Do it!

1-1
1. False
2. True
3. False
4. True

5. True

Do it! 1-5
a)
Kirby Company
Statement of Assets
Details $ $
Cash 6,500
Equipment 29,000
Accounte Receivables 13,500
Total Assets 49,000

b)
Kirby Company
Statement of profit or loss/ Income Statement
Details $ $
Revenues
Service Revenue 53,500
Less: Expenses
Advertising 6,000
Salaries & wages 16,500
Rent 10,500
Total expenses (33,000)
Net Profit/Net Income 20,500

c)

Capital = Assets - Liabilities

Capital = $49000 - (3000+25000)= 21000

E1-1
Solved

E1-2
Solved
E1-4
1. Incorrect. Violating cost principle
2. Correct. Following monetary unit assumption
3. Incorrect. Violating Economic Entity Assumption

How Can the equity be changed?

Increase
1. If the business makes profit. Profit is added to capital
2. If the owner(s) invest fresh capital
Decrease
1. If the business suffers a loss, because the loss is subtracted from the capital
2. For drawings (If the owner takes money/goods from the business)

P1-3A
Divine Designs Co.
Income Statement for the month ended June 30, 2017
Details $ $
Revenues
Service Revenue 6,500
Less: Expenses
Advertising 500
Rent 1,600
Gasoline 200
Utilities 150
Total Expenses (2,450)
Net profit 4,050

Divine Designs Co.

Owner's Equity Statement for the month ended June 30, 2017
Details $ $
Capital, June 1 12,000
Add: Additional investment 0
12,000
Add: Net profit 4,050
16,050
Less: Drawings (1,300)
Capital, June 30 14,750

Divine Designs Co.

Balance Sheet/ Statement of Financial Position as at June 30, 2017

Details $ $
Assets
Cash 10,150
Accounts Receivable 2,800
Supplies 2,000
Equipment 10,000
Total Assets 24,950
Liabilities and Owner's Equity
Liabilities
Notes Payable 9,000
Accounts Payable 1,200 A= L + C
Total Liabilities 10,200
Owner's Equity
Capital, June 30 14,750
Capital Employed 24,950

b)
Divine Designs Co.
Income Statement for the month ended June 30, 2017
Details $ $
Revenues
Service Revenue 6,500
Add: Unrecorded revenue 900
Total Revenue 7,400
Less: Expenses
Advertising 500
Rent 1,600
Gasoline (200+150) 350
Utilities 150
Total Expenses (2,600)
Net profit 4,800

Divine Designs Co.

Owner's Equity Statement for the month ended June 30, 2017
Details $ $
Capital, June 1 12,000
Add: Additional investment 0
12,000
Add: Net profit 4,800
16,800
Less: Drawings (1,300)
Capital, June 30 15,500

Divine Designs Co.

Balance Sheet/ Statement of Financial Position as at June 30, 2017
Details $ $
Assets
Cash 10,150
Accounts Receivable(2800+900) 3,700
Supplies 2,000
Equipment 10,000
Total Assets 25,850
Liabilities and Owner's Equity
Liabilities
Notes Payable 9,000
Accounts Payable(1200+150) 1,350
Total Liabilities 10,350
Owner's Equity
Capital, June 30 15,500
Capital Employed 25,850

Accounting Equation Assets= Liabilities + Owner's Equity

Extended Accounting Equiation Cash +Equipments+ Supplies + Accounts Receivable + ..= (Accounts Payable+ Note

E1-10
Closing Capital= Opening Capital + Additional Investment + [Revenue-Expenses] - Drawings

a) 2016
Closing Capital= Closing Assets - Closing Liabilities= $400000-$250000= $150000
Opeing Capital= $100000
Closing Capital= Opening Capital + Additional Investment + [Revenue-Expenses] - Drawings
150000 = 100000+ 0 + P/L -15000
or, 150000= 85000+P
or, P= 150000-85000= 65000
Profit= $65000

b) 2017
Closing Capital= Closing Assets - Closing Liabilities= $460000-$300000= $160000
Closing Capital of 2016= Opening Capital of 2017= $150000
Closing Capital= Opening Capital + Additional Investment + [Revenue-Expenses] - Drawings
160000= 150000 + 45000 + P/L - 0
or, 160000= 195000 + P/L
or, P/L= 160000-195000= -35000
Loss= $35000

c) 2018
Closing Capital= Closing Assets - Closing Liabilities= $590000-$400000= $190000
Closing Capital of 2017= Opening Capital of 2018= $160000
Closing Capital= Opening Capital + Additional Investment + [Revenue-Expenses] - Drawings
190000= 160000+15000+P/L-25000
190000= 150000+P/L
P= 190000-150000= 40000
Profit= $40000

