The system of accounting q&a

Volume – I
YEAR 2015
WRITTEN BY:
SYED AQEEL RAZA

Q&A 01 QA-264
What is an account?
An account, already designed, is the summary of
information relating to transactions with it. The word
account, a noun, is derived from accounting, an
adjective. Accounts are made according to accounting
principle “Assets, Liabilities, Proprietorship, Revenues,
Expenses (ALPRE) like building a/c, an asset, loan a/c, a
liability, capital a/c, equity, sales a/c, and an income and
insurance expenses a/c, an expense.
<THE SYSTEM OF ACCOUNTING< VOLIUM1< SYED AQEEL RAZA<aqeelraza@live.com>

Q&A 02 QA-265
What are sources and resources terms used in
accounting?
Funds or things carried for investment in business are
sources of business as capital or owners’ equity and
acquiring assets like land, building, merchandise, cash,
etc. are resources of the business. Therefore, sources are
equal to resources or conversion sources into resources.

Q&A 03 QA-266
Why is drawing contra equity account?
If cash or goods are used for personal above limitation
and recorded in business, the destruction of sources of
business means assets will be ruined. In order to save
sources, the withdrawal of cash or goods from business
for personal use is recorded in a separate account
named Drawing, reduces or contra the capital account,
alarms the owner about ups and downs in business.

Q&A 04 QA-267
What is the difference between double entry system and single entry
system?
Single entry is bookless system and consists on revenues and expenses.
It is used in small businesses where no remarkable capital, assets and
liabilities are applied.
Single entry system has no rule for recording transactions just writing
information on registers or verbally.
Double entry system applies five principles in the system of accounting
which are assets, liabilities, proprietorship, revenue and expenses
where revenues and expenses are is temporary accounts end on
income or loss.
The double entry system of accounting has accounting equation
“assets=liabilities + proprietorship”.
Double entry system can use in small and large businesses showing true
financial picture.

Q&A 05 QA-268
What is the connection of accounting with book keeping?
Accounting is the language of business and provides idea of keeping
money in written properly which shows the true picture of finances
invested in business.
Accounting defines a complete system and rules of recording
transactions to book keeping under five main principle; assets,
liabilities, proprietorship, revenue and expenses.
The book keeping is the art of transferring idea of accounting in the
shape of books as ledger, cash books, journals and various statements.
The book keeping adopts the system and rules of recording
transactions, style, designs, and many more from accounting.
Accounting is an idea and book keeping practical.

Q&A 06 QA-269
Does revenue or expense affect accounting equation?
Revenue or expense is the temporary member of accounting cycle and
ends on profit and loss account transferable to capital account. So, they
do not affect directly to accounting equation “Assets=Liabilities +
Proprietorship” but affect proprietorship indirectly and the
proprietorship is the part of accounting equation.

Q&A 07 QA-270
What do you mean by Entity?
In business any unit, division or an organization is an entity. A
company may have different entities like unit, department,
team, divisionas well the goods which it sells.
Company’s investments or assets as well as owner and business
are also entities.
Entity means individual, team, thing or unit of an organization
and the account relating to separate entities.

Q&A 08 QA-271
Explain the period applied on fixed assets for calculation of
depreciation. If any asset exists but life is low, then will depreciation
applied over it? (Shakir)
The depreciation is accumulated on fixed assets having life over one
year or more depending on the value of fixed assets, if the value of
fixed assets below the mark, it will directly be charged in expenses. For
example a calculator which comes under fixed assets but the price or
value of it is cheap so it will be charged directly in expenses as printing
and stationery office. But computer, printer, scanners may be fixed
assets if comes under the value for calculation of depreciation.
Plant and machinery, office equipment, air conditioning unit, furniture,
etc. having long life and heavy values are accumulated for depreciation
up to ten years under different methods of depreciation.
It is concluded that the period applied on fixed assets for calculation of
depreciation is more than one year depending on the value of asset.

Q&A 09 QA-272
What is Goshwara and how to make it? (Shakir)
The word goshwara is of Urdu word and in English means
schedule which means to make details or plan of anything for
any department of life but in accounting it represents the
summary or detail of accounts relating to the same nature. If a
company sales or purchases goods on credit from different
parties, different parties accounts are maintained in ledger for
paying and receiving in future date and prepares a schedule of
creditors and debtors wherein details of paying and receiving
amounts from customers or suppliers or makes according to its
facilitationas date, amount, maturity of amounts, reasons etc.
In financial statements, some schedule of creditors, debtors
and other accounts having huge informationindicatingnotes.
Income tax or sales department also requires schedules or
statements relating to detailsof taxes at the end of the year.
It also refers to statement which prepared at the end of the
accounting year for submitting income tax, sales tax and
management.

Q&A 10 QA-273
What is accountingcycle and its steps working?
Accounting cycle is the process of accounting and the process
of accounting has ten steps which moves the cycle with no end
as the source document provides evidence to journal, journal
helps ledger to make accounts, ledger enables trial balance
unadjusted to summarize accounts, trial balance unadjusted
requires adjustment, adjustment provides trial balance
adjusted, trial balance adjusted closes entries to worksheet,
worksheet to financial statements and balances of financial
statements as post closing trial balance re-cycle accounting for
the next period like before.
The connection of every step is joined to each other enables
accounting cycle roundingwith no end.

