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Introduction
Definition of Accounting. Definition of Book Keeping. Difference between Accounting and Book Keeping. Accounting Terminologies. Branches of accounting, Parties interested in accounting information.
Accounting Equation
Introduction Assets and equities (Liabilities) Balance Sheet Equation. Effect of transactions. Practice.
Prepared By Kamran Ali Khan Khattak Lectrurer @ PBS. Peshawar Business School. Contact : 03149086491 , 03339276810
Introduction
Definition of Accounting. Definition of Book Keeping. Difference between Accounting and Book Keeping. Accounting Terminologies. Branches of accounting. Parties interested in accounting information.
Definition of accounting
1).The technique of recording, process of identifying, method of measuring and language of communicating business transaction is known as ACCOUNTING. 2). Accounting is the art & science of recording classifying and summarizing , analyzing & interpreting the business transactions in a systematic way & chronological order. 3) Accounting is the language of business. From the above definitions we can conclude that Accounting mainly concerned that 1)Recording of business transaction 2)Classification of recorded data 3)Analysis of summarized data. 4)Preparation of statements and reports.
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1.
Business
It is general term and includes any legal activities under taken for the purpose of earning profits such as buying and selling of goods, rendering services and manufacturing good. The business organization which are engaged in buying and selling of good/merchandise are called as merchandising or trading concern while those which are engaged in providing any services are called service concern. The business organization engaged in producing good are called as manufacturing concern.
2.
Proprietor
A peRson who invest the money or things in the business is called owner/proprietor. In fact he is that peRson who invest capital and gives his time in attention to the business. He is entitled to receive the profit and bear the losses of the business.
3.
transactions
Any dealing between two or more peRsons for goods or services which effect the financial position of a business and also can be measured in term of money is called transaction.
4.
Voucher
Any written evidence of business transaction is called voucher. 5. Merchandise The thing purchased by a business organization for the purpose of reselling them in the same condition is called merchandise/goods.
6.
Purchases
The cost of merchandise purchased is called merchandise. When the price of goods is paid in cash is called cash purchases and when it is paid on any future dates it is called credit purchase. 7. Sales The amount earn from sale of goods is called sales. If the price is received in cash it is called cash sales and when it is to be received on any some future dates is called credit sale.
8.
Revenue
All sort of income received or accrued is called as revenue. This revenue may be earned from sale of merchandise or by rendering for the customer. Prepared By Kamran Ali Khan Khattak 4 Lectrurer @ PBS. Peshawar Business School. Contact : 03149086491 , 03339276810
9.
Expenses
To active the objective of business certain payment or obligation are expenses of business. The example of such expenses are carriage, freight, cartage, salaries, wages, rent, advertisement, insurance etc.
10.
Profit/Income
The amount which a business organization by deducting the cost of product from the revenue or excess amount over the expenses or cost is called income or profit.
11. 12.
When concession or allowance is given by seller to buyer on list price is called trade discount. There is no accounting record for trade discount.
13.
Cash Discount
A discount which is allowed or received at the time of cash payment on credit sales or purchases is called cash discount.
14. 15.
Stock(Inventory) Balance
Goods or merchandise on hand, that is good remaining unsold is called Stock inventory or stock in trade The balance means the remaining. It may be balance of cash, goods, account receivable and account payable which is carried down for next period for treatment. The difference two sides of an account is called balance.
A person to whom goods are sold on credit by a business organization is called account receivable. A person from whom a business organization purchase goods on credit is called Account payable. Things possessed by business organization is called Assets. OR Any thing valuable by a business with the following three features qualities has assets. a) The legal title of ownership b) Right to use c) Right to sale/ dispose off The example of assets are cash, building, furniture, machinery, plant, investment, good well, account receivable etc. Prepared By Kamran Ali Khan Khattak Lectrurer @ PBS. Peshawar Business School. Contact : 03149086491 , 03339276810 5
According to the features the assets can be divided in the following groups.
I.Current Assets
Which are either cash or easily convertible into cash. The example of such assets are cash, bank, account receivable, bounds and stock etc. II. Fixed Assets these assets are acquired to retain in the business or which can not be easily convertible into cash such as land, building, plant and machinery, furniture and fixtures, motor vehicles etc. III. Intangible assets the assets which are not physically routable but still valuable for business. Such as trade mark, Good well, copy right, patent right etc.
Liabilities
It is the claim of the outsider against the assets of the business. The liabilities also called external equities. It may be following types.
1)Financial accounting.
This field of accounting concern with general accounting system. It is engaged in recording the business transaction in books and preparation of periodical reports for managers and general public.
2)Cost accounting
The main object of this branch of accounting is to control the cost of production and distribution. It checks the efficiency of producing, Selling and administrative department by applying actual and pre determine cost Prepared By Kamran Ali Khan Khattak 6 Lectrurer @ PBS. Peshawar Business School. Contact : 03149086491 , 03339276810
3)Management accounting
This field of accounting mainly concern with the selection of best among various alternatives. It use the techniques of historical estimated and actual data as a device towards change.
4)Government accounting
It is the method of recording the financial transaction of the central and provincial governments. It keeps the record of expenditure, taxes, revenues and budget of various government departments.
5)Auditing
It is the examination of the accounting record. The purpose of examination is to check the fairness and accuracy of the accounting record and its reconciliation with the prescribed policies and procedure.
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Accounting Equation
Introduction Assets and equities (Liabilities) Balance Sheet Equation. Effect of transactions. Practice.
Introduction
In the previous topics we have discussed the basic terms used in accounting. One of the most important term among them is the Balance Sheet. In this topic we shall further explain this term and show the effect on the Balance Sheet.
