Accounts Refresher

November, 2010

ZIGEDU Learning Solutions

Question 1
2

What do you mean by Accrual Basis of Accounting?

© ZIGEDU Learning Solutions. All Rights Reserved. The information contained in this document, belonging to ZIGEDU Learning Solutions, is confidential and privileged. You may not copy or disclose to anyone this document or its contents.

Answer 1
3

It is the most commonly used accounting method, which reports income when earned and expenses when incurred, as opposed to cash basis accounting, which reports income when received and expenses when paid. Under the accrual method, companies do have some discretion as to when income and expenses are recognized, but there are rules governing the recognition. Under the accrual basis accounting, revenues and expenses are recognized as follows: Revenue recognition: Revenue is recognized when both of the following conditions are met: a. Revenue is earned. b. Revenue is realized or realizable. Revenue is earned when products are delivered or services are provided. Realized means cash is received. Realizable means it is reasonable to expect that cash will be received in the future. Expense recognition: Expense is recognized in the period in which related revenue is recognized (Matching Principle).

© ZIGEDU Learning Solutions. All Rights Reserved. The information contained in this document, belonging to ZIGEDU Learning Solutions, is confidential and privileged. You may not copy or disclose to anyone this document or its contents.

Question 2
4

What is Cash basis of Accounting and what kind of timing differences can occur if accrual accounting is used instead of cash accounting?

© ZIGEDU Learning Solutions. All Rights Reserved. The information contained in this document, belonging to ZIGEDU Learning Solutions, is confidential and privileged. You may not copy or disclose to anyone this document or its contents.

You may not copy or disclose to anyone this document or its contents. Four types of timing differences a. Accrued Expense: Expense is recognized before cash is paid. The information contained in this document. Deferred Expense: Expense is recognized after cash is paid. belonging to ZIGEDU Learning Solutions. is confidential and privileged. Accrued Revenue: Revenue is recognized before cash is received. c.Answer 2 5 Under the cash basis accounting. d. There are potential timing differences in recognizing revenues and expenses between accrual basis and cash basis accounting. revenues and expenses are recognized as follows: Revenue recognition: Revenue is recognized when cash is received. Expense recognition: Expense is recognized when cash is paid. b. © ZIGEDU Learning Solutions. . Deferred Revenue: Revenue is recognized after cash is received. All Rights Reserved.

is confidential and privileged. . The information contained in this document. belonging to ZIGEDU Learning Solutions. All Rights Reserved.Question 3 6 What is a Bank Reconciliation? © ZIGEDU Learning Solutions. You may not copy or disclose to anyone this document or its contents.

Next. belonging to ZIGEDU Learning Solutions. These are called outstanding checks. deposits in transit at October 31 Rs 1.400.56 + Rs 1. The adjusted balance per the bank statement on October 31 is Rs 4. general ledger account. One explanation could be the bank fees that the bank took out of the checking account. is confidential and privileged. Let’s look at a bank reconciliation by assigning some amounts to the items just mentioned: Balance per bank statement at October 31 Rs 6. etc.000. outstanding checks as of October 31 Rs 3. All Rights Reserved. Another possibility is that the company received money on the closing date of the bank statement and properly recorded the amount in its records.042. the balance on the bank statement is probably not the amount that appears in the company’s records. This is known as a deposit in transit.000.442.Answer 3 7 A bank reconciliation is a process performed by a company to ensure that the company’s records (check register.00.442.) are correct and that the bank’s records are also correct.56.00).56 (Rs 6. © ZIGEDU Learning Solutions. However.00 – Rs 3.400.00. The bank reconciliation for a company’s checking account begins with the company noting the balance per the bank statement and then making some notations about that balance. . The information contained in this document. In all likelihood the amount in the company’s records will not agree with the adjusted bank amount. the bank reconciliation requires that the amount in the company’s records (for this bank statement account) be noted. You may not copy or disclose to anyone this document or its contents. In all likelihood the checks written by the company in the days immediately before the date of the bank statement will not have cleared (been deducted from) the checking account. For example. the money was deposited into the bank too late in the day and will appear on the next bank statement. balance sheet. but the fees were not yet recorded in the company’s records.

