Types of Errors-All errors may be classified into the following two categories-
1. Errors affecting Trial Balance means one sided errors
2. Errors not affecting Trial Balance means double sided errors
1. Errors affecting Trial Balance means one sided errors-
If the Trial Balance does not tally, it will indicate that certain errors have been committed which have affected the agreement of the Trial Balance. The accountant will then proceed to find out the Errors and ultimately the errors will be located. Such errors are called Errors Disclosed by Trial Balance.
1. Wrong Casting- If the total of the Cash book or some other Subsidiary Book is wrong; the Trail Balance will not tally. For example, the total of the purchase Book has been added Rs. 1,000 in excess. When this total will be posted to the debit side of the purchase account, it will also show an excess debit of Rs 1,000 and Trial Balance will not tally.
2. Posting to the Wrong side- If instead of posting an amount on the debit side of an account, it is posted on the credit side or vice versa, the Trial Balance will not tally. For example, goods for Rs 2,000 have been purchased from Gopal. If instead of posting the amount on the credit side of Gopal account it is posted to his debit, the debit side of the Trial Balance will exceed the credit by Rs 4,000.
3. Posting of Wrong Amount- The Trial Balance will not tally if the posting in an account is made with an incorrect amount. For example, goods for Rs 600 have been purchased from Mahendra. If it has been correctly entered in the Purchase Book but while posting To Mahendra credit, the amount posted is Rs 60 instead of Rs 600, the Trial Balance will not tally
4. Omission of Posting of One Side of an Entry- For Example, if Rs 500 have been received from Ram and correctly entered in the Cash Book, but if it is omitted to be posted on the credit side of Rams account, the Trial Balance will not tally.
5. Double Posting in a Single Account- For example, if Rs 500 have been received from Shyam Lal and correctly entered in the Cash Book, but if it posted twice on the credit side of Shyam Lal account, the Trial Balance will not tally.
2. Errors not affecting Trial Balance means double sided errors-
Main objective of preparing a Trial Balance is to check the accuracy of the accounts. However, the equality of debit and credit of the Trial Balance does not mean that there are absolutely no errors in the books of accounts. There may be a number of errors which may remain undetected in spite of the agreement of a Trial Balance. As such it is true to say that Trial Balance is not a conclusive proof of the accuracy of the books of accounts. There are certain errors which do not affect the agreement of the Trial Balance. Such errors are called limitations of Trial Balance. These may be discussed as below—
1. Errors of Omission- If a transaction remains altogether unrecorded either in the journal or in subsidiary Books, it will be termed as an error of omission. Such an error will not affect the agreement of a trial balanceas neither the transaction has been entered on the debit side of an account nor on the credit side of any other account.For example suppose goods for rs 2,000 have been sold to Ram on credit and the transaction was omitted to be recorded in the books. The omission will not effect the trial balance.
2. Errors of Commission- If a Wrong amount is entered either in the Journal or in the Susidiary Books, the trial balance will tally because the same amount will be posted in both the account affected by the transaction. For example. sale of goods to Ram on credit for Rs 420 has been entered in the journal as Rs 240. When the entry is posted to Ledgr, Double Entry will be completed with Rs 240, Ram being debited with Rs 240, and sales account being credited with rs 240.
3. Compensating Errors- If the effect of one error is neutralised by the effect of some other error, such errors are called compensating errors. For example, while posting on the debit side of Anil account, Rs 50 are posted istead of Rs 500 and while posting on the debit side of Sunil account Rs 500 are posted instead of Rs 50. These two mistakes will not effect the trial balance.
4. Errors of Principle- When some fundamental principle of Accountancy is violated while recording a transaction the error is termed as error of principle. These errors are committed in those cases where a proper distinction between capital and revenue items is not made.
Financial Statements
Thursday, February 19, 2009
Wednesday, February 18, 2009
Accounting Standards
Accounting Standards
Accounting is an information system and its main aim is to provide financial information to a number of parties such as investors, management, creditors, Government etc. Such information is provided through a set of financial statements namely, profit and loss account and balance sheet. The set of financial statements of enterprises should depict a true and fair view of its operating results and financial position. However that constitutes true and fair view has not been defined either in the companies act, 1956 or in any other statute. Over a period of time a number of Generally Accepted Accounting Principles GAAP in the form of concepts and conventions have been developed and accepted to bring comparability and uniformity in the financial statements of various business entities, But the difficulty is that GAAPalso allow a large number of alternative treatment for the same item. Different organization adopts different policies for same transaction or an enterprise may follow different accounting policies for the same item over different accounting period. As a result the financial statements become inconsistent and incomparable. Hence there is an urgent need to standardize these diverse accounting policies. The International Accounting Standards Committee came into existence on 29th june, 1973 to develop accounting standards. The ICAI and ICWAI of India is associate member of the IASC.
Concepts of Accounting Standards- Accounting standards may be defined as written statements issued from time to time by institutions of accounting professionals, specifying uniform rules or practices for drawing the financial statements
Kohler- defines accounting standards as a mode of conduct imposed on accountants by custom, law or professional body.