State that whether the balance of the following accounts should be placed in debit column or credit column of the Trail Balance. 1. 2. 3. 4. 5. 6. 7. Plants and machinery Furniture salary discount allowed Bank overdraft Cash in hand Creditor 8. sundry debtors 9.Carriege Inwards 10.Carriege out ward 11.Sales 12.Purchase 13.Discount Received 14.Interest
Solution
SI. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14
Dr Balance (Rs)
Cr Balance (Rs)
Plant and Machinery Account Furniture Account Salary Account Discount allowed Account Bank overdraft Account Cash In hand Account Creditors Account Or Accounts Payables Sundry Debtors Account Or Accounts Receivables Carriage Inward Account Carriage out ward Account Sales Account Purchase Account Discount Received Account Interest paid Account
Practical Questions
Q.1) Following are the transactions of Noman & Co. a) Introducing cash as a capital Rs.20000 b) Purchased merchandise for cash Rs.5000 c) Purchased Computer for cash Rs.1000 d) Merchandise costing Rs.1400 sold to Ahmad for Rs.1800 on account. e) Purchased merchandise from Aftab for Rs.500 Prepared By Kamran Ali Khan Khattak Lectrurer @ PBS. Peshawar Business School. Contact : 03149086491 , 03339276810 9
Q.2) Mr. Saliq Hassan started business with cash Rs.100000 his selected transactions during the month are given below. a) Bought merchandise on credit Rs.6000 b) Bought Furniture for cash Rs.12000 c) Bought merchandise for cash Rs.40000 d) Paid carriage on purchases Rs.400 e) Sold merchandise for cash Rs.26000 costing Rs.20000 f) Paid cash Rs.6000 against Account Payable. g) Paid salaries in cash Rs.400. REQUIRED:- Show the effect of each transaction on ACCOUNTING EQUATION. Q.3) Following are the transactions of Mr. Ali Hassan & Co for the month of May 2008. 1) Started business with cash Rs.100000, Furniture Rs. 47000. 5) Purchased Equipment on credit for Rs.24000 8) Purchased merchandise from Imran for Rs.14000 15) Bought merchandise for Rs.10000 18) Purchased supplies Rs.26000 20) Return merchandise to Imran for Rs.500 21) Paid wages Rs.1000 30) Paid insurance premium Rs.2000 REQUIRED:-Reflect the effect of above transaction on ACCOUNTIONG EQUATION. Q.4) a) Started business with cash Rs.50000 b) Deposited Rs.15000 in the bank. c) Purchased for cash Rs.2000 and on account from Aslam for Rs.7000 d) Paid cash to Aslam Rs.5000 through check. e) Sold merchandise to Bashir Rs.1500 costing Ts.1000 f) Paid rent by check Rs.500 g) Received cash from Bashir Rs.1200 h) Withdrew cash Rs.1000 and merchandise worth Rs.200 for personal use. REQUIRED:- Show the effect of each transaction on ACCOUNTING EQUATION. Prepared By Kamran Ali Khan Khattak Lectrurer @ PBS. Peshawar Business School. Contact : 03149086491 , 03339276810 10
Peshawar Business School Affilated with University Of Peshawar Business transactions and its recording in the books of accounts.
Definition of Journal Rules for Debit and Credit Journalizing Compound and simple entry Practice.
Definition of Journal
The word Journal has been derived from the French word Jour which means Day. Thus journal means daily record. In Accounting the journal has been defined as. A book in which a business transaction are recorded first is called Journal. It also known as book of original entry or day book because the day to day transactions are recorded in it. These names are given below with reasons. 1)Day Book: The Journal contains a daily record of all the business transaction therefore it is sometimes called a Day Book 2)Book of Original entry: As the business transaction are firstly recorded in Journal. It is called as Book of Original entry 3)General Journal: In American terminology Journal is known as General Journal.
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L/F
Debit Rs
Credit Rs
Practical Questions
Q.1) On January 1st a Irfan started business with cash Rs.50000 and his transaction for the month were as follows. 4. Purchased merchandise for cash Rs.2000 6. Purchased Furniture for cash Rs.3000. 10. Purchased merchandise from Zeeshan for Rs.15000 14. Sold merchandise for cash Rs.20000 18. Sold merchandise to Anwar for Rs.12000 22. Paid cash to Zeeshan Rs.10000 25. Received cash from Anwar Rs.8000 31. Paid salaries Rs.20000 31. Paid rent for the month Rs.5000 REQUIRED:- Pass Journal entries. Q.2) Imran Started business with cash Rs.40000, Furniture Rs.20000, Machinery Rs.40000 2) Purchased merchandise on credit from Benazir & Co for Rs.1000 5) Purchased merchandise for cash Rs.20000 8) Bought goods on account from Zeeshan for Rs.5000 10) Purchased a truck for 50000. Paid cash Rs.20000 and give a note payable For the balance. 15)Purchased office equipment on account for Rs.3000 16)Paid insurance premium Rs.3000 19)Recorded sales on account Rs.4000 20)Return goods to Z for Rs.200 22) Paid to Zeeshan Rs.3000. 25)Paid miscellaneous expenses Rs.100. 26)Sold merchandise to Ajmal worth Rs.4000 27)Return by Ajmal Rs.300 28)Received cash from Ajmal Rs.2000 30) Paid salary to Afan (Secretary and Record keeper) Rs.4000 REQUIRED:- Journalized the above transaction
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Q.4)
Q.5)
Q.6). Following are the transaction of Afan & Co Company for the month of Jan 2005. 1) Started business with cash Rs.50000 5) Purchased merchandise for cash Rs.4000 9) Sold goods for cash Rs.10000 12) Sold goods to Zeeshan for Rs.5000 18) Paid Rent Rs.7000 REQUIRED:- Record the above transaction in JOURNAL
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Q.No.8. Record the following transaction in Journal : 1. Started business with Rs.120000 in cash; machinery worth Rs. 8000; stockin trade valued Rs. 50000; Accounts Receivables Rs. 2000. 2. Purchased merchandise from B for Rs. 30000. 3. Sold merchandise to Shabbir for Rs. 20000. 4. Returned merchandise to B worth Rs. 500. 5. Merchandise were sold for cash Rs. 22000. 6. Sold merchandise to Anwar for Rs. 2700. 7. Paid to B Rs. 19000. 8. Received cash Ts. 1500 from Shabbir. 9. Paid telephone bill Rs. 500. 10. Sold merchandise to Sadiq worth Rs. 800. 11. Received cash from Anwar Rs. 2500 . 12. Purchased merchandise from Pak Trading Co. for Rs. 35000. 13. Sadiq returned merchandise worth Rs. 125. 14. Salaries paid Rs. 220 Q.No.9. 1. Muskan & Company started business with a capital of Rs. 100000 out of which Rs. 85000 was deposited into the bank. 2. Purchased supplies for Rs. 1750. 3. Purchased equipments o account for Rs. 14600. 4. Purchased a Truck for Rs. 48000. Paid cash Rs. 8000 and gave a notes payable for the balance. 7. Paid rent for the month Rs. 2250. 10.Received cash for job completed Rs. 26000. 13.Paid wages to employees Rs. 5000. 15.Paid insurance premium Rs. 3440. 18.Recorded sales on account Rs. 28250. 20.Utility expenses Rs. 330. 25. Miscellaneous expenses Rs. 240. Prepared By Kamran Ali Khan Khattak Lectrurer @ PBS. Peshawar Business School. Contact : 03149086491 , 03339276810 15
Definition of Ledger
Ledger is book which contain a condensed record of all the business transactions. In other words ledger is book in which every account is allotted a separate page and all the transactions relating to that account are written on that page in a summery form. Ledger is called the king of all the books of accounts. Thus we can say classification of Journal is called ledger.
SPECIMEN OF A LEDGER
Title. Account No:----------Dr Date Description Ref Amount Date Description Cr Ref Amount
Total
..