HW
P1-5A
P1-1A
Spengel's Travel Agency
Transaction Analysis
For the month ended April 30, 2017
Sl Assets = Liabilities + Owner's Equity

Accounts Accounts Notes

Cash Receivable Supplies Equipment Payable Payable Capital (Drawings) Revenue
1 $15,000 $15,000
2 ($600)
3 ($3,000) $3,000
4 $700
5 ($900) $900
6 $3,000 $7,000 $10,000
7 ($600) ($600)
8 ($500) ($500)
9 ($2,500)
10 $4,000 ($4,000)
$13,900 $3,000 $900 $3,000 $200 $0 $15,000 ($600) $10,000

We know, A = L + OE
Assets= 13900+3000+900+3000= 20800
L + OE= 200+ 15000 - 600+ 10000 -3800= 20800
(Proved)
b) Revenue= $10000
Expenses= $ 3800
Profit= Revenue- expenses= 10000-3800= 6200

P1-2A
Law Office
Transaction Analysis
For the month ended August 31, 2017
Sl Assets = Liabilities + Owner's Equity

Accounts Accounts Notes

Cash Receivable Supplies Equipment Payable Payable Capital (Drawings) Revenue
$5,000 $1,500 $500 $6,000 $4,200 $8,800
1 $1,200 ($1,200)
2 ($2,800) ($2,800)
3 $3,000 $4,500 $7,500
4 ($400) $2,000 $1,600
5 ($2,500)
($900)
($400)
6 ($700) ($700)
7 $2,000 $2,000
8 270
$3,500 $4,800 $500 $8,000 $3,270 $2,000 $8,800 ($700) $7,500

We know,
Assets= 3500+4800+500+8000= 16800
L + OE= (3270+2000) + (8800-700+7500-4070)= 16800
(Proved)
..= (Accounts Payable+ Notes Payable+..)+ (Capital-Drawings+profit/(Loss)

es] - Drawings

es] - Drawings

es] - Drawings

es] - Drawings
's Equity

(Expenses) Remarks

($600) Rent

($700) Advertising

($2,500) Salaries

($3,800)

's Equity

(Expenses) Remarks
Balance b/d b/d= Brought Down

($2,500) Salaries
($900) Rent
($400) Advertising
 ($270) Utility
($4,070)
Chapter 2 Recording process

When a transaction is recorded in the double entry system there are two aspects
Debit or Dr.
and Credit Cr.
These are indicators
They have a special meaning to the user of accounting

Dr. Ledger or T- Account Cr.

Accounting Cycle 5000

Capital C 500
Assets A CALER 5500
Liabilities L
Expenses E Increase Cr. Dr. Cr. Dr.
Revenues R C A L E
Decrease Dr. Cr. Dr. Cr.

Jour= Day
Journal= Keeping date wise records in the double entry system

BE2-1
1. Cr.
2. Dr.
3. Cr.
4. Dr.
5. Cr. Increase Cr. Dr. Cr. Dr.
6. Dr. C A L E
Decrease Dr. Cr. Dr. Cr.
BE2-2
Journal
Date Account Title and Explanation Dr. $ Cr. $
2017
1-Jun Cash…………………………………………………..Dr. 5000
To Capital 5000
(Owner invested cash)
2-Jun Equipment…………………………………………Dr. 2400
To Accounts Payable 2400
 (Bought equipment on account)
3-Jun Rent expense……………………………………..Dr. 800
To Cash 800
(Paid rent by cash)
12-Jun Accounts Receivable…………………………..Dr. 300
To Service Revenue 300
(Sent bill to customer for works done)

BE2-5
Journal
Date Account Title and Explanation Dr. $ Cr. $
2017
1-Aug Cash…………………………………………………..Dr. 8000 Cash
To Capital 8000 Capital
(Owner invested cash) Prepaid Insurance
4-Aug Prepaid Insurance……………………………..Dr. 1800 Service Revnue
To Cash 1800 Salaries Expense
(Paid Insurance in advance)
16-Aug Cash…………………………………………………..Dr. 3600
To Service Revenue 3600
(Received cash for services performed)
27-Aug Salary expense……………………………………Dr. 1000
To Cash 1000
(Paid salary by cash)

