Accounting MCQ Questions and Solutions with Explanations | Commerce

The closing balance of petty cash book is considered as Asset. Petty Cash is a current asset account; it is part of a company's cash.

Payment of rent expenses is recorded on Payments side of cash book. All cash payments are recorded by date on the right-hand side.

An entry which is made on both sides of a cash book is called Contra entry. In the dual entry accounting system, a Contra Entry is an entry which is recorded to reverse or offset an entry on the other side of an account. If a debit entry is recorded in an account, it will be recorded on the credit side and vice-versa.

A cash book with cash, bank and discount column is commonly referrred to as Three columns cash book. The three column cash book (also known as triple column cash book) has three money columns on both debit and credit side – one on each side for recording discount, cash and bank amounts.

Cash book records Cash payments and cash receipts. A Cash Book is a type of subsidiary book where cash (or) bank receipts and cash (or) bank payments made during a period are recorded in a chronological order.

A cash discount is a reduction in the invoice amount granted by the seller to the buyer as an incentive for early payment.

This type of discount encourages buyers to pay their bills promptly to receive the discount.

Lump sum, Actual, and None of them are incorrect because they do not correctly describe the condition under which a cash discount is typically allowed.

Therefore, the correct answer is Prompt.

Cash book is prepared by Accountant of business. A cash book is set up as a ledger in which all cash transactions are recorded according to date. It is a book of original entry and final entry.

The most common imprest system is the Petty cash system. The base characteristic of an imprest system is that a fixed amount is reserved, which after a certain period of time or when circumstances require, because money was spent, it will be replenished.

Discount received is recorded on the payments side of a cash book because it represents a reduction in the amount payable to creditors.

In accounting, a business may receive a discount from suppliers when making early payments or bulk purchases. This discount received reduces the cash outflow and is considered an income for the business, but it is recorded on the payments side of the cash book.

Example:
Suppose a business purchases goods worth ₹10,000 on credit from a supplier. The supplier offers a ₹1,000 discount for early payment. The business will pay only ₹9,000 instead of ₹10,000.

Cash Book Entry:
₹9,000 will be recorded as an actual payment to the supplier.
₹1,000 (Discount Received) will be recorded separately on the payments side to adjust the total liability.

Why Not Other Options?
Receipts: Used for recording cash inflows (money received), but discount received is not a cash receipt.
Income: Though discount received is an income, it is not recorded in the income section of the cash book. Instead, it appears as a reduction in payment.
Expenditure: This includes expenses paid, whereas discount received reduces expenditure rather than increasing it.

Thus, Discount Received is correctly recorded on the Payments side of the cash book.

Drawings by owner of business are generally recorded on Payments side of a cash book. Drawings are money or assets that are withdrawn from a company by its owners for personal use.