Chapter No.1
Journal, Ledger and Trial balance
What is accounting?
“Accounting is act of Recording, classifying, Summarizing and interpreting the monetary transactions.
What is bookkeeping?
“Book keeping is the act of recording monetary transactions in the books of account.”
Define business?
Any legal activity undertaken for the purpose of earning profit is called business
e.g General Store, Book shop.
Define proprietor
“The owner of business who actually invests money in the business.”
e.g Mr. Ahmad started a business, Mr. Ahmad is Proprietor of the business.
Define capital?
“Investment by the owner of business to start a business”
e.g Mr. Ahmad started a business with Rs.100000, Rs. 100000 is his Capital.
What is drawing?
“The cash or goods taken away by the proprietor from the business for his personal use are called drawings”
What is a transaction?
“Any dealing between two persons or things is called transaction”
Mr. Ahmad sales goods to Mr. Ishaq at certain price is called transaction between Mr.Ahmad and Mr. Ishaq
Define double entry system?
A system in which we consider both aspects (Dr and Cr) of transactions.
What is trade discount?
“A Trade discount is allowed by the manufacturer or the wholesaler on the list price/Retail price of goods or services from one party to other party.”
What is cash discount?
Any Deduction which is allowed by the seller to the purchaser at the time of Payment is called cash Discount.”
What is sale?
“When goods are sold to customer at specific price it is called a sale”
e.g when books sold by book shop to students
What is sale return/return inward?
“When goods are returned by customer to business, it is recorded in sales return book”
What are purchases?
“Goods purchased by business for selling purpose are called purchases”
e.g books purchased by book shop for sales.
Types of Purchases
1. Cash Purchases
“Goods purchased by business for selling purpose on credit are called Cash Purchases”
2. Credit Purchases
“Goods purchased by business for selling purpose on Cash are called Credit Purchases”
What is purchases return/return outward?
“Goods returned by Business to supplier due to any defects are called purchase returns.”
What is account?
“A summarized record of business transactions relating to a person or a thing.”
What are assets?
“Assets are Economic resources of business.” Or” An asset is a resource controlled by the entity as a result of past events and from which economic benefits are expected to flow to the entity.”
(Cash. Account receivable and debtors)
Define liabilities?
“Any kind of debts of business is liabilities” or “A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.”
”
e.g (Account Payable, creditors)
Accounting equation?
“Assets = Liabilities + Capital (Owner’s Equity)”
Define debtors or Account Receivables?
“A Person to whom goods are sold on credit, it is consider as assets of the business”
e.g Mr.A Sold Goods to B for Rs. 10000, B is Debtors from A Point of View.
Define creditors or Account Payable?
“A Person who sold the goods to business on credit and to whom Money is payable (Due), it is considered as Liability of the business”
e.g Mr.A Sold Goods to B for Rs. 10000, A is Creditors from B Point of View.
What is commission?
“It is a form of remuneration for services rendered by one person to another”
What is difference between double entry system and single entry system?
“A system in which we follow two folded aspects (debit and credit) of entry is called double entry system one is debit (Dr) and other is credit (Cr)”
“A system in which we follow only one aspect (debit or credit) is called single entry system. It is only partial record of small business”
What are dual aspect concepts?
“Dual aspect concepts may be stated as for every debit there is a credit, and for every credit there is a debit.”
How many kinds of account?
The four types of account
· Personal account
· Impersonal account
· Real account or property account
· Nominal account
What are personal accounts?
“Accounts relating to person or firms are called personal accounts.”
e.g Like ahmed account, bank alfalah.
What are real accounts?
“All those accounts which keep record of properties or things owned by a trader are called real accounts.”
e.g building account, furniture account
What are nominal accounts?
Nominal accounts are for those that record income, expenses, gains and losses “
e.g such as Discount account, Salaries, Rent, Repair account.
What is journal/Book of original entry?
“The book of accounts in which business transactions are originally recorded in chronological order is called journal.”
Define narration?
“A short explanation of each transaction in journal in written form at the end of each entry. “
What is journalizing?
“The act of recording transaction in journal is called journalizing.”
What is simple entry?
“The entry which involves only one debit and only one credit is called simple entry.”
What in compound entry?
“The entry in which more than one account is debited or credited is known as compound entry.”
What is ledger?
“A book in which all the transactions of a business concern are finally recorded in the concerned accounts in summarized and classified form is called ledger.”
Explain the term balancing?
“The process of equalizing the two side of account is known as balancing.”
Define zero balance?
“If the two sides of an account are equal the account will show zero balance.”
Define Debit balance?
“Debit balance meant where total of debit side exceeds than credit side is written on credit side of account.
Define Credit balance?
“Credit balance meant where total of credit side exceeds than credit side is written on debit side of account”
What is trial balance?
“An accounting schedule that lists the ledger account balance at a point in time and total of debit balances is equal to the total of credit balance.”
Define the term merchandise?
“Merchandise are the Goods which are purchased by business for selling.”
e.g Books purchased by Shopkeeper are the Merchandise for the business.
What is inventory?
“Goods on hand those remaining unsold at the end of the year is also called stock.”
e.g Book Remain unsold at the end of the year called stock or ending inventory.
Define bank?