Practical Questions
Q.No1) On January 1st a trader started business with cash Rs.150000 and his transaction for the month were as follows. 4. Purchased merchandise for cash Rs.12000 6. Purchased Furniture for cash Rs.13000. REQUIRED:- From the above transaction pass JOURNAL ENTRIES post them in to LEDGER and prepare TRAIL BALANCE. Following are the transaction of ABC Company for the month of Jan 2005. 1) Started business with cash Rs.50000 5) Purchased merchandise for cash Rs.4000 9) Sold goods for cash Rs.10000 12) Sold goods to Zeeshan for Rs.5000 Prepared By Kamran Ali Khan Khattak 17 Lectrurer @ PBS. Peshawar Business School. Contact : 03149086491 , 03339276810
Q.No.2)
Q.No.3)
From the following transaction pass JOURNAL entries post them into LEDGER and prepare Trail Balance. 1)Started business with Cash Rs.10000, and Furniture Rs.5000 and Machinery Rs.20000 2)Purchased merchandise for cash Rs.5000 3) Purchased merchandise from Adnan for Rs.4000 4)Sold goods for cash Rs.6000 5)Sold merchandise to Irfan for Rs.6000 6)Return goods to Adnan worth Rs.500 7)Paid cash to Adnan Rs.2000 8)Received cash from Irfan Rs.3000 9)Paid wages Rs.1000 10)Paid salaries Rs.3000.
Q.No.4)Jan 1. Started business with cash Rs.25000, Building Rs.55000 and Machinery Rs.45000. Jan 2. Purchased merchandise for cash Rs.15000 and Furniture Rs2000 Jan 7. Sold goods to Asim & Sons for Rs.9000 Jan 9. Received cash from Asim & Sons Rs.89000 in full settlement of his Account. Jan 31. Paid salaries Rs.3000 and Rent Rs.5000 for the month. REQUIRED:- Record the above transaction in Journal. Post them into Ledger and Prepare Trail Balance. Q.NO.5 Following are the transaction of Ali TradeRs.1990 June 1 . Started business with cash Rs.8000. 2 Purchased furniture for cash Rs.1000. 2 Purchased office equipments for Rs.1500. 2. Purchased machinery for Rs. 3900. 3. Merchandise purchased for cash Rs.500. 4. Purchased inventories on credit from J for Rs.1000. 05. Paid carriage and octroi on merchandise purchased Rs.70. 08. Paid advertising expenses Rs.100. 10. Sold merchandise on credit to K for Rs.1000. 15. Merchandise sold for cash Rs.700. 20. Received cash from K Rs.600. 24. Paid cash to J Rs. 500. 25. Merchandise returned by K Rs.100. 28. Returned merchandise to J worth Rs.30. Prepared By Kamran Ali Khan Khattak Lectrurer @ PBS. Peshawar Business School. Contact : 03149086491 , 03339276810 18
Illustration NO.1
From the following List of balance , Prepare a Trail Balance. Rs Capital Account 100,000 Opening stock Account Debtors Account 20,000 Creditor Account Fix Asset Account 92,000 Purchase Account Sales Account 1,10,000 Return Inward Account Return outward Account 1,000 Wages and Salaries Account Bills Payable Account 8,000 Bills Receivable Account Bank overdraft Account 11,000 Rent Account Rs 15,000 20,000 70,000 2,000 30,000 15,000 6,000
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2,50,000
Illustration NO 2
From the following list of balances. Prepare a Trail Balance as on 30.6.1997: Rs 1. Opening Stock 18,000 13.Plant and Machinery 2. Wages 10,000 14.Loose Tools 3. Sales 1,20,000 15. Lighting 4, Bank Loan 4,400 16. Creditors 5. Coal and coke 3,000 17. Capital 6. Purchases 75,000 18. Miscellaneous Receipts 7. Repair 2,000 19. Office Salaries 8. Carriages 1,500 20. Office Furniture 9. Income Tax 1,500 21. Patents 10. Debtors 20,000 22. Good Will 11. Lease hold Premises 6,000 23.Cash at Bank 12. Cash in hand 200 24. Closing Stock Rs 7,500 1,800 2,300 8,000 40,000 600 2,500 600 1,000 15,000 5,100 6,000
Solution Illustration NO 2
Trail Balance as at 30.6.1997
SI. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Heads of Account Opening Stock Wages Sales Bank Loan Coke and coal Purchases Repairs Carriage Income Tax Debtors Leasehold Premises Cash In hand Plant and machinery Loose Tools Lighting Creditors Capital Miscellaneous Receipts Office Salaries Office Furniture Patents Good Will Cash at Bank Total LF Debit Balance(Rs) 18,000 10,000 3,000 75,000 2,000 1,500 1,500 20,000 6,000 200 7,500 1,800 2,300 8,000 40,000 600 2,500 600 1,000 15,000 5,100 1,73,000 Credit Balance(Rs)
1,20,000 4,400
1,73,000
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1,77,500
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Reasons: 1. Discount Allowed is an expense , so its balance will be a debit balance. 2. Fixed Assets always reflect debit balance because assets coming in are debited . 3. Sales are income , so its balance will be a credit balance, 4. Purchases are expenses, so its balance will be a debit balance. 5. Carriage inwards is an expense, so its balance will be a debit balance. 6. Carriage outward is an expense, so its balance will a debit balance. 7. Interest paid is an expense, so its balance will a debit balance. 8. A creditor is an liability, so its balance will a credit balance. 9. Closing stock is not an account, so it cannot have any balance and consequently , it cannot find a place in the Trial Balance. Only when closing stock is adjusted against purchases, it appears in the Trial Balance
Illustration NO.4
The total of debit side of the Trail Balance of a daily newspaper firm at 31st December, 1997 is Rs1.80,590 and that of the credit side is Rs 36,470. after the several checking and rechecking the following mistakes are discovered: Name of Account Opening Stock Advertisement Income
Correct figure (as it should be) Figure as it appear in the trial
12,700 71,780
Rent and rates 2,260 Sundry Creditors 6,170 Sundry Debtor 8,150 Ascertain the correct total of the Trial Balance
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Definition of Cash Book A book in which the cash receipt cash payment transaction are recorded is called cash book. Simple or one column Cash Book This type of cash book is used by such firms where Receipt and Payment And Payment are usually made in cash.
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Q.No.2)
Q.No.3. IRFAN LODHI operated a business I his home. His transactions for the month of January 1988 were : 01. He invested Rs.2,500 cash. 02. Paid Rs.500 to English Biscuits Company ; voucher No 1. 08. Paid Rs.850 for supplies ; voucher No2. 10. Received from customers Rs.650 ; voucher No. 3. 20. Paid Rs.39 for telephone bill ; voucher No. 4. 22. Received Rs.1975 from sales ; voucher No. 5. 27. Paid for equipments Rs.475 ; voucher No. 6. 30. Paid for repairs to typewriter Rs.15 ; voucher No. 7. 30. Paid to creditors Rs.150 ; voucher No. 8.