Posting Transferring Journal entries to ledger

Ledgers
Cash
Date Account Title Dr. $ Cr. $ Balance $
2017
1-Aug Capital 8000 8000
4-Aug Prepaid Insurance 1800 6200
16-Aug Service Revenue 3600 9800
27-Aug Salaries Expense 1000 8800
Capital
Date Account Title Dr. $ Cr. $ Balance $
2017
1-Aug Cash 8000 8000
Prepaid Insurance
Date Account Title Dr. $ Cr. $ Balance $
2017
4-Aug Cash 1800 1800
Service Revenue
 Date Account Title Dr. $ Cr. $ Balance $
2017
16-Aug Cash 3600 3600
Salaries Expenses
Date Account Title Dr. $ Cr. $ Balance $
2017
27-Aug Cash 1000 1000

Trial Balance
Trial balance is a list of accont balances on a particular day
In a trial balance the total of Debit= Total of credit.
Uses of trial balance
1. It proves the arithmatical accuracy of the ledgers
2. It provides data to prepare financial statements
Limitations of trial balance
1. It can not detect all types of errors

M. Gonzales
Trial Balance
as at August 31, 2017
Account Title Dr. $ Cr. $
Cash 8800
Capital 8000
Prepaid Insurance 1800
Service Revenue 3600
Salaries expense 1000
11600 11600

BE2-9
Amaro Company
Trial Balance
as at June 30, 2017
Account Title Dr. $ Cr. $
Accounts Payable 8100
Cash 5800
Owner's Capital 15000
Owner's Drawings 1200
Equipment 17000
Service Revenue 10000
Accounts Receivable 3000
Salaries and wages expenses 5100
Rent expense 1000
33100 33100

BE2-10
 $39,800

P2-3A
Journal
Date Account Title and Explanation Dr. $ Cr. $
2017
1-May Cash…………………………………………………..Dr. 40000
To Capital 40000
(Owner invested cash)
2 No entry- No Transaction
3 Prepaid Rent…………………………………….Dr. 24000
To Cash 24000
(Paid rent in advance)
4 Furniture & equipment…………………….Dr. 30000
To Cash 10000
To Accounts Payable 20000
(Bought furniture & equipment, paid partially
in cash and remaining is due)
5 Prepaid Insurance…………………………………..Dr. 1800
To Cash 1800
(Paid insurance on furniture in advance)
6 Office supplies………………………………………..Dr. 420
To cash 420
(Bought office supplies by paying cash)
7 Office supplies………………………………………..Dr. 1500
To Accounts Payable 1500
(Bought office supplies on account)
8 Cash…………………………………………………..Dr. 8000
Accoounts Receivable…………………………Dr. 12000
To Service Revenue 20000
(Earned $20000 revenue, received part of it
in cash, the remaining on account)
9 Accounts Payable…………………………………Dr. 400
To Cash 400
(Paid suppliers due amount)
10 Cash…………………………………………………..Dr. 3000
To Accounts Receivable 3000
(Received cash from customers)
11 Utilties expense…………………………………..Dr. 380
To Utilities Payable 380
(Incurred utilities on account)
12 Salaries expense………………………………….Dr. 6100
To Cash 6100
(Paid salaries by cash)
Cash
Ledgers Capital
Cash Prepaid Re
Date Account Title Dr. $ Cr. $ Balance $
2017
1-May Capital 40000 40000
3 Prepaid rent 24000 16000
4 Furniture & Equipment 10000 6000
5 Prepaid Insurance 1800 4200
6 Office supplies 420 3780
8 Service Revenue 8000 11780
9 Accounts Payable 400 11380
10 Accounts Receivable 3000 14380
12 Salaries expense 6100 8280
Capital
Date Account Title Dr. $ Cr. $ Balance $
2017
1-May Cash 40000 40000
Prepaid Rent
Date Account Title Dr. $ Cr. $ Balance $
2017
3 Cash 24000 24000
Furniture & Equipment
Date Account Title Dr. $ Cr. $ Balance $
2017
4 Cash 10000 10000
Accounts Payable 20000 30000
Accounts Payable
Date Account Title Dr. $ Cr. $ Balance $
2017
4 Furniture & Equipment 20000 20000
7 Office Supplies 1500 21500
9 Cash 400 21100

