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1) What do you mean by depreciation? Why do we calculate depreciation?

The systematic allocation of the cost of an asset to Depreciation Expense on the income
statement over the useful life of the asset. (The depreciation journal entry includes a debit
to Depreciation Expense and a credit to Accumulated Depreciation, a contra asset
We charge depreciation because most of the long-lived assets used in a business have 1) a
significant cost, and 2) they will be useful only for a limited number of years. The
matching principle (a basic underlying accounting principle) requires that the actual cost
of these assets be allocated to the accounting periods in which the company will benefit
from their use.
2) What are the various methods to depreciate an asset?
 Straight Line: Same depreciation is charged over the entire useful life. Suitable for
depreciating assets that provide similar level of economic benefits throughout their
useful life (e.g. buildings)

Written Down Value: Depreciation expense decreases at a constant rate as the life of
an asset progresses: Appropriate where the usefulness of an asset declines over its
useful life (e.g. IT equipment)

Sum of Years Digits Depreciation: Depreciation charge declines by a constant
amount as the life of the asset progresses

3) 4 difference between Public and Private Company?
Public Co
Company owned and traded
Minimum Members
Max Members
Minimum Directors
Certificate for commencement of
Min Paid up capital
5 lakhs

Pvt Co
Company owned and traded
1 lakhs

4) What do you meant by Contingent liability?
A potential liability dependent upon some future event occurring or not occurring. For
example, a company is named as a defendant in a $1 million lawsuit. Does that mean the
company automatically has a liability of $1 million? What if the lawsuit has no merit and
can easily be defended? If it is probable that the company will lose and the amount can be
estimated, a journal entry is prepared to debit Loss from Lawsuit and to credit Lawsuit

Assets: o Cash to inventories. It is often considered to be one of the most important variables in determining a stock’s value. Patents (Intangible) Liabilities: o Payments to vendors.Long term liabilities Owners Equity: o the remainder after liabilities are deducted from assets. equipments. Physical plant etc (Tangible) Goodwill. E. Inventory etc o Fixed Assets --> Vehicle. Raj a/c Nominal Account: Debit all expenses and losses. Cash a/c Personal Account: Debit the receiver. and it comprises the “E” part of the P/E (price-earnings) valuation ratio.g. 8) Why do you prepare a P/L appropriation a/c? Apportioning the net profit & transferring a portion of the profits earned to various reserve a/cs as per the requirement of the company as well as the companies & various other acts. . Accrued expenses etc <--Current Liabilities o Debts to lenders. serving as an indicator of the company’s profitability. Furniture & Fixtures. Mortgage holders. patents and deposits o Current Assets ---> A/c Receivable. Real Account: Debit what comes in Credit what goes out. 9) Difference between Net profit & Gross profit Gross Profit . Trademarks.g. E. unless otherwise the profits cannot be distributed as dividends.g. E. Discount a/c 7) Contents of Balance sheet. The profit arrived after such appropriations is available for the distribution as dividends to the shareholders of the company.5) How do you calculate Profit earned per share? Earnings per share (EPS) is the portion of a company’s profit that is allocated to each outstanding share of common stock. Prepaid Expense.Net sales revenues minus the cost of goods sold. Other creditors <-. Credit the giver. EPS is calculated as: EPS = net income / average outstanding common shares 6) What are the Golden principles of accounting? Give example for each. Copyrights. Payable taxes. Credit incomes and gains.

2. Accrual concept: An accrual is a journal entry that is used to recognize revenues and expenses that have been earned or consumed. Realization Concept: The realization principle is the concept that revenue can only be recognized once the underlying goods or services associated with the revenue have been delivered or rendered. Accruals are needed to ensure that all revenues and expenses are recognized within the correct reporting period. Credit sales o Party / Sundry Dr a/c Dr To Sales 3. revenue can only be recognized after it has been earned E. Thus. for external accounts it is normally a period of 12 months. it may be a month or a quarter.Net profit . and for which the related cash amounts have not yet been received or paid out. and the non operating expenses. 3. 10) Explain: 1. irrespective of the timing of the related cash flows 11) Pass the Journal entry for: 1. respectively. For internal accounts. respectively. 1000 o Salary advance a/d Dr (under loans & advances) To Cash a/c . Accounting period Concept: Period for which a firm prepares its internal or external accounts. It receives orders from customers in advance against 20% down payment.means all revenues minus all expenses including the cost of goods sold. Credit purchase o Purchases a/c Dr To Party (Sundry Cr) 2. Motors PLC delivers the cars to the respective customers within 30 days upon which it receives the remaining 80% of the list price. Motors PLC is a car dealer. the selling. and administrative (SG&A) expenses. general. A Rs. Salary advance paid to Mr. In accordance with the revenue realization principle. At a corporation it may also mean after income tax expense. Motors PLC must not recognize any revenue until the cars are delivered to the respective customers as that is the point when the risks and rewards incidental to the ownership of the cars are transferred to the buyers.g. the period covered by the financial statements.

