Here are the journal entries for the above transactions:
Date Particulars L.F. Debit (Rs) Credit (Rs)
1/1/2012 Cash A/c 5,000
To Capital A/c
3/1/2012 Bank A/c 1 1,000
To Cash A/c
4/1/2012 Purchase A/c 2 1,000
To Cash A/c
5/1/2012 Furniture A/c 3 500
To Cash A/c
6/1/2012 Cash A/c 600
To Sales A/c
1. ACCOUNTING FOR MANAGER
BOOK KEEPING
• Recording of business transactions which take place during
Accounting Period
• Accounting Period-Commences on 1st April and Ends
on 31st March every year unless otherwise specifically mentioned
• Guiding and controlling the business activities
• To analyze and interpret the financial results to the management,
so that management can understand what is happening to the
business and what is going to happen in future
•What must happen in the interest of the business concern
2. • Accounting to furnish information to the needy that is to the
management, investors, government agencies etc
• Accounting consists of financial accounting, cost accounting
managerial accounting
• Financial accounting provides information to external users
• External parties are investors, prospective investors, creditors
bankers, government agencies etc
3. • Accounting is basically an information system
• It is involved in the process of converting inputs into outputs
• It processes business transactions (inputs) to produce the desired
reports, statements etc (outputs)
• Business transaction- dealing between two or more parties
that is seller and buyer
• Transaction means business transaction expressed in monetary
terms or capable of expressing in monetary terms
• Internal users means proprietor or partners or board of directors
4. • Functional Managers such as
Purchase Manager
Production Manager
Marketing Manager or Sales Manager
Finance Manager/Financial controller
• External parties are two types
1. Users with direct financial stake or interest
2. Users with indirect financial stake or interest
5. 1. users with direct financial stake or interest are:
• Shareholders present or prospective
•Debenture holders present or prospective
• Suppliers of input
• Lending financial institutions
• Employees
2. Users with indirect financial stake or interest:
• Customers and consumer groups
•Tax authorities
•Regulatory bodies
6. • Financial analysts and advisors
• Brokers and other financial intermediaries
•Trade unions
•Press
• General public
Above persons/institutions/tax authorities/regulatory bodies need
accounting information from their business concerns for various
reasons and purposes
• Basically they need information to take appropriate decisions
• both individual and institutional investors consists of shareholders
7. • debenture holders etc need information
1. To asses the risk involved and return expected in relation to their investment
2. Whether they should continue to invest in the business or dispose of or
3. Invest in financial instruments which promise higher return with lower risk
4. Whether the business is capable of paying dividends/interest regularly
5. Whether there is any scope of capital appreciation
The above said groups needs detailed information such as
1) Rate of growth in sales, volumes, etc
2) Profit-gross profit margin, operating profit, net profit, contribution, divisible
profits etc
3) Investment –amount of capital invested, cost price of assets owned
8. 4) return on investment (ROI)
5) Earnings per share
6) Market price of the equity (Ordinary shares )
7) Financial institution (which lend money to the business organizations
(banks and other institutions)
require information from the borrowing organization to know
-whether it is capable of paying the interest regularly
- whether it is capable of paying installment principal regularly
So they need relevant accounting information to know liquidity position
of the borrowing unit that is short term liquidity and long term liquidity
9. • Suppliers of the different inputs who supply inputs on credit information
from buying organization to evaluate short term liquidity of the organization
so that the business is able to pay their dues when it falls dues
• Employees and trade unions require information from their organization to
evaluate the stability and continuing profitability of the organization interested in
assessing the ability of the employer organization
pay them periodically (like salaries, bonus, etc
promotional prospects
capable of maintaining pension fund and retirement benefits
• Government is providing number of facilities to the business units (such as subsidy
concessions of power, water, etc), hence it is the responsibility of the government
to protest the interest of all sections of the society
• Government wants to know whether business enterprises are remitting various
taxes duties etc to the exchequer
For the above said reasons government and its agencies require accounting information
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)
• Accounting principles are in the form of guidelines and or rules which are used as
standards for recording business transactions in the books of accounts and their fair
presentation in the Financial statements.
10. • Financial Statement means:
1. Trading and Profit and Loss Account for the accounting period ended on
(in case of trading organizations –buying and selling
Manufacturing and profit and loss account (in case of manufacturing
units
2. Balance Sheet as at 31/03/2011
3. Cash flow statements for the period
4. Accounting policies
5. Accounting Standards
6. Notes forming part of accounts
• ACCOUNTING ASSUMPTIONS
1. Money Measurement : Record of transaction is made only those events
which can be measured and expressed in terms of money . Transactions are
recorded value of money (at the time the transactions are recorded)
2. Going Concern : Going concern concept means that a business concern
that a business concern will continue to operate for a fairly long period, from this
point of view its business transactions are recorded in the books of accounts
11. 3. : The Business Entity: Every business undertaking whether it is a sole trading
concern or a partnership firm or a limited company is considered as different entity
from the person who owns it , hence all the transactions are recorded in the
business
concerns and not in the books of owners.