“A bank is a financial institution which deals with deposits and advances and other related services. It receives money from those who want to save in the form of deposits and it lends money to those who need it.”
.What is cheque?
“A cheque is unconditional order in writing drawn by customer on his bank, requesting to pay on demand certain sum of money.”
How many kinds of cheques?
Bearer cheques is one on which “bearer” is written after the name of payee. It is payable to bearer.
Order cheques is one on which “order “ is written after the name of payee. It is payable to person whose name is written before order.
Crossed cheques when two parallel line are drawn on the side of cheque is payable only through a collecting banker and not directly at the counter of the bank.
What is bank draft?
“A bank draft is mean of transferring money from one place to another, is a written order in the form of a check instructing the payment of money to the individual named on the bank draft.”
How many functions of bank.
Primary function is to borrow and lend money.
General function is to issue important documents, and keep valuable things in safe custody.
Agency function is bank collect and pay cheques and realizes interest and dividend on customer behalf.
How may kinds of accounts?
Current accounts in this case the customer can deposit or withdraw money any time within banking hours. Bank does not pay any interest or Profit/Loss.
Saving account customer deposits its saving into the bank for specific period,Bank will share profit and loss with customer.
Fixed Deposit account in which money is deposit for fixed time period, Banks Pay very high interest rates.
Bank pass book issued by a bank to record deposits, withdrawals and balance in Account holder account.
Bank Overdraft
“Any Excess amount withdrawn from bank by the account holder is called bank overdraft”
Accounting Cycle
1. Transaction
2. Journal
3. Ledger
4. Trial Balance
5. Final Account (Trading and Profit and Loss, Balance Sheet)
Chapter no 2
Bill of exchange
Define bill of exchange?
“A bill of exchange is an instrument in writing containing an unconditional order by one person (seller) to another person (purchaser) signed by the both parties having fixed amount payable after fixed future Time.”
How many parties involves in bill of exchange?
There are three parties involve in bill of exchange
· Drawer
· Drawee
· Payee
Define drawer, drawee and payee?
· Drawer: the person who writes/draw the bill of exchange. He is the seller/Debtor.
· Drawee: the person to whom the bill is drawn
· Payee: the person who receives the amount of bill is called payee. He may be drawer, bank or endorsee.
Difference between inland bill and foreign bill
Inland bill are drawn in a country upon person same country.
Foreign bill is drawn in a drawn in one country and payable in another country.
Define promissory notes?
An instrument in writing containing an unconditional promise by the maker (purchaser) to pay a certain sum of money only to other person (seller) after fixed future time period.
How many parties involves in promissory notes?
They are two parties to a promissory note.
· The maker (purchaser)
· The payee (seller)
Tenor
Tenor is period of time after which a bill becomes payable, also called duration of bill.
How many kind of acceptance?
There are two types of acceptance
General acceptance when accept the bill without any condition.
Qualified acceptance when accept is accept with condition/qualification (time, place).
Define bill receivable and bill payable?
When a bill is written then a bill from the view of drawer is bill receivable
When a bill is written then a bill form the view of drawee is called bill payable
Define grace days
It is customary to allow three days of grace to the drawee to pay the amount in the case of a term bill.
Holder of the Bill
Holder of a bill means that Drawer, Endorsee and bank whole is entitled to receive the payment on due date.
Define discounting a bill
If the holder of a bill is in need of money before the due date of bill he may sell it to the bank. The bank will give cash after deduction of some charges.
e.g A draw the bill on B, A is drawer and B is drawee. When A Discount the Bill form Bank is Called discounting of Bill.
Define the endorsement of a bill
Endorsement of the bill means when drawer transfer the bill to his creditor for settlement of debts.
A draw the bill on B, A is drawer and B is drawee. When A endorsee Bill to C. C is Endorsee.
When a bill become dishonored
When Drawee fail/refuse to make the payment on the due date is called dishonour of bill
e.g A draw the bill on B, A is drawer and B is drawee. When B Fail to Make the Payment is called Dishonoured of Bill.
Notary Public
Notary Public is an officer who maintains record of then Dishonour Bills.
Define noting charges
In case of bill dishonored the notary pubic will charge a small fee from the holder of the bill This fee is known as noting charges.
What is meant by retiring of a bill
Retiring a bill means making payment before of maturity of the bill
e.g A draw the bill on B, A is drawer and B is drawee. When B make the payment before date.
Define Trade Bill
Trade bill is drawn and accept on Credit purchase and sale of goods.
Define accommodation bill.
accommodation bill drawn to help or to accommodate someone for certain period.
Insolvency
Insolvency mean the on the due date of the bill, the person is unable to pay the whole the bill.
Renewal of bill
Drawee request the drawer to issue new bill with condition to cancel the old bill before due date by paying some interest.
Chapter # 3
Cash book and bank reconciliation statement
Define Subsidiary book?
some transactions which are of repetitive nature which need to record separately, So journal is subdivided into different journal known as subsidiary books
Important subsidiary books
Cash book: it is used to record all cash receipts and payments Receipts are recorded on Debit side and Payment on Credit side.
Purchases book: It is used to record all credit purchases
Sales book: It is used to record all credit sales
Purchases return book: It is used to record all goods return by us to supplier
Sales return book: It is used to record all goods return to us by our supplier.
