Accounting & finance  bankers
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Accounting & finance bankers

Accounting & finance bankers

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Accounting & finance  bankers Accounting & finance bankers Presentation Transcript

  • Accounting & Finance for Bankers
  • TOPICS
    • BANK RECONCILIATION
    • TRIAL BALANCE
    • CAPITAL & REVENUE EXPENDITURE
    • INVENTORY VALUATION
    • BILLS OF EXCHANGE
    • CONSIGNMENT ACCOUNT
    • JOINT VENTURE
    • LEASING & HIRE PURCHASE
    • NON-TRADING ORGANISATIONS
    • DEPRECIATION
    • MODEL QUESTIONS
  • Bank Reconciliation statement
    • Meaning
    • Causes of differences
            • Cheque issued but not presented for payment
            • Cheque deposited but not yet realized
            • Bank charges
            • Interest on saving bank
            • Int. on overdraft
            • Amount directly collected by bank
            • Amount directly paid by bank on Std. Instructions
            • Dishonor of a Cheque
            • Direct payment into bank by customer
            • errors
  • BANK RECONCILIATION STATEMENT
    • BANK RECONCILIATION( B. R. ) IS BASED ON THE PRINCIPLE OF DOUBLE ENTRY.
    • CREDIT THE GIVER AND DEBIT THE RECEIVER
    • B. R. SHOWS CAUSES OF DIFFERENCES BETWEEN CASH BOOK AND PASS BOOK BALANCE
    • DEBIT BALANCE AS PER CASH BOOK IS CREDIT BALANCE AS PER PASS BOOK = POSITIVE BALANCE
    • CREDIT BALANCE IN CASH BOOK IS DEBIT BALANCE IN PASS BOOK = NEGATIVE BALANCE/OVERDRAFT
  • EXAMPLES
    • M/s Shekhar Enterprises .was maintaining account with KRB Bank Ltd. On 31st December,2006, Bank column of cash book of company showed a debit balance of Rs. 26000.
    • Cheques deposited into the bank but not credited before 31st December,2006 amounted to Rs.4000
    • Bank charges of Rs. 500 were debited by the bank but no entry was made by the accountant of the company.
    • From the above particulars, find out the balance as per KRB Bank’s books.
    • Rs.30500
    • Rs.25500
    • Rs .21500
    • Rs.22500
  • EXAMPLES
    • When overdraft as per cash book and a Cheque of Rs.1000 directly deposited in the bank, but not recorded in cash book----
          • a) Add Rs.1000 in CB
          • b) D educt Rs.1000 in CB
          • c) Add Rs.2000 in cash book
          • d) Deduct Rs.2000 in CB
    • Undercasting of the credit side of Cash Book has the same effect as overcasting of the–
    • D ebit side of the pass book.
    • Credit side of the pass book.
    • There is no relevance between the two
  • Trial Balance(TB)- Rectification entries
    • Trial balance – meaning
    • Types- gross TB, Net TB
    • Disagreement of TB
    • Classification of errors
        • Clerical errors
          • Errors of omission
          • Errors of commission
            • Posting of correct amount at wrong side
            • Posting wrong amount at wrong side
            • Totaling error in subsidiary book
            • Mistake while balancing of ledger
          • Compensating errors
        • Errors of principles
  • Suspense account-
    • Suspense account- After preparation of T/B
    • Rectification when books are closed- Diff. in nominal A/c adj. through P & L Adj. A/c- then effect on Capital A/c
  • Rectification of Errors-Examples
    • (1) Rs. 5000 paid as wages for installing the machinery should be debited to-----
        • Wages A/c
        • Machinery a/c
        • Capital A/c
        • None of the above
    • (2) Sales to Navin of Rs.1000 is debited to Ravin A/c. this will be rectified by-----
    • Debiting Navin a/c and Crediting Ravin A/c
    • Debiting both Accounts
    • Debiting Ravin a/c and Crediting Navin A/c
    • Debiting Navin A/c and crediting Sales A/C
  • Rectification of Errors-Examples
    • (1) Rs. 5000 paid as wages for installing the machinery should be debited to-----
        • Wages A/c
        • Machinery a/c
        • Capital A/c
        • None of the above
    • (2) Sales to Navin of Rs.1000 is debited to Ravin A/c. this will be rectified by-----
    • Debiting Navin a/c and Crediting Ravin A/c
    • Debiting both Accounts
    • Debiting Ravin a/c and Crediting Navin A/c
    • Debiting Navin A/c and crediting Sales A/C
  • Rectification of Errors-Examples
    • Credit sale of Rs.5000 to Suresh is posted to his credit, then rectification is
    • Credit Suresh to the extent of Rs.10,000
    • Credit Suresh to the extent of Rs.5,000
    • Debit Suresh to the extent of Rs.10,000
    • Debit Suresh to the extent of Rs.5000
    • Freight expenses for carrying New Machinery is carried to Traveling Exp. a/c. Choose the correct rectification entry
    • Debit machinery a/c and credit Traveling Exp a/c.
