Short Introduction

to
SMS Embroidery

SMS embroidery was established on 10 th Shrawan, 2070 in Duwakot, Bhaktapur, Changunarayan

Municipality with the motive of earning profit. The owner of the company is Mrs. Mira Pandey. It was
registered under private firm registration act, 2014. It was started with a capital of Rs. 15,50,000.

SMS embroidery is a small scale industry with a sole proprietor / single owner company. Embroidery
can be used in blankets, crafted in fabrics and others but this company mainly focus on designing on
bags with thread and needles. Although its main motive is profit earning it is a service providing
company. It mainly makes all types of designs in the clothes which can be done by computer which is
also known as computer embroidery.
 SMS Embroidery
Journal entry
For the month of Mangsir,2076

Date Particulars L Debit amount(in Rs) Credit amount (in Rs)

F
Mangsir 1 Inventory a/c ….. Dr 15,000
To Cash a/c 15,000
(Being purchase of clothes, needles
and thread)
Mangsir 3 Cash a/c ….. Dr 30,500
To Advance service revenue a/c 30,500
(Being cash received in advance for
the service)
Mangsir 4 Office Supplies a/c ….Dr 30,000
To cash a/c 20,000
To accountpayable a/c 10,000
(Being other office supplies purchased
in cash and on credit)
Mangsir 6 Cash a/c ….Dr 8,100
To service revenue a/c 8,100
( Being service provided and received
cash)
Mansgir 7 Inventory a/c ….Dr 5,000
To cash a/c 5,000
(Being purchase of paper foam)
Mangsir 8 Repair of Equipment a/c ….Dr 2,000
To cash a/c 2,000
(Being Equipment repaired)
Mangsir 9 Account receivable a/c….Dr 15,150
To service revenue a/c 15,150
(Being service provided on credit)
Mangsir 10 Cash A/c ….Dr 49,500
Advance service revenue a/c…. Dr 30,500
To service revenue a/c 80,000
(Being service provided by the
company and advance of Mangsir 3)
Mangsir 10 Fuel expense a/c ....Dr 1,090
To cash a/c 1,090
(Being fuel filled in the van)
Mangsir 11 Cash a/c….Dr 16,250
To advance service revenue a/c 16,250
(Being cash received in advance for
the service)

Mangsir 11 Cash a/c ....Dr 20,000

To service revenue a/c 20,000
(Being service provided on cash
Mangsir 12 Cash a/c …. Dr 15,150
To account receivable a/c 15,150
(Being cash received for the service
provided on Mangsir 9)
Mangsir 14 Cash a/c …. Dr 16,250
Advance service revenue a/c ....Dr 16,250
To service revenue a/c 32,500
(Being service provided and received
cash, advance ok Mangsir 11)
Mangsir 15 Inventory a/c ….Dr 31,510
To cash a/c 12,125
To account payable a/c 19,385
(Being purchase of clothes, needles
and threads on cash and on credit)
Mangsir 16 Account receivable a/c --- Dr 8,300
To service revenue a/c 8,300
(Being service provided but not yet
paid by the customer)
Mangsir 18 Cash a/c …. Dr 11,470
To service revenue a/c 11,470
(Being service provided to the
customer on cash)
Mangsir 19 Inventorya/c …. Dr 6,710
To cash a/c 6,710
(Being purchased of paper foam )
Mangsir 20 Cash a/c …. Dr 8,300
To account receivable a/c 8,300
(Being amount received of Mangsir
16)
Mangsir 21 Cash a/c …. Dr 9,500
To service revenue a/c 9,500
(Being service provided on cash)

Mangsir 22 Accounts payable a/c ….Dr 10,000

 To cash a/c 10,000
(Being cash paid which was due on
Mangsir 4 on purchase of inventory)

