Get summaries, questions, answers, solutions, notes, extras, theories, practicles, PDF, and guide of Chapter 3 Source Documents and Accounting Equation, NBSE Class 9 Book Keeping (BK) textbook, which is part of the syllabus of students studying under Nagaland Board. These solutions, however, should only be treated as references and can be modified/changed.
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Summary
This chapter explains source documents and the accounting equation. Every business does financial transactions like buying, selling, and paying money. These transactions are recorded only when there is proof. Source documents are the proof of these transactions. They show details like date, amount, and people involved.
Source documents have features. They are made when a transaction happens. They are written proof of the transaction. They describe the transaction fully. They help in making vouchers. They are useful for audits and tax checks. Some common source documents are cash memos, invoices, receipts, pay-in-slips, cheques, debit notes, and credit notes. Each has its own purpose and format.
Vouchers are another important part. They are used to record transactions in books. Vouchers come from source documents. They are numbered and written records. They show which accounts to debit or credit. Accountants make them and managers sign them. There are different types of vouchers like cash vouchers, debit vouchers, credit vouchers, and transfer vouchers. Each type has specific uses.
The accounting equation is based on the dual aspect concept. This means every transaction affects two sides. Assets equal liabilities plus capital. Assets are things a business owns. Liabilities are what a business owes. Capital is the owner’s money in the business. Transactions can affect two items or more than two items in the equation.
Rules guide the accounting equation. Adding funds increases capital. Withdrawing funds decreases capital. Profits add to capital while losses reduce it. Interest on capital is an expense but adds to capital. Interest on drawings reduces capital. Getting funds from outsiders increases liabilities. Paying debts decreases liabilities. Buying assets increases them. Selling assets decreases them.
Some transactions affect opposite sides of the equation. Others affect the same side but in opposite ways. For example, buying furniture on credit increases assets and liabilities. Paying creditors decreases both assets and liabilities. The chapter gives examples of how transactions change the equation. It shows calculations and balance sheets.
Transactions are shown through examples. Each example explains how assets, liabilities, and capital change. Starting a business, buying goods, selling goods, and other actions are explained step by step. Each step shows the new balance of assets, liabilities, and capital. Calculations end with a balance sheet showing total assets equal total liabilities and capital.
Textbook solutions
Multiple Choice Questions (MCQs)
1. Credit purchases of furniture will be recorded through which voucher?
(a) Debit Voucher
(b) Credit Voucher
(c) Cash Voucher
(d) Transfer Voucher
Answer : (d) Transfer Voucher
2. Rohan has returned goods worth 6,000 to Kultara as he found it defective. Which document will be prepared by Radheyshyam?
(a) Invoice/bill
(b) Debit note
(c) Credit voucher
(d) Credit note
Answer : (b) Debit note
3. When a trader sells goods on credit, he prepares which contains the name of the party to whom goods are sold, the rate, quantity and the total amount of sale.