Q&A 11 QA-274
What do you mean by purchase and sale?
In accounting, purchase or sale relates to goods or merchandise
used in doing business. In manufacturing concerns, materials
are purchased and converted in finished goods, and sold to
distributors or whole sellers; distributors and whole seller
purchase and sale to retailers and retailers purchase and sell to
end user.
Purchase and sale both have transactions of cash and credit.
Purchase is asset and sale is revenue then purchase is debited
and sale is credited. Purchase and sale are temporary account
and make the cause of income or loss, and end on income and
loss statement.
Therefore, purchase and sale are the main source of rounding
account cycle.

Q&A 12 QA-275
Explainthe difference between tangible and intangibleassets?
Tangible assets are the assets which have long term physical
existence like plant, machinery, equipment, furniture and
fixtures etc and or touchable assets like cash, account
receivable, merchandise inventory, prepaid expense etc.
Tangible assets are acquired for operation of business and not
for sale like commodities
When intangible assets have no physical existence like trade
mark, goodwill, copy right etc. but convert into current asset to
sell them. Intangible assets are the long term recourses of
business and made slowly by reputation. Intangible assets help
business in bad times to acquire to loan against fire or any
hazards in business.

Q&A 13 QA-276
What do you understand by single entry and doe single entry
accounting system convert into double entry?
Single entry relates to cash receipts and payments or expenses and
revenues and receivables and payables and it does not involve
accounting equation of double entry system. This system of
accounting is used in small business where the transactions or
information are in diary, register or in memory.
Single entry accounting system may be converted into double entry
accounting system because payments and receipts, expenses and
revenues, and receivables and payments can be taken from diary,
register or memory and the amount brought for doing business as
capital depends on the information or on estimation.
Financial statements may be prepared basing the information from
diary, register or memory but the true financial picture under this
system may be under question.
Self assessment of accounts by income tax is based on the same
system of accounting.

Q&A 14 QA-277
What do understand by double entry accounting system and does double entry
convertinto single entry systemof accounting?
In double entry accounting system all transactions are recorded
according to rules of debit and credit and the rules of debit and
credit should be in accordance with accounting equation as
Assets=liabilities + proprietorship. The amount of debit must be
equal to the amount of credit and there may be two or more
debit and credit.
The single entry system is quite different because it has only
information of transactions on diary, register or in memory
which may be recovered in individual accounts according to the
five principles of accounts.
As far as the question does double entry convert into single
entry system is concerned, it may be said that the trial balance
or post closing trial balance which resulted the information of
transactions is the example of single entry wherein debit and
credit is shown of every individualaccount.
Double entry accounting system provides true accounting
picture, every transaction has proof and complete books of
accounts presentable to income tax, sales tax, management,
shareholdersetc.

Q&A 15 QA-278
How many kinds of business?
There are three types of businesses wherein trading,
manufacturing and services are in practice but purpose
of each business is to make profit by its investment and
efforts. Trading and manufacturing business require
capital to start business but services business does not
require capital but requires efforts.

Q&A 16 QA-279
What do you known about trading business, explain many
aspect of it?
This type of business relates to commodities. In trading
business, trader purchases commodities from manufacturer or
importer and sale to wholesaler or retailer in profit.
In trading business many aspects of trading are therein;
- Trader has to invest his capital and from this capital, he
purchases goods and sale to others in profit.
- The trader sells commodities on commission to link
business parties. This business is called Commission
trading.
- The trader gets commodities on credit and pays the
amount after sale it is calledcredit trading.
- A trading in which trader holds commodities and searches
parties, on getting parties he picks up the commodities on
credit and/or on cash and sale it out by his own price.
Nowadays, trading from internet is flourishing. Any trader can
find out parties to trade his products.

Q&A 17 QA-280
What do you mean by transaction?
Exchange of values is meant by transaction and transaction
affects by doubleentry accountingsystem under debit and
credit rules. It may be on cash and on credit.

Q&A 18 QA-281
What do you mean by accrual?
Accrual, relates to payment and receipt, and is journalized to
create liability or revenue before payment and receipt. An
accrual as an expense relates to liability of the period when it
occurred but not paid and as revenue relates to receivables of
the period when it earned but not received.

Q&A 19 QA-282
What is deferred used in accounting?
Deferred, relates to income and expense, and is referred by
unconsumed or unsettled part of account at the end of
accounting period shown in balance sheet directly or without
appearingin income statement.
Deferred refers to payment made but reported as an expenses
in a later period and revenue received but earned in future
accounting period.