Nature of accounting standards-
1. Accounting standards lay down the norms of accounting policies and practices by way of codes to direct as to how the transaction and events should be dealt with in accounts and disclosed in the financial statements.
2. In this way they remove the effect of diverse accounting practices and policies so that financial statement of different business units becomes comparable.
3. They prescribe a preferred accounting treatment from the available set of methods for solving one or more accounting problems.
4. They provide information to the users of financial statements as to the basis on which such statement have been prepared.
Accounting standards specified by the Institute of chartered Accountants under section 211 of the Act 1956-
Section 211 of the companies Act 1956 as amended recently, requires that the profit and loss account and balance sheet of a company shall comply with the accounting standards. For this purpose, the expression accounting standards means the standards of accounting recommended by the Institute Chartered Accounts of India as may be prescribed by the central government.
As on 1st April 2008 there are 29 accounting standards specified by the Institute, compliance of all of which is Mandatory for companies. The following is the list o these standards.
1. AS1, disclosure of Accounting policies
2. AS 2, Valuation of Inventories
3. AS 3, Cash Flow Statement
4. AS 4, Contingencies and Event Occurring after the Balance Sheet
5. AS 5, Net profit or Loss for the period, prior period Items and Changes in Accounting Policies
6. AS 6, Depreciation Accounting
7. AS 7, Accounting for Construction Contracts
8. AS 8, Accounting for Research and Development
9. AS 9, Revenue Recognition
10. AS 10. Accounting for Fixed Assets
11. AS 11, Accounting for the effect of Changes in Foreign Exchange Rates
12. AS 12, Accounting for Government Grants
13. AS 13, Accounting for Investment
14. AS 14, Accounting for Amalgamation
15. AS 15, Treatment of Employee Benefit Schemes in the Financial Statement of Employee.
16. AS 16, Borrowing Costs
17. AS 17, Segment Reporting
18. AS 18, Related party Disclosure
19. AS 19, Lease
20. AS 20, Earning per Share
21. AS 21, Consolidated Financial Statement
22. AS 22, Accounting for Tax and Income
23. AS 23, Accounting for Investment in Association in consolidated Financial Statement.
24. AS 24, Discontinued Operation
25. AS 25, Interim Financial Reporting
26. AS 26, Intangible Assets
27. AS 27, Financial Reporting of Interest in Joint Ventures
28, AS 28, Impairment of Asset
29. AS 29, Provision, Contingent Liabilities and Contingent Asset.
Accounting is an information system and its main aim is to provide financial information to a number of parties such as investors, management, creditors, Government etc. Such information is provided through a set of financial statements namely, profit and loss account and balance sheet. The set of financial statements of enterprises should depict a true and fair view of its operating results and financial position. However that constitutes true and fair view has not been defined either in the companies act, 1956 or in any other statute. Over a period of time a number of Generally Accepted Accounting Principles GAAP in the form of concepts and conventions have been developed and accepted to bring comparability and uniformity in the financial statements of various business entities, But the difficulty is that GAAPalso allow a large number of alternative treatment for the same item. Different organization adopts different policies for same transaction or an enterprise may follow different accounting policies for the same item over different accounting period. As a result the financial statements become inconsistent and incomparable. Hence there is an urgent need to standardize these diverse accounting policies. The International Accounting Standards Committee came into existence on 29th june, 1973 to develop accounting standards. The ICAI and ICWAI of India is associate member of the IASC.
Concepts of Accounting Standards- Accounting standards may be defined as written statements issued from time to time by institutions of accounting professionals, specifying uniform rules or practices for drawing the financial statements
Kohler- defines accounting standards as a mode of conduct imposed on accountants by custom, law or professional body.
Nature of accounting standards-
1. Accounting standards lay down the norms of accounting policies and practices by way of codes to direct as to how the transaction and events should be dealt with in accounts and disclosed in the financial statements.
2. In this way they remove the effect of diverse accounting practices and policies so that financial statement of different business units becomes comparable.
3. They prescribe a preferred accounting treatment from the available set of methods for solving one or more accounting problems.
4. They provide information to the users of financial statements as to the basis on which such statement have been prepared.
Accounting standards specified by the Institute of chartered Accountants under section 211 of the Act 1956-
Section 211 of the companies Act 1956 as amended recently, requires that the profit and loss account and balance sheet of a company shall comply with the accounting standards. For this purpose, the expression accounting standards means the standards of accounting recommended by the Institute Chartered Accounts of India as may be prescribed by the central government.
As on 1st April 2008 there are 29 accounting standards specified by the Institute, compliance of all of which is Mandatory for companies. The following is the list o these standards.