• ACCOUNTING CONCEPTS
1. Accounting Period Concept: According to going concern assumption a business
concern likely to continue for an indefinitely long period of time, for the purpose of
reporting to outsiders like creditors, investors, banks, financial institutions, etc
financial performance and financial position is required to be ascertained yearly.
2. Objectivity Concept: This concept specifies that all entries of business transactions
which take place during accounting period should be supported by the evidences
such as invoices (for sales), bills/invoices (for purchases), documents, deeds,
vouchers, which are objective and subject to verification.
3. Dual-Aspect Concept: For each transactions there are two effects one Debit the
other is credit. Evert business transaction involves dual or double aspects of equal
value for example if an asset is increased corresponding increase in liability or
capital
12. In the books of any business concern at any moment of time , the following
equation holds good
ASSETS=LIABILITIES+CAPITAL OR
ASSETS-CAPITAL=LIABILITIES
• ACCOUNTING PRINCIPLES
1. Cost Principle : An asset acquired by a business concern is recorded in the books
of accounts at cost(Historical Cost) that is the value actually paid for acquiring
the asset.
2. Accrual Principle: The accrual principle suggests that when a transaction has been
entered into its consequences will certainly follow. So all transactions must be
recorded in the books of accounts whether paid or not.
It implies that “revenues accrue in that year in which they are earned, and not in
the year in which year they are actually received. Similarly expenses will accrue
in the year in which they are incurred and not in the year in which they are
actually paid.
13. 3. Matching Principle: Matching principle has been evolved to help a concern
to know its net profit or net loss and the details of all revenues and expenses.
To know the net profit or net loss and details of all revenues and expenses
every business concern prepares and presents a statement or an account
known as Income statement or Profit and Loss Account for the account period.
Profit is the result of two factors namely i) revenues and ii) expenses and losses
The revenues increases the profit and the expenses and losses decreases the
profit. For the determination of profit or loss the two factors are matched and
result balance is taken as the net profit or net loss. Matching concept provides
a sound basis namely accrual basis for the ascertainment of the correct profit
or loss of the business for the accounting period.
4. Realization Principle: According to the realization principle, is considered as
being earned on the date on which it is realized ( it is not relevant whether cash
is received or not)
Revenue is considered as being realized:
• Not when goods are manufactured
• Or order is received
• But on the date on which goods or services are transferred to the
customer and the customer is legally liable to pay for them
14. Advantages of this principle
• Revenue recognition principle is much of significance for the preparation of
Income Statement or Profit and Loss Account
• This principle has contributed to the accrual basis of accounting (that means
income or expense is to be recorded on the date on which goods or services
are transferred/expense is incurred, whether the amount is received or not
in the case of income, similarly whether expense is paid or not).
• This principle gives objectivity and definiteness to revenue recognition.
ACCOUNTING CONVENTIONS
1.Conservatism: In accounting records and in the financial statements of a
business concern all the anticipated losses (example few debts may become
bad), risks and uncertainties should be provided but expected incomes should
be ignored even the income sure to arise, to put in simple words
Anticipate losses but don’t anticipate losses
Based on this convention that provision for doubtful debts, provision for
discount on debtors, provision for fluctuation in the prices of investment etc
are provided in the books of accounts of a business concern.
IT SHOULD NEITHER SHOW ROSY PICTURE BY WINDOW DRESSING NOR WORSE
PICTURE BY CREATING SECRET RESERVES
15. ACCOUNTING RULES
1. Materiality Rule:
• In accounting a detailed record is made record of business transactions only
those business transactions which are Material
• No detailed record is made of transactions which are trivial (not important)
• In the case of such trivial transactions only a broad view is taken
• Minute(small) details of such transactions is not justified by the usefulness of the results
• Pencil is required for office, someone will be using the pencil in fact pencil is an asset
by using the pencil it will depreciate day by day, we can calculate such depreciation but
the cost of such an effort is will be very high hence pencil is taken as used at the time it
purchased
• The logic behind the materiality rule is that only material and significant transactions are
recorded
• Materiality is a relative term because what is material to one the same may not be
material to other.
For example an employee getting a salary of Rs 5,000/- per month if loses Rs 100 it is a
material amount lost for him the same is not for a millionaire because it is not material
amount for him.