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Practical Questions
Q.No. 1) 7) 15) 20) Cash in and Rs.2000 Received Rs.190 from Irfan Gul ,Discount Allowed Rs.10 Paid Kamran Rs.485 discount received Rs15 Purchased merchandise Rs300 Prepared By Kamran Ali Khan Khattak Lectrurer @ PBS. Peshawar Business School. Contact : 03149086491 , 03339276810
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Q.No.2 Record the following transaction in Two Column cash book of a trader and find out the Balance of cash at the end of month Feb 2005 1) Started business with cash Rs.20000 2) Purchased furniture for cash Rs2500 3) Paid insurance premium Rs 100 6) Paid rent for the month Rs 150 8) Received cash from Karim Rs 429 Discount allowed Rs 5 9) Paid cash for purchase of merchandise Rs.2700 10) Paid to Nazir Rs.385 in full settlement of Rs.400 13) Received cash from Rashid Rs 1200 in full settlement of Rs 1250 15) Paid to Javid Rs.5685 discount received Rs15 Q.No.3. Record the following transaction in the cash book of SHARIF CLOTH MERCHANTS and post them into Ledger :1988 February: 01. Cash in hand Rs.44,000. 02. Purchased cloth for Rs.14,000. 04. Paid Rs.100 for carriage 05. Sold merchandise for cash Rs.17,300. 10. Purchased merchandise for cash Rs.10,000. 20. Paid to Sarwar Rs.6,855; discount received Rs.45. 22. Received cash on sales Rs.8,500 ; Insurance Rs.250 ; SalariesRs.700. Answer : Balance Rs.37,395.
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Q.No.3. Jan 1. S started business with cash $ 20000 3. He receives a cheque for $ 600 from K 7. He pays $ 19000 into bank account. 12. He pays into bank $ 450 15. He pays into bank the cheque received from K. 25.He pays R by cheque $ 330 and is received from him $ 20 Discount 27.He received cheque for $ 450 from M and allowed him $ 35 discount 28.He pays $ 375 to J in full settlement of his account $ 425. 29.He draws cheque for his personal expenses $ 250 31.He draws cheque for office use $ 400 Prepared By Kamran Ali Khan Khattak Lectrurer @ PBS. Peshawar Business School. Contact : 03149086491 , 03339276810 28
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Q.No.6.
Enter the following transactions in the cash book of ALLAH DITTA & SONS for March,1988. 01. Cash In hand Rs.550 ; balance at bank Rs.7,000. 02. Received from Yasin Rs.590 and allowed him discount Rs.10. 04. Paid salaries by cash Rs.200. 04. Cash sales Rs.134. 05. Paid Ze Shan by check Rs.300 ; Cash purchases Rs.60. 07. Paid Najma by check Rs.584 ; discount received Rs.26. 08. Cash sales Rs.112 ; Paid cartage ( ) Rs.6. 09. Withdrew from bank for office use Rs.200. 09. Paid rent Rs.50. 10. Cash sales Rs.212 ; Paid cash for advertisement Rs.35. Answer : Balance cash Rs.1447 ; Bank Rs.5916.
Q.No.7 Prepare a Three Column Cash Bank from the following transactions of M .M. Company for the period ending April, 1988. 01. Rs.3,000 brought in by the owner on starting the business, of which Rs.2,000 were deposited into the bank. 02. An account of Rs.370 due to Hanif for goods purchased on credit was settled by check after deduction of 5% cash discount. 03. Bought goods for Rs.380 less trade discount 5% . Paid cash for the same . 04. Cash sales of Rs.400, of which Rs.290 were banked. 05. Paid wages by check Rs.250. 06. Purchased an office safe for cash Rs.150. 07. Paid cash for personal expenses of the owner Rs.60. Answer : Balance Cash Rs.539 ; Bank Rs.1688.50 Q.No.8. Enter the following transactions in the Cash Book of HASSAN AITAMAD which took place during the month of May 1988. 1. 04. 06. Started business with cash Rs.15,000. Purchased merchandise for cash Rs.4,500. Deposited into bank Rs.38,000. Prepared By Kamran Ali Khan Khattak Lectrurer @ PBS. Peshawar Business School. Contact : 03149086491 , 03339276810 30
Illustration 1
Record the following Transaction in a suitable cash book of Mr. P Basu For the month of January, 1997 and show he closing balances of cash and bank (All Figures in Dollars).
1. He has cash in hand 2. Opened A bank Account 2. Received from Mr. Bose 3. Paid to Mr. N Gopal In cheque 3. Purchase made in cash 3. Paid Rent 3. with drawn from Bank 4. Cash Sales 4. Received a cheque from Sunil Ranjan 4. Paid Wages 4. Purchase furniture in cash And Paid by Cheque 4. Cash Purchases 50,000 30,000 4,000 500 1,000 250 3,000 5,000 10,000 200 4,000 3,000 5 Deposited the cheque received from Mr. SonilRanjan 5 withdrawn from bank for personal use 5 Paid electricity Bills 5 Paid rates and Taxes 5 Purchase made in Cash 5 Cash Sales 5 sold to Sree Nagarjun 5 Purchases from the Nemai Bose 7 Received a cheque from sree Nagarjun and send to Bank 7 paid railway Freight 7 Purchase stamp and stationary 7 Deposit in bank Account
3,000
5 100 7,000 12,000 5,000 2,000 3,000 250 25 300
Illustration 2
Shri P operates two bank Accounts both of which are maintained in three column cash Book it self. You are required to draw up a Performa of the cash Book and show how the following transactions relating to 28th February. 1997 will appear there in and close the Cash Book for the day: Opening Balance : Cash Rs100 : State Bank (overdraft): Rs 10,000: United Bank : Rs30,000 Received a cheque for Rs1,000 in respect of sales for which SBI charged Rs 2 as realization charge and credited the Balance. Purchases goods for Rs 13,000 and cheque issued on the United Bank Paid Office Expenses Rs 45 and Rs 15 for stationery Out of cash sales of Rs 13,000 a sum of Rs 10,000 was deposited in the state Bank
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INTRODUTION In the previous chapter we have discussed and illustrated the method of recording Banking transactions in cash book ascertaining the bank balance as appears at the end of accounting period .the businessman periodically verifies balance at bank. For g this purpose, the bank balanced appears in cash book compared with the Balance as shown by the bank this is called as reconciliation of bank balance In this chapter, we shall discuss and illustrate the method of reconciliation of bank balance CASH BOOK Cash book generally refers to three columns cash book maintained by the traders Prepared By Kamran Ali Khan Khattak Lectrurer @ PBS. Peshawar Business School. Contact : 03149086491 , 03339276810
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DISTINCTION BETWEEN CASH BOOK AND PASS BOOK The main points of difference between cash book and pass book and pass book are listed below
CASH BOOK
PASS BOOK
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4 5
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Date
Particulars
Debit (withdrawals)
Credit (Deposits) Rs
Balance
2007 Jan .01 05. 10 . 15 20 20 20 Cash Cash Cash Jamil (cheque) Irfan (cheque) Collection charges Interest collected 50 2,000 4,000 10,000
10,000 20,000
15,000
From the above illustration, it is clear that the debit balance of cash book Should always be equal to the credit balance of pass book. Similarly, the credit balance of cash book should always be equal to debit balance of pass book. These balances will disagree only if there is certain omission or mistake in any book.
