Professional Documents
Culture Documents
Special Accounts
CA R.C. Joshi ,
FCA,CAIIB,LL.B. B.Com(Hons.)
Bank Reconciliation
Every trader/business maintains Bank
Account. However when you compare the
balance on a particular day (generally at
the end of month )on comparison the
Bank Balance as per Books maintained by
Business & that reflected by Bank
Statement may not be matching most of
the times. A few reasons are listed below :
BR : Difference in CB & PB
Bank Reconciliation Statement is a state
All Cheques Issued may not have been
Presented in Bank
All Cheques deposited may not been
Credited in Bank Account
Interest & Bank Charges effected by Bank
Standing Instruction given to Bank not
reflected in Businessmans Books
BR : Difference in CB & PB
For eg. Tel. Bills , Electric Bills & Insurance
Premia (debited by Bank )
Standing Instruction for Credits may be FD
Interest, Dividends etc.
Dishounour of Cheques deposited as also those
issued by Business
Direct Credit in Bank by Business.
Thus Bank Reconciliation is a statement
prepared to explian the difference between the
balance as as per the ash Book & Bank Pass
Book/Statement.
BR
It is a STATEMENT(not an Account)
prepared by Customer.
Overcasting the deposit side of Cash
Book increases the Bank Balance as per
Cash book.
Bank shows as Deposits & withdrawals
what is called for Receipts & Payments by
Businessman in his Cash Book.
20 To Cash ( C ) Dep.
Dr.
15000
200
Dec
5 By X & Co.
5 By Y & Co.
10 By Cash (C)(withd.)
400
500
2000
1000
30 By MTNL
30 To B & Co.
Cr.
800
700
30 By Z & Co.
900
31 By Bal C/d.
12300
-------------------------------------------16900
16900
Bank Statement
Withdrawals
20 Cash
31 By Charges
31 By Dividend
Deposits
Balance
15000 Cr.
400
500
200
14300 Cr.
1000
13300 Cr.
2000
100
200
13400Cr.
Rs
12300
1900
------14200
800
13400
Rs
Bank Balance as per Bank Statement as on 31st Dec 13400
Add: Cheque Deposited but not credited Rs. 700
Bank Chgs. Debited not effected in CB Rs.100
800
-
14200
1900
12300
Answers
1. Overdraft
2. Debit, Credit
3. Favourable
4. Debited
5. Pass Book.
Column : A
1.Cash Book Dr. Side
2. Cash Book Cr. Side
3. Pass Book Dr. side
4. Pass Book Cr. Side
5. Dr. Bal. in Pass book
Column :B
a. Deposits
b. Withdrawals
c. Receipts
d. Payments
e. Overdraft as per Pass Book.
Answers
1 1.Cash Book Dr. Side
c) Receipts
2. Cash Book Cr. Side
d)Payments
3.Pass Book Dr. side
b) Withdrawals
4. Pass Book Cr. Side
a) Deposits.
5. Dr. Bal. in Pass book e) Overdraft as per Pass
Book
TRIAL BALANCE
Rectification of Errors
Trial Balance is a list or abstract of
balances from Books (ledger, Cash Book,
journal) to determine posted
Debits/Credits and to establish a basic
summary for financial statements. It may
be prepared monthly, quarterly & half
yearly.
Type of errors
Errors of principle
(No effect on trail
balance )
Clerical Errors
OMMISSION
Compensatory
Partial(After TB)
COMMISSION
Errors
Compensating Errors: One effect nullifies the
wrong effect on another
Error of Commission: A clerical error committed
while posting, totaling or balancing of an
Account
Error of Principles : An error arising out of
non-observance of Accounting Principles
One Sided Error: An error which affects only one
side of Account
Errors
Two Sided Errors : An error affecting two
sides
Rectifying Entry : An entry passed to
rectify the error.
Suspense Account: An Account opened to
tally trial balance temporarily.