000 machine for $35. after having compiled $70. Revaluation of machinery o Revaluation a/c Dr To Fixed assets a/c (decrease in value of assets) o Fixed assets a/c Dr To Revaluation a/c (increase in the value of assets) 8. Bad debts written off Rs.000 100. to Bad Debts Recovered A/c Transfer to P/L Bad Debts Recovered A/c to P/L A/c 10. o P&L a/c Dr To Provision for doubtful debts 11. o Cash A/c Dr.4.000 for . Credit sales with a discount o Debtor a/c Dr Discount allowed a/c Dr To Sales 9. Recovery of bad debts. Depreciation on Machinery o Depreciation a/c Dr (Nominal a/c) To Asset a/c (Real a/c) 7.000 ABC International sells another machine that had originally cost it $40. The entry is: Debit Cash 35. Sale of machinery for a loss ABC International sells a $100.000 in cash. 2000 o Bad debts written off a/c Dr (P&L a/c) To Sundry Debtors Account (Balance Sheet) 6. Reserve for bad debts. Bank charges Rs.000 Accumulated depreciation 70.000 Gain on asset disposal Machine asset Credit 5.000 of accumulated depreciation. 1000 o Bank Charges a/c Dr To Bank a/c 5.

The the machine.000 Machine asset 40.000 in cash.000 Loss on asset disposal Credit 5.  For e. 14) Contents of an Invoice receipt o Name sales 13) Diff Between P/L a/c & Trading a/c Trading A/c . For e. Tax & Total amount payable by buyer o Signature of seller etc. o 15) Classifications of Errors as per accounting o Errors of Principles  errors occured by violating the principles of accounts. It includes all indirect expenses and indirect incomes which are not related to pure trade.g. TIN No of buyer and seller o Date o Invoice No o Particulars of Materials o prepared to ascertain the gross profit(sales . debiting the wage account instead of machinery account for the wage paid to the mechanics used for installation of machine and .$25. Outstanding Wages o Wages a/c Dr To Outstanding wages 12) How do you calculate Closing Stock in the Trading A/C? o opening stock +(purches-purchage return) +direct expence(ex: wageslighting etc. P&L .).is prepared to ascertain the net profit or loss of the concern.000 of accumulated depreciation on Debit Cash 25. sales and all direct expenses incurred from trade. wrong allocation between capital and revenue expenditure or wrong valuation of assets.cost of goods sold) or gross loss.address. It includes only trade related accounts like purchases.000 Accumulated depreciation 10.000 12.g. The entry is: outcompany had compiled $10.

wrong total carrying forward and wrong balancing. Conducting Of Audit Internal audit is of regular nature but final audit is conducted after the preparation of final account. Errors of commission: posting wrong amounts. 3. 4. 100 is recorded in the sales book but failed to post in John's account. Purchase of goods for Rs. 500. 2. posting on wrong side of accounts. 1.000 is entered as Rs. But statutory audit is the act of checking books of accounts as per the provision of company act. Errors of omission: not recording a transaction either in the book of original entry or in the ledger.debiting the customers account instead of cash account for the cash sales made. Legal Requirement Internal audit is the need of management but it is not legal obligation but statutory audit is the legal requirement. 4. Compensating errors: If one error balances the effect of another error. 5000 wrongly posted to suppliers account as Rs. 2. Goods sold for Rs.  Again wrong valuation of assets o Clerical Errors: Errors are committed in the process of recording financial transactions due to carelessness of the clerk responsible for recording financial transactions. It can be complete or partial omission. 1. is wrongly entered twice or more in the sales book or wrongly posted twice or more in John's account 16) Difference between Statutory Audit & Internal Audit An internal audit is conducted by the permanent staff of the same office to detect weakness in system. Similarly goods purchased for Rs. 5000 wrongly posted to customer account as Rs.000 in the journal or ledger 3. 10. 1. Goods sold to John. Partial Omission: Goods sold to John for Rs. Errors of duplication: Basically double posting of a transaction from journal or subsidiary books to ledger create such errors.g. For e. Appointment An internal auditor is generally appointed by the management but statutory auditor is appointed by the shareholders or Annual General Meeting. Qualification An internal auditor does not required specific qualification as per the provision of law but qualification of statutory auditor is specified. 500. then the two errors are called compensating errors. procedures and for the improvement. 17) Difference between Reserves for bad debts & provision for bad debts .