Bill receivable book: It is used to record all accepted bills received us
Bill payable book: It is used to record all bill accepted by us to our creditors
Journal proper: It is used to record all those transitions for which there is no separate book
Define vouchers?
Answer: Vouchers are documents containing evidences of payments and receipts.
How many kinds of cash book?
Answer:
There are three types of cash books
· Single column cash book: which is used to record cash receipts and payments.
· Double column cash book: which has two column on both sides of cash. One is to record cash and other is to record banking transaction.
· Triple column cash book which has three columns on both sides of cash. One is to record cash Second is to record banking transaction and thirds is for discount
What is contra entry?
A transaction in which cash account and bank account are involved is recorded on both sides of cash book.
What is a petty cash book?
Answer: The book in which small payments which are not convenient to record in the main cash book the record is called petty cash book.
Imprest system
Under this system the total petty expenses for particular period are estimated and that amount is advance by the cashier.
What is bank reconciliation statement?
Bank reconciliation statements a statement which contains a complete and satisfactory explanation of differences in balance as per the cash book and bank statement
What is pass book?
Define bank statement?
A summary of customer’s account is sent by bank periodically or on the request to know about transactions with bank
Unpresented Cheque
Cheques which have been issued for payment but may not be presented to bank by the creditor.
Uncredited cheque
Cheques which have been received from customer and deposited into bank but may not have been credited by bank
Chapter # 4
Final Accounts
What are final accounts?
Final account Consist of Trading and Profit and Loss Account which finally show the profit and loss for a particular period and Balance Sheet which show financial position for a particular date.
What is profit and loss account or income statement?
A statement which shows the financial position of a business for a particular period
What is balance sheet?
A statement which shows the financial position of a business on a particular date
Trading Profit and Loss Account
Trading Account
Profit and Loss Account
What do you understand by direct expenses?
Expenses connected with purchases of goods or to bring the goods in saleable condition are called direct expenses e.g Wages, carriage inward.
What do you understand by indirect expenses?
All these expenses which have no concern with purchases of goods or to bring the good in saleable condition are known as indirect expenses salaries, carriage outward.
Define gross profit/Gross Loss, Net Profit and Net Loss?
- Gross Profit means Excess of Sales over cost of goods sold.
- Gross Loss Means Excess of Cost of Goods Sold over Sales
- Net Profit Excess of gross profit over all indirect expenses
- Net Loss Excess of Indirect expenses over gross profit.
Define the closing entries?
The journal entries made for the purpose of closing the temporary account called closing entries.
What are adjusting entries?
The entry at the end of the period to record internal transactions are called adjusting entries.
What are assets?
All Economic resources of business are called assets of business e.g. Building, Land, Debtors
Define liabilities?
Any kind of debts of business are liabilities e.g Accounts Payable, Creditor, bank overdraft
Carriage inward
Carriage means conveyance charges incurred to bring the good in the shop by road.
Dock Charges
These are the charges paid when ship left the port.
Freight inward
Conveyance Charges incurred to bring the good in the shop by sea, Railway, Airplane.
Custom duty
A tax levied imports of good from one country to other country.
Excise duty
It is a tax imposed by government of production of goods.
Octori duty
It is a tax imposed on bringing goods to certain town or cities.
Store consumed
This includes the items like lubrication oil, grease and cotton required for running of business.
Motive power
Any source of energy used to produce motion in machinery e.g. cock gas, water electricity energy
Royalty
Royalty is an amount paid to a person for exploiting rights possessed by him.
Manufacturing expenses
This includes factory rent, factory insurance and factory repairs.
What is marshalling?
The term marshalling means the order in which assets and liabilities are stated on the balance sheet.
1. The order of liquidity
2. The order of performance
3. Mixed order of arrangement
Define the term debt?
When a customer becomes business debtor the amount due from him is called Debts
What is the bad debt?
The debts which cannot recover from the debtor are called dad debts.
What are doubtful debts?
The debts the recover or realization of which is doubtful or uncertain are known as doubtful debt.
Wasting Assets
Wasting assets are that whole value gradually reduces with usage. Like, mine
Contingent Liabilities
Liabilities that may or may not be incurred by an entity depending on the outcome of a future event such as a court case
What Depreciation
Gradually decrease in the value of fixed assets is called depreciation.
What is inventory?
Goods or merchandise on hand that is a goods remaining unsold is also called stock.
Define outstanding expenses/ Accured Expenses /Expenses Payable/Amount Due/Not Paid/Unpaid
The expenses incurred but have not been actually paid till the end of current accounting year
Define outstanding income/Accured Income/Income Receivable/ Amount Due/Not received/Un received
Income earned but has not received till the end of current accounting year
Define prepaid expense/ Paid in Advance/ Paid Upto
Expenses paid in advance before they have fallen due.
Define income received in advance/unearned income/ received in advance
Income received in advance but not earned.
Chapter#5 Capital and revenue
Define capital Transactions?
Transactions having long term effect are known as capital transactions. Like purchase of Building
What are revenue transactions?
Transactions having short term effect are known as revenue transactions. Like payment of Salaries
What do you mean by capital expenditures?