For instance cost of small items of tools are material(important) for a small repair
workshop but they are not material for a ship builder
16. 2. Disclosure Rule:
• Disclosure means all material facts must be disclosed in the financial statements
• For example in the case of sundry debtors (or receivables) the disclosure is as below:
Total Sundry Debtors Rs 5,000
Debtors considered to be good 4,500
Debtors considered to be doubtful 500
Debtors outstanding less than six months Rs 3,000
Debtors outstanding for more than six months 2,000
• The idea behind this rule is that the financial statements are essentially meant for
for external users, on the basis of information external users make take decisions
17. Land, Building,
Machinery, Trade
Assets Accounts Debtors, cash, Pre-
paid expenses
Bills Receivables
Long term liabilities,
trade creditors,
Liability Accounts receipts in advance,
Classification of bills payable
Commonly used
Accounts
Capital/share capital,
Owners’ Accounts reserves & surplus,
unpaid dividends,
drawings
Wages, salaries,
Expenses Accounts rent, telephone
expenses, interest
on loans, etc
Sales, interest on
Revenue Accounts investment, profit
on sale of asset,
other income, etc
18. KINDS OF ACCOUNTS
PERSONAL
ACCOUNTS
KINDS
OR
TYPES OF
ACCOUNTS IMPERSONAL
ACCOUNTS
19. Natural Personal Rama’s A/c
Accounts Krishna’s A/c
PERSONAL Artificial Personal
Accounts
HMT’s A/c
KSFC’s A/c
ACCOUNTS Representative Outstanding
Personal Accounts Expenses A/c
Pre-paid
Expenses A/c
REAL ASSET OR Cash A/c Goods A/c
PROPERTY Machinery A/c
ACCOUNT
IMPERSONAL
ACCOUNTS Wages A/c Rent
A/c Sales A/c
NOMINAL OR
Discount
FICTICIOUS
Received A/c
ACCOUNTS
20. Sl.No. KIND OF DEBIT /”Dr” CREDIT/”Cr”
ACCOUNT
1 PERSONAL Receiver of the Giver of the
ACCOUNTS benefit benefit
2 REAL What comes in What goes out
ACCOUNTS
3 NOMINAL Expenses & Incomes &
ACCOUNTS Losses Gains
21. • NATURAL PERSONAL ACCOUNTS: These accounts are relating to natural persons
natural person means a person who is having head, ears, nose, hands etc
• ARTIFICIAL PERSONAL ACCOUNTS: Accounts of business concerns and institutions
which are recognized as persons in business society or by law example Bank A/c
Co-operative Society A/c, Veerasaiva College A/c
• REPRESENTATIVE PERSONAL ACCOUNTS: They represent the amount owed to, or
by certain persons (that is the persons behind these transactions)
• REAL ACCOUNTS: Real accounts are those accounts which we can touch, see,
sense or feel
• NOMINAL ACCOUNTS: Nominal accounts are those accounts which we can
not touch, see, sense or feel
22. • ACCOUNT It is summarized transactions which have taken place during a particular
period
• FORMAT OF ACCOUNT An account may be horizontal or vertical
• EXAMPLE OF HORIZONTAL ACCOUNT
Dr RAMA’S A/c Cr
23. • DEBIT Means debit side of the account or left hand side of the account
• CREDIT Means credit side of the account or right hand side of the account
• JOURNAL Journal is derived from a French word Jour which denotes a day, it is also
called Day Book where business transactions of a particular day are recorded in this
book
• This is also called Book of Original Entry or Prime Entry
• Dr Means an account is debited
• Cr Means an account is credited
FOR EVERY BUSINESS TRANSACTION HAS TWO EFFECTS ONE IS “DEBIT” THE OTHER
IS “CREDIT”
FOR EVERY BUSINESS TRANSACTIONS TWO ACCOUTS ARE INVOLVED ONE ACCOUNT
IS DEBITED AND THE OTHER ACCOUNT IS CREDITED WITH THE SAME AMOUNT
24. • Dr denotes an Account is debited
• Cr denotes an Account is credited
For example Rama’s Account is debited
and Cash Account is credited
• By denotes an Account is debited
• To denotes an Account is credited
Rama’s A/c
To Cash A/c
Cash A/c
By Rama’s A/c
25. • EXAMPLE OF VERTICLE FORM OF ACCOUNT
• Paid cash to Rama Rs 2,00,000 on 01/03/2012
DATE PARTICULARS L.F. DEBIT (Rs) CREDIT (Rs)
RAMA’S A/c
01/03/2012 To Cash A/c 15 2,00,000
• L.F. Means ledger folio where the debit and credit are posted in their
respective ledgers
26. JOURNALISATION OF TRANSACTIONS
• An attempt is made to analyze few business transactions
• Rama commenced business with Rs 2 lacs cash
• The two accounts involved are 1. Rama’s Capital A/c and 2. Cash A/c
Dr Cash A/c Cr
To Rama’s Capital A/c 2,00,000
Rama’s Capital A/c
By Cash A/c 2,00,000
27. JOURNAL
Date L.F. PARTICULARS DEBIT(Rs) CREDIT(Rs)
01/03/2012 1 By Cash A/c 2,00,000
2 To Rama’s Capital A/c 2,00,000
(Capital introduced by
Rama)
28. • To/By are irrelevant now a days they need not be written
• If left hand side of the account is written means the account is debited
• Similarly if right hand side of the account is written means the account is credited
NARRATION Means brief description of the transaction
