Accounting Lesson one

UNIT – I

What is accounting? (Or) Give the meaning of accounting (or) why accounting is called as “the Language of Business”?

Accounting is a means of communicating the results of business operations to various parties interested in or connected with the business (Viz., the owners, Creditors, Investors, Government, Financial Institutions, Bankers etc,). Arnold. W. Johnson in his book ‘Elementary Accounting’ has rightly called the Modern accounting as the ‘Language of Business’.

Define Financial Accounting?

Definition 1: According to the American Institute of Certified Public Accountants (AICPA)      “Accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money transactions and events which are of a financial character and interpreting the results there of”.

Definition 2: According to American Principles Board “Accounting is a service activity. Its function is to provide quantitative information primarily financial in nature, about economic activities that is intended to be useful in making economic decisions in making rational choices among alternative courses of action”.

What are the objectives of accounting? (Or) State the objectives of accounting? (Or) What are the                 advantages of accounting?

                Objectives or Advantages of accounting may differ from business to business depending upon their specific requirements. However following are the general objectives or advantages;

·        Record maintenance:  Accounting record serves as a basis for accounting work. So the records have to be maintained systematically by following the Generally Accepted Accounting Principles (GAAP).

·        Ascertainment of profit or loss: Accounting is expected to ascertain and record the net results of business. Various interested parties like owners, management, investors, etc., should be supplied with such results as per their specific requirements. 

·        Depiction of Financial position: A true and fair view of financial position should be presented. The properties and assets of business should be shown at appropriate values at prevailing practices.

·        Providing communication: The Accounting should provide information for making decisions in crucial areas, controlling of organization’s human and material resources and facilitate social functions and control.

·        Aid to Decision – making: Management of a firm requires innumerable routine and policy decisions while discharging its functions. Accounting provides information for making appropriate and effective decisions.

·        Statutory requirements: Various legal requirements like maintenance of Provident fund of employees, Employees State Insurance contribution (ESI), etc., are properly fulfilled with the help of accounting.

·        Taxation purposes: Accounting records are the basic source for computation and settlement of Sales tax, Income tax and other local taxes. 

What are the Attributes and steps of accounting? (Or) Explain the process or functions of Accounting.

            Attributes and steps (Process or functions) of accounting

                   An analysis of above definition will bring out the following functions of accounting;

1)      Recording: Systematic recording of business transactions is the first step in accounting process. Each and every business transactions are recorded in chronological order with reliable documentary evidence. Recording of business transactions are usually done in ‘Journal’ or in ‘Subsidiary Books’ which are ‘Books of Original entry’.

2)      Classification: The classification takes form of ‘accounts’ in a separate book known as ‘Ledger’. Separate accounts are opened for each expense, income, property, liability, and persons with whom the business has dealings. Classification facilitates segregation of numerous business transactions into separate identifiable groups.

3)      Summarizing: The transactions recorded in the ledger will be summarized and balance in each account will be ascertained and list of such balances is called ‘Trial Balance’. The Trial Balance ensures the arithmetical accuracy of the recording and classification process. Moreover Trial balance serves as a basis for the preparation of Final accounts (i.e. Trading, Profit & loss a/c and Balance sheet).

4)      Interpreting: It refers to deriving conclusions from accounting records i.e. to find out the real position of the concern to which accounting relates. Interpretation is needed for various purposes like;

                      I.          Future planning of operations.

                    II.        Designing credit policies.

                   III.       Analyze the growth of profit.

                   IV.       Liquidity and stability of business.

 Explain the ‘Accounting Equation’? (Or) Explain the components of ‘Accounting Equation’?

Accounting Equation is a formula which indicates the ‘equivalence’ of assets and capital and liabilities. Recording of business transactions is based on accounting equation. Balance sheet is the end result of accounting process and conforms to accounting equation.

Equation:

              Assets = Equities

                          (Or)

              Assets = Liabilities + Capital

                          (Or)

              Capital = Assets – Liabilities

The total of properties owned by a business is equal to the ‘total of Rights of properties’. The properties owned by a business are called as assets and rights to properties are called as ‘Equities’.

