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1. Define Accounting.

Explain the accounting concepts which guide the accountant at the

recording stage.
The systematic and comprehensive recording of financial transactions pertaining to a business. Accounting also refers
to the process of summarizing, analyzing and reporting these transactions. The financial statements that summarize a
large company's operations, financial position and cash flows over a particular period are a concise summary of hundreds
of thousands of financial transactions it may have entered into over this period. Accounting is one of the key functions for
almost any business; it may be handled by a bookkeeper and accountant at small firms or by sizable finance departments
with dozens of employees at larger companies.
There are the necessary assumptions or conditions upon which accounting is based. Accounting concepts are postulates,
assumptions or conditions upon which accounting records and statement are based. The various accounting concepts are
as follows:
1. Entity Concept:
For accounting purpose the business is treated as a separate entity from the proprietor(s). One can sell goods to himself,,
but all the transactions are recorded in the book of the business. This concepts helps in keeping private affairs of the
proprietor away from the business affairs. E.g. If a proprietor invests Rs. 1,00,000/- in the business, it is deemed that the
proprietor has given Rs. 1,00,000/- to the business and it is shown as a liability in the books of the business. Similarly, if
the proprietor withdraws Rs. 10,000/- from the business, it is charged to them.
2. Dual Aspect Concept:
As per this concept, every business transaction has a dual affect. For example, if Ram starts business with cash Rs.
1,00,000/- there are two aspects of the transaction: Asset Account and Capital Account. The business gets asset (cash)
of Rs. 1,00,000/- and on the other hand the business owes Rs. 1,00,000/- to Ram.
3. Going Business Concept (Continuity of Activity):
It is assumed that the business concern will continue for a fairly long time, unless and until has entered into a state of
liquidation. It is as per this assumption, that the accountant does not take into account the forced sale values of assets
while valuing them.
4. Money measurement concept:
As per this concept, in accounting everything is recorded in terms of money. Events or transactions which cannot be
expressed in terms of money are not recorded in the books of accounts, even if they are very important or useful for the
business. Purchase and sale of goods, payment of expenses and receipt of income are monetary transactions which are
recorded in the accounting books however events like death of an executive, resignation of a manager are such events
which cannot be expressed in money.
5. Cost Concept (Objectivity Concept):
This concept does not recognize the realizable value, the replacement value or the real worth of an asset. Thus, as per the
cost concept
a) as asset is ordinarily recorded at the price paid to acquire it i.e. at its cost, and
b) this cost is the basis for all subsequent accounting for the asset.

For example, if a machine is purchased for Rs. 10,000/- it is recorded in the books at Rs. 10,000/- and even if its market
value at the time of the preparation of the final account is Rs. 20,000/- or Rs. 60,000/- the same will not considered.
6. Cost-Attach Concept:
This concept is also known as cost-merge concept. When a finished good is produced from the raw material there are
certain process and costs which are involved like labor cost, power and other overhead expenses. These costs have a
capacity to merge or attach when they are broughtr together.
7. Accounting Period Concept:
An accounting period is the interval of time at the end of which the income statement and financial position statement
(balance sheet) are prepared to know the results and resources of the business.
8. Accrual Concept:
The accrual system is a method whereby revenue and expenses are identified with specific periods of time like a month,
half year or a year. It implies recording of revenues and expenses of a particular accounting period, whether they are
received/paid in cash or not.
9. Period Matching of Cost and Revenue Concept:
This concept is based on the period concept. Making profit is the most important objective that keeps the proprietor
engaged in business activities. That is why most of the accountants time is spent in evolving techniques for measuring the
profit/profitability of the concern. To ascertain the profit made during a period, it is necessary to match revenues of the
period with the expenses of that period. Income (profit) earned by the business during a period is compared with the
expenditure incurred to earn the revenue.
10. Realization Concept:
According to this concept profit, should be accounted for only when it is actually realized. Revenue is recognized only
when sale is affected or the services are rendered. However, in order to recognize revenue, receipt of cash us not
essential. Even credit sale results in realization as it creates a definite asset called Account Receivable. However there
are certain exception to the concept like in case of contract accounts, hire purchase etc. Similarly incomes like commission
interest rent etc. are shown in Profit and Loss A/c on accrual basis though they may not be realized in cash on the date of
preparing accounts.
11. Verifiable Objective Evidence Concept:
According to this concept all accounting transactions should be evidenced and supported by objective documents. These
documents include invoices, contract, correspondence, vouchers, bills, passbooks, cheque etc.