00 .56 and the adjusted balance per the company’s books is Rs4. and check printing fees. adjusted balance that is to be reported on the company’s balance sheet. any adjustments to the company’s balance must be entered into the company’s records with a journal entry. The difference of Rs115.340. general ledger account) Rs4. Bank reconciliations are also associated with a company’s internal controls over cash. As mentioned above.00.) 8 A common example is the bank service charge for maintaining the checking account.56 (Rs4.56.157. bank service charge Rs63. belonging to ZIGEDU Learning Solutions.157. the company has improved its internal control over cash. The information contained in this document. the adjusted balance per the bank is Rs4. check printing charge Rs120. The Rs115. In our example. performing a bank reconciliation is necessary for the accuracy of the accounting records and for the company’s financial statements. After all differences have been identified. If the adjusted balance per the bank agrees with the adjusted balance per the books.00). or per books.00. It is the reconciled. The adjusted balance per the company’s records. All Rights Reserved. is Rs4. Let’s illustrate the company’s adjusted balance with some amounts: Balance per the company’s records (account register. the bank reconciliation is completed. Finding the difference is likely to be tedious.Rs120.00 means that the bank reconciliation is not completed. You may not copy or disclose to anyone this document or its contents.Answer 3 (Contd.00 difference must be identified.56 . but it must be done. is confidential and privileged. handling returned checks.56.340.Rs63.042. The bank might also deduct loan payments or process other transactions that the company has not yet entered into its records. © ZIGEDU Learning Solutions. . If the bank reconciliation is performed by someone other than the authorized check signers and record keepers.

is confidential and privileged. belonging to ZIGEDU Learning Solutions. . You may not copy or disclose to anyone this document or its contents. All Rights Reserved.Question 4 9 What are Fixed Assets? What do you mean by capitalization of Fixed Assets? How many kinds of Fixed Assets are there? © ZIGEDU Learning Solutions. The information contained in this document.

held for the purpose of production of goods or rendering of services and are not held for the purpose of sale in the ordinary course of business. copyrights. etc. © ZIGEDU Learning Solutions. is confidential and privileged. You may not copy or disclose to anyone this document or its contents. trademarks. Tangible assets: A physical asset whose presence can be felt and touched. Eg: Goodwill patents trademarks. buildings. If a company purchase plant & machinery for its factory use by investing large amount of money and assume that expected life of P&M is 10 years and which generates revenue for more one financial year. office equipments. The information contained in this document. . There are two kinds of Fixed Assets: tangible and intangible assets. patents. All Rights Reserved. belonging to ZIGEDU Learning Solutions. Furniture and Fixtures Plant and Machinery Intangible Assets: Assets whose presence cannot be felt or touched.Answer 4 10 Fixed Assets are assets such as land. Eg. Therefore it is capitalized as a fixed asset under P&M head and depreciation is charged every year based on applicable rates & transferred to profit and loss a/c. Hence this investment cannot be treated expenses for one Financial year. machines.

belonging to ZIGEDU Learning Solutions. You may not copy or disclose to anyone this document or its contents.Question 5 11 Differentiate between Capital Expenditure and Revenue Expenditure © ZIGEDU Learning Solutions. The information contained in this document. is confidential and privileged. All Rights Reserved. .

© ZIGEDU Learning Solutions. belonging to ZIGEDU Learning Solutions. All Rights Reserved. A revenue expenditure is an amount that is expensed immediately—thereby being matched with revenues of the current accounting period. is confidential and privileged. The cost (except for the cost of land) will then be charged to depreciation expense over the useful life of the asset. . The information contained in this document. You may not copy or disclose to anyone this document or its contents. Plant and Equipment.Answer 5 12 A capital expenditure is an amount spent to acquire or improve a long-term asset such as equipment or buildings. Even significant repairs that do not extend the life of the asset or do not improve the asset (the repairs merely return the asset back to its previous condition) are revenue expenditures. Usually the cost is recorded in an account classified as Property. Routine repairs are revenue expenditures because they are charged directly to an account such as Repairs and Maintenance Expense.