(a) Cash memo
(b) Invoice
(c) Debit note
(d) Receipt
Answer : (b) Invoice
4. Pick out a source voucher/document from the following:
(a) Debit Voucher
(b) Credit Voucher
(c) Transfer Voucher
(d) Invoice
Answer : (d) Invoice
5. Credit voucher is prepared by an organisation:
(a) When cash is received
(b) When payment is made
(c) When a transaction involves no cash
(d) When amount is deposited in the bank
Answer : (a) When cash is received
6. A voucher prepared at the time of receipt or payment of cash or cheque is known as:
(a) Debit voucher
(b) Cash voucher
(c) Credit voucher
(d) Transfer voucher
Answer : (b) Cash voucher
7. When we deposit cash or cheque into a bank, which source document is used?
(a) Invoice
(b) Vouchers
(c) Pay-in-slip
(d) Debit note
Answer : (c) Pay-in-slip
8. Point out the correct accounting equation:
(a) Assets= -Liabilities Capital
(b) Liabilities= Capital+ Asset
(c) Capital Assets+ Liabilities
(d) Liabilities= Assets- Capital
Answer : (d) Liabilities= Assets- Capital
9. The amount withdrawn by the proprietor for his personal use wil………..the cash capital.
(a) Increase
(b) Decrease
(c) No change
(d) None of the above
Answer : (b) Decrease
10. A business has assets of 36,650 and liabilities of 10,000. What is the amount of capital?
(a) ₹ 45,650
(b) 26,650
(c) 46,650
(d) None of these
Answer : (b) 26,650
True/False
1. An increase in Asset may lead to an increase in capital.
Answer: True
2. An increase in Asset may lead to an increase in Liability.
Answer: True
3. Asset increases by selling goods for cash.
Answer: False
4. Withdrawal of cash for personal use decreases capital.
Answer: True
Assertion Reason Based Questions
Choose the correct option :
A. Both Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of the Assertion (A).
B. Both Assertion (A) and Reason (R) are correct but Reason (R) is not the correct explanation of Assertion (A).
C. Only Assertion (A) is correct.
D. Only Reason (R) is correct.
1. Assertion: A document which supports the transaction for recording is source document.
Reason: These documentary evidence are Cash Memo, invoice or bill.
Answer: (A)
2. Assertion: When funds are added to the business by the proprietor the capital is increased (credited).
Reason: When business earns a profit, it is added (credited) to the capital.
Answer: (A)
Statement Based Questions
Choose the correct option from the options given below:
A. Statement I is true and II is false.
B. Statement II is true and I is false.
C. Both the statements are false.
D. Both the statements are true.
1. Statement I: Interest on drawings is a revenue earned by the business. So it is added to the profits earned.
Statement II: A part of capital is withdrawn i.e. drawings are made the capital is decreased (debited).
Answer: (D)
2. Statement I: Debit note indicates that supplier’s account is being debited.
Statement II: Debit note is a document issued by seller/vendor in response to debit note received from the customer.
Answer: (A)
Short Answer Type-l Questions
1. What do you mean by source documents in accountancy?
Answer : A source document is a document that supports the transaction for recording. These documents are real, meaningful, visible records certifying the actual happening of transactions of a financial nature. These documentary evidences include cash memos, invoices or bills, cash receipts, pay-in-slips, vouchers, cheques, etc.
2. Mention any two source documents.
Answer : Two source documents mentioned are:
(i) Cash Memo
(ii) Invoice or Bill
3. What is meant by an invoice?
Answer : An invoice or bill is prepared by the trader or seller when he sells goods on credit. It contains the details about the name of the party to whom goods are sold, quantity, rate, and the total amount of sales. Usually, invoices or bills are made in duplicate. The original copy of the invoice is sent to the purchaser, and the duplicate copy is retained by the seller for recording in the books of accounts and also for future references.
4. What do you mean by Cheque?
Answer : A cheque is a document in writing, which contains an order from a customer to a banker, authorizing him to pay a specified sum to the bearer or the person named in it. The bank issues a booklet containing cheque forms to its account holders. The amount to be paid is written both in words and figures, and a cheque must be dated and signed by the drawer.
5. What is a Transfer Voucher?
Answer : A Transfer Voucher is a type of voucher that serves as documentary evidence for all non-cash transactions of the business. These non-cash transactions include credit sales or purchases of goods, return of goods by customers, and return of goods to suppliers. It contains details such as the name and address of the organization, date of preparing the voucher, accounting voucher number, title of the account debited or credited, net transaction amount, narration, signature of the person preparing it, signature of the authorized signatory, and supporting voucher number.
6. Name the two types of Vouchers.
Answer : The two types of vouchers are: (i) Cash Vouchers
(ii) Non-Cash Vouchers or Transfer Vouchers
7. What is credit voucher?
Answer : A credit voucher is a document that serves as evidence of cash receipts and is prepared to record transactions involving cash receipts against the sale of goods, sale of assets, withdrawal from the bank, etc.