1. AS1, disclosure of Accounting policies
2. AS 2, Valuation of Inventories
3. AS 3, Cash Flow Statement
4. AS 4, Contingencies and Event Occurring after the Balance Sheet
5. AS 5, Net profit or Loss for the period, prior period Items and Changes in Accounting Policies
6. AS 6, Depreciation Accounting
7. AS 7, Accounting for Construction Contracts
8. AS 8, Accounting for Research and Development
9. AS 9, Revenue Recognition
10. AS 10. Accounting for Fixed Assets
11. AS 11, Accounting for the effect of Changes in Foreign Exchange Rates
12. AS 12, Accounting for Government Grants
13. AS 13, Accounting for Investment
14. AS 14, Accounting for Amalgamation
15. AS 15, Treatment of Employee Benefit Schemes in the Financial Statement of Employee.
16. AS 16, Borrowing Costs
17. AS 17, Segment Reporting
18. AS 18, Related party Disclosure
19. AS 19, Lease
20. AS 20, Earning per Share
21. AS 21, Consolidated Financial Statement
22. AS 22, Accounting for Tax and Income
23. AS 23, Accounting for Investment in Association in consolidated Financial Statement.
24. AS 24, Discontinued Operation
25. AS 25, Interim Financial Reporting
26. AS 26, Intangible Assets
27. AS 27, Financial Reporting of Interest in Joint Ventures
28, AS 28, Impairment of Asset
29. AS 29, Provision, Contingent Liabilities and Contingent Asset.
Concepts of account and types of account
MEANING OF ACCOUNT
An account is a summary of the relevant transaction at one place relating to a particular head. It records not only the amount of transaction but effect also.
CLASSIFICATION OF ACCOUNT
The classification of account according to the Traditional Approach is given below
TYPES OF ACCOUNT
a. PERSONAL ACCOUNT
1. Natural person 2. Artificial person 3. Representative personal account
b. IMPERSONAL ACCOUNT
1. Real Account 2. Nominal Account
a. Personal Account- These accounts relate to natural person, artificial person
And representative person.
Natural person means all human beings like – Rams a/c, Shyams a/c
Artificial person – means a person who is not human beings but act as a human beings like- bank name, college name, and organizational name.
Representative person mans to represents particular group like- outstanding salary, prepaid rent
b. IMPERSONAL ACCOUNT
1. Real Account- means those account which has a monetary value or it can be measured in terms of money like all assets, or example- land, plant and machinery, cash in hand etc.
2. Nominal Account- means all expenses and losses, and al income and profit account are coming in Nominal Account. For example wages paid, salary paid tax paid etc.
RULES OF DEBIT AND CREDIT
I. Personal Account
Debit the Receiver
Credit the giver
II. Real Account
Debit what comes in
Credit what goes out
III. Nominal Account
Debit all expenses and losses
Credit all income and profit
Meaning of Accounting-
Traditional Definition
Accounting is the art of recording, classifying, and summarizing in a significant manner and in terms of money, transaction and events which are, in part at least, of a financial character, and interpreting the results there of.AICPA
Modern Definition
The dimension of accounting is much broader than that described above. A widely accepted definition of accounting is given by the American Accounting Association in 1966 which treated accounting as the process of identifying, measuring and communicating economic information to permit informed judgments and decision by the users of accounting information.AAA1966
Meaning of Accountancy
Accountancy refers to systematic knowledge of accounting. It explains how and why all accounting transaction is recorded. It also tells us in what way the accounting information communicate to interested parties.
Meaning of Book Keeping- It is mainly concerned with record keeping of books of accounts. The maintenance of books of account includes the following four activities.
i. Identifying the transactions of financial nature from amongst the various transactions
ii. Measuring the identified transactions in terms of money
iii. Recording the identified transactions in the books of original entry
An account is a summary of the relevant transaction at one place relating to a particular head. It records not only the amount of transaction but effect also.
CLASSIFICATION OF ACCOUNT
The classification of account according to the Traditional Approach is given below
TYPES OF ACCOUNT
a. PERSONAL ACCOUNT
1. Natural person 2. Artificial person 3. Representative personal account
b. IMPERSONAL ACCOUNT
1. Real Account 2. Nominal Account
a. Personal Account- These accounts relate to natural person, artificial person
And representative person.
Natural person means all human beings like – Rams a/c, Shyams a/c
Artificial person – means a person who is not human beings but act as a human beings like- bank name, college name, and organizational name.
Representative person mans to represents particular group like- outstanding salary, prepaid rent
b. IMPERSONAL ACCOUNT
1. Real Account- means those account which has a monetary value or it can be measured in terms of money like all assets, or example- land, plant and machinery, cash in hand etc.
2. Nominal Account- means all expenses and losses, and al income and profit account are coming in Nominal Account. For example wages paid, salary paid tax paid etc.