CAUSES OF DISAGREEMENT. The usual causes of difference in pass book balance with that of cash book Balance are discussed as under 1. un presented cheques or Outstanding cheques. These are the cheques issued to the customers and recorded on the credit side of the cash book, but not presented in the bank Prepared By Kamran Ali Khan Khattak 37 Lectrurer @ PBS. Peshawar Business School. Contact : 03149086491 , 03339276810
Q.NO.6 From the following particulars prepare a bank reconciliation statement as on July 31, 1988. a) Bank overdraft as per cash book on July 31, 1987 was Rs.6000. b) Interest on overdraft for six months Rs.200 is debits in the bank statement. c) Bank charges Rs.50. d) Checks issued but not presented Rs.1500. e) Checks paid into bank but not credited 2500. f) Interest on investment collected by the bank Rs.1800. Answer : Balance per bank statement [ debit ( overdraft ) ] = 5450. Q.NO.7 On August 31, 1987 the cash book of a trader showed a balances of Rs.8655. The balance of cash book and bank statement were not agreed due to the following reasons: a) Check No. 109885 for Rs.1200 was issued but not presented for payment. b) A treasury challan No.375 for Rs.788 was not collected and credited by the bank. c) Bank charges Rs.15 and a note payable paid by the bank Rs.600 appearing in the bank statement were not recorded in the depositors record . Required : 1. Balance shown by the bank statement. 2. Bank reconciliation statement. Answer : 1. Balance per bank statement ( credit ) = Rs.8452.
Q.NO.8 From the following particulars prepare bank reconciliation statement as on Oct.31 1988. a) Balance as per cash book Rs.3425. b) Checks issued but not presented for payment Rs.800. Prepared By Kamran Ali Khan Khattak 41 Lectrurer @ PBS. Peshawar Business School. Contact : 03149086491 , 03339276810
Q.No.9 Show the balance as per cash book of M/S Nasim & co as on 30th June 2007 from the following particulars. (a) Balance as per pass book on 30th June 2007 is Rs 11,500 (b) cheques for Rs. 500 and Rs 1,700 were deposited on 30th June 2007,the bank credited the cheques on 1st July 2007. (c) chequs for Rs 400 and 950 were issued on 30th June 2007, but thy are presented on the following day. (d) A cheque deposited in bank for Rs 450 has been dishonored. (e) Bank has charged Rs 450 as service charges. REQUIRED:- Prepare Bank Reconciliation Statement. Q.No.10 From the particulars given below, find out the balance that would appear in cash book as on 31st July 2007. (1) Bank overdraft as per pass book Rs 16,600. (2) Amount deposited directly into bank by a debtor Rs 2,000 on 28th July But not recorded in cash book. (3) Interest on overdraft Rs. 400 and bank charges Rs 200 are debited in Pass book but not entered in cash book. (4) cheque of Rs 8,000 deposited on 29th July is credited by bank in August. (5) cheque of Rs 16,000 drawn on 26th July but presented in Aug REQUIRED:- Prepare Bank Reconciliation Statement. Q.No.11 On June 30 the cash book of Kabir & Sons showed an overdraft of Rs7500. from the following information ascertain the balance that would appear in pass book. Prepared By Kamran Ali Khan Khattak Lectrurer @ PBS. Peshawar Business School. Contact : 03149086491 , 03339276810 42
Q.NO.12
Ranganath has two accounts with Hanuman Bank Ltd, Styled Account No. 2. on 31.12.1997, his Cash Book showed balances of Rs 5,400 and Rs 2,70,400 in the tow accounts respectively . On an examination of the bank 's statements , the following were noticed: a) Rs 27,000 have been transferred from Account No.2. to Account No.1 by the bank without advice to Ranganth . b) Rs 10 have been the bank's incidental charges in respect of each account , which have also not been advised c) Cheque for Ts 5,421 issued on Account No.1 Late in December have not yet been presented to the bank. d) A cheque for Rs 4,272 deposited by Ranganath into A/c No.2 has been credited by the bank into A/c No.1. You are required to prepare reconciliation statements showing the balance as per bank Statements
Illustration 5
The treasurer of the Calcutta Club is attempting to reconcile the balance shown in the cash Book with that appearing on the Bank Statement. According to the Cash Book the balance at the bank as at 31st May,1997 was Rs 1,900 while the Bank Statement disclosed an overdraft amount of Rs 470. Upon investigation the Treasurer discovers the following errors: a) A cheque paid to S Ltd for Rs 340 had been entered in the Cash Book as Rs 430 b) Cash paid to the bank for Rs 100 had been entered in the Cash Book as Rs 90 c) A transfer of Rs 1,500 to the Savings Bank had not been Entered in the Cash Book d) A receipt of Rs 10 shown on the Bank statement had not been entered in the Cash Book e) Cheques drawn amounting to Rs 40 had not been presented in to the Bank f) The cash Book balance had been incorrectly brought down at 1st June 1997 as a debit Balance of Rs1,200 instead of a debit Balance of Rs 1,100 g) Bank Charges of Rs 20 did not appear in the Cash Book h) Receipts of Rs 900 paid in to the bank on 321st had not been entered in the Cash Book i) A standing order payment of Rs 30had not been entered in the cash Book j) A cheque for Rs 50 previously received and paid into the bank had been returned by the marked "account closed " k) The bank received a direct deposit of Rs 100 from an anonymous member l) Cheques paid into the bank had been incorrectly totaled. The total amount should have been Rs 170 instead of Rs 150 Draw up a Bank Reconciliation statement as 31st May ,1997
Q.NO.13
Mr. Jones is having accounts (A and B) with the central Bank of India . On 31.12.1997 his ledger shows a balance of Rs 5,000 in Account A and an overdraft of Rs 2,250 in Account B. On verifying the ledger entries with the respective Bank Statements, the following
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The following were the bank column of the cash book of parakash Agarwal. Dr Cash Book (Bank Column) Particulars Lf Rs Date Particular
To Balance B/f To R. Sen To P. Dasgupta To B.K. Roy To P. Patel To H. Kabir To T>K. Basu 450 210 600 780 100 240 300 97Dec 2 Dec 6 Dec 8 Dec 12 Dec 16 Dec 22 Dec 24 Dec 28 Dec 30 Dec 31 Dec 31 By P.k. Sharma By Khanna By Abdul Amin By L. Narayan By k. Kundu By c.Banerjee By T. Sen By Wages By B.K. Agarwal By L>N. Mishra By Balance C/d
Cr Lf
Rs
150 60 10 120 400 300 40 250 150 80 1,12 0
2,680 2,68 0
Bank statement
Date Particulars Dr. (withdrawal ) Cr.(Deposited )
Balance(Rs)
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Balance B/f Cheque Cheque Deposit Cheque Deposit Bank Charges Cheque Deposit Cheque Deposit Cheque Cash Standing order Club subscription
450 Cr. 300 Cr. 240 Cr. 450 Cr. 440 Cr. 1,040 Cr. 1,035 Cr. 915 cr. 1,695 Cr. 1,295 Cr. 1,395 1,355 Cr. 1,105 Cr. 1,005 Cr.