Mangsir 25 Cash a/c ….Dr 4,070

To advance service revenue a/c 4,070
(Being cash received in advance for
the order)
Mangsir 26 Cash a/c ….Dr 5,000
To service revenue a/c 5,000
(Being service provided on cash)
Mangsir 28 Electricity expense a/c …. Dr 2,500
To cash a/c 2,500
(Being electricity for the month paid)
Mangsir 29 Salaries & wages expense a/c …. Dr 50,000
To cash a/c 50,000
(Being salaries & wages paid)
Mangsir 29 Cash a/c ....Dr 12,050
To service revenue a/c 12,050
(Being service provided on cash)
Mangsir 30 Tax expense a/c …. Dr 1,510
To tax payable a/c 1,510
(Being tax for the month outstanding)
Mangsir 30 Insurance expense a/c …. Dr 3,816
To prepaid insurance a/c 3,816
(Being prepaid insurance expired for
the month)
Mangsir 30 Depreciation on equipment a/c….Dr 5,208.33
To accumulated depreciation on 5,208.33
equipment a/c
(Being depreciation of equipment by
5% annually)
Mangsir 30 Depreciation on vehicle expense 3,125
a/c….Dr
To accumulated depreciation on 3,125
vehicle a/c
(Being depreciation of vehicle by
5%)

Mangsir 30 Depreciation on furniture expense a/c 300

….Dr
 To accumulated depreciation on 300
furniture a/c
(Being depreciation of furniture by
4%)
TOTAL 4,44,109.33 4,44,109.33

LEDGER ACCOUNTS
1)
 Cash a/c
For the month of Mangsir
Dr Cr

Date Particulars J Amount(in Date Particulars J Amount(in

F Rs) F Rs)
Mangsir 3 To advance service revenue 30,500 Mangsir 1 By inventory a/c 15,000
a/c
Mangsir 6 To service revenue a/c 8,100 Mangsir 4 By office supplies a/c 20,000
Mangsir 10 To service revenue a/c 49,500 Mangsir 7 By inventorya/c 5,000
Mangsir 11 To advance service revenue 16,250 Mangsir 8 By repair of equipment 2,000
a/c a/c
Mangsir 11 To service revenue a/c 20,000 Mangsir 10 By fuel expense a/c 1,090
Mangsir 12 To account receivable a/c 15,150 Mangsir 15 By inventory a/c 12,125
Mangsir 14 To service revenue a/c 16,250 Mangsir 19 By inventory a/c 6,710
Mangsir 18 To service revenue a/c 11,470 Mangsir 22 By account payable a/c 10,000
Mangsir 20 To account receivable a/c 8,300 Mangsir 28 By electricity expense 2,500
a/c
Mangsir 21 To service revenue a/c 9,500 Mangsir 29 By salaries & wages a/c 50,000
Mangsir 25 To advance service revenue 4,070 Mangsir 30 By balance c/d 81,715
a/c
Mangsir 26 To service revenue a/c 5,000
Mangsir 29 To service revenue a/c 12,050
2,06,140 2,06,140
Poush 1 To balance b/d 81,715

2)
Dr Inventory a/c Cr
For the month of Mangsir
Date Particulars J Amount(in Date Particulars J Amount(in
F Rs) F Rs)
Mangsir 1 To cash a/c 15,000 Mangsir 30 By balance c/d 58,220
Mangsir 7 To cash a/c 5,000
Mangsir 15 To cash a/c 12,125
Mangsir 15 To account payable a/c 19,385
Mangsir 19 To cash a/c 6,710
58,220 58,220
Poush 1 To balance b/d 58,220

3)
Dr Office supplies a/c Cr
 For the month of Mangsir
Date Particulars J Amount(in Date Particulars J Amount(in
F Rs) F Rs)
Mangsir 4 To cash a/c 20,000 Mangsir 30 By balance c/d 30,000
Mangsir 4 To account payable a/c 10,000
30,000
Poush 1 To balance b/d 30,000

4)
Advance service revenue a/c
For the month of Mangsir
Dr Cr
Date Particulars J Amount(in Date Particulars J Amount(in
F Rs) F Rs)
Mangsir 10 To service revenue a/c 30,500 Mangsir 3 By cash a/c 30,500
Mangsir 14 To service revenue a/c 16,250 Mangsir 11 By cash a/c 16,250
Mangsir 30 To balance c/d 4,070 Mangsir 25 By cash a/c 4,070
50,820 50,820
Poush 1 By balance b/d 4,070

5)
Account payable a/c
For the month of Mangsir
Dr Cr
Date Particulars J Amount(in Date Particulars J Amount(in
F Rs) F Rs)
Mangsir 22 To cash a/c 10,000 Mangsir 4 By office supplies a/c 10,000
Mangsir 30 To balance c/d 19,385 Mangsir 15 By inventorya/c 19,385
29,385 29,385
Poush 1 By balance b/d 19,385

