🏆 Challenge Zone · Chapter 3 · ⏱ 30 min

Challenge Zone: Recording of Transactions – I

Each challenge solved = +25 XP. Solve without a hint = +10 bonus XP. Solve all four to earn the chapter’s Topper badge.

🎯 What you will master here:

Pass an opening entry when the balances include tricky items like overdraft, prepaid and outstanding expenses
Apply the NCERT order of GST set-off when Input IGST exceeds Output IGST
Record an insolvent debtor’s partial recovery as a compound entry
Track the effect of a month’s transactions, including GST, on the cash balance

Welcome to the topper zone! These questions mix the whole chapter: the accounting equation, journal entries, GST and the ledger. Read every word, because one word like “overdraft” or “in full settlement” changes the answer. Try first on paper; the hints are there if you get stuck. Solve all four and you are ready for any Chapter 3 question in the board exam.

🌍 Where is this used in real life?

In every modern shop or company, the journal and ledger are still there, only on a screen. In Tally or any ERP, an accountant enters a voucher (sales, purchase, payment, receipt or journal voucher), and the software instantly posts it to every ledger account and updates balances. GST works the same way: the Input and Output CGST, SGST and IGST ledgers feed the monthly return (GSTR-3B), where the business sets off its input tax credit and pays the balance through the Electronic Cash Ledger on the GST portal. Auditors (Chartered Accountants) check the books by vouching: they pick a ledger figure, follow it back to the journal entry and then to the bill or bank record, which is exactly why the L.F. and J.F. links exist. In India, companies are required to keep accounts in software with an audit trail (an edit log that records every change to an entry), so nobody can silently alter the books.

🪄 Accounting magic

Every journal entry has debits = credits, and every entry is posted once to each side of the ledger. So however many thousands of transactions a business has, the total of all debit balances in the ledger must equal the total of all credit balances. At the same time, Assets = Liabilities + Capital stays true after every single entry. That is the magic of double entry: the books check themselves. If the two totals ever differ, you know for sure an error has crept in, and Chapter 6 will teach you how to hunt it down. The same trick works for GST: after set-off and payment, every Input and Output account must show zero, and the cash paid must equal total output tax minus total input tax used.

⭐ Challenge 1 (Level: Tough)

On 1 April 2026, Jain Hardware’s books show: Cash ₹18,000; Bank overdraft ₹12,000; Stock ₹75,000; Debtors ₹40,000; Prepaid rent ₹3,000; Outstanding salary ₹5,000; Furniture ₹50,000; Creditors ₹35,000; Loan from a friend ₹20,000. What amount will be credited to Capital A/c in the opening entry (in ₹)?

Sort carefully: an overdraft is money owed to the bank; prepaid rent is a benefit still to be received; outstanding salary is still to be paid.

Assets = Cash 18,000 + Stock 75,000 + Debtors 40,000 + Prepaid rent 3,000 + Furniture 50,000 = ₹1,86,000.
Liabilities = Bank overdraft 12,000 + Outstanding salary 5,000 + Creditors 35,000 + Loan 20,000 = ₹72,000.
Capital = 1,86,000 − 72,000 = ₹1,14,000. (Bank overdraft is credited in the opening entry, not debited as “Bank”.)

⭐⭐ Challenge 2 (Level: Tougher)

For July 2026, Sethi Electricals of Noida (UP) has: Output IGST ₹30,000, Output CGST ₹25,000, Output SGST ₹25,000; Input IGST ₹48,000, Input CGST ₹4,000, Input SGST ₹6,000. Using the NCERT order of set-off, how much GST in total must be paid through the Electronic Cash Ledger (in ₹)?

Input IGST: first against Output IGST, then Output CGST, then Output SGST. CGST and SGST credits cannot cross over.