Example-1
Goods purchased from Sohanlal wrongly
entered into Sales Register at Rs.500.
Correct Entry( That should have been)
Purchases A/c. Dr. 500
To Sohanlal
Cr.Rs.500
Wrong Entry Passed
Sohanlal A/c. Dr. 500
To Sales
Cr. 500
Example-1
Rectification Entry
Sales A/c.
Dr.500
Purchase A/c. Dr.500
To Sohanlal
Cr. Rs.1000
(Being purchase of goods wrongly
recorded in Sales Register now rectified.)
Example -2
Salary Paid to Vijay, Accountant wrongly
recorded to his Personal A/c. Rs.1000
Correct Entry
Salary A/c. Dr. 1000
To Cash
Cr. Rs.1000
Wrongly Passed as :
Vijay A/c. Dr. 1000
To Cash
Cr. Rs. 1000
Example-2
Rectification entry
Salary A/c. Dr. 1000
To Vijay A/c.
Cr. 1000
(Being Salary paid wrongly debited to
personal A/c now rectified).
Example-3
Wages paid for installation of Machinery
Rs.500 were debited to Wages A/c.Rs.500
Correct Entry
Machinery A/c. Dr. 500
To cash
Rs.500
Wrongly passed as :
Wages A/c. Dr. 500
To Machinery
Rs.500
Example-3
Rectification Entry
Machinery A/c. Dr. Rs.500
To cash
Rs.500
( Being wages paid for Installation of
Machinery is wrongly debited to Wages
A/c. now rectified).
Example-4
Rent paid Rs.200 wrongly debited to
Postage A/c.
Correct Entry:
Rent A/c. Dr. Rs. 500
Cash A/c. Cr.
Rs.500
Entry wrongly passed as :
Postage A/c. Dr. Rs. 500
Cash A/c. Cr.
Rs.500
Example-4
Rectification Entry
Rent A/c. Dr. Rs. 500
To Postage A/c. Cr.
Rs.500
(Being Payment of Rent wrongly debited
to Postage A/c. now rectified).
Column: A
1.Trial Balance
2. Net Trial Bal.
3. Gross Trial Bal.
4. Suspense A/c.
5. Real A/c.
Column : B
Answers
1. Compensatory Errors
2. Commission
3. Suspense A/c.
4. Ommission
12.
Chapter :12
Capital & Revenue Expenditure
The Basis
1.
True or False
1.A revenue expenditure of one party may be
Capital receipt for the other party.
2.Receipts from Sale of machinery is revenue
receipt.
3.The distinction between & revenue expenditure
can not be definite. It depends on the facts &
circumstances of each case.
4.Legal charges paid for purchase of land are
True or False
Capital Expenditure but legal charges paid
in the ordinary course of business is
revenue expenditure.
5. Wages paid in the Ordinary Course of
business are revenue expenditure but
wages paid for erection of machinery are
capital expenditure.
6.Debenture receipts are revenue receipts.
1. True
2. False
3. True
4. True
5. True
6. False
13.
INVENTORY VALUATION
Objective
The main objective for accounting for
INVENTORIES is to ascertain income through
matching appropriate costs t for receipts as well as
conversion of raw materials into semi-finished &
finished products.
As per Accounting Standard-2 the inventory may be
for sale in the ordinary course of business
In the process of production for such sale
The production for goods or services for sale
including maintenance, supplies and consumables
other than machinery & spares.
Units Rate
1 Op. Stock
2 Purchases
4 Purchases
6 Purchase
500
8
600 10
100 10.20
200 10.50
Date Recepits
Issued Date
3
5
7
Units
300
400
400
FIFO
April,09
Receipts
1.
2.
600*10=6000
3.
4.
Issue
300*8=2400
10(Loss)*8=80
100*10.20=1020
190*8=1520
210*10=2100
Balance
500*8=4000
500*8=4000
600*10=6000
190*8=1520
600*10=6000
{ 190*8= 1520
{600*10= 6000
{100*10.20=1020
{ 390*10= 3900
{100*10.20=1020
7.