You may not copy or disclose to anyone this document or its contents. All Rights Reserved. .Question 6 13 Derive ROE using Dupont Analysis © ZIGEDU Learning Solutions. is confidential and privileged. The information contained in this document. belonging to ZIGEDU Learning Solutions.

. belonging to ZIGEDU Learning Solutions. You may not copy or disclose to anyone this document or its contents. The information contained in this document. ROE = (Profit margin)*(Asset turnover)*(Equity multiplier) = (Net profit/Sales) * (Sales/Assets) * (Assets/Equity) = (Net Profit/Equity) Three components: Operating efficiency (measured by profit margin) Asset use efficiency (measured by asset turnover) Financial leverage (measured by equity multiplier) © ZIGEDU Learning Solutions. is confidential and privileged.Answer 6 14 DuPont analysis is an expression which breaks ROE (Return On Equity) into three parts. All Rights Reserved.

You may not copy or disclose to anyone this document or its contents. belonging to ZIGEDU Learning Solutions. The information contained in this document. is confidential and privileged. All Rights Reserved. .Question 7 15 Identify the type of ratio on the basis of what it measures: Liquidity/ Profitability/ Leverage/ Activity Ratios and give their formulae: • Gross Margin • Current Ratio • Return on Equity • Return on Capital Employed • Asset Turnover • Debt Service Coverage Ratio • Inventory Turnover • Acid Test Ratio/ Quick Ratio © ZIGEDU Learning Solutions.

is confidential and privileged. You may not copy or disclose to anyone this document or its contents. Share holder Equity EBIT/ Capital Employed Net Sales/ Total Assets Net Operating Income/ Total Debt Service COGS/ Avg. . The information contained in this document. All Rights Reserved. Inventory (Cash and Cash Equivalent + Marketable Securities + Accounts Receivable)/ Current Liabilities Current Ratio/ WC Ratio Return on Equity Return on Capital Employed Asset Turnover Debt Service Coverage Ratio Inventory Turnover Acid Test Ratio/ Quick Ratio Liquidity Ratio Profitability Ratio Profitability Ratio Activity Ratio Leverage Ratio Activity Ratio Liquidity Ratio © ZIGEDU Learning Solutions.Answer 7 16 Ratio Gross Margin Type Profitability Ratio Formulae Gross Profit/ Net Sales OR (Net Sales – COGS)/ Net Sales Current Asset/ Current Liability Net Income/ Avg. belonging to ZIGEDU Learning Solutions.

The information contained in this document. belonging to ZIGEDU Learning Solutions. 8. Depreciation Expense Proceeds from the sale of equipment used in the business The Loss on the Sale of Equipment in #2. 3. All Rights Reserved. indicate which type will be affected. You may not copy or disclose to anyone this document or its contents. . is confidential and privileged. 6. 5. Investing and Financing. 1. 7. 4.Question 8 17 There are 3 main types of Cash Flows : Operating. 2. Declaration and payment of dividends on company's stock Gain on the Sale of Automobile formerly used in the business An increase in the balance in Accounts Payable The purchase of a new delivery truck to be used in the business The proceeds from issuing additional Common Stock © ZIGEDU Learning Solutions. For each of the following items.