Equities are called as Internal Equity (Or) capital which represents the owner’s interest in assets and External equities (Or) liabilities which represents the outsider’s interest in assets.

State some basic accounting terms

They are

a.       Capital: it represents owner’s funds invested in a business. Capital represents owner’s claim against the assets of a business.

b.      Liability: Liabilities are debts, they are amounts owed to creditors i.e. debts repayable to outsiders by business are called liabilities.

c.       Assets: It is ‘anything of value owned by business’ i.e. future economic benefits, rights owned or controlled by an organization or individual.

d.      Revenue: It includes all incomes like Sales, receipts, interest, commission, etc.; However receipts of capital nature like additional capital, sale of assets etc., are not part of revenue.

e.       Expenses: It is any amount spent in order to produce and sell the goods and services, which brings in revenue. It is divided in to

i.         Capital expenditure: It includes acquisition of long-term assets like Machinery, which generates revenue for several accounting years.

ii.       Revenue expenditure: It includes current expenses like rent, salary, etc., which benefits current accounting year

f.       Debtors: A person who receives a benefit without giving money or money’s worth. Debtor can be trade debtor if he buys goods on credit.

                g.  Creditors: A person who gives benefit without receiving money or money’s worth. Creditor can be trade creditor if he sells goods on credit.

h.   Tangible assets: Assets which have physical existence e.g. Buildings, Machinery.

i.          Intangible assets: Assets, which has no physical existence e.g., Goodwill, Patents.

j.          Fictitious assets: They represent unadjusted losses. e.g. Preliminary expenses

k.        Fixed assets: Assets meant for income generation and not for resale but benefits accrue for a longer period. e.g. Machinery

l.          Current or Floating assets: Assets, which are converted into cash within one year or in normal course of business. E.g. Stock, Debtors.

m.      Purchases: Goods bought which are meant for resale are called purchases. It may be on cash or credit basis.

n.        Sales: Selling of goods in normal course of business. It may be on cash or credit basis.

o.        Stock: The stock of goods, which remain unsold at the end of accounting period, is called ‘Closing stock’ and stock at the beginning is called ‘Opening stock’.

p.        Losses: Loss indicates money given up without any return e.g. Loss due to fire, theft, etc.,

q.        Drawings: Any amount money or money’s worth withdrawn by owners of business for personal use is called ‘Drawings’.

r.          Invoice: It is a statement prepared by a seller of goods showing details of quantity; price etc., to be sent to buyer.

s.         Voucher: Documentary evidence of any transaction is called a ‘Voucher.

t.          Goods: Commodities bought for resale are treated as goods. For a furniture dealer, furniture is a good, but for other firms furniture is an asset.

u.        Current liability: Those liabilities which are repayable within e year e.g. Creditors, Bills payable.

v.        Long-term liabilities: Liabilities repayable beyond a period of one year are treated as long-term liabilities e.g. Mortgage loans.

w.      Solvent: A person who has assets with realizable value, which exceeds his liabilities, is solvent.

x.        Insolvent: A person whose liabilities are more than the realizable value of his assets is called an Insolvent.

y.        Transaction: A transaction is an exchange in which each participant receives or sacrifices value e.g. sale of goods.

Briefly explain the basic accounting concepts and conventions?                                                                                                                                                                       

            Accountants all over the world have developed certain rules, procedures and conventions, which represent a consensus view by the profession of good accounting practices and procedures and are generally referred to a “Generally Accepted Accounting Principles”. (GAAP)   Accounting Statements are prepared in conformity with these principles in order to place more reliance on them. Accounting is based on certain uniform and scientifically laid down principles. Following these principles will ensure uniformity, clarity and understanding in recording transactions. It is classified as

          I.      Accounting concepts:

    They are the assumptions or ideas which are essential to the practice of accounting and preparation of financial statements. They are;

1.  Accounting period concept: The life time of a business is considered as long as indefinite. But it is essential to study the result of business at appropriate intervals for taking corrective action as and when necessary. Therefore in accounting the life time of business is divided into number of accounting years to know its profitability and financial position.