Expenditures incurred on acquiring fixed assets and having Long term effect are known as capital Expenditure. Like expenditure on purchase of Building, Land and Furniture
Describe the revenues expenditure
All the expenditures which are incurred in the day to day conduct and administration of a business and have short term effects Like, purchases of stationery, payment of salaries
Give any three examples of capital expenditures
· Addition or extension of assets
· Wages paid for the construction of building
· Premium given for lease
Give the three examples of revenue expenditures
· Wages paid to factory workers
· Bad debt
· Stationery
Describe the deferred revenue expenditures?
Revenue expenditure benefits of which is likely to more than one year but it is non recurring by nature are called deferred revenue expenditure
Give examples of deferred revenue expenditures?
· Preliminary expenses
· Heavy expenditures on advertisement for making the new product.
Define capitalized expenditures?
Some revenue expenditure are connected with fixed assets and are full added to cost of that assets whatever is the amount. Like repairs of newly purchased machinery
What are capital receipts?
Receipts which are non recurring by nature, received from Sale of fixed assets are known as capital Receipts. Like Receipts from sale of of Building, Land and Furniture
What are revenue receipts?
Receipts which are recurring by nature receive from the day to day conduct and administration of a business and have short term effects Like inertest received, Discount Received
What is capital payment?
Payments which are non recurring by nature, incurred on acquiring fixed assets and having Long term effect are known as capital Payment. Like Payment for purchases of Building, Land and Furniture
What is revenue payment?
Payments which are recurring by nature which are incurred in the day to day conduct and administration of a business and have short term effects
What do you mean by capital profit?
Capital profit is a profit which is earned on the sale of a fixed asset for example a machinery worth of Rs. 10000 is sold for Rs. 15000. the profit is 5000/- is capital profit.
What do you mean by Revenue profit?
Revenue profit is a profit which is earned during the day to day course of business is called revenue profit is a regular Profit.
What is capital loss?
The loss suffered by a business on the sale of a fixed asset or it incurred or raising capital or a joint stock company. for example a machinery worth of Rs. 10000 is sold for Rs. 8000. the Loss is 2000/- is capital Loss.
What is revenue loss?
Revenue Loss is a Loss which is earned during the day to day course of business is called revenue loss.
Chapter # 6
Rectification of Errors
How many kinds of errors?
There are two kinds of errors
1. Book keeping error ( in books of original documents that are journal and ledger).
2. Trial balance error (errors which are made in preparation of trial balance
How many kinds of book keeping error?
1. Error of omission: Where Transaction is completely omitted from the accounting records.
2. Error of commission: An error of commission accrues when a transaction is partly or wholly incorrectly in the books of accounts
o Wrong amount posting to ledger
o Wrong side posting to ledger
o Making wrong entry in book of original entry
3. Error of principle: Mistakes arises out of ignorance of fundamental principles of accountancy e.g (wrong allocation of depreciation, inadequate provision of dad debts, and wrong allocation of revenue and capital and revenue expenditure)
4. Compensating error: Compensating error which are cancelled by an other error of same amount in opposite direction
What is trial balance error?
Errors which are made in preparation of the trail balance are called trial balance. Like
· Omission of balance form the trial balance
· Wrong transfer of balance (amount)
· Wrong side transfer of amount
· Wrong additions of trial balance
What is suspense account?
Suspense account is an account in which we entered transaction which cannot be placed to their proper account for want sufficient information.
What is error of posting?
These errors are committed when a journal entry is posited in to ledger.
What is error of casting?
It is error of posting where as the error occur due to short casting or excess casting of an accounts
CHAPTER NO.1
NON TRADING CONCERNS
1. What is meant by non trading concerns?
Individuals or institutions with activities other than trade and their primary objective is not to earn profit are known as non trading concerns. Like hospitals, libraries and colleges.
2. What is receipt & payment account?
A receipts & payments account is summarized cash book for given period. Receipts are shown on the debit side and payments are shown on credit side without any distinction between capital and revenue.
3. What is income and expenditure account?
The account through which surplus or deficits of a non trading concern is ascertained. This account is credited with all earning and debited with expenses is called income and expenditure account.
4. What is major difference between receipts or payment account and an income and expenditure account?
Receipts and payments account only a summary of the cash transactions whereas income & expenditure accounts a comparable account of a profit and loss account which shows the incomes expenses and surplus / deficit for the period.
5. What are key statements prepared in accounts of nonprofit seeking organization?
The following three key statements are prepared at the end of year
· Receipts and payments accounts
· Income and expenditure accounts (Profit and loss account)
· Balance sheet
6. What are key statements prepared in accounts of profit seeking organization?
The following key statements are prepared at the end of year
· Trial Balance
· Trading and Profit & loss account
· Balance sheet
7. Define legacy?
The amount given to a non trading concern as per the will of deceased person is known as legacy. It should be treated as capital receipts and included capital fund account.
8. Define donations?
Donation is the amount received from some person, firm, company or any other body by way of gift.
if donations are for specified purpose then it should be treated as capital expenditures and otherwise credited to income and expenditure account
9. What is subscription?
The amount paid by the member annually to keep their membership alive is known as subscription.
It should be credited to income and expenditure account.
10. What is special subscription?
It is the special subscriptions collected form the members who participate in a particular activity because of the cost involved in providing these may vary considerably. It should be credited to income and expenditure account.