IGST: 30,000 set off from Input IGST; Input IGST left = 48,000 − 30,000 = 18,000.
CGST: 25,000 − 18,000 (IGST credit) − 4,000 (CGST credit) = 3,000 payable.
SGST: 25,000 − 6,000 (SGST credit) = 19,000 payable.
Total cash payable = 3,000 + 19,000 = ₹22,000. (Check: total output 80,000 − total input 58,000 = 22,000 ✔)

⭐⭐ Challenge 3 (Level: Tougher)

Kunal, who owed the business ₹12,000, has been declared insolvent. His estate pays 35 paise in the rupee, received by NEFT. Pick the two debits and the credit.

35 paise in the rupee = 35% of what he owed. The rest will never come. His account must be fully closed.

Amount received = 35% of 12,000 = ₹4,200 (Bank ↑, debit). Irrecoverable = 12,000 − 4,200 = ₹7,800 (loss, debit Bad Debts). Kunal’s whole ₹12,000 is closed (credit). It is not a discount: nothing was given for early payment.

Particulars	Dr (₹)	Cr (₹)
Bank A/c Dr.	4,200
Bad Debts A/c Dr.	7,800
To Kunal’s A/c		12,000
(Being 35 paise in the rupee received from Kunal’s estate, balance written off)

⭐⭐⭐ Challenge 4 (Level: Topper)

Aman Sports, Meerut (UP), May 2026. All purchases and sales are within UP with GST @ 18% (CGST 9% + SGST 9%).
1. Aman started business with cash ₹3,00,000.
2. Deposited ₹1,00,000 into the bank.
3. Bought goods for cash ₹40,000 plus GST.
4. Sold goods for cash ₹60,000 plus GST.
5. Sold goods to Kavita on credit ₹20,000 plus GST.
6. Paid rent in cash ₹15,000 (no GST).
7. Kavita paid cash ₹23,400 in full settlement of her account.
8. Aman withdrew ₹6,000 cash for personal use.
9. At the end of the month, the net GST payable was paid in cash.
What is the balance of the Cash Account on 31 May 2026 (in ₹)?

Post only the cash parts to Cash A/c. Kavita owed ₹23,600, not ₹20,000. For step 9, find total output tax − total input tax.

Cash received: 3,00,000 (capital) + 70,800 (cash sales with GST) + 23,400 (Kavita) = 3,94,200.
Cash paid: 1,00,000 (bank) + 47,200 (purchases with GST) + 15,000 (rent) + 6,000 (drawings) = 1,68,200.
GST: Output = 10,800 (on 60,000) + 3,600 (on 20,000) = 14,400; Input = 7,200 (on 40,000). Net payable = 7,200 (CGST 3,600 + SGST 3,600), paid in cash.
Cash balance = 3,94,200 − 1,68,200 − 7,200 = ₹2,18,800.
(Kavita owed 20,000 + 3,600 = 23,600; she paid 23,400, so ₹200 is Discount Allowed, which does not touch Cash A/c.)

🧠 Think fast

A trader pays ₹11,800 for goods bought within the state, including GST @ 18%. Purchases A/c will be debited with:

₹11,800
₹10,000
₹9,676
₹9,800

₹11,800 is 118% of the value, so the value = 11,800 × 100 ÷ 118 = ₹10,000; the GST is ₹1,800 (CGST 900 + SGST 900). Taking 18% of 11,800 (giving ₹9,676) is the common trap.

At the start of the new year, which of these accounts will not show a “Balance b/d”?

Cash A/c
Creditors A/c
Capital A/c
Sales A/c

Sales is a temporary (revenue) account: it is closed by transfer to the Trading Account at the year end, so nothing is carried forward. Assets, liabilities and capital are permanent accounts and are carried forward.

📌 What toppers remember

Opening entry: overdraft, outstanding expenses and loans are liabilities; prepaid expenses are assets; capital is the difference.
GST set-off: Input IGST goes to IGST, then CGST, then SGST; the cash paid always equals total output tax minus the input credit used.
Insolvent debtor: debit the amount actually received and Bad Debts for the rest; credit the debtor with the full amount due.
Only the cash part of a compound entry reaches Cash A/c; discounts and credit sales do not.
Double entry is self-checking: total debit balances equal total credit balances, and A = L + C holds after every entry.