Prepaid Insurance
Date Account Title Dr. $ Cr. $ Balance $
2017
5 Cash 1800 1800
Office Supplies
Date Account Title Dr. $ Cr. $ Balance $
2017
6 Cash 420 420
7 Accounts Payable 1500 1920
Accounts Receivable
Date Account Title Dr. $ Cr. $ Balance $
2017
 8 Service Revenue 12000 12000
10 Cash 3000 9000
Service Revenue
Date Account Title Dr. $ Cr. $ Balance $
2017
8 Cash 8000 8000
Accounts Receivable 12000 20000
Utility expense
Date Account Title Dr. $ Cr. $ Balance $
2017
11 Utility Payable 380 380

Utility Payable
Date Account Title Dr. $ Cr. $ Balance $
2017
11 Utility expense 380 380
Salaries expense
Date Account Title Dr. $ Cr. $ Balance $
2017
12 Cash 6100 6100

Maquoketa Services
Trial Balance
as at May 31, 2017
Account Title Dr. $ Cr. $
Cash 8280
Capital 40000
Prepaid Rent 24000
Furniture & Equipment 30000
Accounts Payable 21100
Prepaid Insurance 1800
Office Supplies 1920
Accounts Receivable 9000
Service revenue 20000
Utilities expesne 380
Utilities Payable 380
Salaries expense 6100
81480 81480

Assignment P2-5A

Example of Suspense Account

Maquoketa Services
Trial Balance
 as at May 31, 2017
Account Title Dr. $ Cr. $
Cash 8280
Capital 40000
Prepaid Rent 24000
Furniture & Equipment 30000
Accounts Payable 21100
Prepaid Insurance 1800
Office Supplies 1920
Accounts Receivable 9000
Service revenue 20000
Utilities expesne 380
Utilities Payable 150
Salaries expense 6100
Suspense account 230
81480 81480

230

Suspense Account
Date Account Title Dr. $ Cr. $ Balance $
2017
Balance b/d 230 230

Ex. 32.2
a) Accounts Receivable- T More…………………………………Dr. 412
To Accounts Receivable- T Mone 412
(Correcting error of commission)
b) Machine……………………………………………………………….Dr. 619
To Accounts Payable- J Frank 619
(Correcting error of omission)
c) Computer…………………………………………………………….Dr. 550
To Office expenses 550
(Correcting error of principle)
d) Accounts Receivable- B Wood………………………………Dr. 18
To Sales 18
(Correcting transposition error; 120-102= 18)
e) Sales………………………………………………………………….Dr. 164
To Commission received 164
(Correcting error of commission)
f) Cash……………………………………………………………………Dr. 136
To T Blair 136
(Correcting complete reversal of entries)
g) Purchase……………………………………………………………..Dr. 372
To Drawings 372
(Correcting error of principle)
h) Discount allowed………………………………………………..Dr. 48
To Discount received 48
(Correcting error of principle)

Ex. 32.3A
a) Account Payable- B Roy……………………………………….Dr. 1410
To Account Payable- A Ray 1410
(Correcting error of commission)
b) Cash…………………………………………………………………….Dr. 94
To Bank 94
(Correcting error of commission)
c) Accounts Receivabke- D Rolls………………………………Dr. 734
To Accounts Receivable- D Rollo 734
(Correcting error of commission)
d) Accounts Payable- L Hand……………………………………Dr. 72
To Purchase 72
(Correcting transposition error; 891-819=72)
e) Accounts Payable-G Boyd………………………………….Dr. 128
To Cash 128
(Correcting complete reversal of entries; 64 x 2 = 128)
f) Sales…………………………………………………………………Dr. 320
To Fittings 320
(Correcting error of principle)
g) Cash…………………………………………………………………Dr. 400
To Bank 400
(Correcting complete reversal of entry)
h) Purchases………………………………………………………..Dr. 1182
To Furnishing 1182
(Correcting error of principle)

32.4
Income Statement for the year ended …. Tk. Income Statement for the year ended ….
Sales (2000 x 5) 10000 Sales (2000 x 5)
Less: Cost of goods sold Less: Cost of goods sold
Opening inventory (500x3) 1500 Opening inventory (500x3)
Add: Purchases (3000x3) 9000 Add: Purchases (3000x3)
Goods available for sale 10500 Goods available for sale
Less: Clsoing inventory (1500 x 3) -4500 Less: Clsoing inventory (1500 x 3)
Cost of sale 6000 Cost of sale
Grosss profit 4000 Grosss profit
a. the value of the inventory value should have been $139 instead of $1390 5751
b.
i) The stock will be overvalued by (1390-139) $ 1251
ii) The cost of goods sold will be undervalued by $1251
iii) The net profit will be overvalued by $1251
iv) Current assets will be overvalued by $1251
v) The capital will be overvalued by $1251

Mid-1
Cr.
R
Dr.