6)
Repair of equipment a/c
 For the month of Mangsir
Dr Cr
Date Particulars J Amount(in Date Particulars J Amount(in
F Rs) F Rs)
Mangsir 8 To cash a/c 2,000 Mangsir 30 By balance c/d 2,000
2,000 2,000
Poush 1 To balance b/d 2,000

7)
Service revenue a/c
For the month of Mangsir
Dr Cr
Date Particulars J Amount(in Date Particulars J Amount(in
F Rs) F Rs)
Mangsir 30 To balance c/d 2,02,070 Mangsir 6 By cash a/c 8,100
Mangsir 9 By account receivable 15,150
a/c
Mangsir 10 By cash a/c 49,500
Mangsir 10 By advance service 30,500
revenue a/c
Mangsir 11 By cash a/c 20,000
Mangsir 14 By cash a/c 16,250
Mangsir 14 By advance service 16,250
revenue a/c
Mangsir 16 By account receivable 8,300
a/c
Mangsir 18 By cash a/c 11,470
Mangsir 21 By cash a/c 9,500
Mangisir 26 By cash a/c 5,000
Mangsir 29 By cash a/c 12,050
2,02,070 2,02,070
Poush 1 By balance b/d 2,02,070

8)
 Account receivable a/c
For the month of Mangsir

Dr Cr
Date Particulars J Amount(in Date Particulars J Amount(in
F Rs) F Rs)
Mangsir 9 To service revenue a/c 15,150 Mangsir 12 By cash a/c 15,150
Mangsir 16 To service revenue a/c 8,300 Mangsir 20 By cash a/c 8,300
23,450 23,450

9)
Fuel expense a/c
For the month of Mangsir

Dr Cr
Date Particulars J Amount(in Date Particulars J Amount(in
F Rs) F Rs)
Mangsir 10 To cash a/c 1,090 Mangsir 31 By balance c/d 1,090
1,090 1,090
Poush 1 To balance b/d 1,090

10)
Electricity expense a/c
For the month of Mangsir

Dr Cr
Date Particulars J Amount(in Date Particulars J Amount(in
F Rs) F Rs)
Mangsir 28 To cash a/c 2,500 Mangsir 30 By balance c/d 2,500
2,500 2,500
Poush 1 To balance b/d 2,500

11)
 Salary and wages expense a/c
For the month of Mangsir

Dr Cr
Date Particulars J Amount(in Date Particulars J Amount(in
F Rs) F Rs)
Mangsir 29 To cash a/c 50,000 Mangsir 30 By balance c/d 50,000
50,000 50,000
Poush 1 To balance b/d 50,000

12)
Tax expense a/c
For the month of Mangsir

Dr Cr
Date Particulars J Amount(in Date Particulars J Amount(in
F Rs) F Rs)
Mangsir 30 To tax payable a/c 1,510 Mangsir 30 By balance c/d 1,510
1,510 1,510
Poush 1 To balance b/d 1,510

13)
Tax payable a/c
For the month of Mangsir

Dr Cr
Date Particulars J Amount(in Date Particulars J Amount(in
F Rs) F Rs)
Mangsir 30 To balance c/d 1,510 Mangsir 30 By tax expense a/c 1,510
1,510 1,510
Poush 1 By balance b/d 1,510

14)
 Insurance expense a/c
For the month of Mangsir

Dr Cr
Date Particulars J Amount(in Date Particulars J Amount(in
F Rs) F Rs)
Mangsir 30 To prepaid insurance a/c 3,816 Mangsir 30 By balance c/d 3,816
3,816 3,816
Poush 1 To balance b/d 3,816

15)
Prepaid Insurance a/c
For the month of Mangsir

Dr Cr
Date Particulars J Amount(in Date Particulars J Amount(in
F Rs) F Rs)
Mangsir 30 To balance c/d 3,816 Mangsir 30 By insurance expense a/c 3,816
3,816 3,816
Poush 1 To balance b/d 3,816