Where the Bank book and the cash book will not reconcile? The process of comparing the amounts in the Cash account in the general ledger to the amounts appearing on the bank statement. Basic logic is. you cannot pay what you don't have. then the accounting system is not properly followed.debit and credit side. The total of the amounts in the debit column should equal the total of the amounts in the credit column . the second is used to record bank transactions and third is used to record discount received and paid 20) When will the cash book have a Credit balance? If the Cash book shows credit balance.Provision is a charge against incomes whereas reserve is an appropriation of profits. Provision is to be created even when there is no profit. Negative or credit balance appears only if the total payments is more than the opening balance of cash plus receipts from various sources including withdrawal from bank as per the books of accounts. It is created by debiting the P/L account. o o o o o 19) What is a 3 Column cash book? A three column cash book or treble column cash book is one in which there are three columns on each side . 21) Why do you prepare a Trail Balance? If trial balance dose match What is the a/c they prepare a/c errors A listing of the accounts in the general ledger along with each account's balance in the appropriate debit or credit column. The objective is to be certain that there is consistency between the amounts and that the company's amounts are accurate and complete. One is used to record cash transactions. Cheque issued by the organization but not yet presented for payment Cheque deposited into bank but not yet collected by bank Cheque directly deposited by customers into the bank Bank charges debited by bank Interest credited or some receipts directly collected by bank based on organization request o Some payments directly made by bank based on organization request. Reserve for bad debts can be created only if the provision for bad debts exceeds the value of debts Reserve being an appropriation to be shown under the respective notes called Reserves and surplus 18) What is bank reconciliation statement? Give an example.

trial balance is o Prepared before preparing this Profit & Loss Account =>Income And Expenditure Account o Prepared by non-trading organizations o Credit balance is known as “excess of income over expenditure or surplus” and added to opening capital fund o Debit balance is known as “excess of expenditure over income or deficit” and deducted from opening capital fund o To check correctness of accounts. 24) What is ERP? Enterprise resource planning (ERP) is business process management software that allows an organization to use a system of integrated applications to manage the business and automate many back office functions related to technology. It is shown as Sundry Creditors under Current Liabilities & Provisions in the Balance Sheet Account receivable is the money receivable from Customers for the credit sale made. the trial balance is considered to be balanced. The product is German in origin. It is shown as Sundry Debtors under Currents Assets in the balance sheet. 23) What do you mean by the term A/C Payable/Receivable? Accounts payable is the money payable to Creditors / Vendors for the credit purchase made. which is used in many companies worldwide. receipts and payment account is prepared before preparing this account. .Preparing a trial balance for a company serves to detect any mathematical errors that have occurred in the double-entry accounting system. It is easy to process user transactions like post an Invoice. post a Payment etc. and also this always you to customize the system(software) to your company needs.. Provided the total debts equal the total credits. services and human resources 25) What are the full form & the application of SAP? SAP is an ERP package. The full form for SAP is System Application Products in Data Processing. and there should be no mathematical errors in the ledgers 22) Difference between Income & Expenditure a/c & P/L a/c =>Profit And Loss Account o Prepare by business undertakings o Credit balance of this account is known as “Net profit”and added to opening capital o Debit balance of this account is known as “ Net loss” and deducted from opening capital o To check correctness of accounts.FI. The main advantage is SAP is well integrated software between diff modules (like SAP. CO.

26) What is the full form of GAAP? . SAP is a windows applications.. Matching Principle: The matching principle (a basic underlying accounting principle) requires that the actual cost of these assets be allocated to the accounting periods in which the company will benefit from their use.  Conservatism: basically recognize that transaction resulting in the lower amount of proft. it is a statement which shows income form operating and non-operating operations . A fact or a happening which can't be expressed in terms of money is not recorded in the accounting books.  Timeliness: need for accounting information to be presented to the users in time. plus industry practices that exist for financial reporting. standards and detailed rules. This is called the entity concept. SD.) means you will get common information at any point of time and you can reduce the communication time. continue to follow it consistently in future accounting periods.  Materiality: you are allowed to ignore an accounting standard if the reader of the financial statement would not mislead  Consistency: once you adopt an accounting principle or method. Money Measurement Concept: In accounting every recorded event or transaction is measured in terms of money.MM. 27) Why is Income statement prepared? Income statement is prepared to know the income of the business. PP etc. Going Concern: It assumes that a company will continue to operate in the foreseeable future.Generally Accepted Accounting Principles The general guidelines and principles.     Separate Entity Concept: a business and its owners are treated as two separately identifiable parties.