Cr.
R
Dr.
paid Insurance
vice Revnue
ries Expense
e year ended …. Tk.
10000

1500
9000
10500
-5751
4749
5251
P3-1A
Krasue Consulting
Worksheet
as at May 31, 2017
Trial balance Adjustments Adjusted Trial Balance
Dr. Cr. Dr. Cr. Dr.
SL. Account Title $ $ $ $ $ Cr. $
1 Cash 4500 4500
2 Accounts Receivable 6000 1700 (7) 7700
3 Supplies 1900 900 (1) 1000
4 Prepaid Insurance 3600 150 (3) 3450
5 Equipment 11400 11400
6 Accounts Payable 4500 4500
7 Unearned service revenue 2000 1600 (4) 400
8 Owner's Capital 18700 18700
9 Service Revenue 9500 3300 12800
10 Salaries and wages expense 6400 1104 (5) 7504
11 Rent expense 900 900
34700 34700
12 Supplies expense 900 (1) 900
13 Utilities ex[pense 250 (2) 250
14 Utilities Payable 250 (2) 250
15 Insurance expense 150 (3) 150
16 Salaries Payable 1104 (5) 1104
17 Depreciation expense 190 (6) 190
18 Accumulated Depreciation- Equipment 190 (6) 190
Net Profit
5894 5894 37944 37944

Adjusting Entries
1. Supplies expense……………………………………………………Dr. 900
To Supplies 900
2. Utilities expense………………………………………………….Dr. 250
To Utilities Payable 250
3. Insurance………………………………………………………………Dr. 150
To Prepaid Insurance 150
(Per month= $3600/24= $150)
4. Unearned Service Revenue…………………………………..Dr. 1600
To Service Revenue 1600
(2000-400=1600)
5. Salaries expense…………………………………………….……..Dr. 1104
To Salaries Payable 1104
(Working: $920 x 2 x 3/5=$1104)
26-May 27-May 28-May 29-May 30-May 31-May
Fri Sat Sun Mon Tue Wed
 No work/ No Pay May
2-Jun Salaries Payable………………………………………………..Dr. 1104
Salaries expense……………………………………………….Dr. 736
To Cash 1840

31-May Salaries Expense………………………………………………..Dr. 1104

Advance Salary…………………………………………………Dr. 736
To Cash 1840

6. Dpereciation expense……………………………………………………Dr. 190

To Accumulated Depreciation- Equipment 190
(Depreciation= (C-S)/n)= 11400/5= 2280 per year
Per month depreciation= 2280/12=190)
7. Accounts Receivable………………………………………………Dr. 1700
To Service Revenue 1700

Transfer the following:

1. All revenue and loss= Income Statement's Cr. Side
2. All expenses and profit= Income Statement's Dr. side
3. All assets, drawings and loss= Balance sheet's Dr. side
4. All liabilities, capital and profit= Balance sheet's Cr. Side

P4-1A
Warren Roofing
Worksheet
For the month ended March 31, 2017
Trial balance Adjustments Adjusted Trial Balance
Dr. Cr. Dr. Cr. Dr.
SL. Account Title $ $ $ $ $ Cr. $
1 Cash 4500 10000 (5) 14500
2 Accounts Receivable 3200 3200
3 Supplies 2000 1520 (1) 480
4 Equipment 11000 11000
5 Accumulated Depreciation-Equipment 1250 250 (2) 1500
6 Accounts Payable 2500 2500
7 Unearned service revenue 550 290 (3) 260
8 Owner's Capital 12900 10000 (5) 22900
9 Owner's Drawings 1100 1100
10 Service Revenue 6300 290 (3) 6590
11 Salaries and wages expense 1300 700 (4) 2000
12 Miscllaneous expense 400 400
23500 23500
13 Supplies expense 1520 (1) 1520
14 Depreciation expense 250 (2) 250
15 Salaries Payable 700 (4) 700
 Net Profit
12760 12760 34450 34450

Adjusting Entries
1. Supplies expense…………………………………………Dr. 1520
To Supplies 1520
(2000-480= 1520)
2. Depreciation expense………………………………….Dr. 250
To Accumulated Depreciation- Equipment 250
3. Unearned Service Revenue…………………………Dr. 290
To Service Revenue 290
($550-260= 290)
4. Salaries expense……...………………………………..Dr. 700
To Salaries Payable 700
5. Cash…………………………………………………………Dr. 10000
To Capital 10000