5. 8.Operating Proceeds from the sale of equipment used in the business . belonging to ZIGEDU Learning Solutions.Investing The Loss on the Sale of Equipment in #2 . 4. .Operating The purchase of a new delivery truck to be used in the business . 3.Financing Gain on the Sale of Automobile formerly used in the business . The information contained in this document. You may not copy or disclose to anyone this document or its contents. 2. Depreciation Expense . All Rights Reserved.Financing © ZIGEDU Learning Solutions.Operating An increase in the balance in Accounts Payable .Investing The proceeds from issuing additional Common Stock . 7. 6.Answer 8 18 1. is confidential and privileged.Operating Declaration and payment of dividends on company's stock .

belonging to ZIGEDU Learning Solutions. All Rights Reserved. .Question 9 19 What is a Contingent Liability? How is it recorded? © ZIGEDU Learning Solutions. is confidential and privileged. The information contained in this document. You may not copy or disclose to anyone this document or its contents.

Answer 9 20 A contingent liability is a potential liability…it depends on a future event occurring or not occurring. You may not copy or disclose to anyone this document or its contents. If the company is found guilty. a journal entry is not required. if the company is not found guilty. However. If a company is sued by a former employee for Rs500. In accounting. or if the amount cannot be estimated. If a contingent liability is only possible (not probable). then neither a journal nor a disclosure is required. is confidential and privileged. The information contained in this document. All Rights Reserved. a disclosure is required. the company has a contingent liability. © ZIGEDU Learning Solutions. it will have a liability. When a contingent liability is remote (such as a nuisance suit). a contingent liability and the related contingent loss are recorded with a journal entry only if the contingency is both probable and the amount can be estimated.000 for age discrimination. belonging to ZIGEDU Learning Solutions. . the company will not have an actual liability. However.

All Rights Reserved. . belonging to ZIGEDU Learning Solutions. is confidential and privileged. The information contained in this document.Question 10 21 What is an Impairment? © ZIGEDU Learning Solutions. You may not copy or disclose to anyone this document or its contents.

Answer 10 22 The term impairment is usually associated with a long-lived asset that has a market which has decreased significantly. . For example. All Rights Reserved. the amount of the impairment loss is measured by subtracting the asset’s fair value from its carrying value. You may not copy or disclose to anyone this document or its contents. © ZIGEDU Learning Solutions. is confidential and privileged. If the impairment loss must be reported. If the undiscounted future cash flows from the asset (including the sale amount) are less than the asset’s carrying amount. an impairment loss must be reported. a steel plant may have recently spent large amounts for capital expenditures and then experienced a dramatic drop in the plant’s value due to business and community conditions. The information contained in this document. belonging to ZIGEDU Learning Solutions.

You may not copy or disclose to anyone this document or its contents. is confidential and privileged. . All Rights Reserved.Question 11 23 What is the difference between accounts payable and accounts receivable? © ZIGEDU Learning Solutions. belonging to ZIGEDU Learning Solutions. The information contained in this document.

The information contained in this document.Answer 11 24 When a company purchases goods or services on credit. All Rights Reserved. the accounts payable of one company will be the accounts receivable of another company. . belonging to ZIGEDU Learning Solutions. © ZIGEDU Learning Solutions. You may not copy or disclose to anyone this document or its contents. When a company sells goods or services on credit. it will increase its accounts payable (a current liability). Just as one company’s purchase is another company’s sale. it will increase its accounts receivable (a current asset). is confidential and privileged.

Question 12 25 What is the Materiality Concept in Accounting? © ZIGEDU Learning Solutions. The information contained in this document. All Rights Reserved. is confidential and privileged. You may not copy or disclose to anyone this document or its contents. belonging to ZIGEDU Learning Solutions. .

creditor. belonging to ZIGEDU Learning Solutions.Answer 12 26 In accounting. Determining what is a material or significant amount can require professional judgment. © ZIGEDU Learning Solutions. profitable corporation.000 might be immaterial for a large. . or other interested party would be misled by not depreciating the wastebasket over a 10-year period. You may not copy or disclose to anyone this document or its contents. The matching principle directs you to record the wastebasket as an asset and then depreciate its cost over its useful life of 10 years. The materiality principle allows to expense the entire Rs10 in the year it is acquired instead of recording depreciation expense of Rs1 per year for 10 years. The reason is that no investor. The information contained in this document. A classic example of the materiality concept or the materiality principle is the immediate expensing of a Rs10 wastebasket that has a useful life of 10 years. Rs5. but it will be material or significant for a small company that has very little profit. is confidential and privileged. For example. All Rights Reserved. the concept of materiality allows one to violate another accounting principle if the amount is so small that the reader of the financial statements will not be misled.