8. What do you mean by an accounting equation?
Answer : An accounting equation is a mathematical expression which shows that the assets of a business are always equal to the total of capital and liabilities. It reflects the fundamental equation: Assets = Liabilities + Capital.
9. Give fundamental accounting equations.
Answer : The fundamental accounting equation is:
Assets = Liabilities + Capital
This reflects that the economic resources owned by an enterprise (assets) are equal to the total of the claims of outsiders (liabilities) and the owner’s equity (capital).
10. What is a debit note?
Answer : A debit note is a document prepared by the customer in case there are certain goods that need to be returned to the vendor. It indicates that the supplier’s account is being debited and contains details about the date, amount of the transaction, and the name of the supplier whose account is debited, along with the reason for debiting the account.
Short Answer Type-Il Questions
1. What is a source document? Explain its features.
Answer : A source document is a document that supports the transaction for recording. These documents are real, meaningful, visible records certifying the actual happening of transactions of a financial nature.
The features of source documents are as follows:
- It is prepared when a transaction takes place.
- It is a written proof of the happening of a transaction in the business.
- It shows the complete description of the transaction.
- It is the basis for the preparation of vouchers.
- It helps in auditing and tax assessments.
2. Write short notes on:
(a) Pay-in-slip
Answer : A Pay-in-Slip, also known as a deposit slip, is used when cash or cheques are deposited in the bank. The Pay-in-Slip form is available from a bank and consists of two parts: the main body and the counterfoil. The customer has to fill up both parts, which contain details regarding the date, amount of cash or cheque deposited, account number of the customer, and their signatures. The main body of the Pay-in-Slip is retained by the bank, and the counterfoil, duly signed and stamped by the cashier, is returned to the customer. The counterfoil is used as the source document for recording the deposits in the books of accounts.
(b) Invoice or bill
Answer : An Invoice or Bill is prepared by the trader or seller when goods are sold on credit. It contains details about the name of the party to whom goods are sold, the quantity, rate, and the total amount of sales. Usually, invoices or bills are made in duplicate. The original copy of the invoice is sent to the purchaser, and the duplicate copy is retained by the seller for recording in the books of accounts and for future references.
(c) Cheques
Answer : A Cheque is a document in writing that contains an order from a customer to a banker, authorizing the payment of a specified sum to the bearer or the person named in it. The bank issues a booklet containing cheque forms to its account holders. The amount to be paid is written both in words and figures. A cheque must be dated and signed by the drawer. The counterfoil of the cheque or notes on the cheque book containing details of the payment is used for recording in the books of accounts.
(d) Vouchers
Answer : Vouchers are documents prepared for the purpose of recording business transactions in the books of accounts. These include receipts, cash memos, salary bills, invoices, wages bills, travelling allowance bills, registration deeds, etc. On the basis of source documents, entries are first recorded on vouchers, and then on the basis of vouchers, entries are passed in the Journal or books of original entry. Vouchers are printed by all enterprises in their name. They are prepared by an accountant and countersigned by an authorized person of the enterprise. According to J.R. Batliboi, “A voucher may be defined as documentary evidence in support of an entry appearing in the books of accounts.”
3. Explain the term vouchers. Mention and explain types of vouchers in brief.
Answer : Vouchers are documents prepared for the purpose of recording business transactions in the books of accounts. These include receipts, cash memos, salary bills, invoices, wages bills, travelling allowance bills, registration deeds, etc. On the basis of source documents, entries are first recorded on vouchers and then passed into the Journal or books of original entry. Vouchers are printed by all enterprises in their name and are prepared by an accountant, countersigned by an authorised person of the enterprise. According to J.R. Batliboi, “A voucher may be defined as documentary evidence in support of an entry appearing in the books of accounts.”
The types of vouchers are as follows:
- Cash Vouchers :
- These are documentary evidences of cash receipts and cash payments.