29. 1) Journalize the following transactions in the books of Mr. Anwar
2012
1. January 1 Anwar commenced business with cash Rs 5,000
2. 3 Paid into Bank Rs 1,000
3. 4 Bought goods for cash Rs 1,000
4. 5 Bought office furniture for cash Rs 500
5. 6 Sold goods for cash Rs 600
6. 7 Sold goods to Murthy on credit Rs 400
7. 8 Bought goods from Narayan on credit Rs 500
8. 10 Paid rent to land lord Rs 300
9. 12 Paid salary to manager Rs 100
10. 15 Sold furniture for cash Rs 200
11. 16 Received commission from Suresh Rs 20
12. 18 Bought goods Rs 400
13. 20 Sold goods Rs 500
14. 22 Sold goods to Shenoy Rs 300
15. 23 Bought goods from Ramesh Rs 200
16. 24 Bought goods from Kamath for cash Rs 500
17. 25 Paid carriage Rs 50
18. 26 Sold goods to Rajesh for cash Rs 600
19. 27 Paid postage Rs 30
20. 31 Withdrew cash from office for personal use Rs 200
30. Date Particulars Debit (Rs) Credit (Rs)
01/01/2012 Cash Account 5,000
Anwar’s Capital Account 5,000
(Cash introduced by the
proprietor)
03/01/2012 Bank Account 1,000
Cash Account 1,000
(Cash paid into Bank)
04/01/2012 Purchase Account 1,000
Cash Account 1,000
(Goods purchased for
cash)
05/01/2012 Office Furniture Account 500
Cash Account 500
(Office furniture bought
for cash)
31. Date Particulars Debit (Rs) Credit (Rs)
06/01/2012 Murthy’s Account 400
Sales Account 400
(Goods sold to Murthy on
credit)
08/01/201 Purchases Account 500
Narayan’s Account 500
(Goods purchased from
Narayan on credit)
10/01/2012 Rent Account 300
Cash Account 300
(Rent paid)
32. Date Particulars Debit (Rs) Credit (Rs)
12/01/2012 Salaries Account 100
Cash Account 100
(Salary paid)
15/01/2012 Cash Account 200
Furniture Account 200
(Furniture sold for cash)
16/01/2012 Cash Account 20
Commission Account 20
(Commission received)
18/01/2012 Purchase Account 400
Cash Account 400
(Goods purchased for cash)
20/01/2012 Cash Account 500
Sales Account 500
(Goods sold for cash)
33. Date Particulars Debit (Rs) Credit (Rs)
22/01/2012 Shenoy’s Account 300
Sales Account 300
(Goods sold Shenoy on
credit)
23/01/2012 Purchases Account 200
Ramesh’s Account 200
(Goods purchased from
Ramesh on credit)
24/01/2012 Purchases Account 500
Cash Account 500
(Goods purchased for
cash)
25/01/2012 Carriage Account 50
Cash Account 50
(Cash paid for carriage)
34. Date Particulars Debit (Rs) Credit (Rs)
26/01/2012 Cash Account 600
Sales Account 600
(Goods sold for cash)
27/01/2012 Postage Account 30
Cash Account 30
(Cash paid for postage)
31/01/2012 Anwar’s Drawings Account 200
Cash Account 200
(Cash withdrawn for
personal use of proprietor)
35. Journalize the following transactions and post them to the various ledger
Accounts and prepare the trial balance as on 31st January 2012
2012, January.
1 Rao commence business with 5,000
2 Purchased goods for cash 2,500
3 Bought office furniture for cash 500
4 Paid for postages 10
5 Purchased goods from Rajkumar 2,000
7 Sold goods for cash 150
8 Purchased goods from Rahim 400
9 Sold goods to Suresh 400
10 Sold goods to Nayak 300
11 Purchased goods for cash 350
13 Received cash from Nayak 250
15 Paid cash to Rahim 400
17 Returned goods to Rajkumar 200
20 Suresh returned goods 50
20 Paid salaries 150
25 Sold goods for cash 500
26 Rao withdrew for personal use 800
27 Paid for stationery 100
28 Paid rent 225
31 Received commission 50
36. Date Particulars Debit (Rs) Credit (Rs)
01/01/2012 Cash Account 5,000
Rao’s Capital Account 5,000
(Capital brought in by
Rao)
02/01/2012 Purchases Account 2,500
Cash Account 2500
(Goods purchased for
cash)
03/01/2012 Office furniture Account 500
Cash Account 500
04/01/2012 Postage Account 10
Cash Account 10
(Cash paid for postage)
05/01/2012 Purchases Account 2,000
Rajkumar’s Account 2,000
(Goods purchased from
Rajkumar on credit)
37. Date Particulars Debit (Rs) Credit (Rs)
07/01/2012 Cash Account 150
Sales Account 150
(Goods sold for cash)
08/01/2012 Purchases Account 400
Rahim’s Account 400
(Goods purchased from
Rahim on credit)
09/01/2012 Suresh’s Account 400
Sales Account 400
(Goods sold to Suresh
on credit)
10/01/2012 Nayak’s Account 300
Sales Account 300
(Goods sold to Nayak
on credit)
38. Date Particulars Debit (Rs) Credit (Rs)
11/01/2012 Purchases Account 350
Cash Account 350
(Goods purchased for cash)
13/01/2012 Cash Account 250
Nayak’s Account 250
(Cash received from Nayak
on account)
15/01/2012 Rahim’s Account 400
Cash Account 400
(Cash paid to Rahim)
17/01/2012 Rajkumar’s Account 200
Purchase Returns Account 200
(Goods returned to
Rajkumar)
39. Date Particulars Debit (Rs) Credit (Rs)
20/01/2012 Sales Returns Account 50
Suresh’s Account 50
(Goods returned by
Suresh)
22/01/2012 Salaries Account 150
Cash Account 150