Issue*
390*10=3900
10*10.20=102
Balance
390*10= 3900
100*10.20=1020
200*10.50=2100
90*10.20= 918
200*10.50=2100
LIFO
April,09
Receipts
1.
2.
600*10=6000
Issue
3.
4.
5
300*10= 3000
10(Loss)*10=100
100*10.20=1020
100*10.20= 1020
290*10= 2900
10*8 =
80
Balance
500*8=4000
500*8=4000
600*10=6000
500*8=4000
290*10=2900
500*8= 4000
290*10=2900
100*10.20=1020
490*8 =3929
LIFO
April,09
Receipts
6
200*10.50= 2100
Issue
Balance
490*8=3920
200*10.50=2100
400 Units
200*10.50=2100
200*8=1600
10,800
Closing Stock under LIFO 290 units Rs.2320
Cost of Goods Sold
1100 units Rs.10700
Loss of Units
10units Rs.100
290*8=2320
April,09
1.
2.
3.
Receipts
Issue
Balance
500*8=4000
1100*9.09=10000
300
10 loss
310*9.09=2819 790*9.09= 7181
4
100*10.20=1020
890*9.21=8201
5
400*9.21=4513
490*9.21=4513
6.
200*10.50=2100
690*9.58=6613
7
400*9.58=3835 290*9.58=2778
Stock: units 290*9.58= Rs.2778
Cost of Goods Sold 1100 units=10251
Loss of units 10*9.09 = Rs.91.
Methods
Periodic Inventory
Perpetual Inventory
Implications of FIFO & LIFO Methods in
rising methods & falling Prices.
Requirements
In rising Market , FIFO just like LIFO in
falling Market will reflect lowest cost so
higher profits.
Answers
1-a
2-c
3-b
4-a
5-c
14.
BILLS OF EXCHANGE
Bills of Exchange
The main journal is divided into a number of journals. So
there are Bills Receivable & Bills Payable journals.
Types of Instruments of Credit :
Promissory Note
Bills Of Exchange : It is an instrument in writing Signed by
the maker containing an unconditional order to pay a
certain sum of money to a person named in the instrument
or to his order to the bearer on a certain fixed future date
or demand.
(se. 5 of NI Act)
Bills of Ex.
A Sells goods worth Rs.10000 to B On Credit.
A draws the Bill for Rs.10000. It is accepted by B &
returned to A. Show the entries to be passed in the
books of A & B respectively under the different
circumstances
(a) if A retains the Bill & presents on maturity
(b) If A discounts the bill before the due date for
Rs.9800. A sends the Bill to his Bank for
Collections.
(d ) If A endorses the bill to C his Creditor
Answer
Here A is the drawer, Bill means Bills of
Exchange & it is Bills Receivable for Drawer
& Bills Payable for Drawee.
Cr. 10000
Cr. 10000
Bills of Ex.
(C)
Bank for Bills Collection A/c. Dr. 10000
To Bills Receivable A/c. cr.
10000
(d) When the Bill is endorsed to C
C A/c Dr.
10000
To Bills Receivable
10000
(being endorsement of Bill of C
Bills of Ex.
In the Books of B
As A/c
Dr. 10000
To Bills Payable A/c.
Cr. 10000
Bills of Ex.
( c). Here Bank collects the money from Drawee
remits to A.
Cash or Bank A/c. Dr. 10000
To Bank for Bills Collection Cr. 10000
(d) When endorsed Bill is met.
No entry in Bs Books.
In Bs Books :
Bills Payable A/c. Dr. 10000
To Cash/ Bank
Cr. 10000
Dishonouring of Bill
Books of A
a) Dishonour of retained Bill.
Bs A/c.
Dr. 10100
To
BR A/c. Cr. 10000
To
Cash
100
(b) Discounted Bill Dishonoured
BR A/c/ Dr.