2.  Accrual concept: This concept is based not only on cash transactions but also on credit transactions ensuring that the Profit & loss a/c shown is on the basis of full facts relating to all expenses and incomes without regard to the date of receipt or payment.

3.  Business entity concept: Business is treated as a separate entity from the proprietor and the persons associated with it. Transactions are recorded from view point of accounting entity and not from point of view of owners.

                  For e.g.:  If A starts business in the name “A & Co” then accounts is prepared for “A & Co” and not for A.

4.  Cost concept: This concept is based on the owing concern concept. It states that assets acquired are shown in books at cost. The market value is immaterial for accounting purpose. This concept has the advantage of bringing objectivity in the preparation and presentation of financial statements.

5.  Dual aspect concept: Every business transactions have two aspects – receiving of benefit and giving of benefit. Both the aspects of a transaction are recorded in the books of accounts which is the basis for double – entry system of book – keeping. The basic rule is that ‘for every debit there must be a corresponding credit’ clearly indicates the concept.

a.       : Accounting is based on the assumption that the accounting unit is to continue in operation or continue to exist for unlimited period unless of course dissolved or terminated for some reasons.

6.  Money measurement concept: This concept requires that those transactions alone which are capable of being measured in terms of money are to be recorded in books. Other than money transactions fall beyond the scope of accounting.

7.  Matching concept: Matching of revenues with cost of a period is necessary to ascertain the profits earned during that period. This matching of periodical cost with revenue is known as matching concept.

8.  Realization or Revenue recognition concept: According to this concept revenue is considered as earned on the date when it is realized. The revenue should be realized only when it is legally due and realizable.

                              For e.g.:  When goods are sold, the date of placing the order and date of receipt of cash are irrelevant and only date of passing title to goods is relevant to income recognition.  

        II.    Accounting conventions:

    While preparing the accounting statements certain customs and traditions are followed which are called as accounting conventions. They are as follows;

1.Consistency: The accounting practice followed in a business should not be changed from one year to another. These practices should be adopted continuously to make financial statements more reliable.

2.Disclosure: In accounting statements, all information which is essential to the people who are interested in business like owners, creditors, etc., should be disclosed to make the statement more informative.

3.Conservatism: It means the policy of playing safe. No anticipated profit should be recorded and at the same time all possible losses should be provided for

      4.Materiality: Whether something should be disclosed or not depend on whether it is material or immaterial and the amount involved in those transactions.

What are the Basic accounting rules?

The rules for making Double entry system can be summarized as follows:

a.      Personal accounts

Debit the ‘Receiver’

Credit the ‘Giver’.

b.      Real accounts:

Debit ‘What comes in’.

Credit ‘What goes out’.

c.       Nominal accounts:

Debit all Expenses and Losses.

Credit all Incomes and Gains.

 Mention the classification of accounts? (Or) Explain the types of Accounts?

The object of Double entry system of Book – keeping is to keep a record of all the transactions that take place in a business.

An account is a statement in the ledger which records the transactions relevant to the person, asset, expense, or profit named in the heading. Accounts can be divided in to

a.       Personal accounts

b.      Impersonal accounts.

a.  Personal accounts

Accounts of persons with whom the business has dealings are known as personal accounts. It takes following forms;

1.  Natural persons: Name of an individual, customers or suppliers (e.g.) Krishna’s account, N’s account.

2.  Artificial persons or legal bodies: Firm’s account, limited companies, bank account etc., are known as artificial person’s account.

3.  Representative personal accounts: All accounts representing outstanding expenses, Prepaid expenses, Accrued incomes etc.,

 b.  Impersonal accounts

It is divided in to

1.      Real accounts: Accounts in which the business records the real things owned by it i.e. assets of business, tangible and intangible real accounts. It includes Building, cash furniture, trademark, good will etc.,

2.      Nominal accounts: It relates to items which exist in name only. Expenses, incomes etc., Accounts which record expenses, losses, incomes and gains of business. E.g. rent a/c, salaries a/c, interest received a/c.

What are the limitations of Accounting?