(Cash paid for salaries)
25/01/2012 Cash Account 500
Sales Account 500
(Goods sold for cash)
26/01/2012 Rao’s Drawings Account 800
Cash Account 800
(Cash withdrawn by Rao
for his personal use)
40. Date Particulars Debit (Rs) Credit (Rs)
27/01/2012 Stationery Account 100
Cash Account 150
(Cash paid for stationery)
28/01/2012 Rent Account 225
Cash Account 225
(Cash paid for rent)
31/01/2012 Cash Account 50
Commission Account 50
(Cash received for
commission)
41. LEDGER: It is the book where transactions of the same nature that is pertaining to a
particular person, thing or service. They are classified and grouped together in one
place in the form of an account, through a process called POSTING
This is a process transferring of entries from the journal to the ledger
BALANCING OF A LEDGER ACCOUNT OR STRIKING THE BALANCE PF A LEDGER
ACCOUNT: It is a process of ascertaining whether a particular account has received
more benefits than it has given or has given more benefits than it has received on
a particular date
In other words it is a process of finding out the difference between the total of the
Debit side and the total of Credit side of an account . In short it is the act of ascertaining
The difference between two sides of a ledger account
42. In ledger account is ascertaining difference between two sides, such difference is added
to the side which has lesser amount by calling it as TO BALANCE CARRIED DOWN
(TO BALANCE C/d ) OR BY BALANCE BROUGHT DOWN (BY BALANCE B/d )
Beginning of the next(month) balancing period is written on the opposite side of the
account TO BALANCE BROUGHT DOWN (FORWARD) OR BY BALANCE BROUGHT DOWN
Or To balance b/d or by balance b/d
DEBIT BALANCE Debit side of an account exceeds credit side of an account
CREDIT BALANCE Credit side of an account exceeds debit side
TRIAL BALANCE it is a statement where debit balances and credit balances are of various
accounts are jotted down. The purpose of preparing trial balance is to find out arithmetical
accuracy while posting transactions from journal to ledger
43. Trial balance was very essential in case of preparation of books of accounts under
manual system. After advent of different types of computer accounting packages
there is no scope for arithmetical errors. In computer environment it is relevant to
know what are the types of accounts, number of accounts and their balances for a
particular period
44. RAO’S CAPITAL ACCOUNT
Date Particulars Debit (Rs) Credit (Rs) Balance Dr/
Cr
01/01/2012 Cash Account 5,000
31/01/2012 Balance C/d 5,000
Total 5,000 5,000 5,000 Cr
01/02/2012 Balance B/d 5,000
45. RAO’S DRAWINGS ACCOUNT
Date Particulars Debit (Rs) Credit (Rs) Balance Dr/
Cr
31/01/2012 Cash Account 800
Balance C/d 800
Total 800 800 800 Dr
01/02/2012 Balance B/d 800
46. RAO’S DRAWINGS ACCOUNT
Date Particulars Debit (Rs) Credit (Rs) Balance Dr/
Cr
02/01/2012 Cash Account 800
31/02/2012 Balance C/d 800
Total 800 800 800 Dr
01/02/2012 Balance B/d 800
65. Journalize the following transactions in the books of Viswanath and post them into ledger
and prepare Trial Balance
2011, December. Rs
1 Viswanath commenced his business with the following
Cash in hand 1,500
Cash at Bank 3,500
Goods in hand 3,000
Furniture 2,000
Buildings 10,000
2 Gave charity 20
5 Loan taken from the Bank 5,000
6 Purchased Motor Car in exchange for goods Rs2,000 and cheque Rs 3,000
8 Cash sales paid into Bank 2,000
9 Withdrew cash for petty cash 100
10 Introduced further capital 2,000
12 Bought shares in the Mangalore Fertilizers Ltd 800
13 Paid proprietors life insurance premium 100
15 Paid Chitra cash in lieu of cheque 500
16 Cash received on sale of shares 300
17 Received from Kishen one hundred rupees note and gave him change for it
18 Invested in National Savings Certificate 200
19 Bought goods from Lakshman on account 2,000
20 Sold goods to Bharath on account 1,500
66. 21 Received from Rao Rs 100 advance for goods
23 Received a cheque from Ram to be credited to Bharath 500
24 Paid tax to the Mangalore Corporation 50
25 Commission charged to Raghav for a getting a house for him 100
26 Furniture costing Rs 300 was destroyed by fire
27 Bank Charges 10
28 Bank allowed interest on Deposits 20
29 Bank collect interest on investment 10
31 Closing stock on hand 1,000
31 Interest on loan taken from the Bank 100
31 Interest on capital 100
67. Date Particulars Debit Credit
Amount (Rs) Amount (Rs)
01 Cash in A/c 1500
Bank A/c 3500
Stock A/c 3000
Furniture A/c 2000
Buildings A/c 10000
Viswanath’s Capital A/c 20000
02 Charity A/c 20
Cash A/c 20
05 Bank A/c 5000
Bank Loan A/c 5000
06 Motor Car A/c 5000
Sales A/c 2000
Bank A/c 3000
84. TRIAL BALANCE
Particulars Debit (Rs) Credit (Rs)