Question 13 27 Fill in the Blanks: 1. . Rent expense for the executive offices is part of _____________________________ (manufacturing overhead/ non-operating expenses/ SG&A expense 2. 4. belonging to ZIGEDU Learning Solutions. © ZIGEDU Learning Solutions. The information contained in this document. You may not copy or disclose to anyone this document or its contents. In ABC the assumption is that __________________ (Activities/ Products) use resources or cause costs. is confidential and privileged. _______________________ (Factory supplies/ Quality control/ Interest expense) would not be included in a product's cost for inventory valuation for the financial statements. All Rights Reserved. Real estate tax on the factory building is part of ______________________________ (income tax expense/ manufacturing overhead/ SG&A expense) 3.

Answer 13 28 1. belonging to ZIGEDU Learning Solutions. © ZIGEDU Learning Solutions. . SG & A Expense Manufacturing Overhead Interest Expense Activities 2. The information contained in this document. is confidential and privileged. All Rights Reserved. You may not copy or disclose to anyone this document or its contents. 4. 3.

Question 14 29 What do you mean by Cost Allocation? © ZIGEDU Learning Solutions. You may not copy or disclose to anyone this document or its contents. . is confidential and privileged. The information contained in this document. belonging to ZIGEDU Learning Solutions. All Rights Reserved.

. Efforts have been made over the years to improve the bases for allocation. The information contained in this document. the overhead allocations have moved from plant-wide rates to departmental rates. Some people describe the allocation as the spreading of cost. For example. Allocation implies that the assigning of the cost is somewhat arbitrary. In manufacturing. a company might allocate or assign the cost of an expensive computer system to the three main areas of the company that use the system.Answer 14 30 Cost allocation is the assigning of a common cost to several cost objects. All Rights Reserved. from direct labor hours to machine hours to activity based costing. because of the arbitrary nature of the allocation. belonging to ZIGEDU Learning Solutions. The goal is to allocate or assign the costs based on the root causes of the common costs instead of merely spreading the costs. is confidential and privileged. You may not copy or disclose to anyone this document or its contents. A company with only one electric meter might allocate the electricity bill to several departments in the company. © ZIGEDU Learning Solutions.

is confidential and privileged. . The information contained in this document. You may not copy or disclose to anyone this document or its contents. All Rights Reserved. belonging to ZIGEDU Learning Solutions.Question 15 31 What do you mean by Activity Based Costing? © ZIGEDU Learning Solutions.

and producing activities. is confidential and privileged. the products that require the activities mentioned above will be assigned the costs of engineering. All Rights Reserved. and are low-volume items. storing.) Activity based costing identifies the many activities that actually cause the company to consume resources.) Activity based costing is useful for service businesses as well as manufacturers.Answer 15 32 Activity based costing (ABC) is a more sophisticated and logical way to allocate a company’s costs to its products (or other objects) than traditional costing. (Traditional costing might allocate all of the overhead costs solely on the basis of machine hours. testing. it calculates the cost of each of the activities. etc. activityintensive products would be assigned too little overhead cost. Other products might be high-volume items that run continuously and require no special attention. many machine setups. Next. Then it assigns each activity’s cost only to the products that actually use the activities. the high-volume. In the case of a manufacturer. belonging to ZIGEDU Learning Solutions. The process of identifying and determining the cost of activities can lead to improvements in a company’s operations. © ZIGEDU Learning Solutions. storing. The information contained in this document. unique storage arrangements. easy-tomanufacture products would be assigned an enormous amount of overhead. and other products require many activities. some products may require special engineering. and the low-volume. testing. and all costs were allocated solely on machine hours. These products will only be assigned the cost of the production activity. and running the production machine). . Under activity based costing. You may not copy or disclose to anyone this document or its contents. sophisticated testing. Obviously this is important when some products require few activities. The products that run continuously will not be assigned costs for engineering. setups. (If activities were not considered. In other words. some products require lots of activities (engineering. while some products require just one activity–running the production machine.