10000
Noting Charges Dr. 100
To Cash A/c. Cr. 10100
Bs A/c.
Dr. 10100
To
BR A/c. Cr. 10000
To
Cash
100
Dishonouring of Bill
Books of A
(a) Dishonour of retained Bill.
Bs A/c.
Dr. 10100
To
BR A/c. Cr. 10000
To
Cash
100
(b) Discounted Bill Dishonoured
BR A/c/ Dr.
10000
Noting Charges Dr. 100
To Cash A/c. Cr. 10100
Bs A/c.
Dr. 10100
To
BR A/c. Cr. 10000
To
Cash
100
100
10000
10000
100
10100
10000
100
10100
On retirement
In As Books
Cash A/c Dr. Rs.9500
Rebate A/c Rs. 500
To Bills Receivable Rs.10000
In Bs Books
Bills Payable A/c. Dr. Rs.10000
To Cash A/c. Cr Rs.9500
To Rebate Cr. Rs.500
Renewal in Bs books
First old bill is to be cancelled
Bills Payable A/c Dr. Rs.10000
To As A/c. Cr.
Rs.10000
As A/c Dr.
Rs.10000
Interest A/c. Dr.
Rs. 150
To Cash A/c. Cr.
To Bs A/c
Rs. 4000
Rs.6150
Accommodation Bills
These bills are drawn without
consideration & objective is to accomdate
one party.
The rest of things are same as Bills
receivable (with exception to sharing of
discount in the manner they share
Proceeds from Bills).
Answers 1 to 10
1.True
2. False
4. False
5.
6. True
7. True
9. False 10True
3. True
True
8 False
2. transferred 3.
Stamped
4. Maker 5. drawee.
Consignment Account
15. Consignment Account
15.CONSIGNMENT ACCOUNT
A consignment is the dispatch of goods
buy its owner to its agent for the purpose
of selling. It this Principal (Owner) is a
Consignor, Agent is a Consignee. The
goods so sent are called Consignment
Outward & for Agent it is Consignment
Inward.
15.CONSIGNMENT ACCOUNT
Since transfer of goods to Agent is not a sales
the invoice prepared is called Pro forma invoice.
And the Statement prepared by Agent Showing
sale of goods received on Consignment .Unsold
stock or damaged stock, expenses incurred &
his commission is called ACCOUNT Sale.
Commission:
ORDINARY &
DEL CREDRE.
Ordinary Commission is paid on total Sales.
Losses or bad debts are borne by Consignee
By Ziauddin(Sales)
105000
30*3500
By Goods lost in Transit 5000
(2*2000=4000+1000)
25000
By Good in transit 7500
12000
10500
8500
156000
By Closing Stock
38500
156000
Ziauddins A/c
To Consignment 105000 By Consignment Exp 12000
By Consignment-Comm.10500
.______ By Bank
82500
105000
105000
Cl. Stock; 50*2000 =
Rs.30000
Add; Prop. Exp.Consignor
15*500
Rs. 7500
Consinee: Non recurring:
On 15 cases for warehousing
45cases Rs.3000
so for 15 cases
1000.
38500
In transit 3*2000+1500=7500
1 ( b)
2(a)
3( b)
4 (b)
5 (b)
6 ( b)
7( C )
JV
It is an agreement between two or more
parties.
The agreement is made to carry on a
specific job
The agreement is over as soon as venture
is completed
Pur. 30000
Exp. 5000
To As Capital
To Joint Bank A/c
Pur 25000
Exp. 3000
To Profit Trd.
A 18000
B 12000
. (pg.288)
Sale Proceeds
35000
Sale Proceeds
50000
44000
3000
By Bs A/c- Goods Taken
2000
28000
30000
96000
96000
71000 52000
16.JV Match
(1) JV
(a) Personal
(2) Co-ventures A/c
(b) Nominal A/c
(3) Goods Supplied on JV A/c ( C )Real
(4 ) Joint Bank A/c
(d) Personal
(5) Cr. Bal. in JV A/c.