RULES OF DEBIT AND CREDIT
I. Personal Account
Debit the Receiver
Credit the giver
II. Real Account
Debit what comes in
Credit what goes out
III. Nominal Account
Debit all expenses and losses
Credit all income and profit
Meaning of Accounting-
Traditional Definition
Accounting is the art of recording, classifying, and summarizing in a significant manner and in terms of money, transaction and events which are, in part at least, of a financial character, and interpreting the results there of.AICPA
Modern Definition
The dimension of accounting is much broader than that described above. A widely accepted definition of accounting is given by the American Accounting Association in 1966 which treated accounting as the process of identifying, measuring and communicating economic information to permit informed judgments and decision by the users of accounting information.AAA1966
Meaning of Accountancy
Accountancy refers to systematic knowledge of accounting. It explains how and why all accounting transaction is recorded. It also tells us in what way the accounting information communicate to interested parties.
Meaning of Book Keeping- It is mainly concerned with record keeping of books of accounts. The maintenance of books of account includes the following four activities.
i. Identifying the transactions of financial nature from amongst the various transactions
ii. Measuring the identified transactions in terms of money
iii. Recording the identified transactions in the books of original entry
Thursday, February 5, 2009
Accounting Concepts / principle and Convention
Basic principles of accounting are essentially, the generated decision rules which govern the development of accounting techniques. These Priniples guide how transaction should be recorded
There are eight types of Concepts Principle, which are following
1.Business Entity Concepts
2.Money Measurement Concepts
3.Perioditicty Concepts
4.Dual Aspects Concepts
5.Going Concern Concepts
6.Accrual Concepts
7.Matching Concepts
8.Cost Concepts
Accounting Conventions
1. Convention of Full Disclosure
2. Convention of Consistency
3. Convention of Conservatism
4. Convention of ateriality
Concepts
1. Business Entity Concepts- Acoording to this concept, business is treated as a unit separate and distinct from its owners, creditors, managers and others. In other words the owner of a business is always considered as distinct and seperate from the business owns. Because of the concept of seperate entity, the proprietor house, his personal investment in seurities, his personal car and personal income and expenditure are kept separate from the accounts of the business entity.
2. Money Measurement Concepts- Only those transaction and events are recorded in accounting ware capableof being expresses in terms of money. for example, accounting does not record a quarrel between the production manager and sales manager. so these event cannot be expressed in money terms and thus are not recorded in the books.
3. Perioditity Concepts- As the business is intended to continue for a long period, the result of the business operation can be ascertained only when the business is completely wound up.The users the financial statement need to know the result of business at time. Thus the entire life of the firm is divided into time intervals for the measurement of the profits of the business.
4. Dual Aspects- According to this concept every business transaction is recorded as having a dual aspect. In other words, every transaction affects atleast two accounts. If one account is debited, then other account must be credited. The system of recording transaction based on this concept is called as Double Entry System. It is because of this principle that the two side of the Balance Sheet are always equal and the following accouting equation are
Assets = Liabilities plus Capital
Capital= Assets minus Liabilities
5. Going Concern Concept- As per this concept it is assumed that the business will continue to exist for a long period in the future. The transaction are recorded in the books of the business on the assumption that it is a continue enterprise.It is also because of the going concern concept that outside parties enter into long term contract with the enterprise, give loans and purhase the debentures and shares of the entreprise. For example, if Machinery purchased for 10 years it means it gives the net profit or loss for next 10 year for an entreprise.
6. Accrual Concepts-In acounting accrual basis is used for recording of transation. It provides more appropriate information about the performance of business enterprises as compared to cash basis. Accrual concepts applies equally to revenue and expenses. In accrual concept revenue is recorded when sales are made or services are rendered and it is immaterial whether cash is received or not.
7. Matching concepts-This concepts is very important for correct determination of net profit. According to this concept in determining the net profit from business operations, all cost which are applicable to revenue of the period should be charged against that revenue. According for matching costs with revenue firm revenues should be recognised and then costs incurred for generating that revenue should be recognised. For example when an item of revenue is included in the profit and loss account all expenses incurred on it, whether paid or not should be shown as expenses in the profit and loss account. On the basis of this principle outstanding expenses, though not paid in cash ar shown in the profit and loss account.
8. Cost Concept- According to this concept an asset is ordinarily recorded in the books of account at the prie at which it was acquired. This cost becomes the basis of all subsequent accounting for the asset. since the acquisition cost relates to the past, it is referred to as historical cost. This cost is the basis of valuiation of the asset in the financial asset. for example if building purchased for Rs 5,00,000 it would be recorded in the books at this figure.
Convention- An accounting convention may be defined as a custom or generally accepted practices which is adopted either by general agreement or common consent among accountants. Accounting Conventions differ from concepts in respect to the following-
i. Accounting concepts are established by law while accounting convention are guidelines based upon custom or general agreement.
ii. There is no role of personal judgment or individual in the adoption of accounting concepts whereas they may play a crucial role in following accounting conventions
iii. There is uniform adoption of accounting concepts in different enterprises while it may not be so in case of accounting conventions
Following are the main accounting convention-
1. Convention of full disclosure- This principle requires that all significant information relating to the economic affairs of the enterprise should be completely disclosed. In other words there should be a sufficient disclosure of information which is of material interest to the users of the financial statement such as proprietors, present and potential creditors, investors and others.