    • Credit machinery a/c and debit Freight Exp a/c
    • Credit profit and loss account and debit Freight Exp a/c.
    • Debit profit and loss a/c( P&L a/c) and credit Traveling Exp a/c.
  • Capital & Revenue Expenditure CAPITAL REVENUE Large amount Relatively small Improve or enhance earning capacity Maintain asset Long duration benefit Short duration Non- recurring recurring Balance sheet item Trading /P & L A/c item
  • Cap. & Rev. Expenditure-Examples
    • ( 1) Cost of replacement of defective parts of the machinery is -----
    • Capital expenditure
    • R evenue expenditure
    • Deferred revenue expenditure
    • (2) Loss of goods due to fire Rs.8000 is a revenue expenditure because----
    • It is recurring
    • Amount involved is small
    • L oss is arising out of business operations
  • Cap. & Rev. Expenditure-Examples
    • (3) Expenditure incurred in acquiring the patents rights for the business is an example of ----
    • C apital expenditure
    • Deferred revenue expenditure
    • Revenue expenditure
    • ( 4) Professional fees paid in connection with acquisition of leasehold premises is----
    • C apital expenditure
    • Deferred revenue expenditure
    • Revenue expenditure
  • Examples
    • (5)Preliminary expenses , discount allowed on issue of shares are the examples of
    • Capital expenditure
    • D eferred revenue expenditure
    • Revenue expenditure
    • (6) Machinery costing Rs.10,000, whose current book value is Rs.7000 is sold for Rs.12000 what is the amount of capital & revenue receipt
    • Capital receipt of Rs. 2000 & Rev. Receipt of Rs.10000
    • C apital receipt of Rs. 9000 & Rev. Receipt of Rs.3000
    • Capital receipt of Rs. 12000 & Rev. Receipt of Rs.Nil
  • Methods of valuation of inventory FIFO LIFO AVERAGECOST
    • Goods issued valued at earliest price
    • Stock valuation at latest price
    • Goods issued valued at latest price
    • Stock valuation at earliest price
    Found out by dividing total price paid by quantity received
  • Examples
    • ( 1)During inflation, issue of material from the stores is charged to the products at the highest price under-----
    • LIFO method
    • F IFO method
    • Average cost method
    • None of the above
    • (2) The ascertainment of value of stock from accounting record is known as -----
    • Periodic inventory
    • P erpetual inventory
  • Examples-conted.
    • As per According to Accounting Standard 2 inventory means tangible property held
    • for sale in the ordinary course of business (finished goods)
    • in the process of production for such sale (work-in-process)
    • for production in the production of goods or services for sale (Raw materials)
    • Maintenance supplies and consumables other than Machinery and spares (Components)
    • (a), (b) and (c) above
    • (a), (b), (c) and (d) above
    • None of the above
  • Examples-conted..
    • Q- The cost formulae recommended by Accounting Standard 2 for valuation of inventories are-
    • F IFO or Weighted average
    • Standard cost
    • LIFO or latest purchase price
    • Q:During the rising prices the ______ method will reflect ( F IFO/LIFO/weighted Average)
    • lowest cost of material supplied and results in under pricing the products
    • Inventory is shown at the higher priced material.
    • Lock up of large amount of working capital.
    • Profits are inflated
    • More liability for payment of taxes
  • DEPRECIATION ACCCOUNTING
    • Meaning
    • Causes of depreciation
    • Need for depreciation
            • To know correct profit
            • Show correct financial position
            • Make provision for replacement of assets
  • Factors of depreciation
    • Cost of asset
    • Residual value
    • Life of an asset
  • METHODS OF DEPRECIATION
    • Straight Line Method
    • Written Down Value Method
    • Example:
    • Depreciation is a reduction in the book value of
    • all fixed assets
    • all fixed assets excepting land
    • all fluctuating assets
    • both fixed and current assets
    • all assets used in business.