In spite of its indispensable position in modern business, accounting has its own limitations. They are;

· Accounting ignores transactions, which cannot be expressed in terms of money (non-monetary nature).

· It relies on Estimates and forecasts in several important matters like life of machinery, Market value of investments, etc.,

·     Estimates and subjective influence of accountants affects the accuracy and reliability of accounting results.

· Accountants rely on historical cost for recording fixed assets, which do not reflect current financial position.

· It also ignores price level changes, which influences the value of assets and liabilities.

· Inflation, which is a universal phenomenon, makes the profit ascertained and financial position shown by accounting unrealistic and unreliable.

                                                                        

Write a note on ‘Journal’.

     

            Journal’ is a book of Primary entry or original entry. All transactions are initially recorded in Journal. The ruling of Journal is such that any business transactions can be analyzed under the heads of debit and credit.

Specimen or Format Journal in the books of…

Date

Particulars

L.F

Debit (Rs.)

(p)

Credit (Rs.)

(p)

            Transactions are recorded in chronological order. Particulars represent the account to be debited and credited. L.F. represents Ledger folio and the amount column represents respective amounts mentioned in the entry. Every entry is accompanied by a narration explaining details of transaction.

     

E.g. Transaction: Jan 1, 2004 Cash sales of Rs. 5000

                                                 Journal in the books of…

Date		Particulars	L.F	Debit (Rs.)	(p)	Credit (Rs.)	(p)
2004 Jan	1	Cash a/c                          Dr         To Sales a/c [Being cash sales made]		5000	-	5000	-

What is a ledger?

     

                   A ledger account may be described as “A summary statement of all the transactions relating to a person, asset, expense or income which have taken place during a given period of time and shows their net effect”. All recorded business transactions are grouped on a predetermined basis and this grouping of accounts in a separate book known as ‘Ledger’.

Specimen or Format Ledger in the books of…

Dr                                                                                                                                            Cr

Date

Particulars

J.F

Amount (Rs.)

Date

Particulars

J.F

Amount (Rs.)

      E.g. Transaction: Jan 1, 2004 Cash sales of Rs. 5000

Ledger in the books of…

Dr                                                                    Cash a/c                                                           Cr

Date		Particulars	J.F	Amount (Rs.)	Date		Particulars	J.F	Amount (Rs.)
2004 Jan	1	To Sales a/c		5000

Dr                                                                    Sales a/c                                                          Cr

Date		Particulars	J.F	Amount (Rs.)	Date		Particulars	J.F	Amount (Rs.)
					2004 Jan	1	By cash a/c		5000

                                        

Write about Subsidiary books. (Or) State some reasons for maintaining Subsidiary books.

            In bigger businesses, transactions are so numerous so it may be necessary to group similar transactions even at journal stage in the shape of ‘Special Journals’ to minimize and facilitate ledger work. Thus Subsidiary books were developed.

                      It comprises of:

1.       Purchases book to record credit purchases of goods.

2.       Sales book to record credit sale of goods.

3.       Purchase returns book to record return to suppliers.

4.       Sale returns book to record return from customers

5.       Cash book to record all cash receipts and payments.

6.       Bills receivable book to record bills received.

7.       Bills payable book to record bills accepted.

8.       Journal proper to record any transactions, which cannot be entered in above, specified books.

Reasons:

1.      This system reduces overall work compared to a single Journal.

2.      Work on subsidiary books can be carried out by many accountants.

3.      Increased accuracy because of specialized work and monthly-summarized postings.

4.      Communicates better information, which is not possible in journal system.

What is trial balance? State its Objectives.

                            M.S. Gosav (The substance of Accountancy) “Trial balance is a statement containing balances of all ledger accounts, as at any given date, arranged in the form of debit and credit columns placed side by side with the object of checking the arithmetic accuracy of ledger postings”.

Objectives:

1.      To establish arithmetic accuracy of books to check whether accounting processes have been carried out without errors.