11. Define life membership fee?
This is a system where by a member pays a lump sum and then becomes a member of the whole life.
Life member not required to pay the annual membership fees. As life membership fees is a substitute for annual membership fees only fair portion is to considered in income and expenditure account. If not mentioned treat all the amount.
12. Define entrance fees?
At the time of admission every new member is to pay specific fee in addition to subscription called entrance fees. It should either treat as capital or revenue receipts but normally treat as revenue receipts
13. What is sale of news paper?
As the old newspaper or magazines and other things are disposed off every year, It should be credited in income and expenditure account
14. Define sale of sports material?
Sale of sports material is a regular function of club, It should be credited in income and expenditure account
15. What is capital fund?
The difference between total assets over total external liabilities in case of non trading concern is called capital fund. It should not considered in income and expenditure account
16. What is honorarium?
The amount paid to the person who is not the employee of the organization is said to be honorarium person may be invited to deliver lectures or artists may be invited to give their performance
It should be debited in income and expenditure account.
SINGLE ENTRY SYSTEM
1. What is single entry system of book keeping?
Single entry system may be defined as a system in which accounting records are not kept strictly according to the double entry system of book keeping.
2. Write down the formula for determining the net profit under net worth method?
The formula for determining the net income may be put as follows
Net income = capital at the end (Ending Capital
(+) Drawings
(-) Additional capital (Fresh capital) introduced
(-) Capital at the beginning (Beginning capital)
3. Define characteristics of single entry system?
· It is suitable for the small businesses
· Only personal account are kept
· This system is flexible
4. What are the limitations/defects of single entry system?
The defects of this system may be summed up as follows.
· Under this system only partial and incomplete record is kept because two fold aspects of transactions are generally ignored.
· As the two fold aspects of every transaction are not recorded a trial balance cannot be drawn up to test the arithmetical accuracy of the record
· As nominal accord are not maintained a profit and loss account cannot be prepared for want of information regarding the various income and expenditures
· As no real account are maintained the preparation of a balance sheet is not possible
5. Write down the fundament balance sheet equation?
Assets = Liabilities + Owner’s Equity
6. How many methods are for preparing final account from single entry system?
There are two methods for preparing the final account
1) First method of statement of affairs
2) Second method conversion into double entry system
7. What is statement of affairs?
It is statement of assets and liabilities (including capital) prepared under the single entry system.
8. Define balance sheet?
It is statement of assets and liabilities (including capital) prepared under the Double entry system.
9. What is major difference between single entry system and double entry system?
Under entry system both debit and credit aspects of all the transactions are recorded whereas under single entry system some transactions are not recorded at all while some transactions are recorded in only one of their aspect either debit aspect or credit aspect ( only one aspect of transaction).
10. What will be the capital of proprietor, in his assets are of Rs. 87000 and liabilities are of Rs. 20000?
Assets-Liabilities = Capital
87000-20000= 67000
11. What shall be the profits of the concern in beginning capital is Rs 8000 and capital at the end Rs, 9000 drawing during the year is Rs 1800 fresh capital Introduce Rs 500?
Net income = capital at the end (Ending Capital 9000
(+) Drawings 1800
____________________________________________________
10800
(-) Additional capital (Fresh capital) introduced 500
(-) Capital at the beginning (Beginning capital) 8000
____________________________________________________
2300
12. Calculate the missing figures profits made during the year Rs, 2400 Drawing Rs.1200 capital at the end Rs 8000 opening capital? Fresh capital introduced during the year Rs 2000?
Net income = capital at the end (+) Drawings (-) Additional capital (-) Capital at the beginning
2400 = 8000 + 1200-2000-Capital at the beginning
Capital at the beginning = 8000 + 1200-2000-2400 = 4800
13. Calculate the Net income/Loss
Opening capital Rs. 5000, capital introduced Rs.1000
Net income = capital at the end (+) Drawings (-) Additional capital (-) Capital at the beginning
Net Loss = 0+0-1000-5000= -6000
14. Calculate the drawing s during the year:
Capital in the beginning Rs, 20000 Capital introduced Rs, 25000
Profit made during the year Rs.15000
Net income = capital at the end (+) Drawings (-) Additional capital (-) Capital at the beginning
15000 = 0+Drawings-25000-20000
Drawings = 15000+25000+20000 = 60000
15. How Many methods are for conversion from single entry to double entry?
· Prospective ( on and from the date on which arrangements are made for conversion)
· Retrospective (on and from a date before the date of conversion)
16. In case of conversion of single entry system into double entry. What necessary information / item are required for the preparation of trading account?
In order to prepare trading account following information’s / items are required
Opening stock + purchase + direct expenses-sales- closing stock
17. In case of conversion of single entry system into double entry. What necessary information / item are required for the preparation of profit and loss account?
The following item are required in order to prepare the profit and loss account
Indirect expense- other incomes
18. In case of conversion of single entry system into double entry. What necessary information / item are required for the preparation balance sheet?