Lakshman’s A/c 2000
Commission A/c 100
Bharath’s A/c 1000
Rao’s Advance A/c 100
Loss by Fire A/c 300
Bank Charges A/c 10
Int.on Bank Deposit A/c 20
Int.On.Investment A/c 10
Closing Stock A/c 1000
Trading A/c 1000
Interest on Bank Loan A/c 100
Interest on V.Capital A/c 100
31875 31830
85. Question: On which side, the increase in the following Accounts will be recorded ?
Also mention the nature of account
1) Surendra A/c (Proprietor)
2) Cartage A/c
3) Debtors A/c
4) Building A/c
5) Bank Account (Overdraft)
6) Machinery A/c
86. 1. Surendra A/c--Credit Side---- Personal A/c
2. Cartage A/c--- Debit Side---- Nominal A/c
3. Debtors A/c--- Debit Side---- Personal A/c
4. Building A/c--- Debit Side--- Real A/c
5. Bank A/c(Overdraft)--- Credit Side---- Personal A/c
87. Amortization
• Process of writing off the value of intangible assets of a business
• Amortization of intangible assets takes place periodically covering the estimated
useful economic life of the intangible assets
• Intangible assets include intellectual property (Technical Know Ho, copy rights ),
incorporation costs in case of a limited company such as preliminary expenses
Depletion
• Depletion is the process of allocating the depletion cost of natural resources
to expense as individual units of the resource are extracted
• Depletion costs equals the total cost of natural resource less salvage value after
extracting
• Depletion expense is calculated using the units-of-activity method
88.
89. The actual number of units extracted and sold in one year equals the amount of
depletion expense recorded for the asset during the year
• Iron ore deposits in Sandur taken on lease from the
Government
.
90. Profit and loss appropriation account is
prepared after profit and loss account..
It s a account where the profits earned by
the company is brought in from profit and
loss account and it s distributed to various
accounts like interim dividend account,
provision for taxation account, general
reserve account etc.....
it s a account which shows how the profits
are distributed in an organization
91. The purpose of the balance sheet is to show a
company's Assets, Liabilities and Equity at a given
point in time, usually the company's fiscal year
end. This is as opposed to an Income Statement,
for example, which shows earnings throughout
the year. A balance sheet is as of a given day. it
does not show activity for a whole year, although
you can compare year-to-year balance sheets to
deduce some information.
92. A balance sheet is divided into two sides.
On one side is the total assets of the
Company, such as cash, working capital,
fixed assets (machinery, land, equipment,
autos, etc), and other assets. On the other
side is the Liabilities, such as accounts
payable, debt, and other liabilities. Assets
minus liabilitiese equals equity, which is
the remaining ownership in the company -
that accorded to shareholders.
93. What is mercantile basis of accounting Under accrual or mercantile basis accounting,
revenues are recognized and earned when they are realized or realizable
irrespective of when the cash is received.
To put it in different terms, the accrual basis of accounting asks you to take into
consideration all those incomes/gains and expenses/losses pertaining to the
accounting period for which you are trying to ascertain the profits and losses
irrespective of whether the incomes are received in cash or not and the expenses
are paid out in cash or not.
94. Work in Progress (WIP)
Construction Work in Progress is a long-term asset account in
which the costs of constructing long-term assets are recorded. The
account Construction Work in Progress will have a debit balance
and will be reported on the balance sheet as part of a company’s
Property, Plant and Equipment.
The costs of a constructed asset are accumulated in the account
Construction Work in Progress until the asset is placed into service.
When the asset is completed and placed into service, the account
Construction Work in Progress will be credited for the accumulated
costs of the asset and will be debited to the appropriate Property,
Plant and Equipment account.
Depreciation begins after the asset has been placed into service
95. Depreciation
Buildings, machinery, equipment, furniture, fixtures,
computers, outdoor lighting, parking lots, cars, and
trucks are examples of assets that will last for more
than one year, but will not last indefinitely. During
each accounting period (year, quarter, month, etc.)
a portion of the cost of these assets is being used
up. The portion being used up is reported as
Depreciation Expense on the income statement. In
effect depreciation is the transfer of a portion of the
asset's cost from the balance sheet to the income
statement during each year of the asset's life
96. The calculation and reporting of depreciation is based upon two
accounting principles:
Cost principle. This principle requires that the Depreciation
Expense reported on the income statement, and the asset
amount that is reported on the balance sheet, should be based on
the historical (original) cost of the asset. (The amounts should not
be based on the cost to replace the asset, or on the current
market value of the asset, etc.)
Matching principle. This principle requires that the asset's cost be
allocated to Depreciation Expense over the life of the asset. In
effect the cost of the asset is divided up with some of the cost
being reported on each of the income statements issued during
the life of the asset. By assigning a portion of the asset's cost to
various income statements, the accountant is matching a portion
of the asset's cost with each period in which the asset is used.
Hopefully this also means that the asset's cost is being matched
with the revenues earned by using the asset.
97. Contingent liabilities are liabilities that may or may not be
incurred by an entity depending on the outcome of a future
event such as a court case. These liabilities are recorded in a
company's accounts and shown in the balance sheet when both
probable and reasonably estimable. A footnote to the balance
sheet describes the nature and extent of the contingent
liabilities. The likelihood of loss is described as probable,
reasonably possible, or remote. The ability to estimate a loss is
described as known, reasonably estimable, or not reasonably
estimable.