  • Bill of Exchange Bill of Exchange Promissory Note Unconditional order Unconditional promise Made by creditor Made by debtor Acceptance by debtor must No acceptance as such Three parties to a bill Two parties to a bill Noting is not necessary On dishonor, noting is necessary by notary public
  • Bill of Exchange
    • Honoring on due date
    • Retirement
    • Discounting of bill
    • Sent for collection to bank
    • Endorsed to creditor
    • Renewal of the bill
    • Accommodation bill
  • Examples
    • Q. ___________ draws a bill on __________
    • Q. A bill of exchange is a negotiable instrument
    • True
    • False
    • Q. Negotiable instruments can be ________from one person to another
    • Q. A bill of exchange must be in writing
    • True
    • False
    • Q: A bill of exchange is not to be dated
    • True
    • F alse
  • Examples-conted
    • Q.: The date on which the bill is payable is called its _________
    • Q. The due date is calculated after adding __________ to the actual period of the bill.
    • Q. If the due date falls on a public holiday, then it becomes due on the -------
    • Q.A bill was drawn on 23rd Dec. 2005 for one month maturity. What will be its due date.
    • Q. When a Bill of exchange or promissory note has been dishonoured for non acceptance or non payment, the holder may, within a reasonable period, cause such dishonour to be noted and certified by a notary public, such a certificate is called ________
    • Ans.: due date, Three days of grace, Previous working day, 25th January,protest
  • CONSIGNMENT ACCOUNT
    • A consignment is the dispatch of goods by its owner to his agent for the purpose of selling.
    • Consignor, consignee, Proforma Invoice, Account Sale
    • Books of Account in the books of consignor-
        • Consignment A/c
        • Consignee A/c
        • Goods sent on Consignment
    • Valuation of closing stock
    • Consigning goods at higher price
  • CONSIGNMENT ACCOUNT
    • A TYPICAL CONSIGNMENT ACCOUNT WILL APPEAR AS FOLLOWS:
    • DR. CR
    • To goods sent on By consignee
    • consignment (goods sold by
    • (invoice value) consignee)
    • To bank By closing stock
    • (all expenses incurred by
    • Consignor in transporting)
    • To consignee
    • (all expenses incurred by
    • Consignee in selling)
    • To profit & loss a/c
  • Examples
    • Q. The possession of the goods remains with the _________, but the property in or the ownership of the goods remain with the _________
    • Q. : Usually the consignee recovers all ___________ by him on the consignment.
    • Q.:Consignment account is of the nature of
    • Personal account
    • Nominal account
    • Real account
    • Q.When the goods are sent by the consignor to the consignee, they are accompanied by
    • Proforma invoice*
    • Commercial invoice
    • Account sales
    • Bank draft
    • Consignee, Consignor, expenses incurred, nominal
  • Examples
    • Q. Where del-credere commission is paid:
    • the normal commission is not payable to the consignee
    • the bad debts, if occur, are borne by the consignor
    • the bad debts, if occur, are borne by the consignee
    • the bad debts, if occur, are shared by the consignor and consignee equally
    • Q.: The principle followed in valuations of closing stock on consignment is
    • to include the expenses by the consignor only
    • cost to the consignor plus proportionate expenses incurred till the goods reach to the premises of the consignee plus direct expenses of consignee
    • Cost plus proportionate non-recurring expenses incurred by the consignor
    • Cost plus proportionate non-recurring expenses incurred by the consignee
  • JOINT VENTURE
    • Meaning
    • Temporary partnership
    • Accounting -when separate books
          • Joint Bank Account
          • Co-venturer’s Account
          • Joint Venture Account
    • Accounting - when no separate books are maintained
          • Joint Venture
          • Co-Venturer
  • Examples
    • Q.When separate set of books are kept for keeping the accounts of Joint Venture, then
    • Memorandum Joint Venture Account is prepared
    • Transactions take the form of ordinary accounting system
    • Only Joint Venture and Personal accounts of the co-venturers are maintained.