2. Contingent Liabilities- For example a claim of very big sum pending in a court of law against the enterprises should be brought to the notice of the users of the financial statement otherwise the statement would be misleading.
If there is a change in the method of valuation of stock, or for providing depreciation or in making provision for doubtful debts, it should be disclosed in the balance sheet by way of a footnote.
3. Convention of Consistency- This convention states that accounting principles and method should remain consistent from year to year to another. These should not be changed from year to year in order to enable the management to compare the profit and loss account and balance sheet. Of the different period and draw important conclusions about the working of the enterprise. If a firm adopts different accounting principles in two accounting period, the profit of current period will not be comparable with the profit of the preceding period. For example a firm can choose any one of the several methods of depreciation like SLM method and WWDV method, but it is expected that if one method once choose then never change year after year
4. Convention of conservatism- According to this convention all anticipated losses should be recorded in the books of account, but all anticipated or unrealized gains should be ignored. In other words Conservatism is the policy of playing safe. Provision is made for all known liabilities and losses even though the amount cannot be determined with certainty. For example closing stock is valued at cost price or realizable value whichever less is. Provision for doubtful debts is created in anticipation of actual bad debts
There are eight types of Concepts Principle, which are following
1.Business Entity Concepts
2.Money Measurement Concepts
3.Perioditicty Concepts
4.Dual Aspects Concepts
5.Going Concern Concepts
6.Accrual Concepts
7.Matching Concepts
8.Cost Concepts
Accounting Conventions
1. Convention of Full Disclosure
2. Convention of Consistency
3. Convention of Conservatism
4. Convention of ateriality
Concepts
1. Business Entity Concepts- Acoording to this concept, business is treated as a unit separate and distinct from its owners, creditors, managers and others. In other words the owner of a business is always considered as distinct and seperate from the business owns. Because of the concept of seperate entity, the proprietor house, his personal investment in seurities, his personal car and personal income and expenditure are kept separate from the accounts of the business entity.
2. Money Measurement Concepts- Only those transaction and events are recorded in accounting ware capableof being expresses in terms of money. for example, accounting does not record a quarrel between the production manager and sales manager. so these event cannot be expressed in money terms and thus are not recorded in the books.
3. Perioditity Concepts- As the business is intended to continue for a long period, the result of the business operation can be ascertained only when the business is completely wound up.The users the financial statement need to know the result of business at time. Thus the entire life of the firm is divided into time intervals for the measurement of the profits of the business.
4. Dual Aspects- According to this concept every business transaction is recorded as having a dual aspect. In other words, every transaction affects atleast two accounts. If one account is debited, then other account must be credited. The system of recording transaction based on this concept is called as Double Entry System. It is because of this principle that the two side of the Balance Sheet are always equal and the following accouting equation are
Assets = Liabilities plus Capital
Capital= Assets minus Liabilities
5. Going Concern Concept- As per this concept it is assumed that the business will continue to exist for a long period in the future. The transaction are recorded in the books of the business on the assumption that it is a continue enterprise.It is also because of the going concern concept that outside parties enter into long term contract with the enterprise, give loans and purhase the debentures and shares of the entreprise. For example, if Machinery purchased for 10 years it means it gives the net profit or loss for next 10 year for an entreprise.
6. Accrual Concepts-In acounting accrual basis is used for recording of transation. It provides more appropriate information about the performance of business enterprises as compared to cash basis. Accrual concepts applies equally to revenue and expenses. In accrual concept revenue is recorded when sales are made or services are rendered and it is immaterial whether cash is received or not.
7. Matching concepts-This concepts is very important for correct determination of net profit. According to this concept in determining the net profit from business operations, all cost which are applicable to revenue of the period should be charged against that revenue. According for matching costs with revenue firm revenues should be recognised and then costs incurred for generating that revenue should be recognised. For example when an item of revenue is included in the profit and loss account all expenses incurred on it, whether paid or not should be shown as expenses in the profit and loss account. On the basis of this principle outstanding expenses, though not paid in cash ar shown in the profit and loss account.
8. Cost Concept- According to this concept an asset is ordinarily recorded in the books of account at the prie at which it was acquired. This cost becomes the basis of all subsequent accounting for the asset. since the acquisition cost relates to the past, it is referred to as historical cost. This cost is the basis of valuiation of the asset in the financial asset. for example if building purchased for Rs 5,00,000 it would be recorded in the books at this figure.
Convention- An accounting convention may be defined as a custom or generally accepted practices which is adopted either by general agreement or common consent among accountants. Accounting Conventions differ from concepts in respect to the following-
i. Accounting concepts are established by law while accounting convention are guidelines based upon custom or general agreement.
ii. There is no role of personal judgment or individual in the adoption of accounting concepts whereas they may play a crucial role in following accounting conventions
iii. There is uniform adoption of accounting concepts in different enterprises while it may not be so in case of accounting conventions
Following are the main accounting convention-
1. Convention of full disclosure- This principle requires that all significant information relating to the economic affairs of the enterprise should be completely disclosed. In other words there should be a sufficient disclosure of information which is of material interest to the users of the financial statement such as proprietors, present and potential creditors, investors and others.
