Long-questions:(account)

1.differnce between book-keeping and accounting.

sr.no book-keeping accounting
1 It is process concerned with It is a process concerned with
recording of transaction. summarising of the recording
transaction.
2 It constitues as a base for It is considered as a language of
accounting. the business.
3 Financial statement do not Financial statement are prepared
form part of this process. in this process on the basis of
book-keeping records.
4 Managerial dicision can not be Management take dicision on the
taken with the help of these basis of these records.
records.
5 There is no sub-fields of book- It has several sub-fields like
keeping. financial
accounting,management
accounting etc.
6 Financial position of the Financial position of the
business cannot be ascertained business is ascertained on the
through the book-keeping basis of accounting reports.
records.

2.Golden rules of accounting:

All the accounts have two rules each,one related to debit and
one related to credit for recording the transactions which are terms
as golden rules of accounting,as transaction are recorded on the
basis of double entry system.
Types of account Account to be debited Account to be credited
Personal account Benefit receiver Benefit giver
Real account What come in What goes out
Nominal account Expense and loss Income and gain
3.qualification of accounts:
Accounts are broadly classified into assets,liabilities and capital.

The basic accounting equation specified broad categories which

are as follows:1.assets,2.liabilities,3.capital.

1.assets:
All the resources of business having economic value are called
assets.
These resources help the business to earn profit and have future
value.
These are important for running a business and are in the
possession of businessman.
These are two types:-(1).fixed assets (2).current assets
(1).fixed assets:
The assets which are used by business for long time are
called fixed-assets or non-current assets.these are continued to be
used by business for a period of more than one year. For example:-
land,building,plant,machinery,furniture,vehical etc.
(2).current assets:
The assets which are used up in one year or easily get
converted into cash in one year are called current assets. For
example:-raw material,finished goods,debtor,bank balance,cash
balance etc.
2.liabilities:
The amount which business ownes to others is called its
liabilities.There is certain amount which business is under
obligation to pay.
There are two types of liabilities:(1).long-term liabilities
(2).short-term liabilities
(1).long-term liabilities:Those liabilities which are usually payable
after a period of one year.For example:-long-term loans from
financial instittutions,debenture issued by companies etc.
(2).short-term liabilities:These are those are payable within the
one year.For example:-creditors, Bank overdrafts etc.
3.Capital:
The amount of cash,goods or assets which is initially invested by
proprietor while commencing business is called 'capital'.
It is invested to earn profits.
In other words,the excess of assets over liabilities is capital.
[Capital=assets – liabilities.]

However, traditionally accounts are classified as follows:

1.Personal account:
These accounts related to persons,institutions,debtors or creditors.
2.impersonal account:
These represent accounts which are not personal.
These can be further sub-divided as follows:
A.Real account:
These account relate to the assets of firm but not debt e.g. Account
relating to land,building,cash in hand etc.
B.Nominal account:
These account relate to expense,loss,gain and revenue or income.

4.Suspense account:
If the trial balance does not agree after transffering the balance of
all ledger accounts including cash and bank balance and also error
are not located timely,then the trial balance are tallied by
transffering the difference of debit and credit side to an account
known as suspense account.
This is temporary account open to proceed further and to prepare
the financial account timely.
For example:
s.no particular l.f. Debit amount Credit amount
1 Purchase 20000
2 sale 60000
3 purchase return 2000
4 sale return 2000
5 capital 40000
6 building 80000
7 opening stock 4000
8 bill receivable 6000
9 bills payable 10000
10 debtor 60000
11 creditor 100000
12 suspense a/c 40000

212000 212000

5.Business transaction:
An activity of exchange of goods or services either for cash or
credit basis is called “transaction”.
In simple words,it is business dealing between two person or
parties.for example:-purchase or sale of goods,payment of
expense,receipt of income etc.
Every transaction requires a minimum of two persons or parties.

There are three categories of business transaction:

1.cash transaction
2.credit transaction
3.barter transaction

1.cash transaction:
A transaction in which cash is paid or received immediately at the
time when transaction occurs is known as cash transaction.
e.g.salary paid,cash sales,amount received from debtors etc.
Such transaction are called 'monetary transaction'.
2.credit transaction:
A transaction in which cash is not paid or received immediately at
the time when transaction occurs but paid or receving at future
date is known as credit transaction.
e.g.purchase of machine on credit,sale of goods on credit etc.
Such transaction are called 'non-monetary transaction'.
3.barter transaction:
A transaction where by present cash balance or even future cash
balance are not involved is called 'barter transaction'.
e.g.exchange of a two old car for a new car.such transaction has
cash value but there is no exchange of cash at present or future.

6.imprest system of petty cash book:

It is convenient to entrust a definite sum of money to the petty
cashier in the beginning of a period and to reimburse him for
payments made at the end of period.Thus,he will again the fixed
amount in the beginning of the new period.such a system is known
as the imprest system of petty cash book.
The system is very useful specially if an analytical petty cash book
is used.
The book has one column to record recript and other columns to
record payment of various types.
The total of various column show why payments have been made
and then the relevant account can be debited.

Format:
receipts date v.no particul Tota conven cartage stationer postage wages telegra sundrie
ar l yance y m s

In the petty cash book the extreme left-hand column records

receipts of cash.then in the date column,dates on which
transactions took place are recorded.
Next to the date column,there is a column to record the voucher
number.in the particulars column,the purpose of expense is written
and simultaneously in money column,of various expense,the
amount is recorded.there is a sundries column in the book,to
record infrequent payments.lastley,there is a total column,torecors
the total amount.

Advantages:
there are mainly three advantages:
1.saving of time of chief cashier.
2.saving in labour in writting up the cash book and posting into
the ledger.
3.control over small payments.