Introduction
Any legal activity undertaken to earn profit is called business. The business activities are further divided into Trading concern and Manufacturing concern. The trading concerns means the individuals and firm engaged in the buying and selling activities. The main purpose of Trading concerns is to earn profit. Apart from Trading and Manufacturing concerns there are also some institutions or associations which are formed for welfare purpose and not for earning the profit. For example hospitals, school, schools, clubs. These institutions are called as non trading concern.
Definition
The institutions or individuals which are engaged in activities in activities other than trade are called as Non Trading Concerns. Such institutions are formed not for carrying on business and making profit but they work for some activities of public Prepared By Kamran Ali Khan Khattak 45 Lectrurer @ PBS. Peshawar Business School. Contact : 03149086491 , 03339276810
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Objectives
Organization It may be in form of sole proprietor, partnership, company. Management The management lies in the hands of owner, partners or board of directors. Ownership The ownership remains in the hands of persons investing capital. They are called as owner, partner or shareholders
Practical Questions Q.No.1. Receipt and Payment Account of Azad Cricket Club for the year ended on 31 st December 2007 is given as under. Receipt Rs Payment Rs
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REQUIRED:- Prepare Income and Expenditure for the year ended on 31-12-2007 Q.No.2 Given below is the Receipt and Payment Account of Football Club for the year ended on 31st December 2007. Receipt Balance of cash Subscription Entrance fee Ground rent District Govt Donation Rs 2310 3250 2100 5000 2500 Payment Rent & Rates Salaries Furniture purchased Misc Expenses Refreshment Balance c/d Rs 1580 2870 3500 1900 3500 1810
Total 15160 Total 15160 The club owed Land and Building Rs.100000 and Furniture Rs.10000 at the beginning of the year. REQUIRED:- Prepare Income and Expenditure for the year ended on 31-12-2007 and Balance Sheet on that date.
Q.No.3. The following is the summery of the accounts received and spent by the Star Club st January 2007 to 31st December 2007. from 1 Receipt Subscription Rs 11525 Payments Land & Building Rs 25000 48
Prepared By Kamran Ali Khan Khattak Lectrurer @ PBS. Peshawar Business School. Contact : 03149086491 , 03339276810
Total 35008 Adjustments. a).A bill for Rs 256 was outstanding at 31st December 2007 b).The stock of refreshment on hand at 31st December 2007 was Rs 190 c).The Rates paid up to 31st December 2007 included Rs 80 paid in advance. d).Subscription in arrear amounted to Rs 475. REQUIRED:- Prepare Income and Expenditure for the year ended on 31-12-2007
Q.No.4. Given below is the Receipt and Payment Account of Volley ball Club for the year ended on 31st December 2007. Receipt Balance at Bank Subscription Special match Earnings District Govt Grants Ground Fund Interest on Deposits Payments Rs Salaries 1968 Special match Expenses 1140 Refreshment Expenses 600 Cost of Furniture 6000 Sports and other Utilities 2520 Sports fee paid 2010 Balance at Bank 3741 Total 17979 Total 17979 The Club owed a land costing Rs.24000 on which it is proposed to build volley boll ground. Donation of Rs 300 received for Ground Fund was wrongly included in subscription. A bill utilities purchased during the year amounted to Rs 384 was still payable. REQUIRED:- Prepare Income and Expenditure for the year ended on 31-122007 and Balance Sheet on that date. Rs 6030 3345 810 3000 4680 114
Introduction
The term expenditure means making a payment or raising an obligation to make future payment for acquiring any asset or service. The benefit of asset or service may be for short period or it may also be for a very long period. For example when we pay for a lunch, the benefit of the expenditure is exhausted when the lunch is taken. But when we pay for purchase of a motor van the benefit of expenditure is derived for many years. Therefore all the business expenditures are classified as Capital and Revenue Expenditures. The payment of lunch is an example of Revenue Expenditure and Payment for purchase of van is Capital Expenditures.
Capital Expenditure
The expenditure for the acquiring fixed assets or increasing the earning capacity of the business are called as Capital Expenditures. These expenditure include the followings. 1. Purchase of Fixed Assets. The Fixed assets means the assets that are acquired for use in the business for a long period of time. For example, machinery, furniture, building, motor vehicles, equipments, land etc. all the expenses connected with acquiring of such assets are capital expenditures like carriage, insurance, freight, octori, commission, clearing charges, custom duty, duck charges etc. 2. Improvement of Fixed Asset. When any addition or improvement is made in fixed assets as to make it more efficient or increase in the value is treated as Capital Expenditure. For example addition of new rooms in building, purchase of new engine for factory, conversion of manual machinery into automatic ect. 3. Increasing the Earning Capacity. The expenditure which results in increasing the production or sales of business for a long period to come or results in decreasing the cost of production selling or distribution are treated as Capital Expenditure. For example the expenditures on the shifting of business to a bitter site. Heavy expenditures on the advertisement to introduce a new product or capture a new market. 4. Increasing the Capital. The expenditures incurred to raise the capital or long term loans are also Capital Expenditures. The example are brokerage or commission paid for issue of shares or debentures, preliminary expenses for the formation of new company etc 5. Development Cost. The expenditure incurred for the development of land, experimental cost for discovery of mineral reserves, installation of new factory etc. 6. Attaining the Rights. All sorts of expenditures for acquiring Goodwill of a running business, or patent rights of a product or copyright of a book are Capital Expenditures. Prepared By Kamran Ali Khan Khattak Lectrurer @ PBS. Peshawar Business School. Contact : 03149086491 , 03339276810 50
Revenue Expenditures.