Following information are required in order to prepare the balance sheet
· All assets
· All liabilities
· Opening capital
· Profit or loss of the year
19. How to prepare to Total debtors accounts?
Total debtors account
| |
Opening balance
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cash received from debtor during the period
|
credit sales
|
B/R Received
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B/R dishonored
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Return Inward
|
Discount allowed
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Bad debts
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Closing balance
| |
20. How to prepare total creditors accounts?
Total Creditor account
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Cash paid to creditors
|
Opening Balance
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B/P granted
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Credit Purchases
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Return outward
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B/P dishonored
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Discount received
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Closing balance
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Chapter no 4
Company
Define Joint Stock Company
A joint stock company may be defined as an artificial person recognized by lay with a distinctive name a common seal, a common capital comprising transferable share carrying limited liability and have a perpetual succession
What is separate legal entity of company?
Separate legal entity means that a company is distinct from the person forming it. It enjoy s may of the rights artificial persons.
Like
· It sue or be sued in its name
· If can own and transfer the property on its own name
What is common seal?
Common seal is used as substitute of signature because company is an artificial person and cannot sing itself.
Define perpetual existence of a company
It means a joint stock company has a continuous life. The share holder can come or go but the existence of a company cannot effect. It can be winded up through compliance with the provision of company’s ordinance 1984
Define limited liability.
The liability of the member is generally limited ot the extent to the nominal value of share or the amount held by them.
What is company limited by shares?
These are companies in which the shareholders have a limited to the extent to the nominal value of shares. These companies must have share capital.
What is company limited by guarantee?
A company in which the liability of its members is limited to such amount a s member may be respectively undertake tot contribute to the assets of the company in the event of tits being wound u. generally such companies do not have share capital.
Define unlimited company.
A company in which the liability of its members n unlimited every member of the companies personally liable to the full extent of his personal assets for the full debts f the companies it may or may or may not have share capital.
Private limited company.
According to the company ordinance 1984 it can be formed
1. At least tow member and maximum 50 members
2. It has no right to issue the shares
3. It restrict the transference of shares
What is a public limited company?
According to the company ordinance 1984 it can be formed
1. At least seven member and there is no limit on maximum numbers
2. It can invite the public for application for issuance of shares
3. it can easily transfer the shares form one person to another person
Define memorandum of association.
The document which define the scope and object of the company
What is article of association?
The document which defines the rules and regulation of the company
What is prospectus?
This is a statement in the form of a small booklet, notice, circular, advertisement or other an invitation issued by the company to the public for subscription of shares
Define term shares.
The total amount of capital of a company Is divided into smaller units these units are called shares.
What is share capital?
The sum or total of the par value of shares of a company is called share capital.
Define Authorized capital.
The amount of capital with which is registered. It is also called nominal or registered capital.
Define issued capital.
Shares offered to the general public for contribution are know as shares issued the totoal value of these shares called issued capital.
Define Subscribed capital.
Out of the total number of shares issued by the company that is number of share which is taken up by the public are know as subscribed shares. The total valued of such shares called subscribed s capital.
Subscription may be:
· under subscription (A company may not received application for all the shares offer by it to the public. a company receives application less that its offer is called.)
· over subscription (A company may receive a large number of application for all the shares offer by it to the public. a company receives application more then that its offer is called.)
What is called up capital?
The portion of a subscribed capital which is called up by the company form public is called up capital
Define Paid up capital
The total amount received by the company out of the total called up amounts called paid up capital.
What is primary or preliminary expense?
These are the expense which is incurred in the initial sates of incorporation like legal fee, remuneration of promoters and cost of printing of various documents.
Define underwriting commission
The commission which is paid to underwriter to take the risk of share offiered to the pubic is know as underwriting commission.
What is par value of share?
The value of which is assigned to a unit of shares is called par value of share its is also called as nominal value or face value of shares.
Define book value of shares?
The value of shares according to the books of a company is called book value of share.
What is market value of share?
The price at which the buyer is willing to purchase the shares and seller is willing to sell it is called market value of shares.
Issued of shares at premium?
When a share having face value of Rs.10 is issued by the company for an amount more than Rs.10 the share is called issued at a premium.
Issued of share at discount?
When a share having face value of Rs.10 is issued by the company for an amount Less than Rs.10 the share is called issued at a Discount
Define Debentures?
A certificate issued by a company under its seal acknowlging a debts due by it to its holder. It includes debentures stock, Bonds and participation term certificate and other securities.
Kinds of debentures
Redemption point of view
1. Redeemable debentures
Those debentures which are repayable at the end of a specified period
2. Irredeemable debentures
Those debentures which never repayable during the existence of the company
Convertibility point of view
1. Convertible debentures
These are debentures which are converted into shares as per terms of their issues
2. Non convertible debentures
Debentures are not convertible into shares of a company are term as non convertible debentures.
Security point of view
1. Simple or naked debentures
Those debentures which are without any security as to payment of interest or repayment of principle
2. Mortgage debentures
Those debentures which are secured by a fixed or floating charge on the assets of the company
Registration point of view
1. Registered debentures
These are debentures which are registered in the name of the holders in the books of the company. And transfer of these must be registered in the books of company
2. Bearer Debentures
These are payable to bearer of debentures. These debentures can be transferred by mere delivery
What is debentures stock?
Debentures stock is converted debentures which is fully paid and transfer in fraction of rupees.
Difference between Debentueres and debentures stcok
What is difference between Debentures holder and share holder?
Debentures holder Share holder
Debentures holder is creditor of company. Shareholder is Owner of business.