99. Deferred Revenue Expenditure:- In some cases, the benefit of a
revenue expenditure may be available for period of two or three or
even more years. Such expenditure is then known as "Deferred
Revenue Expenditure" and is written off over a period of a few
years and not wholly in the year in which it is incurred. For
example, a new firm may advertise very heavily in the beginning to
capture a position in the market. The benefit of this advertising
campaign will last quite a few years. It will be better to write off the
expenditure in there or four and not in the first year.
When loss of a specially heavy and exceptional nature is sustained,
it can also treated as deferred revenue expenditure.But,it should be
noted, loss resulting from transactions enterd into, such as
speculative purchase or sale of a large quantity of a commodity,
cannot be treated as a deferred revenue expenditure. Only loss
arising from circumstances beyond one's control can be so treated.
100. Straight Line Depreciation Method
The simplest and most commonly used
depreciation method, straight line
depreciation is calculated by taking the
purchase or acquisition price of an asset
subtracted by the salvage value divided
by the total productive years the asset
can be reasonably expected to benefit
the company (called "useful life" in
accounting jargon).
101. Reducing Balance Depreciation Method or Declining Balance Method
Under the declining balance method also known as reducing or
diminishing balance or written down value method, a
depreciation percentage rate is applied to the acquisition or
construction cost at the beginning of the accounting period
rather than the original cost. Under this system, a fixed
percentage of the diminishing value of the asset is written off
each year so as to reduce the asset to its break-up or scrap
value at the end of its life. Under this method, the annual
charge for depreciation decreases from year to year. The effect
is that the initial years take a higher hit of depreciation charge
as compared to the later years. Unlike the straight-line method
where the cost of asset is completely written-off, this never
happens in the reducing balance method. It must be noted
that salvage value is not considered in the calculation of
depreciation. However, the book value of the asset is never
brought below its salvage value.
102. Unit of Production Method
This method refers to an association between
the asset’s ability to do work during its useful
life and the decline in the worth of the asset.
Unfortunately, this depreciation method does
not take into account the expected years of the
asset but takes into account the measurable
units of use. The units could be anything,
including number of items produced or hours
used for machinery, number of miles traveled
by vehicles, etc. Thus, it is calculated by the
actual usage of the asset.
103. Voucher
1. A piece of substantiating
evidence; a proof.(Invoice/Bill)
2.A written record of expenditure,
disbursement, or completed
transaction.(Voucher of Concern)
3.A written authorization or
certificate, especially one
exchangeable for cash or
representing a credit against future
expenditures.(Advance payment)
104. Definition of 'Journal'
In accounting, a first recording of
financial transactions as they occur in
time, so that they can then be used for
future reconciling and transfer to other
official accounting records such as the
general ledger. A journal will state the
date of the transaction, which account(s)
were affected and the amounts, usually
in a double-entry bookkeeping method.
105. A ledger is the principal book or computer file
for recording and totaling monetary
transactions by account, with debits and
credits in separate columns and a beginning
balance and ending balance for each account.
The ledger is a permanent summary of all
amounts entered in supporting journals which
list individual transactions by date. Every
transaction flows from a journal to one or
more ledgers. A company's financial
statements are generated from summary
totals in the ledgers.
106. Ledgers include:
Sales ledger, records accounts
receivable. This ledger consists of the
financial transactions made by
customers to the company.
Purchase ledger records money spent
for purchasing by the company.
General ledger representing the 5
main account types: assets, liabilities,
income, expenses, and equity.
107. TRIAL BALANCE
• DEFINITION
• IT IS A STATEMENT SHOWING CREDIT AND DEBIT
BALANCES FROM THE LEDGER.
• DEBIT BALANCES ARE ENTERED IN DEBIT COLUMN.
• CREDIT BALANCES ARE ENTERED IN CREDIT COLUMN.
• HELPS ARITHMETICAL ACCURACY AND FACILITATES
FINAL ACCOUNTS.
