Submitted to: Professor Muhammad Mansor Javid

Submitted by:
Maham Shoukat (17232720-101)
Iqra Zaineb (17232720-009)
Saba Yaqoob (17232720-111)
Asma Aziz (17232720-067)
Sufiyan Ali (17232720-055)
Mustafa Asad Dar (17232720-097)
Question no.1
Describe objects of accounting and explain important of accounting as a
language of business?
Importance of accounting:
An important part of any business or organization is, arguably, the money that comes in
and the money that goes out. The accounting department typically monitors this closely
by recording transactions, analyzing transaction patterns and dealing with things like
payroll and taxes.
Objectives of Accounting:
The following are the main objectives of accounting:
1. To maintain full and systematic records of business transactions:
Accounting is the language of business transactions. Given the limitations of human memory, the main
objective of accounting is to maintain ‘a full and systematic record of all business transactions.
2. To ascertain profit or loss of the business:
Business is run to earn profits. Whether the business earned profit or incurred loss is ascertained by
accounting by preparing Profit & Loss Account or Income Statement. A comparison of income and
expenditure gives either profit or loss.
3. To depict financial position of the business:
A businessman is also interested in ascertaining his financial position at the end of a given period. For this
purpose, a position statement called Balance Sheet is prepared in which assets and liabilities are shown.
Just as a doctor will feel the pulse of his patient and know whether he is enjoying good health or not, in the
same way by looking at the Balance Sheet one will know the financial health of an enterprise. If the assets
exceed liabilities, it is financially healthy, i.e., solvent. In the other case, it would be insolvent, i.e.,
financially weak.
4. To provide accounting information to the interested parties:
Apart from owner of the business enterprise, there are various parties who are interested in accounting
information. These are bankers, creditors, tax authorities, prospective investors, researchers, etc. Hence,
one of the objectives of accounting is to make the accounting information available to these interested
parties to enable them to take sound and realistic decisions. The accounting information is made available
to them in the form of annual report.

5.To provide information to the tax authorities:

Almost everyone who has income, above the prescribed limit, is liable to pay tax be it income tax or sales
tax. Tax authorities require regular, accurate and promote returns otherwise may be penalties financial
accounting enables the firm to send the required returns in time in case sales authority levy more tax
,business firn would be in a position to reduce the unnecessary tax liabilities by showing the supporting
accounting records.
6.To facilitate rational decision making:
Management can delegate any function but not decision making production ,sales ,purchase ,finance even
research and development can be delegated .

Question no.2
Distinguish the Following:
1. Book keeping and accounting.
2. Financial accounting and Managerial accounting.

Book keeping and Accounting:

BASIS FOR BOOKKEEPING ACCOUNTING
COMPARISON

Meaning Bookkeeping is an activity of recording Accounting is an orderly recording and

the financial transactions of the reporting of the financial affairs of an
company in a systematic manner. organization for a particular period.

What is it? It is the subset of accounting. It is regarded as the language of business.

Decision Making On the basis of bookkeeping records, Decisions can be taken on the basis of
decisions cannot be taken. accounting records.

Preparation of Not done in the bookkeeping process Part of Accounting Process

Financial Statements

Tools Journal and Ledgers Balance Sheet, Profit & Loss Account and
Cash Flow Statement

Methods / Sub-fields Single Entry System of Bookkeeping Financial Accounting, Cost Accounting,
and Double Entry System of Management Accounting, Human Resource
Bookkeeping Accounting, Social Responsibility
Accounting.

Determination of Bookkeeping does not reflect the Accounting clearly shows the financial
Financial Position financial position of an organization. position of the entity.
Difference Between financial accounting and managerial accounting:

BASIS FOR FINANCIAL ACCOUNTING MANAGEMENT ACCOUNTING

COMPARISON
Meaning Financial Accounting is an accounting
system that focuses on the preparation
of financial statement of an organization
to provide the financial information to
the interested parties.
The accounting system which provides
relevant information to the managers to
make policies, plans and strategies for
running the business effectively is known
as Management Accounting.