- They are further classified into:
(i) Debit Voucher : A document that serves as proof of cash payments, such as expenses, purchase of goods, or depositing cash into the bank.
(ii) Credit Voucher : A document that serves as proof of cash receipts, such as sale of goods, sale of assets, or withdrawal from the bank.
- Non-Cash Vouchers or Transfer Vouchers :
- These are documentary evidences of all non-cash transactions of the business, such as credit sales or purchases, return of goods by customers, or return of goods to suppliers.
Long Answer Type Questions
1. What is a source document? What are its features? Enumerate various source documents.
Answer : A source document is a document that supports the transaction for recording. These documents are real, meaningful, visible records certifying the actual happening of the transactions of financial nature. Some of the features of source documents are as follows:
- It is prepared when a transaction takes place.
- It is a written proof of the happening of a transaction in the business.
- It shows the complete description of the transaction.
- It is the basis for the preparation of vouchers.
- It helps in auditing and tax assessments.
Some common source documents include:
- Cash Memo: A document showing the amount, date, and details of cash purchases and cash sales.
- Invoice or Bill: Prepared by the trader or seller when goods are sold on credit, containing details about the name of the party to whom goods are sold, quantity, rate, and the total amount of sales.
- Receipt: An evidence of cash or cheque received by a trader on account of any transaction involving cash other than those concerned with cash sales or cash purchases.
- Pay-in-Slip: Used when cash or cheques are deposited in the bank, consisting of two parts—main body and counterfoil.
- Cheque: A document in writing containing an order from a customer to a banker authorising him to pay a specified sum to the bearer or the person named in it.
- Debit Note: A document prepared by the customer when certain goods need to be returned to the vendor, indicating that the supplier’s account is being debited.
- Credit Note: A document issued by the seller/vendor in response to the debit note received from the customer, showing that the latter’s account has been credited in the books.
2. Explain:
i. What is a Cash Memo?
Answer : A Cash Memo is a document showing the amount, date, and details of cash purchases and cash sales. Cash Memos are received from suppliers when cash purchases are made and issued to customers when cash sales are made.
ii. What is an Invoice or Bill?
Answer : An Invoice or Bill is prepared by the trader or seller when goods are sold on credit. It contains details about the name of the party to whom goods are sold, quantity, rate, and the total amount of sales. Usually, invoices or bills are made in duplicate, with the original copy sent to the purchaser and the duplicate retained by the seller for recording in the books of accounts and future references.
iii. What is a Cheque?
Answer : A Cheque is a document in writing, containing an order from a customer to a banker, authorizing him to pay a specified sum to the bearer or the person named in it. The cheque must be dated and signed by the drawer. The counterfoil of the cheque or notes on the cheque book containing details of the payment is used for recording in the books of accounts.
iv. What is a Pay-in-Slip?
Answer : A Pay-in-Slip, also known as a deposit slip, is used when cash or cheques are deposited in the bank. It consists of two parts: the main body and the counterfoil. Both parts contain details regarding the date, amount of cash or cheque deposited, account number of the customer, and their signatures. The main body is retained by the bank, while the counterfoil, duly signed and stamped by the cashier, is returned to the customer and serves as the source document for recording deposits in the books of accounts.
v. What is a Receipt?
Answer : A Receipt is an evidence of cash or cheque received by a trader on account of any transaction involving cash other than those concerned with cash sales or cash purchases. Receipts are usually prepared in duplicate, with the original copy given to the person making the payment and the duplicate retained by the receiver of cash for future reference and record in the books of accounts. Receipts are serially numbered and contain the date, amount, name of the person, and nature of the payment.
vi. What is a Voucher?
Answer : A Voucher is a document prepared for the purpose of recording business transactions in the books of accounts. It includes receipts, cash memos, salary bills, invoices, wages bills, travelling allowance bills, registration deeds, etc. Vouchers are prepared by analyzing source documents, and entries are first recorded on vouchers before being passed into the Journal or books of original entry. Vouchers are printed by enterprises in their name, prepared by an accountant, and countersigned by an authorized person.
