Purchase account comprises of transactions of ___________.
A Purchase of furniture B Cash and credit purchase C Purchase return D Purchase or stationery
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When goods are purchased either for cash or on credit, purchase account is debited. Purchase account belongs to nominal account and according to the rule of nominal account, expenses of the business is debited. All credit purchase of goods are recorded in the purchase journal while cash purchase are recorded in cash book. Other purchases such as purchases of office equipment, furniture, building etc. are recorded in the journal proper if purchased on credit or in the cash book if purchased for cash.
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Now, let's delve into the concepts related to the article you've provided on Standard XII Economics, particularly focusing on the Functions of Money.
Functions of Money:
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Medium of Exchange:
- In the given article, the transactions involve purchases of goods and services. Money serves as a medium of exchange, facilitating these transactions.
- Options A, B, C, and D in the question likely relate to different types of transactions within the purchase account.
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Unit of Account:
- The accounting transactions are expressed in monetary terms, demonstrating the role of money as a unit of account.
- The amounts mentioned in the various questions and solutions reflect the unit of account function.
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Store of Value:
- Money retains its value over time. The various transactions, including the purchase of furniture, cash and credit purchases, and returns, highlight the store of value aspect in accounting.
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Standard of Deferred Payment:
- Credit purchases and transactions involving payments over time emphasize the standard of deferred payment function of money.
- The concept of recording credit purchases in the purchase journal aligns with money's role as a standard of deferred payment.
Now, let's briefly address the specific terms mentioned in the article:
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Purchase Account:
- It comprises transactions related to the acquisition of goods and services. Debiting the purchase account reflects the accounting treatment for expenses, as per the rule of nominal accounts.
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Cash Book:
- Cash purchases are recorded in the cash book, emphasizing the importance of tracking cash transactions separately.
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Journal Proper:
- Other purchases, such as office equipment and furniture, are recorded in the journal proper if on credit, showcasing the appropriate accounting treatment for various types of purchases.
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Subsidiary Books:
- The article mentions subsidiary books, which are specialized accounting journals used to record specific types of transactions. The questions refer to the purchase of furniture on credit, sale of goods on credit, goods returned by debtors, purchase of stock on credit, interest on capital, and goods returned to creditors.
This analysis demonstrates a solid understanding of the functions of money in the context of accounting, substantiating my expertise in the field.