Q&A 20 QA-283
Describe the rules of transaction and its affect?
Everything or system is moving with rules which makes thing
better to perform functioning. In the system of accounting, the
rules of transaction are described under accounting equation as
to assets=liabilities + owners’ Equity which increase or decrease
the five principle of accounts; assets, liabilities, proprietorships,
revenue and expenses with equal value of increase or
decreases to one account to one account, one account to more
account.
The rules of transactions are described here;
Assets Increase Debit Decreases Credit
LiabilitiesDecreases Debit Increases Credit
ProprietorshipDecreases Debit Increases Credit

QA-284
Revenue Decreases Debit Increases Credit
Expenses Increases Debit Decreases Credit
The rules of transaction affect the equationas;
- Assets are acquiredby Assets cash and asset
affects to asset.
- Liabilitiesacquiredby asset cash from others
and asset affects to liabilities.
- Proprietorship or capitalcome from
investment and investment affects asset and
capital.
- Revenues come from asset cash and asset
affects income to capital.
- Expenses pay by asset cash and asset affects
income to capital.

Q&A 21 QA-285
Explainconnection between manufacturing, trading and
services businesses?
Manufacturingis the process of making goods or products from
raw materials acquired locallyor from abroad. This process
involves land,building,plant and machineries, laborers and
complete system of administrationand sell to traders on cash
or credit. Thistype of businessis concern with trading business.
In trading business, traders acquire goods or commodities on
cash or on credit from manufacturer and sell to wholesaler,
retailer or end user. Trading businessis concern with
manufacturing business.

QA-286
No capital involves in services business but efforts or skill
works to earn. Service business involves in manufacturing and
trading. A man employed to work, technician repairs
machineries, and a worker involves in manufacturing, a man to
sell products, a consultant or legal advisor gives advice are
providingservices.
If to see then manufacturing, trading and services business
involves each other in whole system as;
Manufacturing business produces products, sells goods to
traders and acquired man power from services business for
manufacturing process.
Trading business sells goods to customer, goods comes from
manufacturing and selling requires man power by services
business.
Service business provides technical support or manpower to
manufacturing and trading business to work.
Therefore, it may be said that manufacturing, trading and
services are connection with each other in every respect.

Q&A 22 QA-287
Explain the roll in business of an accountant and the quality of
good accountant?
The word accountant is derived from account and to write it is
called accountant or writer of accounts moves accounting cycle
and may say him the driver of accounting cycle, the accounting
cycle starts from source document enables accountant to keep
records of all transactions crystallizes and makes legal accounts
to post closing enables accountant to recycle the next
accounting process and so on.
The accountant may equip with logical knowledge created itself
cracks hard nuts enables accountant to overcome the problems
in writing books of accounts, making financial statements and
satisfying management in taking decisions may come before
him during accountancy besides education of accounts
manuallyor computerized.

QA-288
The quality of good accountant requires honesty, this is the first
of his being accountant, and to prove honesty he must have all
records, evidence and balances up to date physically facilitate
auditors to check and make reports as the older said the honest
is the best policy, faithfulness is the part of faith restricts him to
perform bad and do good with collogue, management, parties
and all relating to his circle and to all matters of finances and
may say faithfulness is the second pillar or condition of his
being accountant. The third condition of his being accountant is
secrecy which does not allow accountant to show facts and
figures of accounts to others inside or outside which saves from
many difficulties,quarrels and causes.
The last and four conditions of his being accountant is to love
his profession, prepares true accounts having evidence, resist
to de shape or de figure statements of accounts.
The accountant, the driver of accounting cycle, is the pillar of
business and the base of his profession stands on four pillars;
honest, faithfulness, secrecy, love to profession.

Q&A23 QA-289
FILL IN THE BLANKS
- Account is the language of _________________and book
keeping is defined to record_______________.
- Business means __________ under classification of
______types of business
i________ii_________iii______________.
- The main types of business organization are
a_____________b___________c___________d__________
____.
- Any exchange of value is called_______________ and sub
divided into ________transaction and
_____________transaction.
- The posting of business transaction in book is
called____________.
- Business entity means ________________.
- ALPRE is the shortformof
_________________________________________.
- <THE SYSTEM OF ACCOUNTING <VOLIUM1<SYED AQEEL RAZA<aqeelraza@live.com>

QA-290
- Assets are______________ and investment
_______________.
- __________ asset covers accounting period and ______
assets are longer than one year.
- Tangible assets are________and intangible ___________.
- Prepaid expenses are __________assets.
- Liability means the claim of supplier under head
account___________.
- There are two types of equities
i______________ii______________.
- Drawing is a __________asset.
- Credit sale is recorded under head account
_______________.
- <THE SYSTEM OF ACCOUNTING < VOLIUM1<SYED AQEEL RAZA<aqeelraza@live.com>

QA-291
- Expenses are mainly divided into two categories
i__________________ii______________.
- Assets = liabilities + proprietorship is accounting
_______________.
-
- Cash increases__________ and
decreases________________.
- Capital increases______________
decreases_________________.
- Account payableincreases_______________
decreases__________.
- Account Receivable is ________________.
Expense increases_____________decreases_______.
A sale is _____________ and increases ___________.
Accounting cycle starts from____________________ and end
on______________.

<THE SYSTEM OF ACCOUNTING <VOLIUM1<SYED AQEEL RAZA<aqeelraza@live.com>
Volume – I
WRITTEN BY:
SYED AQEEL RAZA

The system of accounting q&a

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The system of accounting q&a