Is is compulsory? Yes No
Information Monetary information only. Monetary and non-monetary information
Objective To provide financial information to To assist the management in planning and
outsiders. decision making process by providing
detailed information on various matters.
Format Specified Not specified
Time Frame Financial Statements are prepared at the The reports are prepared as per the need
end of the accounting period which is and requirements of the organization.
usually one year.
User Internal and external parties Only internal management.
Reports Summarized Reports about the financial Complete and Detailed reports regarding
position of the organization various information.
Publishing and Required to be published and audited by Neither published nor audited by statutory
auditing statutory auditors auditors.

Question no.3
Explain the following the concept and assumptions with examples:
1. Business entity concept 2.Duality concept
3. Money measurement concept 4.Matching concept
5. Realization concept 6.Going concern assumption

1. Business entity concept

An accounting entity is an individual or organization or a section of an organization that stands apart
from other organizations and individuals as a separate economic unit. From an accounting perspective, there
are strict boundaries around each entity, it will help to evaluate periodically and economic decisions
made accordingly. An entity is assumed to own its assets and incur liabilities.
Following are the examples of entity concept in accounting

 · If a company issues $2,000.00 to its owners. It means reduction in equity and increase in the taxable
income of owner.
  · For example, if owner loans a $1,000 to business. This will be recorded as liability and payable to the
owner.
 · Suppose, the owner purchases a vehicle and rents to company for $1,500 a month, this is a valid
transaction in company records and taxable income to the owner.

2. Duality concept
The dual aspect concept states that every business transaction requires recordation in two different accounts.
This concept is the basis of double entry accounting, which is required by all accounting frameworks in
order to produce reliable financial statements. The concept is derived from the accounting equation, which
states that:
Assets = Liabilities + Equity
The accounting equation is made visible in the balance sheet, where the total amount of assets listed must
equal the total of all liabilities and equity. One part of most business transactions will have an impact in
some way on the balance sheet, so at least one part of every transaction will involve either assets, liabilities,
or equity. Here are several examples:

 · Issue an invoice to a customer. One part of the entry increases sales, which appears in the income
statement, while the offset to the entry increases the accounts receivable asset in the balance sheet. In
addition, the change in income triggered by the increase in sales appears in retained earnings, which
is part of the equity section of the balance sheet.
 · Receive an invoice from a supplier. One part of the entry increases an expense or an asset account,
which can appear in either the income statement (for an expense) or in the balance sheet (for an asset).
The offset to the entry increases the accounts payable liability in the balance sheet. In addition, the
change in income triggered by the recordation of an expense appears in retained earnings, which is
part of the equity section of the balance sheet.

3. The money measurement concept:

The money measurement concept states that a business should only record an accounting transaction if it
can be expressed in terms of money. This means that the focus of accounting transactions is on quantitative
information, rather than on qualitative information. Thus, a large number of items are never reflected in a
company's accounting records, which means that they never appear in its financial statements. Examples of
items that cannot be recorded as accounting transactions because they cannot be expressed in terms of
money include:

 · Employee skill level

 · Employee working conditions
 · Expected resale value of a patent
 · Value of an in-house brand

4. Matching concept
The matching concept is an accounting practice whereby firms recognize revenuesand their related
expenses in the same accounting period. Firms report revenues,that is, along with the expenses that brought
them.
The purpose of the matching concept is to avoid misstating earnings for a periodReporting revenues for a
period without reporting all the expenses that brought them could result in overstated profits.
Note especially that applying the matching concept requires accrual accounting, the practice of recognizing
revenues when they are earned and expenses when they are incurred. Actual cash flows from these
transactions may occur at other times, even in other periods.

Examples:
Angle Machining, Inc. buys a new piece of equipment for $100,000 in 2015. This machine has a useful life
of 10 years. This means that the machine will produce products for at least 10 years into the future.
According to the matching principle, the machine cost should be matched with the revenues it creates. Thus,
the machine is depreciated over its 10-year useful life instead of being fully expensed in 2015.
Big Appliance has sold kitchen appliances for 30 years in a small town. It purchases a large appliance from
wholesalers for $5,000 and resells it to a local restaurant for $8,000. At the end of the period, Big Appliance
should match the $5,000 cost with the $8,000 revenue.