All Rights Reserved. belonging to ZIGEDU Learning Solutions.Question 16 33 Is Land depreciated? How is Sale of Land recorded? © ZIGEDU Learning Solutions. is confidential and privileged. . You may not copy or disclose to anyone this document or its contents. The information contained in this document.

and 3) record the difference as a gain or loss on sale of land. have limited useful lives.Answer 16 34 Land is not depreciated because land is assumed to have an unlimited useful life. If a company sells land that it was holding for future use. Other long-lived assets such as land improvements. etc. there is no depreciation expense to be recorded up to the date of the sale. Therefore. You may not copy or disclose to anyone this document or its contents. furnishings. Since land’s life is not limited. is confidential and privileged. buildings. . Since land does not get depreciated. the company will 1) debit Cash for the amount it receives. belonging to ZIGEDU Learning Solutions. 2) credit Land for the amount in the general ledger account that applies to the land being sold. there is no need to allocate the cost of land to any accounting periods. All Rights Reserved. equipment. nor is there any accumulated depreciation to be removed from the books of the company © ZIGEDU Learning Solutions. The information contained in this document. the costs of those assets must be allocated to those limited accounting periods.

is confidential and privileged. You may not copy or disclose to anyone this document or its contents. . belonging to ZIGEDU Learning Solutions. All Rights Reserved. The information contained in this document.Question 17 35 What is Net Realizable Value? © ZIGEDU Learning Solutions.

the resulting net realizable value of the accounts receivable is Rs92. You may not copy or disclose to anyone this document or its contents. In the case of accounts receivable.000. is confidential and privileged. In the context of inventory. In this situation. if Accounts Receivable has a debit balance of Rs100. net realizable value means the debit balance in the asset account Accounts Receivable minus the credit balance in the contra asset account Allowance for Uncollectible Accounts. net realizable value or NRV means the expected selling price in the ordinary course of business minus any costs to complete and dispose.Answer 17 36 Net realizable value is used in connection with accounts receivable and inventory. belonging to ZIGEDU Learning Solutions. © ZIGEDU Learning Solutions. NRV minus the normal profit becomes the floor. net realizable value is used in the calculation of the lower of cost or market.000. . The information contained in this document. All Rights Reserved. Net realizable value amount becomes the ceiling for the replacement cost.000 and the Allowance for Doubtful Accounts has a proper credit balance of Rs8. For example.

You may not copy or disclose to anyone this document or its contents. is confidential and privileged. . The information contained in this document. belonging to ZIGEDU Learning Solutions. All Rights Reserved.Question 18 37 Differentiate between an Operating Lease and a Capital Lease © ZIGEDU Learning Solutions.

a capital lease is recorded as both an asset and a liability on the financial statements. FASB provided criteria for when a lease should be capitalized. . the lease is treated as a capital lease and recorded on the financial statements. This is an option that allows the lessee. generally at the present value of the rental payments (but never greater than the asset's fair market value). A bargain purchase option is given to the lessee. To distinguish the two. You may not copy or disclose to anyone this document or its contents. and if any one of the criteria for capitalization is met. belonging to ZIGEDU Learning Solutions. • • © ZIGEDU Learning Solutions. An operating lease records no asset or liability on the financial statements. The present value of the minimum lease payments (MLP) is equal to or greater than 90% of the fair market value of leased property. for a specified period of time in return for stipulated. to purchase the leased asset at a price significantly lower than the expected fair market value of the asset. On the other hand. upon termination of the lease. The basic criteria for capitalization of a lease by lessee are as follows: • • The lessor transfers ownership of the asset to the lessee at the end of the lease term. The life of the lease is equal to or greater than 75% of the economic life of the asset.Answer 18 38 A lease is defined as a contractual agreement between a lessor and lessee that gives the lessee the right to use specific property. In accounting. either owned by or in the possession of the lessor. All Rights Reserved. The information contained in this document. and generally periodic. is confidential and privileged. cash payment. a lease is classified either as an operating lease or a capital lease (finance lease). the amount paid is expensed as incurred.