(e) Profit on JV
(6) JV ends
(f) Completion of Venture
JV Answers
1((b) 2 (a) 3 4 (h) 5 ( e) 6 ( f)
17.
17.LEASING & HIRE PURCHASE
Operating Lease
Operating lease is a lease which is not
Finance or a Capital lease .It does not
transfer any of the rewards and the risk of
ownership of the leased property to the
lessee. The contract is, usually,
cancelable and of lower maturity period
than in case of financial lease. Normally,
the period of lease is much less compared
to the economic life of the asset.
Operating Lease
Leasing of telephones, vehicles,
computers, etc., are some of the examples
of the operating lease. The lease period is
normally for a short period and may
stretch from a day to about three years
Service Lease
This takes care of Services & not Capital
outlay. Assets generally remains with the
Lessee.
Leveraged Lease : In this type there are
three parties. Financier apart from Lessor
& Lessee.
17Lease
1. In a lease agreement there are ___ parties.
2. The user of the assets is known as_______
3. In higher purchase transactions the buyer Pays the
price in _______.
4. In higher purchase , the ownership of goods passes to
the buyer on payment of _______ instalment.
5.The ownership of goods passes to the buyer
immediately in ________system.
6. Under Hire Purchase , buyer is called____ while
seller is called ______.
Answers
1.two 2. Lessee. 3. Installment
5. instalment
5. Hire Purchaser & Hire Vendor
4. Last
18.
ACCOUNTS OF NON- TRADING
ORGANISATION
18.
Non- Trading Organisations are also required to
maintain the following books of accounts like Cash
Book, General Ledger, Journal , Membership Register,
Donations Register, Property Register & Others
depending on the type for eg. Students Register in case
School. Final Accounts consist of
1.Receipts & Payment A/c
2. Income & Expenditure A/c.
3. Balance sheet.
18
Receipts & Payment A/c. : This shows
actual amounts (Cash & cheques)
received
and paid for the whole year.
Income & Expenditure A/c ; It is similar to
P&L A/c. that Businessman prepares.
Balance Sheet : It is same as B/S in
Business. Capital here referred to as
Capital Fund or General Fund.
Answers
a(i) Mercantile system of Accounting
b(ii) Capital Receipt
c(ii) the excess of expenditure over
income
d( iii) Loss on sale of Furniture.
A
B
1.Receipts & Payment A/c. (a) No intention of earning it
Profit
2. I & E A/c.
(b) Excess of expenditure
over Income
3. Deficit
(C) In & Exp. For the year
4. Non- Trading Organization (d) Actual Receipts &
Payments in Cash
1 (d ) 2 ( C) 3 (b) 4 (a)
19.
Depreciation Accounting
Depreciation
(i) is a part Operating Cost
(ii) It is reduction in the value of assets
(iii) The decrease in the value of its assets
is due to its use caused by wear & tear or
obsolescence
(iv) decrease in the value of assets in
gradual & Continuous.
Dep. Helps us to arrive at correct profit.
Accounting Entries
Depreciation A/c Dr.
To Asset A/c. Cr.
ALTERNATIVELY
Depreciation A/c Dr
To Prov. For dep. A/c. Cr.
Methods of Depreciation
Straight Line : Cost Price Scrap Value
Est. Life of assets (no. of yrs)
W. D.V: Here Depreciation provided on the book value
which appears after writing down depreciation
Machinery
1/4/05To Bank
100000
.______
100000
Account
31/3/06 By Dep
31/3/06 By Bal C/d
90000 31/3/07
______. 31/3/07
90000
1/4/07 To Bal /d 81000 31/3/08
_______ 31/3/08
81000
1/4/08 To Bal B/d 72900 31/3/09
.______ 31/3/09
72900
1/4/09 To Bal B/d 65610
By Depreciation
By Bal C/d
By Depreciation
By Bal C/d
By Dep.