16)
Depreciation on Equipment a/c
For the month of Mangsir

Dr Cr
Date Particulars J Amount(in Date Particulars J Amount(in
F Rs) F Rs)
Mangsir 30 To accumulated depreciation 5,208.33 Mangsir 30 By balance c/d 5,208.33
on equipment a/c
5208.33 5208.33
Poush 1 To balance b/d 5,208.33

17)
 Accumulated depreciation on Equipment a/c
For the month of Mangsir

Dr Cr
Date Particulars J Amount(in Date Particulars J Amount(in
F Rs) F Rs)
Mangsir 30 To balance c/d 5,208.33 Mangsir 30 By depreciation on 5,208.33
equipment a/c
5208.33 5208.33
Poush 1 By balance b/d 5,208.33

18)
Depreciation on vehicle a/c
For the month of Mangsir

Dr Cr
Date Particulars J Amount(in Date Particulars J Amount(in
F Rs) F Rs)
Mangsir 30 To accumulated depreciation 3,125 Mangsir 30 By balance c/d 3,125
on vehicle a/c
3,125 3,125
Poush 1 To balance b/d 3,125

19)
Accumulated depreciation on vehicle a/c
For the month of Mangsir

Dr Cr
Date Particulars J Amount(in Date Particulars J Amount(in
F Rs) F Rs)
Mangsir 30 To balance c/d 3,125 Mangsir 30 By depreciation on 3,125
vehicle
3,125 3,125
Poush 1 By balance b/d 3,125

20)
 Depreciation on Furniture and fixture a/c
For the month of Mangsir

Dr Cr
Date Particulars J Amount(in Date Particulars J Amount(in
F Rs) F Rs)
Mangsir 30 To accumulated depreciation 300 Mangsir 30 By balance c/d 300
on furniture and fixture a/c
300 300
Poush 1 To balance b/d 300

21)
Accumulated depreciation on furniture and fixture a/c
For the month of Mangsir

Dr Cr
Date Particulars J Amount(in Date Particulars J Amount(in
F Rs) F Rs)
Mangsir 30 To balance c/d 300 Mangsir 30 By depreciation on 300
furniture and fixture a/c
300 300
Poush 1 To balance b/d 300

SMS Embroidery
Trial Balance
 For the month of Mangsir,2076

Particulars Debit amount(Rs) Credit amount (Rs)

Cash 81,715
Office Supplies 30,000
Inventory 58,220
Account receivable - -
Prepaid Insurance 3,816
Advance service revenue 4,070
Account payable 19,385
Tax payable 1,510
Tax expense 1,510
Insurance expense 3,816
Repair of equipment 2,000
Fuel expense 1,090
Electricity expense 2,500
Salary and wages expense 50,000
Service revenue 2,02,070
Depreciation on Equipment 5,208.33
Accumulated depreciation on Equipment 5,208.33
Depreciation on Vehicle 3,125
Accumulated depreciation on Vehicle 3,125
Depreciation on furniture and fixture 300
Accumulated depreciation on furniture and fixture 300

Total 2,39,484.33 2,39,484.33

SMS Embroidery
 Income Statement
For the month of Mangsir,2076

Detail amount Total amount

Particulars (Rs) (Rs)
Service revenue 2,02,070
Less: Cost of goods sold (40,754)
Gross Profit 1,61,316

Operating Expenses
Selling expenses
Depreciation on vehicle (3,125)
Fuel expense (1,090)
Total selling expense (4,215)

General and administrative expense

Depreciation on equipment (5,208.33)
Depreciation on furniture and fixture (300)
Insurance expense (3,816)
Office supplies expense (25,450)
Salary and wages expense (50,000)
Repair of equipment (2,000)
Total general and administrative expense (86,774.33)
Total operating expense (90,989.33)
Income before tax 70,326.67

Less: Tax expense (1,510)

NET INCOME 68,816.67

WORKING NOTE:
1) Cost of goods sold
Inventory= 58,220 (Purchase)
Ending inventory= 17,466
Therefore, Cost of goods sold= (58,220-17,466)
= 40,754

2) Office supplies expense

Total office supplies= 30,000
Office supplies left= 4,550
Therefore, Office supplies expense= (30,000-4,550)
= 25,450