The expenditure which are incurred to carry on the day to day business are called as Revenue Expenditures. These includes the followings. 1. Purchase price and other costs incurred for the purchase of merchandise. For example cost of goods, carriage, octori , storage, insurance, etc on the purchase of goods. 2. Cost incurred to manufactured the goods in the factory. For example cost of raw materials used, labour cost, other factory costs etc. 3. Selling and distribution of goods. For example selling salaries, commission, advertisement etc. 4. Expenses incurred in maintaining fixed assets in working conditions like repairs, depreciation, taxes etc. 5. Expenses incurred to replace the worn out part of machinery to maintain it in working condition. 6. Repair of the machinery, motor vehicles, building met with accident or natural calamities. 7. Cost and expenses paid as penalty or compensation of loss caused during the course of business or due to accident or due to breach of contract. NOTE:- All revenue expenses are recorded in the Income Statement.
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4. Errors of Principle. While maintaining the business records if the record keeper commits error Of the basic principles of accounting they are called errors of principle. Such errors do not affect the agreement of trail balance. For example. 1. Wrong application of basic rules of journalizing. 2. Wrong distinction between capital and revenue items. 3. Inadequate allowance for depreciation. 4. Inadequate allowance for uncollectible. 2.Trail Balance Errors. Such errors may be committed due to. a) Omission of recording any balance. b) Transfer of balance to the wrong side of the Trail Balance. c) The amount of the balance wrongly entered. d) Wrong totals of the Trail Balance. Location of Errors. When trail balance is not in agreement it is certain that there are some mistakes. So the accountant will try to locate the errors. What procedure should be adopted to detect the errors it is discussed in the followings. 1.Re check the total of the trail balance. 2.Re check that the items appearing on the trail balance are on the correct side. 3.Re check that the balances of all the accounts have been recorded in the trail balance. 4.Find out the exact difference in the trail balance. Re check if any account shows the same amount. 5.Re check the balances of the various accounts. 6.Divide the difference by 9. if it is so there may be an error of transporting of figures, e.g. Rs.17 take as Rs.71. check the work again. 7.In case the difference is not fully located in spite of above efforts. The record should be checked thoroughly from Journal to the Trail Balance. Practical Questions. Q.No.1 1. Wages paid for the construction of office debited to wages account Rs.1500. 2. An amount of Rs.500 received from Sajjad was credited to Sajid. 3. Machinery purchased was wrongly debited to purchase account. 4. Purchase of equipment for Rs.545 was recorded as Rs.554. 5. Purchased furniture for cash Rs.4000 was omitted to be recorded. 6. A sum of Rs.2000 withdrawn by the owner was debited to trade expenses. 7. Sales day book was under coasted by Rs.400. REQUIRED:- Correct the above errors. Q.No.2 Make the necessary rectification entries. 1. Merchandise sold to Sarwar was omitted to be recorded. 2. Cost of repairing plant Rs.2000 was charged to furniture account. Prepared By Kamran Ali Khan Khattak Lectrurer @ PBS. Peshawar Business School. Contact : 03149086491 , 03339276810 56
Income
The excess of income over expenses is regarded as income. Business Managers and economists use the word profit in some what different sense but the accountants prefer to use the alternate term net income. According to the accountants net income is the excess of the price of merchandise sold and services rendered over the cost of goods sold and services used up during a given time period. To determine the net income. INCOME STATEMENT IN REPORT FORM (IN CASE OF TRADING CONCERN) Name of the Enterprise Income Statement For the year ended Income from sales .. Less Sales Return (..) Sales discount (..) Less Cost of Merchandise Sold Opening Inventory of Merchandise . Add Purchases Less Purchases Return (.) Discount on purchases (.) . Add Direct Expenses Freight, Transportation In, Carriage .. Wages, Cartage, Import duty etc .. Less Closing Inventory of Merchandise (.) .. .. Gross Income on Sales . Less Operative Expenses Freight Out, Carriage Out, Salaries Insurance, Advertisement, Utilities ... Repair, Depreciation, Commission Interest, Bank Charges, Audit Fee Telephone Bill, Electricity Bill etc () . Add Other Income Interest Received, Prepared By Kamran Ali Khan Khattak 57 Lectrurer @ PBS. Peshawar Business School. Contact : 03149086491 , 03339276810
BALANCE SHEET
The Balance Sheet is the list of assets and equities prepared at a specific time. It is also known as the statement of financial condition of a firm. The Balance Sheet focuses on the financial position of the entity rather than the financial position of the owners. It is normally prepared at the close of each year. Objectives of the Balance Sheet Balance Sheet serves the following purposes. 1.It is prepared to determine the financial position of the business. 2.It is prepared to determine the progress of the business. 3.It fulfils many requirement of the law. BALANCE SHEET IN REPORT FORM (IN CASE OF TRADING CONCERN) Name of the Enterprise Balance Sheet For the year ended ASSETS Rs Rs EQUITIES(LIABILITES) Rs CURRENT ASSETS CURRENT LIABILITES Cash . Notes Payables Cash at Bank . Accounts Payable Account Receivable . Wages Payable Closing Inventory . Tax Payable Prepaid Expenses . FIXED ASSETS LONG TERM LIABILITIE Plant and Machinery . Mortgage Payable Less Depreciation (..) . Debentures Land and Building . Furniture ........ OWNER EQUITIES Less Depreciation . . Capital Equipments (..) . Add Net Income Tools . Less Drawings (.) Motor Vehicles Fixtures . INTANGIBLE ASSET . Patents Rights . Copy Rights . Trade Mark Good Will TOTAL ASSETS . TOTAL LIABILITIES
Rs . .
. 58
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221320
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Q.No.3 On 31st December 2007 the following Trial Balance was extracted from the books of Matloob and co. Rs Building 70,000 Sundry creditors Furniture 13,640 Bills payable Sundry debtors 15,600 Sales Opening stock 15,040 Capital Cash in hand 988 Interest Cash at bank 15,147 Commission Bills receivable 5,844 Purchases 85,522 Carriage inward 1,291 Salaries 2,135 Taxes and insurance 783 Audit fee 400 General charges 3,950 Traveling expenses 325 Discount 620 Investment 8,922 Sales returns 285 Carriage on sales 800 241,292 You are required to prepare Income Statement and Balance Sheet for the year ended on 31st December 2007 after passing the adjusting entries for the following. a)Closing stock as on 31st December was valued at Rs 20,500. b)Depreciate building at 5%and furniture at 10% per annum c)Unexpired insurance Rs 100 d)Interest accrued on investment Rs 200. (e)50% of the commission is unearned.
241,292
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Q.No.4 From the following Trail Balance of Saeed & Bros and adjustments given below prepare Trading and profit & loss Account and balance sheet as on 31st December 2007 Stock on 1.1 07 Purchases Drawings Furniture Sundry debtors Income Tax Machinery Building Investment Wages Salaries General expenses Cash at bank Cash in hand 24,200 41,000 8,400 24,000 33,600 1,200 36,000 80,000 16,000 24,000 26,000 6,000 6,000 4,000 330,400 Sales Capital Salaries outstanding Sundry creditors 119,600 183,200 2,600 25,000
330,400
Adjustments. 1. Depreciate Building at 2% Machinery at 5% per annum. 2. Depreciation on furniture is to be provided at 10% par annum. furniture amounting to Rs 4, 000 is purchased on 1st July 2007. 3. Provide for doubtful debts @ 5% and for discount @5% on sundry debtors 4. Create reserve for discount on creditors@3% 5. Wages payable Rs 3,000. 6. stock on 31-12-2007 is Rs 32,600.