2. Contingent Liabilities- For example a claim of very big sum pending in a court of law against the enterprises should be brought to the notice of the users of the financial statement otherwise the statement would be misleading.
If there is a change in the method of valuation of stock, or for providing depreciation or in making provision for doubtful debts, it should be disclosed in the balance sheet by way of a footnote.
3. Convention of Consistency- This convention states that accounting principles and method should remain consistent from year to year to another. These should not be changed from year to year in order to enable the management to compare the profit and loss account and balance sheet. Of the different period and draw important conclusions about the working of the enterprise. If a firm adopts different accounting principles in two accounting period, the profit of current period will not be comparable with the profit of the preceding period. For example a firm can choose any one of the several methods of depreciation like SLM method and WWDV method, but it is expected that if one method once choose then never change year after year
4. Convention of conservatism- According to this convention all anticipated losses should be recorded in the books of account, but all anticipated or unrealized gains should be ignored. In other words Conservatism is the policy of playing safe. Provision is made for all known liabilities and losses even though the amount cannot be determined with certainty. For example closing stock is valued at cost price or realizable value whichever less is. Provision for doubtful debts is created in anticipation of actual bad debts
Question bank for IMBA I Semester
Introduction to Business Accounting-IMBA 1 Semester
Question Bank
Q.1 “Accounting is the language of business” explain the statement and give appropriate support to your answer.
Q.2 Define the following accounting terms with suitable examples:
Current Assets, Bad Debts
Liabilities Current, Liabilities Prepaid Expenses
Capital Stock/, Inventory B/P
Cash Profit, B/R
O/S Expenses, Cash Discount Drawings Accrued Income
Depreciation, Journal
Trade Discount, Debtors
Goodwill, Bank Overdraft
Q.3 Though Trial Balance is prepared to check arithmetical accuracy of books of accounts; sometimes it does not reveal the errors. What are those errors, explain each in brief?
Q.4 What are the different types of accounts under Double Entry System? Explain golden rules of accounting with the help of suitable examples.
Q.5 Write shorts on the following:
1. Functions of accounting 2. Separate Entity/Business Entity Concept
3. Objectives of accounting 4. Rules of Debit and Credit
5. Convention of Conservatism 6. Periodic Matching Concept
Q.6 Distinguish between the following:
Fixed and Current Assets 4. Long term and Short term liabilities.
Receivables and Payables 5. Trade Discount and Cash Discount
Cash Account and Cash Book
Q.7 Describe the different types of cashbook.
Q.8 Classify the following under Personal, Real, and Nominal Account:
Drawings A/c, Outstanding Rent A/c, Bank A/c
Sales Return A/c, Furniture A/c, Purchase Account
Machinery A/c, Capital A/c, Cash A/c, O/S Salary A/c,
Q. 9 What is Journal and Journalizing? On what principles does double entry accounting rest?
Q. 12 How are the entries contained in the sub-divisions of the journal of the sole trading concern? Mention some of the examples of such entries.
Q. 13 What do you mean by “Posting and Balancing”? What types of entries are usually to be found in trial balance? Give a few such examples?
Q. 14 What are the benefits of recording transactions in Journal? Describe the sub-division of journal in detail.
Q.15 What do you mean by accounting concepts and conventions. Discuss in Detail.
Q.16 Discuss the Advantage and Limitations of Accounting.
Q.17 Draw a specimen of , Trial Balance, Trading A/c, Profit & Loss A/c and Balance Sheet.
Q.18 Discuss various activities/functions of accounting.
Q.19 What is Accounting Cycle. List up the various parties interested in accounting information. What is the purpose of various parties to collect this information?
Q. 20 What is Journal. Discuss the advantages and its preparation.
Q. 21 How will you locate errors in a Trial Balance.
Q. 22 What is accounting cycle Discuss with the help of suitable examples.
Q. 23 What do you mean by Ledger? Describe subdivision of Ledger and Mechanics of Posting.
Q. 24 What are the different types of Subsidiary Books of Accounting. Discuss the meaning and use of any two in detail.
Q. 25 What are the objectives of making Trial Balance? How would you locate errors?
Practical Questions for Practice
Q. 26 Journalise the following transactions:
Goods worth Rs. 10,000 given as Charity.
Received cash from bad debts written off Rs. 3000
Bought goods from Mohan for cash of Rs. 50,000
Paid Rent to Ram Rs. 12,000
Withdrawn Rs. 10,000 from bank by proprietor for personal use.
Paid Rs. 450 in full settlement of B’s Account for Rs. 500.