2. (a) Name items which are recorded at the invoice price in the Consignment Account. Give
reasons for consigning the goods at the invoice price.
(b) Explain the separate set of books method for maintaining joint venture accounts
Excess Price or Loading is to be calculated on the following items:
1. Consignment stock at the beginning
2. Goods sent on consignment
3. Goods returned by the consignee
4. Consignment stock at the end of the period
Whenever a consignor sends goods to consignee at a price higher than the cost price, that is known as invoice
price method. It is done if the consignor does not want to disclose the real profit to the consignee. The consignee will not
be able to know the cost price if the goods are consigned at above price. Hence, he cannot find out profit or loss being
made by the consignor on these goods.
For the goods consigned at invoice price, the entries in the books of both consignor and consignee will be same. But the
following changes and adjustment entries are required in the books of the consignor for eliminating loading charge in
goods sent, goods returned, unsold goods and abnormal loss.
1. For goods sent on consignment
Consignment to.................. A/C..........Dr.(invoice price)
To goods sent on consignment A/C
2. For loading goods sent on consignment
Goods sent on consignment A/C........Dr.(loading amount)
To consignment to......A/C
3. For abnormal loss
Abnormal loss A/C...............Dr.(invoice price)
To consignment to........A/C
4. For loading on abnormal loss
Consignment to......A/C.............Dr.(loading amount)
To abnormal loss A/C
5. For unsold stock
Consignment stock A/C.............Dr.(invoice price)
To consignment to........A/C
6. For loading on unsold stock
Consignment to..........A/C.......Dr. (loading amount)
To consignment stock reserve A/C
7. For goods return by consignee
Goods sent on consignment A/C.............Dr. (invoice price)
To consignment to.....A/C
8. For loading on goods returned
Consignment to.........A/C ........Dr.(loading amount)
To goods sent on consignment A/C
(b) Mainly there are two ways of keeping joint venture account. Those are 1. Without keeping separate separate set of
books, 2. With keeping separate set of books.

With Keeping Separate Set Of Books

When the size of the venture is considerably large, then a separate set of books of accounts may be maintained. Under this
system, accounts are maintained just like in the case of partnership. While preparing the accounts, the principle of double
entry must be followed. Under this method, the following ledgers are maintained.
i. Joint Venture Account
ii. Joint Bank Account
iii. Co-venture's Account
Joint Venture Account
The joint venture account is very unique one where all the purchases, procurement related expenses, selling and
distribution expenses as well as expenses related to the joint ventures are being debited like trading and profit and loss
account. No any separate account of purchases, wages or any other expenses are opened. The goods supplied by coventures etc. are also debited to it. Likewise, sale proceeds, closing stock, goods taken over by co-ventures are credited to
joint venture account. If the joint venture account shows credit balance, it means profit and if it shows debit balance, it is
loss and transferred to co-ventures personal account.
Joint Bank Account
It is just like a cash book. It records all the cash and bank transactions. It is opened with the contribution of cash made by
co-ventures. The investment made by then are deposited into a bank account and will operate this in their joint name. Any
receipts of cash and any expenses related to venture are recorded in their account. The joint bank account is closed by
transferring balance to the personal account of co-ventures.
Co-ventures Account
Like the capital accounts in partnership, co-venture account is opened in joint venture. it is credited with the investment
of each co-venture and debited with the drawings made by them. The profits of the venture is credited and loss of venture
is debited. This account comes to end by cash payment from joint bank account.

3. What is meant by single entry system? Distinguish it from Double Entry System. Explain the
two methods of ascertaining profit when accounting records are incomplete.
A single entry system records each accounting transaction with a single entry to the accounting records, rather than the
vastly more widespread double entry system. The single entry system is centered on the results of a business that are
reported in the income statement. The core information tracked in a single entry system is cash disbursements and cash
receipts. Asset and liability records are usually not tracked in a single entry system; these items must be tracked
The primary form of record keeping in a single entry system is the cash book, which is essentially an expanded form of a
check register, with columns in which to record the particular sources and uses of cash, and room at the top and bottom of
each page in which to show beginning and ending balances.
The most significant problems associated with a single entry system include:
Assets are not tracked, so it is easier for them to be lost or stolen.
Audited financial statements. It is impossible to obtain an audit opinion on the financial results of a business using a single
entry system; the information must be converted to a double entry format for an audit to even be a possibility.
Errors. It is much easier to make clerical errors in a single entry system, as opposed to the double entry system, where
separate entries to different accounts must match.

Liabilities. Liabilities are not tracked, so you need a separate system for determining when they are due for payment, and in
what amounts.
Reporting. There is much less information available upon which to construct the financial position of a business, so
management may not be fully aware of the performance of the business.
Single entry systems are strictly use for manual accounting systems, since all computerized systems utilize the double
entry system instead.
Compare single and double entry system:
1. Meaning
Single entry system is an incomplete system of recording financial transactions. Double entry system is a complete system
of recording and reporting financial transactions.
2. Duality
Single entry system is not based on the concept ofduality. Double entry system is based on theconcept of duality.
3. Accounts
Single entry system maintains only personal accounts of debtors and creditors and cash book. Double entry system all
personal, real and nominal accounts.
4. Trial Balance
Single entry system can not prepare a trial balance and hence, arithmetical accuracy of books of accounts can not
be checked. Double entry system prepares trial balance and hence, arithmetical accuracy of the books of accounts can
be checked.
5. Profit Or Loss
Single entry system can not ascertain the true amount of profit or loss of the business as it does not maintain nominal
accounts. Double entry system ascertains true profit or loss of the business as it maintains all nominal accounts.
6. Financial Position
Single entry system cannot ascertain the true financial position of the business because it does not maintain real accounts
except cash book. Double entry system ascertains financial position of the business as it maintains all personal and real
7. Suitability
Single entry system is suitable to a small business where only limited number of transactions are performed. Double entry
system is suitable for a large business.
8. Tax Purpose
Single entry system is not acceptable for the purpose of assessment of tax. Double entry system is acceptable for the
purpose of assessment of tax.