5. Realization concept
The going concern principle is the assumption that an entity will remain in business for the foreseeable
future. Conversely, this means the entity will not be forced to halt operations and liquidate its assets in the
near term at what may be very low fire-sale prices.
This is an important concept to financial accounting because many other accounting principles are based
on the assumption that companies will not cease to exist at the end of a period. The going concern principle
is what establishes the ability for companies to accrue expenses and prepay asset.
If we automatically assumed that companies ended operations at the end of every period, there would be
no reason to accrue expenses. Companies wouldn't have to pay for these expenses next year because they
wouldn't exist.
The going concern assumption reinforces the matching principle, which states that revenues and expenses
need to be accounted for in the period at which they are earned or incurred.
Companies must also inform investors and creditors about possible going concern issues. For instance, if a
company is facing financial difficulties from an excessive debt burden or is facing a large liability lawsuit
that could bankrupt the company, management must mention these cautions in the financial statement notes.
Potential investors have the right to know if the company's going concern or longevity is in question. If
nothing about the going concern is mentioned in the financial statement notes, it is assumed that the
company faces no threatening financial problems.

Example
In the early 2000s, General Motors was experiencing great financial difficulties and was ready to declare
bankruptcy and close operations all over the world. The Federal government stepped in and gave GM a
bailout as well as a guarantee. In normal circumstances, GM would not be considered a going concern, but
since the Federal government stepped in, we have no reason to believe that GM will cease to operate.
Assume Microsoft is currently suing a small tech company for copyright violation over its software
package. Since this software package is the only operation the small tech company does, losing this lawsuit
would be detrimental. There is a 95 percent Expectation that Microsoft will win the lawsuit. The small tech
company is not a going concern because it is probable they will be out of business after the lawsuit is
settled.
6. Matching concept

The matching concept is an accounting practice whereby firms recognize revenues and their related
expenses in the same accounting period. Firms report revenues, that is, along with the expenses that brought
them.
The purpose of the matching concept is to avoid misstating earnings for period Reporting revenues for a
period without reporting all the expenses that brought them could result in overstated profits.
Note especially that applying the matching concept requires accrual accounting, the practice of recognizing
revenues when they are earned and expenses when they are incurred. Actual cash flows from these
transactions may occur at other times, even in other periods.

Examples
- Angle Machining, Inc. buys a new piece of equipment for $100,000 in 2015. This machine has a useful
life of 10 years. This means that the machine will produce products for at least 10 years into the future.
According to the matching principle, the machine cost should be matched with the revenues it creates. Thus,
the machine is depreciated over its 10-year useful life instead of being fully expensed in 2015.
Big Appliance has sold kitchen appliances for 30 years in a small town. It purchases a large appliance from
wholesalers for $5,000 and resells it to a local restaurant for $8,000. At the end of the period, Big Appliance
should match the $5,000 cost with the $8,000 revenue.

Dates Assets Equity Liabilities

Opening Blancees 800,000 500,000 300,000

Loan amounting $700,000was taken Increased by No effect Increased by

from the bank $700,000 $700,000
Revised balances $1500,000 $500,000 $100,0000

Machinery amounting $300,000 was Decreased by No effect Increased by

purchased $100,000 was paid $100,000 $200,000
immediately whereas remaining Increased by
amount was promised to pay on 1st july. $300,000
Revised balances $1700,000 $500,000 $1200,0000

Stock amounting $500,000 was Decreased by No effect No effect

purchased on cash. $500,000
 Increased by
$500,000
Revised balances $1700,000 $500,000 $1200,000

Good amounting $25000 was sold for Decreased by Increased by No effect

$35000 on credit $25000 10,000
Increased by
$35000
Revised balances $1710,000 $510,000 $1200,000

Cash amounting $15000 was received Decreased by No effect No effect

from trade receivable 15000
Increased by
15000
Revised balance $1710000 $510,000 $1200,000

Salary amounting $45000 paid to Decreased by No effect Decreased by

employee $45000 $45000
Revised balances $1665000 $510000 $1155000

Interest amount $700 incurred on loan Increased by No effect Increased by

taken from bank this interest was still 700 $700
payable.