Debentures holder receives interest. Shareholder receives profit.
Debentures holder have no right to participate in Shareholder participate in
decision making decision making.
What is difference between Joint Stock Company and partnership?
JSC
|
Partnership
|
It is a legal person.
|
it is not legal person
|
Liability of member is limited
|
Liability is not limited
|
Number of members are at least 7
|
at least 2 and maximum 20 members but in
|
banking sector not more then ten.
| |
What is consignment?
Consignment is a act of sending a quantity of good from one person/one country to another person/an other country for selling purpose is called consignment.
Who is consignor?
Consignor is person who is sending the goods means sender of goods is called consignor.
Who is consignee?
Consignee is person to whom goods are send is called consignee
What is consignment outward?
Dispatch of goods for consignor to consignee is called consignment outward
What is consignment inward?
Goods receipts from consignee for consignee point of view is called consignment inward
What is difference between sale and consignment?
Sales
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Consignment
|
Ownership is transferred to purchaser
|
Ownership is not transfer to consignee
|
Relationship between seller and purchaser of debtor and creditors
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Relationship between consignor and consignee of Principle and agent
|
All the expenses are borne by Purchaser
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All the expense are borne by consignor
|
Purchaser is responsible for all losses
|
Consignor is responsible for all losses
|
Account sale is not required
|
All sale is required
|
Define the term commission?
Remuneration paid for services is called commission. Commission is always paid on sales.
Define the term Del creder commission?
Extra commission paid to consignee for timely collection of debs and avoids bad bebts is called Delcreder commission.
What is overriding commission?
Commission paid on the sale of new product line is called overriding commission
Define advance against consignment?
Advance given by consignee to consignor that may be in form of cash or bill of exchange
What is consignment account?
Consignment account which shows profit or loss is called congisments account.
What is an account sale?
A document prepared by consignee by giving the detail of goods sold
Define Performa invoice?
An invoice which give the detail about the quantity, quality of goods
What is Normal loss?
Which is inherited and cannot not avoid like the sand
What is abnormal loss?
Which is not inherited and can be avoided is called abnormal loss.
What is stock?
No of finished goods remain unsold is called unsold stock
ENTRIES FOR CONSIGNMENT
Consignor’s Journal
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Consignee’s journal
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1.When Goods sent for consignment
| |
Consignment account
|
No entry because of no transfer of ownership
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Goods sent for Consignment
| |
2.Expenses incurred by Consignor
| |
Consignment account
|
No entry because these are incurred by consignor
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Bank account
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3.Advance against Consignment
| |
Cash account
|
Consignor account
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Consignee account
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Cash account
|
4.Expenses incurred by Consignee
| |
Consignment account
|
Consignor accent
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Consignee account
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Cash account
|
5.sales of goods
| |
Consignee account
|
Cash account
|
Consignment account
|
Consignor account
|
6.Commission paid by consignor
| |
Consignment account
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Consignor account
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Consignee account
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Commission account
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Be careful. And remember.
Here stop and make consignment account from journal of consignor. And get profit or loss Proceed if profit then profit and loss is credited and if loss then profit and loss is debited.
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7.For profit
| |
Consignment account
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No entry because he has no concern with profit
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Profit and loss account
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8.Clsoing of consignment
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Good sent for consignment account
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No entry because he has no concern with profit
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Trading account
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Chapter no 05
DEPRECIATION
What is depreciation?Depreciation is the gradual and permanent decrease in the value of an asset is called deprecation.
How many kind of factors affect deprecation?
o Internal factor
o Wear and tear
o depletion
o External factor
o Obsolescence
o Efflux of time
o Accident
What is wear and tear?Change in shape of assets due to its use is called wear and tear of asset.
Define depletion?The process of measuring and recording the exhaustion of natural resources such as deposits, oil well etc, is called depletion
OR
Decrease in the quantity of assets like mine quarries and oil.
Define obsolescence
The term obsolesce refers to reduction in the useful life of the assets arising from such factors asj Technological changes
j Improvement in production
j Change in the market demand
Or
The process of becoming out of date or obsolete is termed as obsolescence due new investigations or change in taste of people
What is amortization of assets?the term amortization is useful for describing the process of wirtingdown or decrease the long term investments in intangible assets leases holds, patents, can copyright and goodwill
What are the major objects of providing deprecation?The objectives of providing deprecation areÄ To find out the net profit and loss account for accounting period
Ä To present a fair and value of assets on balance sheet
Ä Ascertain the true cost of production
Ä For true valuation of asset
Ä Replacement of asset
What are fixed assets?Assets which have long life and which are bought for use for long period of time like building, machinery and furniture
What are tangible assets?Assets which have physical existence and which can be seen and touched is called tangible assets
Define intangible assets
Assets which have no physical existence and which can be seen and touched is called intangible assets
What is difference between the term fluctuation and depreciation?Depreciation is the gradual and permanent decrease in the value of an asset is called deprecation. But the value or price of assets may rise or fall due on the account of fluctuation
Define scrap value or residual value?
Scrap values mean the price at which at which an assets will be sold at the end of its working life is known as scrap or residual value.