3. What do you mean by Transfer voucher? Why are they prepared? Give the contents of this voucher?
Answer : A Transfer voucher, also referred to as a Non-Cash Voucher, is a documentary evidence of all non-cash transactions of a business. These non-cash transactions include credit sales or purchases of goods, return of goods by customers, return of goods to suppliers, etc. Transfer vouchers are prepared to record such transactions that do not involve cash but still need to be documented for proper accounting.
The contents of a Transfer Voucher or Non-Cash Voucher are as follows:
(i) Name and Address of the Organisation.
(ii) Date of Preparing Voucher.
(iii) Accounting Voucher Number.
(iv) Title of the Account Debited/Credited.
(v) Net Transaction Amount.
(vi) Narration, i.e., a brief description of the transaction.
(vii) Signature of the Person Preparing it.
(viii) Signature of the Authorised Signatory.
(ix) Supporting Voucher Number.
Practical Problems
Questions
1. Suppose Grayson starts a new business and the following successive transactions take place :
Transaction 1 : Grayson started business with ₹ 80,000 as capital.
Transaction 2 : Grayson purchased furniture for Cash ₹ 7,000.
Transaction 3 : Grayson purchased goods for Cash ₹ 30,000.
Transaction 4 : Grayson purchased goods on credit for ₹ 12,000 .
Transaction 5 : Goods costing ₹ 10,000 sold on credit for ₹ 12,000 .
Transaction 6 : Paid ₹ 2,000 for rent.
Solution: Check below
2. Show the Accounting Equation on the basis of the following transactions and prepare a Balance Sheet on the basis of the last new equation :
| 1. | Mani started business with cash | 60,000 |
| 2. | Purchased goods for cash | 15,000 |
| 3. | Purchased goods on credit | 10,000 |
| 4. | Purchased furniture for cash | 5,000 |
| 5. | Paid rent | 1,000 |
| 6. | Received Commission | 600 |
| 7. | Withdrew cash for private use | 3,500 |
| 8. | Sold goods on credit (cost price ₹ 20,000) | 30,000 |
| 9. | Paid to creditors | 7,000 |
Solution: Check below
3. Prepare ‘Accounting Equation’ from the following :
(a) Started business with cash ₹ 1,50,000.
(b) Purchased goods for cash ₹ 10,000 and on credit ₹ 25,000.
(c) Sold goods for cash costing ₹ 15,000 and on credit costing ₹ 20,000 both at a profit of 20%.
Solution: Check below
4. Show the effect of the following transactions on Assets, Liabilities and Capital through accounting equation :
(a) Started business with cash ….. 1,00,000
(b) Rent received ….. 12,000
(c) Invested in shares ….. 58,000
(d) Received dividend ….. 8,000
(e) Purchased goods on credit from Aua ….. 22,000
(f) Paid cash for household expenses ….. 5,000
(g) Sold goods for cash (costing ₹ 6,000) ….. 10,000
(h) Cash paid to Aua ….. 20,000
(i) Deposited into bank ….. 10,000
Solution: Check below
5. Transactions of M/s James Traders are given below :
Show the effects on Assets, Liabilities and Capital with the help of accounting equation.
(a) Business started with cash ….. 1,30,000
(b) Purchased goods for cash ….. 55,000
(c) Purchased furniture from Andrew Furniture ….. 20,000
(d) Sold goods to Ethan Traders (Costing ₹ 8,000 vide bill no. 5,674) ….. 10,000
(e) Paid cartage ….. 200
(f) Cash Paid to Andrew Furniture in full settlement ….. 19,800
(g) Cash sales (costing ₹ 7,000) ….. 10,000
(h) Rent received ….. 3,000
(i) Cash withdrew for personal use ….. 2,000
Solution: Check below
6. Prove that Accounting Equation is satisfied in all the following transactions of Jexon Seth :
(i) Started business with Cash ₹ 2,00,000.
