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Assets: Property of any description belonging to a person or business can be taken as asset For e!a"ple# Cas$# Stock# Furniture# Plant and %ac$inery# &uilding# etc Assets are classified as 1. 2. 3. 4. N 1. Fixed Assets Fi!ed assets are assets of per"anent nature '$ic$ are not intended for re(sale T$ey are used to carry on business Trader earns profit 'it$ t$e $elp of fi!ed assets Fi!ed assets are also called as capital assets or long li)ed assets For e!a"ple# Land# &uildings# %ac$inery# Furniture# etc Since t$ese assets are not intended for resale t$eir "arket )alues need not be s$o'n in t$e books T$ey are )alued on t$e price at '$ic$ t$ey $a)e ac*uired less depreciation 2. Floating Assets Floating Assets are also kno'n as circulating assets Floating assets are t$ose assets t$at are intended to be sold or con)erted into cas$ on a later date or and '$ic$ fre*uently undergo c$ange For e!a"ple# Cas$# Stock# Sundry +ebtors# &ills ,ecei)able# etc Floating Assets are again sub(di)ided into t'o categories Fixed Assets Floating Assets Wasting Assets Fictitious Assets

i. ii. i.

Liquid Assets Non-liquid Assets Liquid Assets Li*uid Assets are t$ose assets '$ic$ can be con)erted into cas$ 'it$out appreciable loss For e!a"ple# Cas$ in $and# Cas$ at bank#


Non-liquid Assets Non(li*uid Assets are t$ose assets '$ic$ cannot be readily con)erted into cas$ or not 'it$out any appreciable loss For e!a"ple# Stock# +ebtors# &ills ,ecei)able# etc

Floating assets are )alued on t$e principle of cost price or "arket price '$ic$e)er is less 3. Wasting Assets -asting Assets are t$ose '$ic$ are depleted gradually or e!$austed in t$e process of 'orking# suc$ as "ine or a *uarry Since t$e depreciation arise due to its e!$austion# it is difficult to kno' $o' "uc$ of it is 'asted .ence t$ey are )alued at t$eir original cost "aking pro)ision for t$eir depreciation 4. Fictitious Assets

Outstanding: e!ceptional# terrific# 'onderful# stupendous# da00ling# "ar)elous# e!cellent# great# superior# abys"al 1Antony"2# unresol)ed# unsettled# re"aining# o'ing# due Ascertained: continued# constant# continual# continuous# nonstop# Ot$er'ise: or else# if not Sustained: continued# constant# continuous# nonstop# T$e "ain ob/ect of preparing profit and loss account is to find out t$e Net Profit or Net Loss during a particular accounting period In order to ac$ie)e t$is ob/ecti)e it beco"es necessary t$at all e!penses incurred during a particular accounting period '$et$er actually paid or not# t$e '$ole of t$e losses sustained '$et$er ascertained or esti"ated Si"ilarly Inco"es actually recei)ed or yet to be recei)ed s$ould be broug$t into account In ot$er 'ords all outstanding and prepaid ite"s of inco"e and e!penditure and certain notional ite"s like depreciation# interest on capital# reser)e for bad debts# pro)isions# etc # of t$e accounting year s$ould be broug$t into account T$ese are ot$er'ise kno'n as ad/ust"ents 3ery fre*uently certain e!penses relating trading period "ay be due and not paid Like 'ise certain e!penses "ay $a)e been paid in ad)ance Si"ilarly t$ere "ay be inco"e earned but not recei)ed So"eti"es inco"e "ay $a)e been recei)ed in ad)ance but it is not actually earned during trading period Certain debts "ay beco"e irreco)erable fro" debtors

T$e co""on ite"s t$at re*uire ad/ust"ents before or at t$e ti"e of t$e preparation of final accounts 4 5 6 7 8 9 : ; < 4= 44 45 46 47 Outstanding E!penses Prepaid E!penses Inco"e Earned &ut Not ,ecei)ed Inco"e ,ecei)ed in Ad)ance +epreciation on Assets Appreciation on Assets Interest on Capital Interest on +ra'ings -riting Off Furt$er &ad +ebts ,eser)e for +oubtful on +ebts ,eser)e for +iscount on +ebtors ,eser)e for +iscount on Creditors Closing Stock Creation of ,eser)e Fund

48 49 4: 4; 4< 5= 54 55 56 57

Co""ission of %anager# etc # as Percentage of Profit Losses &y Accidents >oods +istributed as Free Sa"ples >oods -it$dra'n for Personal ?se >oods ,ecei)ed but not ,ecorded in t$e &ooks Sale of Assets ,ecorded As Sale of >oods >oods ?sed for %anufacturing Assets >oods Sold and +eli)ered &ut Not ,ecorded in &ooks >oods Sold on Sale or ,eturn &asis -rongly Treated as Sales +is$onor of &ills ,ecei)able