Closing Entries
1. Service Revenue…………………………………………Dr. 6590 Income Sum
To Income Summary 6590 Sl` Account Title
(Closing the revenue account) 1 Service Revenue
2. Income Summary………………………………………..Dr. 4170 2 Salaries and wages exp.
To Salaries and Wages expense 2000 Miscellaneous expense
To Miscellaneous expense 400 Supplies expense
To Supplies expense 1520 Depreciation expense
To Depreciation expense 250 3 Capital
(Closing the expense accounts)
3. Income Summary…………………………………………Dr. 2420
To Capital
(Transferring the profit to capital)
4. Capital………………………………………………………….Dr. 1100
To Drawings 1100
(Closing trhe drawings and charging it to capital)

Post Closing Trial Balance

as at May 31, 2017
Account Title Dr. $ Cr. $
Cash 14500
Accounts Receivable 3200
Supplies 480
Equipment 11000
Accumulated Depreciation-Equipment 1500
Accounts Payable 2500
Unearned service revenue 260
Owner's Capital 24220 Closing Capital= Opening Capital + Additional In
Salaries Payable 700 Closing Capital= 12900+10000+2420-1100=
29180 29180

2nd Mid-term Exam (Chaoter 3+ 4)

December-12-2017
Adjusting Entries
Worksheet
Closing entries
Post Closing trial balance
Duration: 1 hour (60 minutes)
After the exam we will have a break and then the class will continue

P3-4A
1. Insurance expense……………………………………..Dr. 4890
To Prepaid Insurance 4890
Workings: For 2017
Prepaid Insurance: B4564= $7920; 3 years $7920 x 12/36= 2640
A2958= $4500; 2 years $4500 x 12/24= 2250
4890
2. Unearned Rent Revenue……………………………….Dr. 84000
To Rent Revenue 84000
Workings:
Nov 1= 9 months; $5000/month; 5 Leases= 225000 Earned= 50000
Dec 1= 6 months; $8500/month; 4 Leases= 204000 Earned= 34000
429000 84000
3. Interest expense…………………………………………….Dr. 1800
To Interest Payable 1800
Workings:
Interst, I= Prt= $120000 x 9% x 2/12= 1800
4. Salaries expense……………………………………………Dr. 2000
To Salaries Payable 2000

P3-2A
Depreciation expense……………………………………..Dr. 375
To Accumualted Depreciation- Buildings 250
To Accumulated Depreciation- Equipment 125

Depreciation expense……………………………………..Dr. 250

To Accumualted Depreciation- Buildings 250

Depreciation expense……………………………………..Dr. 125

To Accumulated Depreciation- Equipment 125
 Income Statement Balance Sheet
Dr. Cr. Dr. Cr.
$ $ $ $
4500
7700
1000
3450
11400
4500
400
18700
12800
7504
900

900
250
250
150
1104
190
190
2906 2906
12800 12800 28050 28050

2906
9894 12800

June
1-Jun 2-Jun
Thu Fri
 Income Statement Balance Sheet
Dr. Cr. Dr. Cr.
$ $ $ $
14500
3200
480
11000
1500
2500
260
22900
1100
6590
2000
400

1520
250
700
 2420 2420
6590 6590 30280 30280

Income Summary
Account Title Dr. $ Cr. $ Balance $
rvice Revenue 6590 6590
laries and wages exp. 2000 4590
scellaneous expense 400 4190
pplies expense 1520 2670
preciation expense 250 2420
pital 2420 0
g Capital + Additional Investment+Net profit - Drawings
10000+2420-1100= 24220
Why ratios are prepared/Why ratio analysis is done?
Ratios are prepared to compare the performance of a business with its past years' data or to compare the performace with
business in the same industry.
Ratio analysis helps us to understand the actual level of performance of the business which helps to take decisions.
It might help us to understand the profitability, liquidity and efficiency measurements of the business.

What is profitability?
Profitability is the measurement of the surplus of revenue over expenses.
It tells us the rate of profit the business is making.

What is liquidity?
Liquidity is the availability of cash and cash equivalents to repay current liabilities.

Efficiency?
Efficiency measures how well the business is being managed.