is confidential and privileged. . You may not copy or disclose to anyone this document or its contents. The information contained in this document. belonging to ZIGEDU Learning Solutions.Question 19 39 What are the components in a Procurement to Pay Cycle? © ZIGEDU Learning Solutions. All Rights Reserved.

You may not copy or disclose to anyone this document or its contents. search on the Internet. This document normally contains description of material. If any contract exists then a PO is generated and sent to the supplier. After the approval of Inventory controller. Following is an exhaustive list of various steps involved in Procure to Pay cycle Identification of requirement: At this stage the team member of user department (Maintenance. In case no contract exists then the Buyer initiates supplier search and floating of enquiries Identification of Suppliers: Buyer shall interact with the user for the possible suppliers. the supervisor may return the PR to the originator for modification or can approve it. . approx cost. use referrals. to identify the suppliers for the material. it is available to Buyer. The information contained in this document. © ZIGEDU Learning Solutions. Final Approval of PR/Role of Inventory Controller: Once the PR has been authorised by user department then it is available to the inventory controller. material requirement date. any other scheduled or planned delivery for the material. At this stage. Sales and distribution. Production. administration etc) identifies the requirement and raises the Purchase requisition PR). search data base. Buyer checks for any existing Annual Rate Contract or any other contract for the material. the approved PR is available to the Procurement department Procurement: After final authorization of PR. etc. quantity. If there is any planned delivery or any existing open PO then Inventory controller can return the PR or request the user department to revise the quantity of the material.Answer 19 40 Processes in procure to pay cycle may differ from company to company but the process more or less remains the same. Inventory controller shall review the PR and shall check the Open Purchase orders (PO). All Rights Reserved. belonging to ZIGEDU Learning Solutions. is confidential and privileged. preferred or Standard vendor etc Authorisation of Purchase Requisition : If the purchasing value of the PR is higher than that of approval limit of originator then this document is sent to the next higher level (normally immediate supervisor of the originator) for approval.

the buyer shall send the advice to shortlisted suppliers for commercial quotations.) 41 Floating of Enquiries: Once the suppliers are identified. The information contained in this document. Receipt of Technical Quotations: After sending the RFQ/RFP to vendors . mentioning only RFQ reference no on it. In negotiation buyer can negotiate with the supplier for Reduction in the prices of the materials. Quotations are normally opened and signed by 2 or more persons of the department. RFQ normally contains Description. etc. Negotiation: Short listed suppliers are invited for negotiations. technical department shall shortlist the quotations based on the technical specifications Receipt of Commercial Quotations: Once the Technical Evaluation is over. Quality standards.Answer 19 (Contd. previous performance of the vendor. You may not copy or disclose to anyone this document or its contents. technical parameters. etc. quantity of the material. . date of submission of the RFQ. Technical Evaluation of Quotations : Quotations are sent to technical department for technical evaluations of the quotations. these shall be opened by two people. etc. Validity of the suppliers offer. Here. Buyer shall send the Request For Quotations/Proposal ( RFQ/RFP) to the supplies. term and conditions. Normally. All Rights Reserved. After receiving the commercial quotations. delivery dates of the material. is confidential and privileged. the buyer shall receive the quotations from the suppliers. © ZIGEDU Learning Solutions. delivery date of the material. vendors are instructed to send their quotation in a sealed envelope. Technical Specifications of the material. Selection of the Vendor: After negotiations with all the selected vendors revised quotations are prepared and vendor is finalized for award of contract based on the weightage to the commercial. belonging to ZIGEDU Learning Solutions. Quotation comparison statement is prepared by the buyer to compare all the quotations of the supplies and suppliers are short listed for negotiations. Delivery Terms and conditions.

