Description

Financial Accounting

Dec 2025 Examination

 

 

Q1 The following transactions took place in the books of Mr. Aman during the month of July 2025.

Date	Transactions
July 1	Started business with cash Rs.50,000
July 3	Purchased goods for cash Rs.15,000
July 5	Sold goods for cash Rs.10,000
July 8	Paid rent Rs.2,000
July 10	Purchased furniture Rs.5,000
July 15	Received cash from Ram Rs.3,000
July 20	Paid to Shyam Rs.2,500

 

You are required to:

1. Pass journal entries for the above transactions.
2. Post them into ledger accounts
3. Prepare a Trial Balance as on 31st July 2025. (10 Marks)

Ans 1.

Introduction

Financial accounting is the systematic process of recording, classifying, and summarising business transactions in order to present an accurate financial position of a business. It follows the principle of double-entry system where every transaction has a dual aspect, one debit and one credit. For a businessman like Mr. Aman, maintaining proper books of accounts ensures that cash inflow and outflow, expenses, purchases, and sales are correctly recorded. The process begins with passing journal entries in chronological order, then posting them into ledger accounts where each item is classified, and finally preparing a trial balance that confirms arithmetic accuracy. A trial balance is a list of balances from all ledger accounts which helps to check whether total debits equal total credits.

Concept and Application

The given transactions can be explained using the concepts of journal, ledger and trial

 

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Q2(A). An electronics company manufactures air conditioners in April but does not record the revenue until the products are sold in July. However, the company records the electricity and raw material costs related to the production in April itself.

1. a) Identify and explain the two accounting concepts applied in this situation.
2. b) Why is it important to follow these concepts in financial reporting? (5 Marks)

Ans 2a.

Introduction

Accounting is guided by certain fundamental concepts that ensure transactions are recorded consistently and fairly. These concepts provide the foundation for preparing reliable financial statements. In the given situation, the electronics company records production costs such as electricity and raw materials in April but records revenue only when the goods are sold in July. This highlights how accounting principles govern the timing of recognizing income and expenses. Without such rules, financial reporting would

 

Q2(B). The following 5 errors were found in the books of Ananya Traders after preparing the trial balance. You are required to:

1. a) Identify the type of error (e.g., error of principle, omission, commission, etc.)
2. b) Pass necessary rectifying journal entries.

Errors Identified:

1. Rs.800 paid for stationery was wrongly debited to Purchases A/c.
2. A sale of Rs.2,000 to Mohan was recorded as Rs.200 in the sales book.
3. Rs.1,500 paid for salary was    debited to Wages A/c.
4. Cash Rs.700 received from Sohan was posted as Rs.70    to Sohan’s account.
5. Purchase of goods Rs.3,000 from Rahul was completely omitted    from the books. (5 Marks)

Ans 2b.

Introduction

In financial accounting, errors often occur at the stage of recording or posting transactions. These errors can arise due to misclassification, wrong amounts, omissions, or simple posting mistakes. If such errors are not corrected, they will misstate the accounts and affect the accuracy of the final financial statements. To correct them, rectifying journal entries are passed. These entries not only correct the mistake but also ensure that the trial balance tallies. The process involves identifying error types and adjusting with proper debit and