Working Cpaital= Total Current Assets - Total Current Liabilities

Details X Y
i) Grosss profit as a % of sale/GP Margin= (315000/555000)x100 56.76% (420000/750000)x100
(Gross profit/Sales) x 100
Comment: Although X is selling less but making a better gross profit than Y. Y's cost of goods sold is higher.
ii) Net profit as a % of sale/NP Margin= (100000/555000)x100 18.02% (150000/750000)x100
(Net profit/Sales) x 100
Comment: Y has a better NP rate than X. Y must have had a better control over its operating expenses.
iii) Expenses as a % of sale= (215000/555000)x100 38.74% (270000/750000)x100
(Total Expenses/Sales) x 100
Commnet: X has a higher expense rate than Y. This is the reason of Y having a better NP ratio.
iv) Inventory/stock turnover= COGS= 240000 COGS= 330000
(Cost of goods sold/Average Inventory) Average inventory= (Opening + Closing) / 2
Avg. Inv= (100000+60000)/2 Avg. Inv= (80000+70000)
Avg. inv= 80000 Avg. Inv= 75000
Inv Turnover= (240000/80000) Inv Turnover= (330000/7
Inv Turnover= 3 times Inv Turnover= 4.4 times
Comment: X sold its average inventory 3 times whereas Y did it 4.4 times. So Y is better managed in terms of selling activiti
v) Return on capital employed (ROCE)= (100000/116000)x100 86.21% (150000/152000)x100
(Net profit/Capital Employed) x 100
Comment: Y is getting back 98.68 from each Tk. 100 investment which is significantly higher than X.
vi) Current Ratio/Working Capital Ratio= 210000: 104000 182500: 100500
Current Assets : Current Liabilities (210000/104000):(104000/104000) 182500/100500
Standard Value= 2 : 1 2.02: 1 1.82 : 1
Working Capital= CA - CL
Comment: X has achieved the standard of 2:1 and will be able to repay all the current liabilities. Y is a little short
in achieving the standard. Y might face difficulties in working capital management
vii) Acid -test ratio/ Liquidity ratio/Quick ratio= (210000-60000) : 104000 (182500-70000) : 100500
(Current Assets-Closing inventory)/Current Liabilities 150000/104000 112500/100500
Standard value= 1.1 : 1 1.44 : 1 1.12 : 1
Comment: Both X and Y have achieved the standard of 1.1:1 but X has a better liquidity position than Y.
viii) Debtors/Sales ratio
(Debtor/sales) x 365 days (125000/555000) x 365 days (100000/750000)x365 da
Standard value: 28 days/ 1 Month 82 days 49 days
Comment: X is taking almost 3 months to receive the money where as Y is taking 49 days. Both the organizations will face
difficulty in availability of cash
ix) Creditor/Purchase ratio
(Creditor/Purchase) x 365 days (104000/200000) x 365 days (100500/320000) x 365 d
Standard value: 28 days/ 1 Month 190 days 115 days
Comment: Both the organizations are taking too long time to repay the accounts payables. It will harm their credit worthin
in the future and ruin the reputation.

How can a business imrpove profitability?

1. Increase sales/revenue. Use effective marketing strategy.
2. Buy from cheaper sources. Purchase in bulk quantity to get trade discount.
3. Reduce operating expenses.

How can a business improve liquidity?

1. Sell surplus non-current assets.
2. Inject fresh capital
3. Take a long-term bank loan
mpare the performace with

s to take decisions.

Y
(420000/750000)x100 56.00% P

(150000/750000)x100 20.00% P

(270000/750000)x100 36.00% P

COGS= 330000 E
= (Opening + Closing) / 2
Avg. Inv= (80000+70000)/2
Avg. Inv= 75000
Inv Turnover= (330000/75000)
Inv Turnover= 4.4 times
d in terms of selling activities.
(150000/152000)x100 98.68% P

182500: 100500 L
182500/100500
1.82 : 1

Y is a little short

(182500-70000) : 100500 L Current Assets

112500/100500 Closing Stock/Inventory
1.12 : 1 Debtors/ Accounts Receivables
Prepaids
 Bank
(100000/750000)x365 days Cash

