AMIT SINGH/MBA MMS/SSJCET20024/S.

S JHONDHALE COLLEGE

AMIT OMPRAKASH SINGH

SSJCET20024

MBA FY MMS 2021

SHIVAJIRAO S. JHONDHALE COLLEGE

FINANCIAL ACCOUNTING
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FINANCIAL ACCOUNTING ASSIGNMENT

Q1 Explain the concept in short?

 Asset-an asset is any resource owned or controlled by a business or an economic

entity. It is anything that can be used to produce positive economic value. Assets
represent value of ownership that can be converted into cash.
 Capital-Capital is a broad term that can describe any thing that confers value or
benefit to its owner, such as a factory and its machinery, intellectual property like
patents, or the financial assets of a business or an individual. While money itself may
be construed as capital is, capital is more often associated with cash that is being put
to work for productive or investment purposes.
 Drawing-The meaning of drawing in accounts is the record kept by a business owner
or accountant that shows how much money has been withdrawn by business owners.
These are withdrawals made for personal use rather than company use – although
they're treated slightly differently to employee wages.
 Liability-A liability is something a person or company owes, usually a sum of money.
Recorded on the right side of the balance sheet, liabilities include
loans, accounts payable, mortgages, deferred revenues, bonds, warranties, and
accrued expenses.
 Revenue-Revenue is the income generated from normal business operations and
includes discounts and deductions for returned merchandise. It is the top line or gross
income figure from which costs are subtracted to determine net income.It is vital for a
startup to get positive revenue early.
 Profit and loss-The profit and loss (P&L) statement is a financial statement that
summarizes the revenues, costs, and expenses incurred during a specified period,
usually a fiscal quarter or year.These records provide information about a company's
ability or inability to generate profit by increasing revenue, reducing costs, or both.
 Goods-when goods are purchased it is written as purchases. When goods are sold it is
written as sales. It is written as a stock if remain unsold at the end of the year.
 Debtor and creditor-A term used in accounting, 'creditor' refers to the party that has
delivered a product, service or loan, and is owed money by one or more debtors.
A debtor is the opposite of a creditor – it refers to the person or entity who owes
money.
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 Bad debt-Bad debt is an expense that a business incurs once the repayment of credit
previously extended to a customer is estimated to be uncollectible.
 Solvent-Solvency is the ability of a company to meet its long-term debts and other
financial obligations. Solvency is one measure of a company's financial health, since
it demonstrates a company's ability to manage operations into the foreseeable future.
Investors can use ratios to analyze a company's solvency.
 Matching concept-Matching principle is the accounting principle that requires that the
expenses incurred during a period be recorded in the same period in which the related
revenues are earned. This principle recognizes that businesses must incur expenses to
earn revenues.
 Conservation-Accounting conservatism is a principle that requires
company accounts to be prepared with caution and high degrees of verification. All
probable losses are recorded when they are discovered, while gains can only be
registered when they are fully realized.
 Materiality-materiality refers to the impact of an omission or misstatement of
information in a company's financial statements on the user of those statements.
 Entity-An accounting entity is a clearly defined economic unit that isolates
the accounting of certain transactions from other subdivisions or accounting entities.
 Going concern-Going concern is an accounting term for a company that has the
resources needed to continue operating indefinitely until it provides evidence to the
contrary.

Q2 Explain need of financial accounting?

 financial accounting is the communication of information about a business or other

type of organization (such as a charity or government) so that individuals can assess
its financial health and prospects. Probably no single word is more relevant to
financial accounting than “information.” Whether it is gathering financial information
about a specific organization, putting that information into a structure designed to
enhance communication, or working to understand the information being conveyed,
financial accounting is intertwined with information.
 Assess the present position or the results of business i.e. profit or loss
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 Represent the financial stability of the business – stating the position of its assets and
liabilities
 Prepare a comparative analysis of the financial results
 To take decision about declaring dividends, capital structure etc.
 To estimate or assess the amount of Income Tax and Sales Tax

Q3 Uses of financial accounting?

 Bridging the Gap in Management

Financial statements basically reflect a company’s financial performances. They show profits
and liabilities of the business. They show how successful a company’s decisions have been.
Since shareholders have access to these statements, they can gauge their company’s
performance. This further helps in bridging the gap between lapses in management and
expectations of owners.

 Availing Credit from Lenders

Every business needs to borrow funds for functioning. They have to rely on lenders like banks
and financial institutions for this purpose. Financial statements play a huge role in this purpose.
Since they show a company’s liabilities, debts and profits, investors can use them to make
informed decisions.

 Use for Investors

Investors also extensively use a company’s financial statements to asses its finances. That helps

them figure out how the company’s solvency will be in the longer term. Thus, the better a
company’s financial position is, the greater the investment it will receive.

 Use for Government

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Governmental policies pertaining to corporates depend heavily on financial statements. This is

because these statements depict how companies are functioning in general. The government can
use this information to decide taxation and regulatory policies.

 Use for Stock Exchanges

Regulatory bodies like SEBI and stock exchanges like BSE and NSE also use financial
statements for many reasons. SEBI can assess a company’s internal matters using them to ensure
the protection of investors. Even stock advisers require them to frame their quotes. They are also
a great source of information for stock traders and investors.

 Information on Investments

The shareholders of a company rely on these statements to understand how their investments are
paying off. If a company is earning profits, they might decide to invest even more money. On
the contrary, stagnant profits or even losses will prompt them to pull out. Despite all these uses
of financial statements, there are some limitations to them as well.