SMS Embroidery
 Balance Sheet
For the month of Mangsir,2076

Detail amount Total amount

Particulars (Rs) (Rs)
ASSETS
Current Assets
Cash 81,715
Inventory 17,466
Office supplies 4,550
Prepaid insurance 30,528 26,712
Less: Prepaid insurance expired (3,816)
Bank balance 16,963.62
Total current assets 1,47,406.62

Property, plant and equipment

Equipment 12,50,000 8,59,375.05
Less: Accumulated depreciation on equipment (3,90,624.95)
Furniture 72,000 49,500
Less: Accumulated depreciation on furniture (22,500)
Vehicle 7,50,000 5,87,500
Less: Accumulated depreciation on Vehicle (1,62,500)
Total property, plant and equipment 14,96,375.05
TOTAL ASSETS 16,43,781.67

LIABILITIES
Current Liabilities
Advance service revenue 4,070
Account payable 19,385
Tax payable 1,510
TOTAL LIABILITIES 24,965

SHAREHOLDER'S EQUITY
Contributed Capital
Owner's Equity 15,50,000
Total Contributed Capital 15,50,000
Retained Earning 68,816.67
TOTAL SHAREHOLDER'S EQUITY 16,18,816.67
TOTAL LIABILITIES +SHAREHOLDER'S EQUITUY 16,43,781.67

NOTE:
1) Prepaid insurance per year is Rs. 45,792 paid on 1st of Shrawan.

2) The equipment to have been purchased on Shrawan of 2070 on Rs. 12,50,000.

Depreciation annually = 5% of 12,50,000 = Rs. 62,500. ( Monthly= Rs. 5,208.33)
Accumulated Depreciation of equipment
= 57,291.63 + 62,500 + 62,500 + 62,500 + 62,500 + 62,500 + 20,833.32
(2070-71) (71-72) (72-73) (73-74) (74-75) (75-76) (75-76)
(from Bhadra) (till Kartik)
= 3,90,624.95

3) The furniture to have been purchased on Shrawan of 2070 on Rs. 72,000

Depreciation annually = 5% of 72,000 = Rs. 3,600. ( Monthly= Rs. 300)
Accumulated Depreciation of furniture
= 3,300 + 3,600 + 3,600 + 3,600 + 3,600 + 3,600 + 1,200
(2070-71) (71-72) (72-73) (73-74) (74-75) (75-76) (75-76)
(from Bhadra) (till Kartik)
= 22,500

4) The vehicle to have been purchased on Asar of 2071 on Rs. 7,50,000.

Depreciation annually = 5% of 7,50,000 = Rs. 37,500 ( Monthly= Rs. 3,125)
Accumulated Depreciation of vehicle
= 37,500 + 37,500 + 37,500 + 37,500 + 12,500
(72-73) (73-74) (74-75) (75-76) (75-76)
(from Shrawan) (till Kartik)
= 1,62,500

5) Retained earning for the month = Net income for the month
= 68,816.67

6) Assuming the owner's equity or the capital which was invested at the beginning be Rs. 15,50,000.
 SMS Embroidery
Working Capital
For the month of Mangsir,2076

Working Capital= Current assets - Current liabilities

= 1,47,406.62 - 24,965
= 1,22,441.62

This shows that the company can fund its current operations and invest in future activities and
growth. However, it may also show that the company is not investing enough of its available
resource in productive resource.

SMS Embroidery
Current Ratio
For the month of Mangsir,2076

Current Ratio= Current assets / Current liabilities

= 1,47,406.62 / 24,965
= 5.9 : 1

This indicated that company is more liquid/ has high liquidity . As the current ratio is too high it
may also mean that  the company may not be using its current assets.This may also indicate
problems in working capital management. So, in conclusion the company should be investing more
in productive sectors as the current asstes is comparatively high .
 SMS Embroidery
Profit Margin
For the month of Mangsir,2076

Profit Margin= Net Income / Net Sales

= 68,816.67 / 2,02,070
= 34.05%

This profit margin shows that it had a net income of Rs.0.3405 for each Rupee of Service revenue
generated. That also means , For every Rs 100 of service revenue generated, the net income is Rs
34.05.

Submitted by:
Section A
Group 7
Bandana Shrestha (197096)
Kritima Maharjan (197054)
Palija Manahdhar (197060)
Smriti Chaulagain (197022)
Srijan Shrestha (197108)