This invoice is entered in to the system. All Rights Reserved. Payment to Supplier : After the supplier account gets credited the payment is released to the vendor © ZIGEDU Learning Solutions. etc Goods Receipt : When the goods are received at the warehouse of buyer organization.The sound material is moved to respective warehouse locations. the receiving staff checks the delivery note. If any ERP is being used for procurement functions then supplier can remotely download purchase orders and can acknowledge the PO Advance Shipment Note : The supplier sends the Advance Shipment to buyer as soon as he ships the material to the buying organization. After the material is received the same is checked for quantity/ quality and in case of discrepancy the same is reported to the vendor. PO acknowledgement: After receiving the PO the supplier send the acknowledgement to buyer and buyer records the acknowledgement. delivery condition etc and sent to supplier. . receiving location address. PO No. You may not copy or disclose to anyone this document or its contents. is confidential and privileged. Transporter’s name .) 42 Award of Contract : After the vendor is finalized LOI can be sent to him and he may be asked to deposit security or bank guaranty before signing the agreement. supplier account gets credited and liability account gets debited. Purchase Order : A PO is raised specifying the quantity. No of packages. In the ERP of the buying organization stock account gets debited and liability account gets credited. After the entry of invoice in the system. The information contained in this document. belonging to ZIGEDU Learning Solutions. PO no etc and acknowledges the receipt of material. This note normally contains Ship Date. weight of the packages. Invoice Recording : Vendor send the invoice to accounts department of buying organization for claiming payment.Answer 19 (Contd. Airway Bill No. description of goods.

belonging to ZIGEDU Learning Solutions. You may not copy or disclose to anyone this document or its contents. .Question 20 43 What is the basic accounting equation? What is its expanded form? © ZIGEDU Learning Solutions. The information contained in this document. All Rights Reserved. is confidential and privileged.

Stockholders’ Equity in the basic accounting equation (Assets = Liabilities + Stockholders’ Equity) is replaced by these components: Paid-in Capital + Revenues . and the effect of transactions with owners (draws.Dividends .Treasury Stock. The resulting expanded accounting equation for a corporation is: Assets = Liabilities + Paid-in Capital + Revenues . The accounting equation for a corporation is: Assets = Liabilities + Stockholders’ Equity In the expanded accounting equation for a corporation.Answer 20 44 The financial position of a company is measured by the following items: Assets (what it owns) Liabilities (what it owes to others) Owner’s Equity (the difference between assets and liabilities) The accounting equation (or basic accounting equation) offers us a simple way to understand how these three amounts relate to each other. .Expenses . is confidential and privileged. sale or purchase of ownership interest). All Rights Reserved. dividends. decreased by expenses). The expanded accounting equation allows you to see separately (1) (2) the impact on equity from net income (increased by revenues. The information contained in this document.Treasury Stock.Expenses . © ZIGEDU Learning Solutions. belonging to ZIGEDU Learning Solutions. You may not copy or disclose to anyone this document or its contents.Dividends .

Delhi-110092 Thank You! ZIGEDU Learning Solutions . Near Nirman Vihar Metro Station. All Rights Reserved. Vikas Marg. Gagan Vihar(Main). is confidential and privileged. belonging to ZIGEDU Learning Solutions. DDA Building. The information contained in this document. . Laxmi Nagar District Center. 3rd Floor.malik@zigedu. You may not copy or disclose to anyone this document or its contents. Delhi -110051 Corporate Office 301.45 Varun Malik Director Email: varun.com Mobile No: 0 9999 48 64 72 Registered Office 94.Transforming Learning Methods © ZIGEDU Learning Solutions.