    • Joint Venture, Co-venturers and Joint Bank accounts are opened*
    • Q.A debit balance in Joint Venture A/c indicates
    • a. Profit on Joint Venture
    • b. Loss on Joint venture
    • c. Amount receivable
    • d. Amount payable
  • LEASING
    • Contract between two parties
    • Owner of an asset transfers his right of use to other party on payment of a fixed rent periodically
    • Types >> Finance or Capital Lease
            • Operating Lease
            • Service Lease
            • Leveraged Lease
  • Leasing Examples
    • A lease which does not secure for the lessor, the recovery of his capital outlay (original cost of the asset leased) plus a return on the funds invested during the lease term is called-----
    • (a) Capital Lease
    • (b) O perational Lease
    • (c) Service Lease
    • (d) Leveraged Lease
  • Leasing Examples
    • (2) There are three parties in-----
    • Capital Lease
    • Operational Lease
    • Service Lease
    • L everaged Lease
    • (3) Allocating total finance income of Rs. 30000 over the leased period of 4 years by the sum of the digit method results in-----
    • FY Rs.7500,SY Rs.7500 TY Rs.7500, FY Rs.7500
    • FY Rs.12000,SY Rs.9000 TY Rs.6000 FOURTH Y Rs.3000
    • FY Rs.3000,SY Rs.6000 TY Rs.9000 FY Rs.12000
    • FY Rs.NIL,SY Rs.10000 TY Rs.10000 FOURTH Y Rs.10000
  • Leasing Examples
    • (4) If Lease charges of the year exceed the depreciation charge of the year then-----
    • Lease Equalization account is debited (with the difference)
    • Lease Equalization account is credited (with the difference)
    • Lease Terminal Adjustment account is debited (with the difference)
    • None of the above
    • (5) In case operational Lease , if the total lease rent is receivable in various installments then in the first year of lease , the journal entry for total lease rent receivable, in the books of lessor is------
    • Debit Lessee account and Credit Rent Suspense a/c*
    • Debit Advance Lease Rent account and Credit Lease Rent a/c
    • Debit Bank Account and Credit Lease Rent Account
    • Debit Bank Account and Credit Advance Lease Rent Account
  • HIRE PURCHASE & INSTALMENT SALE
    • A buyer purchases goods but pays the price in various installments.
    • In hire purchase ownership passes to the buyer on the payment of last installment while in installment selling it passes immediately.
    • The hire purchase price consists of two elements a) cash price and b) interest for delayed payments
  • Accounting of non-trading organizations
    • Meaning
    • Need for maintenance of accounts
    • Accounts
            • Receipt & Payment account
            • Income & Expenditure Account
            • Balance sheet
  • Distinction Receipt & Payment A/ct Income& ExpenditureA/c Real Account Nominal Account All receipts & payment in a year Only income and expenses in a year Capital/ revenue items Only revenue items Starts with Opening cash & end with closing cash No op. balance but end with surplus/ deficit current,previous and next year Current year only
  • Treatment of some items
    • Donations
    • Entrance fees
    • Life membership fees
    • Government grants
    • Special fund
    • Op. & closing. Stock of stationary
    • Sale of fixed assets/investments
    • Sports material
    • Opening/closing Balance sheet
    • Capital fund
    • Q.For rendering services to the public, Non Trading organizations collect moneys by way of
    • Membership and Entrance Fee
    • Tuition Fee
    • Subscriptions
    • Donations
    • Q:The following financial statement is not prepared by a non-trading concerns
    • Receipt and Payment account
    • Income & Expenditure Account
    • P rofit & Loss Account
    • Balance Sheet
    • Q: Receipts and Payments account is
    • R eal account
    • Personal account
    • Nominal account
  • ADJUSTING ENTRIES
    • Some common adjustments are:
    • Closing Stock
    • Expenses due but not paid (Outstanding expenses)
    • Expenses paid in advance (Prepaid expenses)
    • Incomes due but not received (Accrued incomes)
    • Incomes not due but received (Unearned incomes)
    • Depreciation on assets
    • Interest on Capital
    • Interest on Drawings
    • Interest on Loan
    • Bad debts to be written off
    • Provision for bad debts
    • Provision for discount on Debtors
    • Provision for discount on creditors
    • Losses on account of accidents
    • Commission payable on profit
    • Goods used by the proprietor
    • Goods distributed as Free Samples
  • CLOSING ENTRIES
    • Closing consolidated journal entries are normally passed for
    • Transfer of all manufacturing and purchase expense to the debit side of trading a/c
    • Transfer of Purchases and Sales return to the debit side of Trading a/c
    • Transfer of Sales and Purchases return to the credit side of Trading a/c
    • Transfer of closing stock to the credit of trading account by an adjustment entry
    • Transfer of Gross profit to the credit side of Profit & Loss a/c
    • Transfer of Gross loss to the debit side of Profit & Loss a/c
    • Transfer of all administrative, selling and financial expenses to the debit of P & L A/c
    • Transfer of all operational and non-operational incomes to the credit of P & L A/c
    • Transfer of Net profit to the credit of Capital a/c
    • Transfer of net loss to the debit of Capital a/c