Q4 Explain accounting cycle?

 Transactions: Financial transactions start the process. If there were no financial

transactions, there would be nothing to keep track of. Transactions may include a
debt payoff, any purchases or acquisition of assets, sales revenue, or any expenses
incurred.
 Journal Entries: With the transactions set in place, the next step is to record these
entries in the company’s journal in chronological order. In debiting one or more
accounts and crediting one or more accounts, the debits and credits must always
balance.
 Posting to the GL: The journal entries are then posted to the general ledger where a
summary of all transactions to individual accounts can be seen.
 Trial Balance: At the end of the accounting period (which may be quarterly,
monthly, or yearly, depending on the company), a total balance is calculated for the
accounts.
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 Worksheet: When the debits and credits on the trial balance don’t match, the
bookkeeper must look for errors and make corrective adjustments that are tracked on
a worksheet.
 Adjusting Entries: At the end of the company’s accounting period, adjusting entries
must be posted to accounts for accruals and deferrals.
 Financial Statements: The balance sheet, income statement, and cash flow statement
can be prepared using the correct balances.
 Closing: The revenue and expense accounts are closed and zeroed out for the next
accounting cycle. This is because revenue and expense accounts are income
statement accounts, which show performance for a specific period. Balance sheet
accounts are not closed because they show the company’s financial position at a
certain point in time.

Q5 Explain in detail classification of accounts?

 Personal Accounts

Personal accounts may be further classified into three categories:

 Natural Personal Account

An account related to any individual like David, George, Ram, or Shyam is called as
a Natural Personal Account.

 Artificial Personal Account

An account related to any artificial person like M/s ABC Ltd, M/s General Trading, M/s
Reliance Industries, etc., is called as an Artificial Personal Account.

 Representative Personal Account

Representative personal account represents a group of account. If there are a number of

accounts of similar nature, it is better to group them like salary payable account, rent
payable account, insurance prepaid account, interest receivable account, capital account and
drawing account, etc.
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 Real Accounts

Every Business has some assets and every asset has an account. Thus, asset account is called
a real account. There are two type of assets:

 Tangible assets are touchable assets such as plant, machinery, furniture, stock, cash,
etc.

 Intangible assets are non-touchable assets such as goodwill, patent, copyrights, etc.

Accounting treatment for both type of assets is same.

 Nominal Accounts

Since this account does not represent any tangible asset, it is called nominal or fictitious
account. All kinds of expense account, loss account, gain account or income accounts come
under the category of nominal account. For example, rent account, salary account, electricity
expenses account, interest income account, etc.
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ANSWER Q5
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ANSWER Q6
AMIT SINGH/MBA MMS/SSJCET20024/S. S JHONDHALE COLLEGE
AMIT SINGH/MBA MMS/SSJCET20024/S. S JHONDHALE COLLEGE
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ANSWER Q7
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 AMIT SINGH/MBA MMS/SSJCET20024/S. S JHONDHALE COLLEGE

ANSWER Q8
 AMIT SINGH/MBA MMS/SSJCET20024/S. S JHONDHALE COLLEGE

ANSWER Q9

Machinery  Account
Dr. Cr.
Amount Amount
Date Particulars Date Particulars
(Rs) (Rs)
2008     2009                                      
Apr Bank A/c (M1) Mar Depreciation A/C (M1)
3,00,000 30,000
1 31
    Mar Balance c/d (3,00,000 -
  2,70,000
31 30,000)
    3,00,000     3,00,000
2009     2010    
Apr Balance b/d (M1) Mar Deprecation A/c 
2,70,000  
1 31
Sep Bank A/c (M2)
3,00,000   M1 27,000  
30
    M2 (for 6
    15,000 42,000
months)
    Mar
  Balance c/d  
31
    M1 (2,70,00-
    2,43,000  
27,000)
    M2 (3,00,000-
    2,85,000 5,28,000
15,000)
           
    5,70,000     5,70,000
2010     2011    
Apr Balance b/d Mar Depreciation A/c
   
1 31
  M1 2,43,000     M1 24,300  
  M2 2,85,000 5,28,000   M2 28,500 52,800
    Mar Balance c/d
   
31
      M1 (2,43,000- 2,18,700
   
24,300)
      M2 (2,85,000- 2,56,500
  4,75,200
28,500)
    5,28,000     5,28,000
2011     2011    
Apr Balance b/d Sep Depreciation A/c M2 (for 6
  12,825
1 30 months)
  M1 2,18,700     Bank A/c 2,25,000
Profit & Loss A/c (loss on
  M2 2,56,500 4,75,200   18,675
sale)
Apr Bank A/c (M3) 2012  
50,000  
1
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    Mar Depreciation A/c

   
31
        M1 21,870  
        M3 5,000 26,870
    Mar    Balance c/d
   
31
      M1 (2,18,700 - 1,96,830
   
21,870)
      M3 (50,000 - 45,000
  2,41,830
5,000)
    5,25,200     5,25,200
           

 
Working Notes: Calculation of Profit or Loss on Sale
 
Particulars Amount
Value of M2 as on Apr.01, 2011 2,56,500
Less: Depreciation for 6 months (12,825)
Value of M2 as on Sept. 30, 2011 2,43,675
Less: Sale Value (2,25,000)
Loss on Sale 18,675
   

Profit on Sale of Machinery ( Rs 11,325) but as per our solution there is Loss on Sale of
Machinery i.e. Rs 18,675.