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On the other hand, if liability is paid, it reduces liability, and so, it is debited. As liability incurred is credited, in the same way, fresh capital introduced and net profit increases the owner’s capital, and so, capital is credited. Capital of the owner is treated as liability to the business because the business has to repay the amount of capital to the owner, in case of closure of the business. Business entity concept treats business and business owner separately. According to the business entity concept, the amount borrowed from the external sources together with the internal sources like, capital invested by the proprietor, is termed as liability to the business. Why are the rules of debit and credit same for both liability and capital?Įvery business acquires funds from internal as well as from external sources. It is based on the fact that if there is receiver, there should be a giver. Every transaction affects two accounts simultaneously, that is represented by debiting one account and crediting the other account. Why are some accounting systems called double accounting systems?Īnswer : Some accounting systems are called double accounting systems because under this system there are two aspects of every transaction, i.e., every transaction has dual effect. While journalising, in the ‘Particulars’ column of journal format, debited account is written first and credited account is in the next line leaving some space, which is indentation. Indentation is leaving a space before writing any word. Journal entry is recorded in journal format in which the ‘Debit Amount’ column is listed before the ‘Credit Amount’ column.Ĭredits are indented. The way of recording in a journal is quite different from normal recording. Are debits or credits listed first in journal entries? Are debits or credits indented?Īnswer : As per the rule of double entry system, there are two columns of ‘Amount’ in the journal format namely ‘Debit Amount’ and ‘Credit Amount’. The process of recording the transactions in journal and then in ledger is presented in the below given flow chart. Journal is also known as ‘book of original entry’, because with the help of source document, transactions are originally recorded in books. in the order of occurrence with the help of source documents. Transactions are recorded in journal in chronological order, i.e. Further, a journal forms the basis for posting the transactions into their respective accounts into ledger. Should a transaction be first recorded in a journal or ledger? Why?Īnswer : A transaction should be recorded first in a journal because journal provides complete details of a transaction in one entry. Students who have prepared for CA can visit CA Foundation Study Material. It helps in verifying transactions during the auditing process. It acts as a proof in the court of law.Ĥ. It provides important and relevant information about date, amount, parties involved and other details of a particular transaction.ģ. It provides evidence that a transaction has actually occurred.Ģ. Why is the evidence provided by source documents important to accounting?Īnswer : The evidence provided by the source document is important in the following manners:ġ. State the three fundamental steps in the accounting process.Īnswer : The fundamental steps in the accounting process are diagrammatically presented below. NCERT Solutions For Class 11 Financial Accounting – Recording of Transactions-I Short Answer Type Questions
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