Q. 27 Record the following transaction in Journal:
1. Goods sold on Credit to Harish of Rs. 20,000
2. Goods purchased on 10% Trade Discount on list price 30,000
3. Payment Received from Harish Rs. 10,000
4. Goods sold for Cash Rs. 50,000 on Trade Discount 10% and 5 % Cash Discount
5. Harish declared insolvent and 30% of the total amount due from him was recovered.
6. O/S Salary for the present year Rs. 5000.
7. Prepaid Insurance Rs. 3,000
8. Harish Paid an amount of Rs. 2500.
Q.28 Prepare Journal Entries of the Following:
1. Bought goods from Kailash for Rs. 20,000 at a trade discount of 10% and cash discount of 2%. Paid 60% of the amount immediately.
2. Cash deposited into Bank Rs. 10,000
3. Received a cheque from Mohan Rs. 2,000
4. The cheque received from Mohan deposited into Bank.
5. Cash Sales of Rs. 15,000. Out of Which Rs. 10,000 immediately deposited into Bank.
6. Old newspapers sold for Rs. 50. Furniture sold for Rs. 1,000
7. Paid Rent Rs. 800, Trade Expenses Rs. 700 and Traveling Expenses Rs. 300.
8. Goods purchased from sunil Rs. 10,000
9. Paid Rs. 9,500 to Sunil in the full settlement.
10. Purchased good from Brij Mohan Rs. 20,000 list price at 15% discount.
11. Goods return to Brij Mohan of the list price of Rs. 2,000
12. Settled the account of Brij Mohan by paying cash with a discount of Rs. 4%.
13. Purchased goods from Anil Rs. 5,000.
14. Paid to Anil Rs. 1900 and Received discount Rs. 100.
15. Proprietor Withdrew for his personal use cash Rs. 2,000 and goods worth Rs. 3,000.
16. Goods worth Rs. 25,00 were distributed as free samples.
17. Goods of Rs. 2,000 and Cash Rs. 15,00 stolen by an employee.
18. Goods of Rs. 10,000 Destroyed by Fire.
19. Goods sold for cash to a customer Rs. 5,000 and collected 10% Sales Tax on it.
20. Purchase an Iron Safe of Rs. 12,000 for Business.
21. Purchase a Horse for Business Rs. 35,000
24. Paid Cash to Y on Behalf of X. Rs. 4,000
26. Borrowed from Bank Rs. 20,000
27. Provide Interest on Capital of Rs. 2,00,000 @ 8% p.a. from 1st April 2007 to 31st March 2008.
28. Purchase goods of Rs. 60,000 and paid Rs. 2,000 for carriage on these goods.
29. Purchase goods from Raghunath Brothers Rs. 18000 and paid carriage Rs. 1200 on this.
30. Received an order of goods for Rs. 1,25,000 from Sunil.
31. Sunil's Order was executed and cartage Rs. 3,000 was paid in this connection.
33. Goods worth 50,000 supplied to Ghanshyam against the order.
34. Paid interest on loan Rs. 1,000
35. Sold Goods and on Credit to X of Rs. 24,000
36. 1/6 of the goods Return by X.
37. Paid income tax Rs. 5,000 and Sales Tax Rs. 3,000.
38. Salaries Paid Rs. 8,000 and Salaries due Rs. 2,000.
39. Withdrawn goods by owner for personal use-Cost Price Rs. 800 Sales Price Rs. 1000.
40. Paid Rs. 300 for Subscribing Newspapers and Magazines.
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Question Bank
Q.1 “Accounting is the language of business” explain the statement and give appropriate support to your answer.
Q.2 Define the following accounting terms with suitable examples:
Current Assets, Bad Debts
Liabilities Current, Liabilities Prepaid Expenses
Capital Stock/, Inventory B/P
Cash Profit, B/R
O/S Expenses, Cash Discount Drawings Accrued Income
Depreciation, Journal
Trade Discount, Debtors
Goodwill, Bank Overdraft
Q.3 Though Trial Balance is prepared to check arithmetical accuracy of books of accounts; sometimes it does not reveal the errors. What are those errors, explain each in brief?
Q.4 What are the different types of accounts under Double Entry System? Explain golden rules of accounting with the help of suitable examples.
Q.5 Write shorts on the following:
1. Functions of accounting 2. Separate Entity/Business Entity Concept
3. Objectives of accounting 4. Rules of Debit and Credit
5. Convention of Conservatism 6. Periodic Matching Concept
Q.6 Distinguish between the following:
Fixed and Current Assets 4. Long term and Short term liabilities.
Receivables and Payables 5. Trade Discount and Cash Discount
Cash Account and Cash Book
Q.7 Describe the different types of cashbook.
Q.8 Classify the following under Personal, Real, and Nominal Account:
Drawings A/c, Outstanding Rent A/c, Bank A/c
Sales Return A/c, Furniture A/c, Purchase Account
Machinery A/c, Capital A/c, Cash A/c, O/S Salary A/c,
Q. 9 What is Journal and Journalizing? On what principles does double entry accounting rest?
Q. 12 How are the entries contained in the sub-divisions of the journal of the sole trading concern? Mention some of the examples of such entries.
Q. 13 What do you mean by “Posting and Balancing”? What types of entries are usually to be found in trial balance? Give a few such examples?