2.      To prepare financial statements based on trial balance

3.      To serve as a summary of what is contained in a ledger.

4.      To derive important conclusions by comparing yearly balances.

5.      To have a test of accounts before preparing final accounts.

UNDERSTANDING OF FINANCIAL STATEMENTS

Manufacturing Account:

                   Those concerns, which convert the raw materials into finished goods, are required to find out the cost of goods manufactured besides gross and net profit and these are manufacturing cum trading concerns.  In order to have full information about the cost of goods manufactured, these concerns firstly prepare manufacturing Account and then prepare Trading and Profit and Loss Account.

Objectives:

The main object of Manufacturing Account is to show:

• Cost of Finished Goods Produced

• Constituent items thereof such as cost of materials consumed, productive wages, direct and indirect expenses.

Trading and Profit & Loss Account:

Trading Account:

                   This Account is prepared to know the trading results of the business i.e. how much gross profit the business has earned from buying and selling during a particular period.  The difference between the sales and cost of goods sold is gross profit.

 For the purpose of calculating cost of goods sold, we take into consideration opening stock, purchases, and direct expenses on purchasing or manufacturing the goods and closing stock.  The balance of this account represents gross profit or loss and is transferred to the profit and loss account.

Profit and Loss Account:

This account is prepared to calculate the net profit of the business.  There are certain items of incomes and expenses of the business, which must be taken into consideration for calculating net profit of the business.  These are of indirect nature i.e. concerning the whole business and relating to various activities, which are done by the business for the purpose of making the goods available to the consumers. 

Indirect expenses may be selling and distribution expenses, management expenses, financial expenses, extraordinary losses and expenses to maintain the assets into working order.  This account is prepared from nominal accounts and its balance is transferred to capital account as the whole profit or loss will be that of owner and it will increase or decrease his capital. 

Balance Sheet:

A Balance Sheet is a statement prepared with a view to measure the financial position of a business on a certain fixed date.  The financial position of a concern is indicated by its assets on a given date and its liabilities on that date.  Excess of assets over liabilities represent the capital and is indicative of the financial   soundness of a company. 

A Balance Sheet is also described as a “statement Showing the Sources and application of capital”.  It is a statement and not an account and prepared from real and personal accounts.  The left hand side of the balance sheet may be viewed as a description of the sources from which the business has obtained the capital with which it currently operates and the right hand side as a description of the form in which that capital is invested on a specified date.

Objectives:

A properly drawn up balance sheet gives information relating to

A) The nature and value of Asset,

B) The nature and extent of Liabilities,

C) Whether the firm is solvent,

D) Whether the firm is overtrading.

If assets exceeds the liabilities, the firm is solvent i.e., able to pay its debts in full. 

       FORMAT OF FINAL ACCOUNTS

Trading & profit & loss a/c for the year ended…

Particulars	Rs.	Particulars	Rs.
To opening stock                  To purchases                                      xx   Less: purchases returns (or) returns xx                                                                                                outwards To Manufacturing a/c (cost of finished goods) To  wages & Salaries To Octroi duty, Dock charges To fuel &power, coal, gas, coke To factory rent & rates To freight inwards(on purchases) To carriage inwards To consumable stores To gross profit t/fred to p&l a/c(credit)	xxxx	By sales                                            xx Less: sales returns/ return outwards  xx By closing stock By abnormal loss of stock By gross loss t/fred to p&l a/c (debit)	xxxx
	xxxx		xxxx
To gross loss b/d To salaries & wages To rent rates taxes To printing & stationery To repairs & maintenance To audit fees To discount allowed To carriage outward To travelling expenses To advertising To bad debts                                    xx Add: new provision on debtors       xx Less: old provision (provision           For bad debts)                        xx To charity To interest on loan & capital To loss on sale of fixed assets To loss on sale of investment To loss by fire (not covered by insurance) To commission paid To net profit (added with capital in B/S)	xxxx	By gross profit b/d By discount recd By interest recd By dividend recd By rent recd By commission recd By profit on sale of fixed assets By profit on sale of investments By apprentice premium By interest on drawings By miscellaneous income By net loss (deducted from capital a/c in B/S)
	xxxx		Xxxx

