are recorded in Trading Account. Its balance denotes gross profit or gross loss.
• Profit and Loss Account: A profit and Loss Account is a statement that is prepared by a business firm to record all the operating and non-operating expenses and all operating and non-operating incomes. It is prepared in continuation of Trading Account. The balance of Profit & Loss account denotes the net profit or net loss of the business.

The correct answer is ​Closing capital + Drawings - Additional capital - Opening capital

Key PointsSingle Entry System:

• Single Entry System of accounting is a system of accounting in which each accounting entry is recorded with only one aspect. 
• Cash disbursements and cash receipts are the most important data handled in a single entry system.

Important Points 

 Profit in a single entry system is calculated by the following formula: 

•   Closing capital + Drawings - Additional capital - Opening capital