108. TRIAL BALANCE
• BASIC PRINCIPLE :
• SINCE IT IS DOUBLE ENTRY BOOK-KEEPING, HENCE,
ASSETS AND EXPENSES ARE DEBIT BALANCES
LIABILITIES AND INCOMES ARE CREDIT BALANCES
. IN CASE OF ARITHMETICAL INACCURACY IDENTIFY
CLERICAL/PRINCIPLE ERRORS AND RECTIFY
109. Final Accounts
Mr.Vishal a retail storekeeper had prepared the following trial balance from his
ledger as on 31st March, 2011
Particulars Rs Rs
Purchase and Sales 310000 400000
Sock of Goods 50000
Cash in hand 2000
Cash at bank 25000
Mr.Vishal’s Capital 200000
Drawings 4000
Rates and Taxes 50000
Salaries 32000
Postage and Telegram 11000
Salesmen Commission 20000
Insurance 8000
Advertising 20000
Furniture and Fittings 25000
Printing and Stationery 12000
110. Bad debts 2000
Cash discount 4000
Carriage Inward 5000
Carriage Outward 6000
Outstanding Expenses 2000
Sundry Creditors 15000
Sundry Debtors 22000
615000 615000
Prepare Trading and Profit and Loss Account and Balance Sheet
111. The following is the T/B of King of Kings Ltd., as on 31st March 2009
Accounts Rs Rs
Stock on 1St April 2008 675000
Sales 3060000
Wages 300000
Share Capital 1000000
Discount 40000 27000
Purchases 2400000
Carriage 8550
Purchase returns 90000
Patents and trade marks 50000
Salaries 67500
Bills payable 73000
Mis.Expenses 60000
Rent and Taxes 34000
Debtors and Creditors 300000 400000
112. Plant and Machinery 261000
Furniture and Fixtures 200000
Bank 600000
Further Information:
1.Outstanding rent amounted Rs 7200 while O/S Salaries Rs 8100 at the end of the year
2.Make a provision for doubtful debts amounting to Rs 4950
3.Stock on 31St March 2009 was valued at Rs 700000
4.Provide depreciation on Plant and machinery @ 14% and furniture and fixtures at 18%
5.Provide for managerial remuneration @ 10% of PBT
6.Provide provision for Income tax @ 33%
7.Amortise patents and trademarks @ 5%
Required: 1.Findout net profit as on 31-03-2009
2.Profit and Loss Appropriation A/c (31.03.09)
3.Balance Sheet as on 31-03-2009
4.comment the performance of the company
113. Fixed Costs
Fixed costs are the ball and chain of the business
world. You will pay these costs week to week,
month to month, year to year. They do not
change based on your level of activity.
One of the most traditional examples of a fixed
cost is rent of your office space. You will pay
that cost according to your lease even if you
have no business operations that
month. Conversely, you’ll generally pay that
same amount if you are running at 200%
capacity.
114. Variable Costs
These are costs that will change based on your level
of activity (or some other business variable).
In the manufacturing world, variable costs are often
tied to the number of SS Steel Scale produced. If your
factory is creating a physical product, there is some
level of raw material used. If we assume Rs 10 of SS
steel is needed to make a 1 Steel Scale, then we need
Rs1000 of material for 100 Scales, Rs2000 for 200
Scales, and so on. Your cost will vary based on activity
level, but is still predictable based on your business
plans.
115. Contribution margin is the amount remaining from
sales revenue after variable expenses have been
deducted. Thus it is the amount available to cover
fixed expenses and then to provide profits for the
period. Contribution margin is first used to cover the
fixed expenses and then whatever remains go towards
profits. If the contribution margin is not sufficient to
cover the fixed expenses, then a loss occurs for the
period. This concept is explained in the following
equations:
Sales revenue − Variable cost* = Contribution Margin
116. P/V Ratio:
P/V Ratio (Profit Volume Ratio) is the ratio of contribution to sales
which indicates
the contribution earned with respect to one rupee of sales. It also
measures the rate of change of profit
due to change in volume of sales. Its fundamental property is that if
per unit sales price and variable cost are constant
then P/V Ratio will be constant at all the levels of activities. A change
is fixed cost does not affect P/V Ratio. It is calculated as under:
P/V Ratio (or C/S Ratio) = Contribution (c)
Sales (s)
117. Important Formulae of Marginal
Costing
1. Contribution=Sales x P/V Ratio
2. S-V=F+P
3. P/V Ratio=Change in Contribution
4. P/V Ratio=Change in Profit/Loss
Change in Sales
5. P/V Ratio=Fixed Cost
BEP Sales
6. BEP(Sales in Value)=Fixed Cost
P/V Ratio
118. 7. BEP (Sales in Value)=Fixed Costs x Total Sales
Total Contribution
8. BEP (Sales in Value)=Fixed Costs x Selling Price Per Unit
Contribution Per Unit
9. BEP in Units= Fixed Cost
Contribution Per Unit
10. Margin of Safety= Profit
P/V Ratio
11. Margin of Safety= Total Sales-BEP Sales
12. Margin of Safety= Profit
Contribution
13. Margin of Safety (%)= Margin of Safety x 100
Total Sales
S= Sales
F= Fixed Cost
V= Variable Cost
C= Contribution
P= Profit
M/S= Margin of Safety
BEP= Break Even Point
119. Breakeven Analysis is the process of categorizing
costs of production between variable and fixed
components and deriving the level of output at
which the sum of these costs, referred to as total
costs per unit become equal to sales revenue.
The analysis helps to determine the 'Breakeven
Point' from this point of equality of sales revenue
with total costs. At the breakeven point, the
production activity neither generates a profit nor
a loss. Breakeven analysis is used in production
management and Management Accounting.
120. Cost-volume-profit analysis (CVP), or
break-even analysis, is used to compute
the volume level at which total
revenues are equal to total costs. When
total costs and total revenues are equal,
the business organization is said to be
"breaking even." The analysis is based
on a set of linear equations for a
straight line and the separation of
variable and fixed costs.
121. Accounting: An excess of a
company's actual sales revenue over
the breakeven sales revenue,
expressed usually as a percentage.
The greater this margin, the less
sensitive the company to any abrupt
fall in revenue.