Balance sheet of ……as on ……

Liabilities	Rs.	Assets	Rs.
Capital                                        xx Add: net profit                           xx   Add: Interest on capital             xx Less: net loss                              xx                                                  ------ Less: drawings                           xx Less: interest on drawings         xx                                                 ------ Less: income tax                        xx                                                 ------ Creditors Loan Bills payable Bank over draft Outstanding expenses Advance income	xxxx	Plant & machinery (- depn) Land & buildings (- depn) Furniture & fittings (- depn) Cash in hand Cash at bank Debtors Less: new provision Less: discount on debtors Prepaid expenses Accrued (outstanding) income Bills receivable Insurance claim Closing stock
	xxxx		xxx

Note:

1.      Any adjustments will appear two times in final a/cs

2.      Any outstanding expenses will be added with concerned expenses & shown in liability side of the B/S.

3.      Any accrued income will be added with concerned incomes & shown in assets side of the B/S.

4.      Any prepaid (advance) expenses will be deducted from concerned expenses & shown in assets side in the B/S.

5.      Any advance income will be shown in p&l credit and shown in liabilities side in the B/S.

Manufacturing A/c for the year ended….

Particulars	Rs.	Particulars	Rs.
To Work-in-Progress (Opening) To Materials used       Opening Stock                          xx     Add: Purchases                          xx     Less: Closing Stock                   xx To Wages To Factory Expenses To Purchase Expenses To Import Duty To Carriage inward To Depreciation on Plant & Machinery To Repairs to Machinery	xx xx	By sale of Scrap By Work-in-Progress (Closing) By Cost of goods produced t/fred to Trading a/c	Xx
	xx		Xx

 THE TREATMENT FOR ADJUSTMENTS

TYPE OF ADJUSTMENT	TREATMENT – TRADING A/C, PROFIT & LOSS A/C	BALANCE SHEET
1. Closing Stock	Shown in the Credit Side of the Trading Account	Shown in the Assets Side.
2. Outstanding Expenses  (Wages, Rent, Salaries)	Add the Outstanding to the Respective Item (It may be Trading a/c or Profit and Loss a/c)	Shown on the Liability Side (Actual Outstanding Amount)
3. Prepaid Expenses or Unexpired Expenses (Insurance Premium)	Deduct it from the Concerned Account on the Debit Side of the Trading a/c or Profit & Loss a/c	Actual Amount Deducted should be Shown in the Assets Side
4. Accrued Income or Outstanding Income (Commission)	Add to the Account in the Credit Side of Profit and Loss Account in the Respective Item	Actual Amount Added should be Shown in the Asset Side
5. Income Received in  Advance (Rent)	The Amount Received in Advance is Deducted in the Credit Side of Profit & Loss Account in the Concerned Account	The Actual Amount Received should be Shown on the Liabilities Side
6. Interest on Capital	Shown on the Debit Side of Profit  and Loss Account	The Interest should be Added with Capital on Liabilities Side
7. Interest on Drawing	Shown on the Credit Side of Profit and Loss Account	Added with Drawings and Deducted from Capital on Liabilities Side
8. Interest on Loans	Added to the Respective Account in  Profit and Loss Account Debit Side	Added to the Loan on the Liabilities Side
9. Depreciation (Machinery,  Furniture)	The actual Depreciation Amount Shown on the Debit Side of the Profit and Loss Account	Shown as a Deduction from the Value of the Respective Asset in the Assets Side
10. Bad Debts	Should be Shown on the Profit and Loss Account Debit Side	Deducted from Sundry Debtors on the assets Side
11. Provision for Bad and  Doubtful Debts	a) Shown in the Debit side of Profit  and Loss Account b) Provision for Bad Debts in the  Trial Balance is Old.  Bad Debts  Provision in the Adjustment is New. In that case, Take the Difference of New Minus Old.  The Difference should be Shown in the Debit Side of Profit and Loss Account.	The New Provisions Alone Deducted from Sundry Debtors on Assets Side
12. Provision for Discount on  Debtors	The Ascertained Amount to be Shown on Debit Side of profit and Loss Account (After Deducting the Additional Bad Debts and Provision for Bad Debts Provision for Discount on Debtors has to be Calculated)	The Amount of Discount on Debtors should be Deducted from the Balance of Debtors after Deducting the Additional Bad Debts and Provision for Bad Debts.
13. Reserve for Discount on  Creditors	The Actual Amount Should be Shown on credit Side of Profit and Loss Account	The Amount of Reserve Deducted from Creditors on the Liabilities Side
14. Goods Distributed as Free  Sample	It is Shown on the Credit Side of the Trading Account, or Deducted from the Purchases and is also Shown on the Debit Side of Profit and Loss Account as Advertisement Expenses.	NIL
15. Deferred revenue  Expenditure	It is Shown on the Debit Side of Profit and Loss Account	It is Shown on the Assets Side
16. Reserve fund	NIL	It i Shown on the Liabilities Side of the Balance Sheet If Reserve Fund is Already there, It will be Shown by Addition to the Existing Reserve Fund on the Liabilities Side of the Balance Sheet
17. Manager’s Commission	Such Commission will be Shown on the Debit Side of the Profit and Loss Account	It is Shown on the Liabilities Side of the Balance sheet as Commission Payable.
18. Loss of Stock By Fire  (Fully Insured)	It will be Shown on the Credit Side of Trading Account in the Name of Insurance Claim	It is Shown on the Assets Side  of the Balance Sheet in the Name of Insurance Claim
19. Loss of Stock By Fire  (Not Fully Insured)	It will be Shown on the Credit Side of Trading Account with the Value of Stock in the Name of Insurance Claim and Profit and Loss a/c and Shown on the Debit Side of Profit and Loss Account for that part of the Stock which is not insured in the Name of Trading a/c	It is Shown on the Assets Side of the Balance Sheet with the Amount, Which is to be Realized from the Insurance Co. i.e., that part of the Loss  Which is Insured
20. Loss of Stock By Fire  (Not Insured At All)	a) It is Shown on the Credit Side of the Trading Account in the Name of  Profit & Loss a/c. b) It is Shown on the Debit Side of the Profit and Loss account in the Name of Trading a/c	NIL