By Bal C/d
10000
90000
100000
9000
81000
90000
8100
72900
81000
7290
65610
72900
Sinking Fund
Sinking Fund Method
(For Providing Dep.)
SF method
Next year
Bank A/c. Dr.
To Int. on Sink. Fund Invest. A/c.Cr.
Dep. A/c.
To Sinking Fund A/c.
Int. on Sink. Fund Invest. A/c. Dr.
To Sinking Fund A/c.
Sinking Fund A/c. Dr.
To Bank A/c.
SF Method
(Sale of old asset)
V. Sinking Fund A/c. Dr.
To Asset A/c
Example
Rs.35000 is spent by way of overhauling on
a 2nd hand Motor car Purchased at
Rs.80000 on 1/4/06. The car on which
straight line method depreciation is
provided is sold for Rs.65000 on
39/6/2009. Pl. show the entries & Motor
Car showing profit or loss on sale of car.
Car
1/4/2003: By Car A/c. Dr. Rs.80000
To Bank A/c.
80000
(being the purchase cost of 2nd hand car)
By Car A/c Dr. 35000
To Bank A/c
35000
(Being the overhauling cost capitalised ).
31/3/04 By Dep. A/c Dr.
11500
To Motor Car
11500
By P & L A/c. Dr.
11500
To Dep.
11500
Car
31-3-05
By Dep.
11500
To Motor Car A/c.
By P & L A/c. Dr.
11500
To Dep.
11500
31-3-06
By Dep.
11500
To Motor Car A/c.
By P & L A/c. Dr.
11500
To Dep.
11500
11500
11500
80000
35000
115000
31/3/04 By Dep
31/3/04 By Bal C/d
11500
103500
115000
103500
31/3/05 By Dep
31/3/05 By Bal C/d.
11500
92000
103500
103500
1/4/05 To Op. Bal
92000
31/3/06 By Dep
31/3/06 By bal c/d
11500
80500
92000
2875
65000
12625
80500
Creditors Account
Dr.
Cr.
RATIO ANALYSIS
Ch. 21.
Functional Classification
Profitability
Turnover/Activity Ratios
Financial/Solvency Ratios
Financial Ratios may be further classified
as Short Term Ratios/Liquidity Ratios
or Long Term/ Solvency Ratios
PROFITABILITY RATIOS
(EPS)
Solvency Ratios
Long Term Solvency Ratios
Fixed Assets Ratios : Fixed Assets
Long Term Funds
The ratio should not be more than one.
If it is less than one then it indicates part of the Working
Capital Financed through Long term Funds i.e. we may
call Core Working Capital
Interest+ Instalment
Turnover Ratios
Stock Turnover Ratio =
Cost of goods Sold during the year
Average Inventory
Debtors Turn over Ratios (Debtors Velocity) =
Credit Sales
Average Accounts Receivable
Debtors Collection Period = Months or days in a year
Debtors turnover
Accounts receivable
Average Monthly or daily Credit sales
or
Liabilities
2008
Rs. Lakhs
2009
2010
800
700
800
800
1200
4300
1000
800
2000
1000
900
5700
1000
1000
2400
1500
1100
7000
Less : Dep
Net Block
Current Assets: Stock
Debtors
Other Current Assets
Total Assets
Rs. Lakhs
2009
2010
2800
3000
4000
920
1400
2000
1880
1600
2000
1520
480
420
2420
2400
500
1200
4100
2800
900
1300
5000
4300
5700
7000
ROCE
EBIT * 100
Capital Employed
EBIT=Earnings before Interest & Tax
For March,2009
2010
2000 = 1.11
1800
2400 = 1.2
2000
4800 =2.76
1740
7200
1800
=4
Sales
Av Inv.
4800 =9.8
490
7200 = 10.29
700
100 Lakhs
Net Profit after Tax for 2010 = Rs.600 Lakhs = Rs. 6 =EPS
While no. of Eq. shares are
100 Lakhs
Thank You