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Accounting | Sem 1
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ACCOUNTING
ENCOMPASSESIDENTIFICATIONMEASURINGRECORDINGCLASSIFYINGSUMMARISINGANALYSINGI
NTERPRETINGCOMMUNICATING
Identifying the transactions and events: This is the first step of accounting process. It identifies the
transaction of financial character that is required to be recorded in the books of accounts. Transaction is
transfer of money or goods or services from one person or account to another person or account. Events
happen as a result of internal policies or external needs. Events of non financial character cannot be recorded
even though such events may have an impact on the operational results of the firm.
Measuring: This denotes expressing the value of business transactions and events in terms of money (in terms
of rupees in India).
Recording: It deals with recording of identifiable and measurable transactions and events in a systematic
manner in the books of original entry that are in accordance with the principles of accountancy.
Classifying: It deals with periodic grouping of transactions of similar nature that appear in the books of original
entry into appropriate heads by posting or transfer entries. For Eg: All purchases of goods made for cash or on
credit on different dates are brought to purchase account.
Summarizing: It deals with summarizing or condensing transactions in a manner useful to the users. This
function involves the preparation of financial statements such as income statement, balance sheet, statement of
changes in financial position and cash flow statement.
Analyzing: It deals with the establishment of relationship between the various items or group of items taken
from income statement or balance sheet or both. Its purpose is to identify the financial strengths and
weaknesses of the enterprise. The above six process in the present day scenario are generally performed using
software packages.
Interpreting: It deals with explaining the significance of those data in a manner that the end users of the
financial statement can make a meaningful judgment about the profitability and financial position of the
business. The accountants should interpret the statement in a manner useful to the users, so as to enable the
user to make reasoned decision out of the alternative course of action. They should explain various factors on
what has happened, why it happened, and what is likely to happen under specific conditions.
Communicating: It deals with communicating the analyzed and interpreted data in the form of financial reports/
statements to the users of financial information e.g. Profit and loss account, Balance Sheet, Cash flow and
Funds Flow statement, Auditors report etc.
Q.2. A. Bring out the difference between Indian GAAP and US GAAP
norms?
US GAAPINDIAN GAAPIt is established under FASB and AICPAIt is established under ICAI
Balance Sheet, Income Statement & Funds Flow Statement are mandatoryBalance Sheet and income
statement are alone mandatory
Any change in foreign exchange fluctuations cannot be capitalized but the difference can be shown or debited
to Income statementAny difference in foreign exchange can be capitalized.
Financial accounting, Management accounting and income tax accounting are prepared separatelyOnly
financial accounting and Income tax accounting are prepared.
Any long term loan repayable is the current financial year is shown separatelyLong term loans maturing in the
current financial year need not be disclosed separately
In lease contract, lessee is more beneficiary because he can claim depreciation allowanceIn lease contract,
lessor is eligible for depreciation allowance and not the lessee.
It is more transparent and accepted worldwide. More disclosure is requiredIt is comparatively less transparent.
For listing the securities in other country’s stock exchange USGAAP is mandatory
Yet, they are considered for the period 2005, when the sales revenue was earned
While preparing the final accounts adjustments are made for outstanding expenses, prepaid expenses,
outstanding income and income received in advance.
Q.3. Prove that the accounting equation is satisfied in all the following
transactions of Mr. X
50,000 = 0 + 50,000
(-) 1,000
(+) 1,000
New Equation 50,000 = 0 + 50,000
C
(-) 18,000
(+) 38,000 = 20,000 + 0
New Equation 70,000 = 20,000 + 50,000
D
(-) 22,000
(+) 25,000 = 0 + 3,000
New Equation 73,000 = 20,000 + 53,000
E
(-) 5,000 = (+) 3,000 + (-) 8,000
New Equation 68,000 = 23,000 + 45,000
F
Q.4. Following are the extracts from the Trial Balance of a firm as on 31st
March 20X7
Dr.Cr.Sundry Debtors2,05,000Provision for Doubtful Debts10,000Provision for Discount on debtors
1,800Bad Debts3,000Discount1,000Additional Information:
Required: Pass the necessary journal entries and show the relevant accounts including final account.
Ans.
DateParticularDr/CrAmountAmount31.03.20X7Bad Debt ------------A/c.
To, Sundry Debtors -------------A/c
(Being Additional bad debt written off)Dr
Cr4000
400031.03.20X7Discount Allowed ------------A/c.
To, Sundry Debtors----------------A/c
(Being Goods Purchased from X)Dr
Cr1000
100031.03.20X7Provision for Bad Debt ------------A/c.
To, Bad Debt --------------------------A/c
(Being bad debt written off against existing reserve)Dr
Cr7000
700031.03.20X7Profit & Loss - ------------A/c.
To, Provision for Bad Debt ----------------A/c
(Being Addition to provision for bad debts, to make new provision equal to 10% of Rs.2,00,000)Dr
Cr17000
1700031.03.20X7Provision for Discount on Debtors----------A/c.
To, Discount Allowed --------------------------A/c
(Being Goods Purchased from Z list price is Rs.30000 and trade discount is 10%)Dr
Cr2000
200031.03.20X7Profit & Loss - ------------A/c.
To, Provision for Discount on Debtors ---------------A/c
(Being Addition to provision for Discount, to make new provision equal to 2% of Rs.1,80,000)Dr
Cr3800
3800
Q.5 A. Bring out the difference between trade discount and cash discount.
B. Explain the term (1) assets (2) liability, with the help of examples.
Ans. A. Difference between trade discount and cash discount
Liability: It is a financial obligation of an enterprise arising from past event the settlement of which is expected
to result in an outflow of resources embodying economic benefit. E. g. Loans payable, salaries payable, term
loans.
Current liability: is that obligation which has to be satisfied within a year. For example, payment to be
made sundry creditors for the goods supplied by them on credit; bills payable accepted by the
businessman; overdraft raised by the businessman in a bank etc.
Equity: Equity is the residual interest in the asset of the enterprise after deducting all its liabilities. The
equity of a company is called shareholders’ equity. Its components include share capital, share
premium and retained earnings