he organizations will face SDPBC

(100500/320000) x 365 days

115 days
l harm their credit worthiness
Inventory valuation
1. Periodic
2. Perpetual
Cost flow method
FIFO= First In First Out
LIFO= Last In First Out
AVCO= Average Cost
March 1: Opening inventory 300 pc @ Tk. 4.00
March 2: Pruchases: 500 Pc @ Tk. 4.50
Mar 5: Sales: 650 PC @ Tk. 10.00
Mar 10: Purchases: 200 Pc. @ Tk. 4.75
Mar 15: Purchases: 300 Pc @ Tk. 5.00
Mar 20: Sales: 600 pc @ Tk. 11.00
Inventory Valuation: Perpetual FIFO
Purchases/Receipts Sales/Issue (COGS) Balance
Date Units Rate Value Units Rate Value Units Rate
1-Mar 300 ৳ 4.00
2-Mar 500 ৳ 4.50 ৳ 2,250.00 300 ৳ 4.00
500 ৳ 4.50
5-Mar 300 ৳ 4.00 ৳ 1,200.00 150 ৳ 4.50
350 ৳ 4.50 ৳ 1,575.00
10-Mar 200 ৳ 4.75 ৳ 950.00 150 ৳ 4.50
200 ৳ 4.75
15-Mar 300 ৳ 5.00 ৳ 1,500.00 150 ৳ 4.50
200 ৳ 4.75
300 ৳ 5.00
20-Mar 150 ৳ 4.50 ৳ 675.00 50 ৳ 5.00
200 ৳ 4.75 ৳ 950.00
250 ৳ 5.00 ৳ 1,250.00
Total 1000 ৳ 4,700.00 1250 COGS ৳ 5,650.00 50

Sales= 650 x Tk. 10 + 600 x Tk. 11= ৳ 13,100.00 Closing inventory= 50 pcs, Tk. 250
Gross profit= Sales - COGS= 13100-5650= ৳ 7,450.00

Inventory Valuation: Perpetual LIFO

Purchases/Receipts Sales/Issue (COGS) Balance
Date Units Rate Value Units Rate Value Units Rate
1-Mar 300 ৳ 4.00
2-Mar 500 ৳ 4.50 ৳ 2,250.00 300 ৳ 4.00
500 ৳ 4.50
5-Mar 500 ৳ 4.50 2250 150 ৳ 4.00
150 ৳ 4.00 600
10-Mar 200 ৳ 4.75 ৳ 950.00 150 ৳ 4.00
200 ৳ 4.75
15-Mar 300 ৳ 5.00 ৳ 1,500.00 150 ৳ 4.00
200 ৳ 4.75
300 ৳ 5.00
20-Mar 300 ৳ 5.00 ৳ 1,500.00 50 ৳ 4.00
 200 ৳ 4.75 ৳ 950.00
100 ৳ 4.00 ৳ 400.00
Total 1000 ৳ 4,700.00 1,250 COGS ৳ 5,700.00 50

Sales= 650 x Rk. 10 + 600 x Tk. 11= ৳ 13,100.00 Closing inventory= 50 pcs, Tk. 200
Gross profit= Sales - COGS= 13100-5700= ৳ 7,400.00

Inventory Valuation: Average Cost

Purchases/Receipts Sales/Issue (COGS) Balance
Date Units Rate Value Units Rate Value Units Rate
1-Mar 300 ৳ 4.00
2-Mar 500 ৳ 4.50 ৳ 2,250.00 800 ৳ 4.31
5-Mar 650 ৳ 4.31 ৳ 2,801.50 150 ৳ 4.31
10-Mar 200 ৳ 4.75 ৳ 950.00 350 ৳ 4.56
15-Mar 300 ৳ 5.00 ৳ 1,500.00 650 ৳ 4.76
20-Mar 600 ৳ 4.69 ৳ 2,814.00 50 ৳ 4.76
Total 1000 ৳ 4,700.00 1,250 COGS ৳ 5,615.50 50 ৳ 4.76

Sales= 650 x Rk. 10 + 600 x Tk. 11= ৳ 13,100.00 Closing inventory= 50 pcs, Tk. 238
Gross profit= Sales - COGS= 13100-5615= ৳ 7,484.50

Working:

(150x4.31+200x4.75)/350
(350x4.43+300x5)/650
 Balance
Value
৳ 1,200.00
৳ 1,200.00
৳ 2,250.00
৳ 675.00

৳ 675.00
৳ 950.00
৳ 675.00
৳ 950.00
৳ 1,500.00
৳ 250.00

৳ 250.00

0 pcs, Tk. 250

Balance
Value
৳ 1,200.00
৳ 1,200.00
৳ 2,250.00
৳ 600.00

৳ 600.00
৳ 950.00
৳ 600.00
৳ 950.00
৳ 1,500.00
৳ 200.00
 ৳ 200.00

0 pcs, Tk. 200

Balance
Value
৳ 1,200.00
৳ 3,450.00 (300x4+500x4.5)/800
৳ 646.50
৳ 1,596.00 (150x4.31+200x4.75)/350= 4.561429
৳ 3,094.00 (350x4.56+300x5)/650= 4.763077
৳ 238.00
৳ 238.00

0 pcs, Tk. 238