What is difference between depreciation and depletion?Depreciation is the gradual and permanent decrease in the value of tangible assets
And depletion is measuring and recording the exhaustion of natural resources
What is difference between deprecation and amortization?Depreciation is the gradual and permanent decrease in the value of tangible assets and amortization is useful for describing the process of wirtingdown the long term investments in intangible assets leases holds, patents, can copyright and goodwill
How many methods for deprecation?• Fixed installment Method
• Diminishing Method
• Annuity Method
What is fixed installment method?
The method under which charge fixed or equal amount of deprecation each year is called fixed installment method.
Entries
• When charged depreciation
Deprecation account
To Asset account
• Transfer to profit and account
Profit and loss account
Deprecation account
• When sold at end at scrap value
Cash account
Assets account
What are advantages of fixed installment method?These are advantages of fixed installment method
• It is simple and easy to calculate
• The book value of asset can be reduce to zero
What are disadvantages of fixed installment method?
These are disadvantages of fixed installment method
• No provision for the replacement of the assets is made
• Not popular because charge depreciation every year same while effect of assets is decreasing every year
Under straight line method what formula is used to calculate deprecation?
Annual depreciation = Cost –scrap value
Estimated life
What are other names of fixed installment method?• Straight line method
• Original cost method
What is diminishing balance method?
Under this method the asset is depreciated at fixed percentage calculate on the debit balance of the asset which is diminishing year after year on account of deprecation.
What are other names of diminishing balance method?
• Written down
• Reducing installment method
What are advantages of diminishing balance method?• Popular because charge depreciation every year same while effect of assets is decreasing every year
• No separate calculation is not required for addition and extension
What are advantages of diminishing balance method?
• This method cannot reduce the book value of an asset to zero.
• Very high rate of depreciation would have to adopt otherwise take very long time to write off
What is depreciation?Depreciation is the gradual and permanent decrease in the value of an asset is called deprecation.
How many kind of factors affect deprecation?
o Internal factor
o Wear and tear
o depletion
o External factor
o Obsolescence
o Efflux of time
o Accident
What is wear and tear?Change in shape of assets due to its use is called wear and tear of asset.
Define depletion?The process of measuring and recording the exhaustion of natural resources such as deposits, oil well etc, is called depletion
OR
Decrease in the quantity of assets like mine quarries and oil.
Define obsolescence
The term obsolesce refers to reduction in the useful life of the assets arising from such factors asj Technological changes
j Improvement in production
j Change in the market demand
Or
The process of becoming out of date or obsolete is termed as obsolescence due new investigations or change in taste of people
What is amortization of assets?the term amortization is useful for describing the process of wirtingdown or decrease the long term investments in intangible assets leases holds, patents, can copyright and goodwill
What are the major objects of providing deprecation?The objectives of providing deprecation areÄ To find out the net profit and loss account for accounting period
Ä To present a fair and value of assets on balance sheet
Ä Ascertain the true cost of production
Ä For true valuation of asset
Ä Replacement of asset
What are fixed assets?Assets which have long life and which are bought for use for long period of time like building, machinery and furniture
What are tangible assets?Assets which have physical existence and which can be seen and touched is called tangible assets
Define intangible assets
Assets which have no physical existence and which can be seen and touched is called intangible assets
What is difference between the term fluctuation and depreciation?Depreciation is the gradual and permanent decrease in the value of an asset is called deprecation. But the value or price of assets may rise or fall due on the account of fluctuation
Define scrap value or residual value?
Scrap values mean the price at which at which an assets will be sold at the end of its working life is known as scrap or residual value.
What is difference between depreciation and depletion?Depreciation is the gradual and permanent decrease in the value of tangible assets
And depletion is measuring and recording the exhaustion of natural resources
What is difference between deprecation and amortization?Depreciation is the gradual and permanent decrease in the value of tangible assets and amortization is useful for describing the process of wirtingdown the long term investments in intangible assets leases holds, patents, can copyright and goodwill
How many methods for deprecation?• Fixed installment Method
• Diminishing Method
• Annuity Method
What is fixed installment method?
The method under which charge fixed or equal amount of deprecation each year is called fixed installment method.
Entries
• When charged depreciation
Deprecation account
To Asset account
• Transfer to profit and account
Profit and loss account
Deprecation account
• When sold at end at scrap value
Cash account
Assets account
What are advantages of fixed installment method?These are advantages of fixed installment method
• It is simple and easy to calculate
• The book value of asset can be reduce to zero
What are disadvantages of fixed installment method?
These are disadvantages of fixed installment method
• No provision for the replacement of the assets is made
• Not popular because charge depreciation every year same while effect of assets is decreasing every year
Under straight line method what formula is used to calculate deprecation?
Annual depreciation = Cost –scrap value
Estimated life
What are other names of fixed installment method?• Straight line method
• Original cost method
What is diminishing balance method?
Under this method the asset is depreciated at fixed percentage calculate on the debit balance of the asset which is diminishing year after year on account of deprecation.
What are other names of diminishing balance method?
• Written down
• Reducing installment method
What are advantages of diminishing balance method?• Popular because charge depreciation every year same while effect of assets is decreasing every year
• No separate calculation is not required for addition and extension
What are advantages of diminishing balance method?
• This method cannot reduce the book value of an asset to zero.
• Very high rate of depreciation would have to adopt otherwise take very long time to write off
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