The following method is used for the calculation of profit or loss under single entry system.
Net Worth Method
Net worth method is also called statement of affairs method or capital comparison method. According to this method
profit or loss of the business is determined by making comparison between the capital of two dates of a period. For
Capital as on 1st January 2009 = $ 150000

Capital as on 31st December 2009 = $ 200000

Profit for the year 2009 = Closing capital -Opening capital = $200000-$150000 = $50000.
If there are other capital related items such as drawing, additional capital, interest on capital etc. are to be adjusted to
ascertain the amount of profit or loss.
These items include:
* Drawing: If the drawing is made during the year, it should be added to the amount of closing capital.
* Additional capital: If additional capital is introduced in the business during the year, it should be deducted from the
amount of closing capital.
* Interest on capital: If the interest is provided on capital, it should be deducted from the amount of closing capital.

4. Distinguish between the following:

a) Income and Expenditure Account & Receipts and Payments Account.
b) Straight line method and diminishing balance method of depreciation.
(a) The following are the main differences between receipts and payments account and income and expenditure account:
1. Nature
Receipts and payments account is a summary ofcash transactions for a period and it is a real account. Income and
expenditure account is a summary of expenditure and income like trading and profit and loss account and it is
a nominal account.
2. Objective
Receipts and payments account is prepared to show cash and bank receipts and payments during the period to derive
closing balance of cash and bank. Income and expenditure account is prepared to show the net result of the operation
during the period to derive surplus or deficit.
3. Recording
All cash and cheque receipts are recorded on debit side of receipts and payments account where as all cash and bank
payments are recorded on credit side. In income and expenditure account all expenditure of revenue nature are
recorded on debit side and all incomes of revenue nature are recorded on credit side.
4. Capital And Revenue Items
There is no distinction between capital and revenue receipts and payments in receipts and payments account. All
expenses and incomes of revenue nature are recorded on accrual basis in income and expenditure account.
5. Contents
Receipts and payments account contains only cash and bank transactions. Income and expenditure account contains
both cash and non-cash expenses and incomes of revenue nature.
6. Balance Sheet Requirement
Receipts and payments account is not required to prepare balance sheet. Income and expenditure account is required
to prepare balance sheet.
7. Adjustments
No adjustments are required in receipts and payments account. In income and expenditure account adjustments are
made because it is prepared on accrual basis.
(b) The following graph is taken from How to Site's Article Diminishing Balance Method . I have liked this graph to
explain the difference between Straight line method and Diminishing balance method . Both methods are of
Calculation the amount of depreciation in financial accounting .
In straight line depreciation method , depreciation is charged on fixed asset with fixed rate . Suppose depreciation Rate is

10 % and Fixed Asset is 10

In the end of first year will be the depreciation = 1 and rest fixed asset will be 9
In the end of Second year will also depreciation = 1 and rest fixed asset will be 8
So , Graph will show the straight line . So , this method is famous with this name due to this reason. In other words we can
say that the amount of depreciation will equal in first year or in end of asset.
In diminishing balance method , depreciation is charged on the amount of fixed asset after deducting previous
year depreciation
Suppose fixed asset is 10
Then depreciation of first year at 10% = 1
balance of fixed asset at the beginning of second year =9
now depreciation will charge on 9 not on 10
So 9 X 10/100 = 0.9
now the balance fixed asset in the beginning of third year will be = 8.1
Now again depreciation will charge on the amount of 8.1
So , slop of curve under diminishing balance method will not straight line but more upward in left side .

5. From the following Trial Balance prepare Trading and Profit & Loss Account for the year
ended 31st Dec., 2014 and Balance Sheet as on that date:
Dr. (Rs.)
Stock 1st Jan., 2014
Purchases and Purchases
Freehold Premises
Incidental Trade Exp.
Audit Fees
Commission Received

Cr. (Rs.)


Dr. (Rs.)
Stock 1st Jan., 2014
Purchases and Purchases
Freehold Premises
Incidental Trade Exp.
Audit Fees
Commission Received

Cr. (Rs.)



a) Stock at 31st December, 2014 is Rs. 70,000.
b) Write off 5% Depreciation on freehold premises and 20% on office furniture.
c) Commission earned but not received Rs. 500.
d) Interest earned Rs. 600.
e) Rs. 200 for rent has been received in advance.
f) Charge interest on Capital @ 6% and Rs. 500 on Drawings.