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Q.1 Explain the Various accounting Concepts and Principles? Ans: Concepts: Concepts take the form of assumptions or conditions, which guide the accountants while preparing accounting statements.
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be taken to profit and loss account. Unrealized revenue should not be taken into consideration for determining the profit. Principle of Expense: Expenses are different from payments. A payment becomes expenditure or an expense only when such payment is revenue in nature and made for consideration.
Principle of Matching Cost and Revenue: Revenue earned during a period is compared with the expenditure incurred to earn that income, whether the expenditure is paid during that period or not. This is matching cost and revenue principle, which is important to find out the profit earned for that period. Here costs are reported as expenses in the accounting period in which the revenue associated with those costs is reported. Principle of Historical Costs: This is called cost principle. All assets are recorded at the cost of acquisition and this cost is the basis for all subsequent accounting for the assets. The expenses and the goods purchased are shown at the value at which they are incurred. The value of the assets is constantly reduced by charging depreciation against their cost to present their book value in the balance sheet. Principle of Full Disclosure: The business enterprise should disclose relevant information to all the parties concerned with the organization. It means that any information of substance or of interest to the average investors will have to be disclosed in the financial statements. Double Aspect Principle: This concept is the most fundamental one for accounting. A business entity is an independent unit and it receives benefits from some and gives benefits to some other. Benefit received and benefit given should always match and balance. Modifying Principle: The modifying principle states that the cost of applying a principle should not be more than the benefit derived from. If the cost is more than the benefit, then that principle should be modified. This is called cost-benefit principle. There should be flexibility in adopting a principle and the advantage out of the principle should over weigh the cost of implementing the principle. Principle of Materiality: While important details of financial status must be informed to all relevant parties, insignificant facts which do not influence any decisions of the investors or any interested group, need not be communicated. Such less significant facts are not regarded as material facts. What is material and what is not material depends upon the nature of information and the party to whom the information is provided. While income has to be shown for income tax purposes, the amount can be rounded off to the nearest ten and fraction does not matter. The statement of account sent to a debtor contains all the details regarding invoices raised, amount outstanding during a particular period. The information on debtors furnished to Registrar of Companies need not be in detail. Principle of Consistency: Consistency is required to help comparison of financial data from one period to another. Once a method of accounting is adopted, it should not be changed. For instance if stock is valued under FIFO method in first year it should be valued under the same method in the subsequent years also. Likewise if the firm chooses to depreciate assets under diminishing balance method, it should continue to do so year after year, unless the management takes a policy decision to change the depreciation method. Any change in the accounting methods should be informed to the concerned authorities with justification. Principle of Conservatism or Prudence: Accountants follow the rule anticipate no profits but provide for all anticipated losses . Whenever risk is anticipated sufficient provision should be made. The value of investments is normally taken at cost, even if the market value is higher than the cost. If the market value expected is lower than the cost, then provision should be made by charging profit
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and creating investment fluctuation fund. This is the principle of conservatism and it does not mean that the income or the value of assets should be intentionally under stated.
Q.2 Pass journal entries for the following transactions 1. Madan commenced business with cash Rs. 70000 Capital a/c Dr. to Cash a/c. 2. Purchased goods on credit 14000 Goods a/c Dr. to Creditors a/c. 3. Withdrew for private use 3000 Drawings a/c Dr. to Cash a/c 4. Goods purchased for cash 12000 Goods a/c Dr. to Cash a/c 5. Paid wages 5000 Wages a/c Dr. to Cash a/c.
Q.3 Explain the various types of errors disclosed by Trial Balance? Ans: Errors disclosed by Trial Balance: Those errors that can be disclosed by trial balance can easily be located. As soon as the trial balance does not tally, the accountant can proceed to find out the spots where the errors might have been committed. The total amount of difference in the trial balance is temporarily transferred to a Suspense Account so that it can be mitigated as and when the errors get rectified. Therefore the suspense account gets debited or credited as the case may be on rectification of these types of errors. The following are the errors which are disclosed by trial balance: a) Posting a wrong amount: This mistake may occur while posting an entry from subsidiary book to ledger.
b) Posting to the wrong side of an account: This error is committed while posting entries from subsidiary books to ledger. c) Wrong Totaling: Both under casting and over casting are detected by trial balance. If any account is wrongly totaled, it gets reflected in the trial balance. d) Omitting to post an entry from subsidiary book to ledger: If an entry made in the subsidiary book does not get posted to ledger, the trial balance does not tally. e) Omission of an account altogether from being shown in trial balance:
f) Posting an amount to a correct account more than once: This result in imbalance in the trial balance. g) Posting an item to the same side of two different ledger accounts: If two accounts are debited /credited for the same transaction, this type of error occurs.
Q.4 From the following balances extracted from Trial balance, prepare Trading Account.
. The closing stock at the end of the period is Rs. 56000 Particulars Stock on 1-1-2004 Returns inwards Returns outwards Purchases 10 Marks] Amount in Rs. 70700 3000 3000 102000
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Debtors Creditors Carriage inwards Carriage outwards Import duty on materials received from abroad Clearing charges Rent of business shop Royalty paid to extract materials Fire insurance on stock Wages paid to workers Office salaries Cash discount Gas, electricity and water Sales
56000 45000 5000 4000 6000 7000 12000 10000 2000 8000 10000 1000 4000 250000
Ans:
Financial accounting
Management accounting
The primary users of financial accounting information are Top, middle and lower level managers use the information shareholders, creditors, government authorities, employees for planning and decision making etc.,
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Accounting information is always expressed in terms of money Financial data is presented for a definite period, say one year or a quarter Financial accounting focuses on historical data
Management accounting may adopt any measurement unit like labour hours, machine hours or product units for the purpose of analysis Reports are prepared on continuous basis, monthly or weekly or even daily Management accounting is oriented towards future
Financial accounting is a discipline by itself and has its own Management accounting makes use of other disciplines like principles, policies and conventions economics, management, information system, operation research etc.,
Q.6 Following is the Balance Sheet of M/s Srinivas Ltd. You are required to prepare a Fund Flow Statement.
Particulars Equity Share capital Profit & Loss Trade Creditors Mortgage Short term loans Accrued expenses Total 2006 50,000 14,750 29,000 10,000 15,000 8,000 1, 26,750 2007 65,000 17,000 31,000 15,000 16,500 7,500 1, 52,000 Particulars Cash balances Debtors Investment Fixed Assets Less: Depreciation Goodwill Stock Total 2006 10,000 25,000 5,000 50,000 (5,250) 5,000 37,000 1, 26,750 2007 13,000 27,000 nil 80,000 (7000) nil 39,000 1, 52,000
Additional Information: 1. Depreciation provided is Rs.1750. 2. Write off goodwill. 3. Dividend paid Rs.3500.
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