Q. 14 What are the benefits of recording transactions in Journal? Describe the sub-division of journal in detail.
Q.15 What do you mean by accounting concepts and conventions. Discuss in Detail.
Q.16 Discuss the Advantage and Limitations of Accounting.
Q.17 Draw a specimen of , Trial Balance, Trading A/c, Profit & Loss A/c and Balance Sheet.
Q.18 Discuss various activities/functions of accounting.
Q.19 What is Accounting Cycle. List up the various parties interested in accounting information. What is the purpose of various parties to collect this information?
Q. 20 What is Journal. Discuss the advantages and its preparation.
Q. 21 How will you locate errors in a Trial Balance.
Q. 22 What is accounting cycle Discuss with the help of suitable examples.
Q. 23 What do you mean by Ledger? Describe subdivision of Ledger and Mechanics of Posting.
Q. 24 What are the different types of Subsidiary Books of Accounting. Discuss the meaning and use of any two in detail.
Q. 25 What are the objectives of making Trial Balance? How would you locate errors?
Practical Questions for Practice
Q. 26 Journalise the following transactions:
Goods worth Rs. 10,000 given as Charity.
Received cash from bad debts written off Rs. 3000
Bought goods from Mohan for cash of Rs. 50,000
Paid Rent to Ram Rs. 12,000
Withdrawn Rs. 10,000 from bank by proprietor for personal use.
Paid Rs. 450 in full settlement of B’s Account for Rs. 500.
Q. 27 Record the following transaction in Journal:
1. Goods sold on Credit to Harish of Rs. 20,000
2. Goods purchased on 10% Trade Discount on list price 30,000
3. Payment Received from Harish Rs. 10,000
4. Goods sold for Cash Rs. 50,000 on Trade Discount 10% and 5 % Cash Discount
5. Harish declared insolvent and 30% of the total amount due from him was recovered.
6. O/S Salary for the present year Rs. 5000.
7. Prepaid Insurance Rs. 3,000
8. Harish Paid an amount of Rs. 2500.
Q.28 Prepare Journal Entries of the Following:
1. Bought goods from Kailash for Rs. 20,000 at a trade discount of 10% and cash discount of 2%. Paid 60% of the amount immediately.
2. Cash deposited into Bank Rs. 10,000
3. Received a cheque from Mohan Rs. 2,000
4. The cheque received from Mohan deposited into Bank.
5. Cash Sales of Rs. 15,000. Out of Which Rs. 10,000 immediately deposited into Bank.
6. Old newspapers sold for Rs. 50. Furniture sold for Rs. 1,000
7. Paid Rent Rs. 800, Trade Expenses Rs. 700 and Traveling Expenses Rs. 300.
8. Goods purchased from sunil Rs. 10,000
9. Paid Rs. 9,500 to Sunil in the full settlement.
10. Purchased good from Brij Mohan Rs. 20,000 list price at 15% discount.
11. Goods return to Brij Mohan of the list price of Rs. 2,000
12. Settled the account of Brij Mohan by paying cash with a discount of Rs. 4%.
13. Purchased goods from Anil Rs. 5,000.
14. Paid to Anil Rs. 1900 and Received discount Rs. 100.
15. Proprietor Withdrew for his personal use cash Rs. 2,000 and goods worth Rs. 3,000.
16. Goods worth Rs. 25,00 were distributed as free samples.
17. Goods of Rs. 2,000 and Cash Rs. 15,00 stolen by an employee.
18. Goods of Rs. 10,000 Destroyed by Fire.
19. Goods sold for cash to a customer Rs. 5,000 and collected 10% Sales Tax on it.
20. Purchase an Iron Safe of Rs. 12,000 for Business.
21. Purchase a Horse for Business Rs. 35,000
24. Paid Cash to Y on Behalf of X. Rs. 4,000
26. Borrowed from Bank Rs. 20,000
27. Provide Interest on Capital of Rs. 2,00,000 @ 8% p.a. from 1st April 2007 to 31st March 2008.
28. Purchase goods of Rs. 60,000 and paid Rs. 2,000 for carriage on these goods.
29. Purchase goods from Raghunath Brothers Rs. 18000 and paid carriage Rs. 1200 on this.
30. Received an order of goods for Rs. 1,25,000 from Sunil.
31. Sunil's Order was executed and cartage Rs. 3,000 was paid in this connection.
33. Goods worth 50,000 supplied to Ghanshyam against the order.
34. Paid interest on loan Rs. 1,000
35. Sold Goods and on Credit to X of Rs. 24,000
36. 1/6 of the goods Return by X.
37. Paid income tax Rs. 5,000 and Sales Tax Rs. 3,000.
38. Salaries Paid Rs. 8,000 and Salaries due Rs. 2,000.
39. Withdrawn goods by owner for personal use-Cost Price Rs. 800 Sales Price Rs. 1000.
40. Paid Rs. 300 for Subscribing Newspapers and Magazines.
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