(ii) Paid rent in advance ₹ 4,000.
(iii) Purchased goods for cash ₹ 60,000 and Credit ₹ 30,000.
(iv) Sold goods for Cash ₹ 90,000 costing ₹ 45,000.
(v) Paid salary in cash ₹ 4,000 and salary outstanding ₹ 2,000.
(vi) Bought motor cycle for personal use ₹ 40,000.
Solution: Check below
7. Show the effect of following transactions on the accounting equation :
(a) Daniel started business with (i) Cash 3,00,000 (ii) Goods 2,00,000 (iii) Building 1,50,000
(b) He purchased goods for cash 60,000
(c) He sold goods for cash (costing ₹ 20,000) 30,000
(d) He purchased goods from Ryan 60,000
(e) He sold goods to Jackson (costing ₹ 70,000) 80,000
(f) He paid cash to Ryan in full settlement 58,000
(g) Salary paid by him 10,000
(h) Received cash from Jackson in full settlement 79,000
(i) Rent outstanding 2,000
(j) Prepaid Insurance 1,000
(k) Commission received by him 10,000
(l) Amount withdrawn by him for personal use 10,000
(m) Depreciation charged on building 12,000
(n) Fresh capital invested 60,000
(o) Purchased goods from Aria 5,000
Solution: Check below
8. Prove that the accounting equation is satisfied in all the following transactions of Akhil :
i. Started business with Cash ₹ 60,000 and goods ₹ 30,000 .
ii. Bought goods for Cash ₹ 18,000 and on credit for ₹ 12,000.
iii. Goods Costing ₹ 27,000 sold at a profit of 33 1/3%. Half the payment received in cash.
iv. Purchased furniture for office use ₹ 5,000 and for household use of Akhil ₹ 3,000 .
Solution: Check below
9. If the Capital of a business is ₹ 2,50,000 and outside liabilities are ₹ 50,000, Calculate total assets of the business.
Solution: Check below
10. If total assets of a business are ₹ 3,00,000 and net worth (Capital) is ₹ 1,00,000, Calculate Creditors.
Solution: Check below
11. A commenced business on 1st April, 2020 with a Capital of ₹ 6,00,000. On 31st March, 2021, his assets were worth ₹ 8,20,000 and liabilities ₹ 80,000 . Find out his closing capital and profits earned during the year.
Solution: Check below
12. (a) Owen started business on 1st April, 2021 with Capital of ₹ 9,00,000 and a loan of ₹ 1,00,000 taken from Punjab National Bank. On 31st March, 2022 his assets were ₹ 18,00,000. Find out his Capital on 31st March, 2022 and profits made or losses incurred during the year 2022-23.
Solution: Check below
(b) If in the above question, the proprietor had introduced additional capital of ₹ 1,20,000 and had withdrawn ₹ 30,000 for personal purposes, find out the profit.
Solution: Check below
Solutions
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Extras
Additional questions and answers
1. Define a source document.
Answer : A source document is a document which supports the transaction for recording. These documents are real, meaningful, visible records certifying the actual happening of the transactions of financial nature.
37. Explain how accrued incomes and advance receipts affect the accounting equation.
Answer : Accrued incomes are added to assets as they represent income earned but not yet received, thereby increasing the asset side of the equation. Advance receipts, however, are recorded as a liability because they indicate cash received in advance for services or goods yet to be delivered, thus increasing the liability side of the accounting equation.
Additional MCQs
1. What is required before recording a financial transaction in the books of accounts?
A. Authorisation form
B. Documentary evidence
C. Auditor’s approval
D. Manager’s approval
Answer: B. Documentary evidence
26. Selling goods on credit will:
A. Increase assets and capital
B. Decrease creditors
C. Decrease stock
D. Decrease capital
Answer: C. Decrease stock
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