MGT101 Midterm Past Papers Set 2

MGT101

****QUESTION: DISTINGUISH BETWEEN FIXED ASSET AND CURRENT ASSET?

**ANSWER:

FIXED ASSET

Assets which have long life (more than one year) and which are bought for use for a long period of time. These are not bought for selling purposes. e.g. land, building, plant and machinery, furniture etc.

CURRENT ASSET

Assets which have short life (less than one year) and which can be converted into cash quickly. e.g. stock, debtors, cash in hand, cash in bank, prepaid expenses. ****QUESTION: WHAT IS ACCOUNTING CYCLE?

**ANSWER:

The accounting cycle comprises of the following steps which make up the cycle complete.

Recording:-

First step is to record the transactions in the form of entries passed in a book named journal.

Classifying:-

Specific ledger accounts are prepared by posting these entries from journal to ledger. This procedure is called classification and posting entries in various accounts.

Summarizing:-

Making of trial balance i.e., taking all the balances of ledger accounts in the trial. The balances of expenses, revenues, liabilities and assets would make the trial balance complete.

Reporting:-

Preparing profit and loss account/income statement where expenses are compared with revenue to arrive at the profit and loss and preparation of balance sheet where

Assets = liabilities + owners equity ****QUESTION: WHAT IS DOUBLE ENTRY AND SINGLE ENTRY BOOK KEEPING SYSTEM? **ANSWER: <

Double entry system:-

It means complete accounting system. In double entry system, two sides of every transaction are recorded, one is debit side and other is credit side.

For example when goods are sold for Rs.1,500, then there are two aspects of this transaction, one we received cash and the second we delivered the goods. Therefore, the dual aspect of receiving the cash and delivering the goods is recorded in the books kept under double entry system as debit to cash and credit to goods.

Single entry system: -

Whereas in single entry system, it doesn’t necessarily happen as transactions may not be recorded at all or only one side of transaction is recorded. It results in incompletion of record commonly known as single entry system (only receipt and payment of cash is recorded and no separate record is maintained as to from whom the cash was received or to whom it is paid).

Hence example given in double entry system only receipt of cash of Rs.1,500 is recorded in the books but nothing shall be recorded regarding the goods delivered, thus giving rise to incompletion of records. ****QUESTION: WHAT IS PERPETUAL INVENTORY SYSTEM AND PERIODIC INVENTORY SYSTEM?

**ANSWER:

Perpetual inventory system:-

In perpetual inventory system record of all receipt and issues of materials are maintained properly. When merchandise is purchased its cost is debited to an asset account called inventory. As the merchandise is sold/issued, its cost is removed from inventory account and transferred to the cost of goods sold account. In this system inventory records are kept continuously up-to-date. The inventory on hand and the cost of goods sold for the year are determined under perpetual inventory system. All large business organizations use perpetual inventory systems.

Periodic inventory system:-