Problems

1. Pass the journal entries in the books of Sri Balaji

March 1, 2005             Commenced business cash                                                                             Rs. 200000

                                                Goods worth                                                                                      Rs. 400000

                                                Machinery                                                                                          Rs. 1000000

March 3, 2005             Purchased Goods from Sam &Co                                                                 Rs. 50000

March 5, 2005             Sold Goods to Ravi Traders                                                                          Rs. 100000

March 8, 2005             Current Account opened in SBI                                                                    Rs. 100000

March 9, 2005             Goods returned to Sam & Co                                                                        Rs. 6000

March 10, 2005           Goods returned to Ravi Traders                                                                    Rs. 10000

March 12, 2005           Cheque received from Ravi Traders

                                    And deposited into bank                                                                               

March 13, 2005           Amount paid to Sam & Co., in full settlement                                               Rs. 43,600

March 15, 2005           Paid Salary                                                                                                      Rs. 10000

                                    Wages                                                                                                             Rs. 6000

                                    Rent                                                                                                                Rs. 2000

March 15, 2005           Interest Received                                                                                            Rs. 2000

2. Give the journal entries for the following transactions in the book of Thiru. Ramesh

2001, July 1                             Commenced business with the capital                                                Rs. 200000

            2                                  Amount deposited in Bank                                                                 Rs. 50000

            5                                  Purchased furniture for cash                                                               Rs. 10000

            7                                  Purchased goods for cash                                                                   Rs. 16000

            8                                  Purchased goods from Rahim Ltd for credit                                     Rs. 20000

            10                                Sold goods for cash                                                                           Rs. 50000

            12                                Sold goods to Ramu & Co for credit                                                Rs. 30000

            14                                Amount paid Rahim Ltd

            15                                Cheque received from vignesh                                                           Rs. 1000

1. Prepare Trading account of Mr. A for the year ending 31-12-06.

                                                                       

Rs.