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Q.No.5 Following is the Trail Balance of SYED BROTHERS as on Dec. 31, 1993 Name of Accounts Debit Name of Accounts Credit Furniture 2600 Sales 26200 Cash in hand 2300 Capital 18500 Cash at Bank 6700 Bank Overdraft 5000 Inventories (Opening) 9700 Return Outward 300 Salaries and Wages 1300 Allowance for Uncollectible 500 Rent 800 Account Payable 2400 Purchases 11400 Drawings 1500 Trade Expenses 700 Return Inwards 200 Carriage Inwards 100 Account Receivables 6000 Plant 9600 Total 52900 Total 52900 Prepare an Income Statement and a Balance Sheet as on Dec. 31, 1993 after taking in to account the followings. (a). Closing Inventories Rs. 2000 (b). Liability for salaries and Wages Rs. 200 (c). Rent prepaid Rs.200 (d). Depreciate Furniture and Plant @ 10% pa. (e). Of the accounts receivables 10% is Uncollectible and Allocate 5% allowance For uncollectible of account receivables.
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Q.NO.6. From the following Trial Balance of ITTEFAQ INDUSTRIES, prepare income statement and Balance Sheet as on that date: Inventories ( beginning ) Machinery * Furniture * Accounts Receivable * Accounts Payable Cash Bank Purchases Sales Discount Allowed Carriage on purchases Insurance Expense * Stationery Salaries expenses. Notes Receivable Notes Payable Owners equity ( capital ) Dr. 17000 20000 1600 38000 700 18200 30000 55000 1000 1300 800 500 9300 2700 Total: 141100 Other Data : 1. 2. 3. 4. 5. 3000 38100 141100 Cr.
45000
Unexpired insurance $.200 Depreciate Machinery at 20 percent. Furniture at 10 percent. Inventory ( ending ) $.9550 Allowances for Uncollectible are 2 percent of accounts receivable .
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Q.NO.7 The books of Jawed showed the following balance as on June 30,1993. Dr. Cr. Bank 2782 Uncollectible 413 Bank charges 138 Accounts Payable 5750 Capital 14796 Drawings 3206 Furniture * 930 Insurance 137 Carriage 3091 Opening Inventories 12374 Trade subscription ( ) 42 Motor vehicle * 1664 Office salaries * 2429 Office expenses 492 Petty cash 84 Postage expenses 342 Printing charges 285 Purchases 187537 Rent expenses 533 Sales 214450 Accounts Receivable * 10789 Repair charges 7828 Adjustment : 1. Ending inventories $.9280. 2. Allowance for uncollectible to be provide upto $.450. 3. Depreciation on furniture at 10 p.c. and motor vehicle at 25 p.c. is required. 4. Office salaries accrued and unpaid $.900. Required : Financial Statement . Answer : Net Income = 6230 ; Balance Sheet Total = $.24570.
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Q.NO.8. From the following balances of HAMMAAD TRADERS. Prepare income statement and balance sheet for the year ended Dec. 321, 1991. Dr. Cr. Capital * 300 Drawings 50 Furniture * 26 Bank loan 42 Accounts Payable 133 Opening Inventories 220 Accounts Receivable 180 Rent from tenants 10 Purchases 1100 Sales 1500 Business premises * 200 Sales Return 20 Discount allowed 16 Discount received 20 Insurance * 20 General expenses 40 Commission paid 22 Salaries expense 90 Carriage on purchases 18 Allow for uncollectible 5 Uncollectible 8
Adjustment : 1. 2. furniture 10
p.c. Prepared By Kamran Ali Khan Khattak Lectrurer @ PBS. Peshawar Business School. Contact : 03149086491 , 03339276810
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Q.NO.9. Following is the trial balance of SYED BROTHERS as on Dec. 31, 1993. Furniture * Rs. Cash in hand Cash at bank Inventories ( opening ) Salaries & Wages Rent * Purchases * Dr. 2600 Sales Rs. 2300 Capital 6700 Bank overdraft 9700 Return outward (
Return )
Purchases
Drawings Trade expenses Returns inward ( Sale Return ) Carriage inward( Carriage on Purchase ) Account Receivable Plant * Total :
1300 Allow for uncollectible 800 Accounts Payable 1140 0 1500 700 200 100 6000 9600 5290 0
Total : 52900
Prepare an income statement and a balance sheet as on Dec.31, 1993, after taking into account the followings: a. Closing inventories Rs.2000. b. Liability for salaries and wages Rs.200. Prepared By Kamran Ali Khan Khattak 67 Lectrurer @ PBS. Peshawar Business School. Contact : 03149086491 , 03339276810
DEPRECIATION
Gradual decrease in the value of assets is called Depreciation Depreciation may be defined as the permanent and continuing decrease in the value of assets. The measure (in money term) of the wearing out consumption or other loss of value of a fixed assets whether arising from use, obsolescence through technology and market changes is called depreciation.
Causes of Depreciation
The main reasons of depreciation may be. 1. Wear and tear due to use of assets. 2. The value of some assets decrease with the passage of time even if they are not used. For example lease and patents. 3. Some assets like plants, machinery and motor vehicle etc are discarded Because of new and improved inventions of such assets. 4. The mines and quarries diminish their values as the minerals are taking
Q.No.1. On January 1st 1995 Machine worth Rs.20000 was purchased. The estimated life of the machine is 4 years and scrap value is estimated at Rs.2000. find out the amount of annual depreciation under Straight Line method and prepare a life time schedule of depreciation for the asset. Q.No.2. A plat was purchased on 1st January 1999 for Rs.46000 the estimated working life is 5 years and residual value is Rs.6000. you are required to compute the yearly depreciation expenses under Straight Line method and prepare depreciation schedule of the asset. Q.No.3. A plant was purchased on 1st July 1996 for $.42000. the estimated life is 5 yeas and residual value of $.2000. you are required to compute the annual depreciation expenses under the straight line method and prepare the Schedule of Depreciation of the 5 years.
Q.No.8. On January 1st 1998 a machine was purchased for Rs.100000 . the estimated useful life is 3 years and residual value of Rs.64000 Calculate the estimated depreciation rates under Declining Method and prepare schedule of depreciation for 3 years. Q.No.9. A business firm purchased a computer for Rs 40000. the useful life of the computer is 5 years and estimated residual value is Rs 3000 Calculate the estimated depreciation rates under Declining Method and prepare schedule of depreciation for 5 years.
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