Opening stock                                                 80000

Purchases                                                        860000

Freight inward                                                52000

Wages                                                             24000

Sales                                                                1440000

Purchases returns                                           10000

Sales returns                                                    316000

Closing stock                                                  100000

Import duty                                                     30000

2. Prepare profit & loss a/c of Mr.Raj

Rs.

Gross profit                                                     55000

Carriage on sales                                 500

Office rent                                                      500

General expenses                                900

Discount                                                          360

Interest from bank                              200

Travelling expenses                             700

Salaries                                                            900

Commission                                                    300

Repairs                                                            500

Telephone expenses                            520

Interest (DR)                                                   480

Fire insurance premium                       900

Bad debts                                                        2100

Apprentice premium (cr)                     1500

Printing & Stationery                          2500

Trade expenses                                    300

3. Prepare Balance sheet

Dr                                Cr

Rs.                               Rs.

Capital                                                                                                                         100000

Closing stock                                                                          40000

Fixed assets less dep 16000                                                    72000

Sundry debtors                                                                       100000           

Provision for bad debts                                                                                               5000

P&L a/c                                                                                                                       42000

Sundry creditors                                                                     80000

Liabilities for expenses                                                           11000

Drawings                                                                                 6000

Cash & Bank                                                                           20000

                                                                                                238000                        238000

4. Prepare manufacturing & trading a/c

                                                                                                                        Rs.

Opening stock:

                                    Raw materials                                                             20000

                                    Work – in – progress                                                   3000

                                    Finished goods                                                            10800

Purchase of Raw materials                                                      50000

Sales                                                                                                                240000

Fuel & Coal                                                                          1000

Wages                                                                                                             32000

Factory Expenses                                                                    40000

Office expenses                                                                      30000

Depreciation on Plant & Machinery                                         3000

Closing stock:

                                    Raw materials                                                             20000

                                    Work – in – progress                                                   4000

                                    Finished goods                                                            8000

5. Prepare final accounts for the year ended 31-12-1995

                                    Capital                         50000              Sales                            301000

                                    Bank OD                     8400                Return inwards           5000

                                    Furniture                     5200                Discount (Cr.)             800

                                    Business premises       40000              Taxes & insurance       4000

                                    Creditors                     26600              General expenses        8000

                                    Opening stock             44000              Salaries                        18000

                                    Debtors                       36000              Commission allowed   4400

                                    Rent from tenants       2000                Carriage on purchases 3600

                                    Purchases                    220000            Provision For Doubtful

Debts                           1000

Bad debts written off 1600

Adjustments:

1.                  Stock on hand on 31-12-1995 was estimated as Rs. 40120

2.                  Write off Depreciation on business premises Rs. 600 and furniture Rs. 520

3.                  Make a provision of 5% on debtors for Bad & doubtful debts

4.                  Allow interest on capital at 5% and carry forward Rs. 1400 for unexpired insurance.

                                                                                                                                                    6. Prepare final accounts of Mr. kumar for the year ended 31-12-1994                                                                                                      

Particulars	Debit (Rs.)	Credit (Rs.)
Debtors	52000
Creditors		22000
Cash in hand	2392
Furniture	3500
Motor car	22000
Purchases	145000
Sales		292000
Sales returns	2600
Salaries	8420
Opening stock	11400
Motor car expenses	6108
Rent, rates & taxes	3600
Insurance premium paid on 1st oct 94	2400
Cash at bank	6200
Machinery	24000
Wages	23600
General expenses	2680
Carriage inward	2040
Carriage outward	1630
Fuel & Power	6430
Capital	20000
Drawings	8000

Adjustments:

1.      Closing stock Rs. 35000

2.      Goods worth Rs.2000 were distributed as free samples

3.      Rs. 1000 paid for installation of machinery was debited to wages

4.      Write off further bad debts Rs. 2000 & make a provision for doubtful debts @ 5% on debtors

5.      Depreciate furniture & machinery by 10% & motor car by 20%

6.      Commission of Rs. 3600 has been earned but not received till end of accounting year

7.      Rs. 2000 is to be transferred to Reserve fund out of profit.