FINANCIAL ACCOUNTING

AND
ANALYSIS
 1. ANSWER

Introduction:

The accounting transactions in a company are taped using the double-entry accounting
system. A Journal is a book of original access where the accounting transactions are taped
chronologically.

A journal additionally complies with a double-entry accounting system; for each debit, there
is a credit. It forms the basis of the various accounting ledgers prepared as accounting
entrances are published in the ledgers from the journal. It has a document of all the
business transactions during the accounting period.

Concept and Application:

Company businesses use accounting journals to record service transactions like sales, cash,
accounts payable, etc. If the firm wishes to use them, these journals are optional and can be
used.

The sales journal includes details of the supply and shops offered by the entity on credit
terms. A cash journal documents the cash transactions of the entity. These transactions
might include cash payments for expenditures or acquisition of trading items, or cash
invoices for the sale of products.

Similarly, there are several various other journals to videotape different classifications of
transactions. The volume of accounting records will be significant and segregated in
different places if a business uses various journals to record various transactions. Thus
businesses choose to use the minimum necessary number of journals.

Where the accounting data is digitized, all these journals and access can be conveniently
found in one place.

Nevertheless, the primary journal is used by all fums. It contains documents of each
business transaction made by the company. The details include:

 Date of transaction

 Description

 The ledger accounts are affected.

 Amounts by which each ledger is affected.

  Details of debits and credits.

It can be described as a "catch-all" Journal.'Traditionally accounting records were ready

manually. An accounting journal was then really essential. It was the document from which
the transactions were uploaded to the general ledger.

With the computerized bookkeeping today, a general journal is prepared, containing all the
adjusting access and notable financial transactions.

To prepare an accounting journal, it is mandatory to tape useful information concerning

financial transactions. These details can be obtained from billings, orders, invoices, and
other resources;

after analyzing and assuring the transaction's validity, the journal documents the data in
sequential order

Journal access is regulated by the double access method of bookkeeping. To record each
transaction, an effect is given in two columns: a credit and a debit. The documented
transactions are referred to as journal entrances.

Let us comprehence it with the help of am instance.

Intend you purchase a table for your service and pay cash to the provider from whom you
bought it. The accounting journal will videotape two entries, or much more precisely, we
can state it will affect ledger accounts. "the cash account will be lowered, and the
possession account will be increased.

Steps for recording the journal entries

1. Identification of the financial transactions affecting the business.

2. Analyzing the transactions and identifying how they affected the accounting equation

3. Using credits and debits to tape the modifications. Generally, the debited accounts are
provided over the accounts that are credited. A journal entry needs to have a date and a
description, additionally called the narration of the transaction.
While making a journal entrance, the bookkeeper must ensure that the accounting
transaction stabilizes the amount of the debit to credits. Since the credits and debits are the
basis of a journal entrance, it is necessary. They inform the viewers if the business is
obtaining something or marketing it. Thus, a journal entrance will be a two-liner. A one-liner
journal will not balance and is not used to tape organization transactions.

In the offered case, a couple of accounting transactions are given. It is required to prepare
the journal which documents these accounting transactions.

The required entries to be passed in the Journal are:

Date Particulars Dr./Cr. Amount Amou

3.12 Cash a/c Dr. 5000
Bank a/c Dr. 500000
To capital a/c Cr. 5050
(Being capital introduced in the business)
5.12 Furniture a/c Dr. 60000
To Bank a/c Cr. 300
To sundry payable Cr. 300
(Being furniture purchased for ₹60000, ₹30000 paid through bank and
the creditors created for the balance amount)
7.12 Stock-in-trade Dr. 315000
To bank a/c Cr. 3150
(being goods bought and payment made through bank account)
8/12 bank a/c Dr. 500000
To stock-in-trade Cr. 3150
to profit on sale of goods Cr. 1850
(being goods soldfor cash and profit realized)
10/12 Rent a/cDate Dr. 10000
Salary a/c Dr. 10000
Electricity expense a/c Dr. 10000
To bank a/c Cr. 300
(Being rent, electricity and salary expense paid through bank account)

Conclusion: In the above journal, each accounting transaction is a two-liner. A debit

amounts to credit as it prepared following the double-entry accounting system
 2. ANSWER

Introduction:

Bookkeeping is the process of summarizing, evaluating, and reporting monetary

transactions.

Correct bookkeeping plays a crucial duty in taping business efficiency and tracking the
development and survival of the business organization. Better, keeping proper accounts of
the organization's different divisions assists in evaluating the efficiency of the various
departments in the organization. It assists in determining the actual profit from its
functional tasks. It is generally viewed as a key to the success of small company proprietors.
The audit procedure aids in maintaining the books of accounts of a business the method' of
bookkeeping assists in analyzing and translating the financial results of the business
procedures.

Concept and Application:

The profit and loss account of a business reflects the profit or loss that has been
represented over time. It can be for a month, quarter, or fiscal year. The major constituents
of the profit and loss account are as adheres to

1. Revenue, also known as sales

2. Cost of goods sold or cost of sales

3. Selling, General or Ad TV ministrative expenses.

4. Marketing and Advertising

5. Technology/ Research & Development

6. Interest Expense

7. Taxes

8. Net incomes

There are mainly two categories of accounts that hired accounting professionals to need to
prepare while preparing a profit and loss Declaration. It consists of:

Revenue Account and Expense Account

A revenue Account consists of all the money or funding the selling has made from products.
1. Direct and indirect expenses: An enterprise may sustain several expenses to perform its
day-to-day operations. Expenses are additionally incurred to assist in sales. The expenses
incurred in the company can be split into two classifications: Indirect expenses and direct
expenses.Direct expenses are the expenses directly related to the acquisition or
manufacturing of goods.Direct expenses consist of a factory worker's income gas expenses
of the manufacturing system, and so on.

2. Liability: liability is a thing that is produced when a specific company owes cash to
another individual or company. A type of liability on that particular company is that they
have to settle the amount to a different organization, which will decrease the business's
properties: an example, Bank loans,and charge card financial obligations.

Owners are not the only ones to be held responsible, for any financial debts sustained by
the firm.

There are mainly two sorts of liabilities: long-term and existing liabilities. The previous is
where the liabilities have emerged for a maximum of one year, and the last suggests a
situation when the liabilities have occurred for greater than one year. The term 'liability' is
likewise used in a company framework known as Minimal liability collaboration. It refers to
a kind of collaboration where all the companions in the business owe a limited amount of
value to the business.

3. Loans: The management operates an organization with no intention to close it down

quickly.

Correct management of funds is needed to avoid embezzlement and incorrect use. To

operate it’s activities without inconvenience, every company needs funds. These funds can
be either contributed by the business proprietors or acquired from outdoor organizations
like a bank. The funds obtained with an intention and promise to return are known as loans.

4. Revenue: Revenue describes the income made by an organization entity by offering its
products or supplying services. In some cases, revenue and sales are used reciprocally or
synonymously. E.g, when a restaurant uses food for its consumers, it takes the money from
the customers: that cash is primarily the restaurants revenue. Revenue is a combination of
profit and prices. It will lead to profits when you divide the charges from the revenue.

5. Other incomes: An organization may also make some revenue from activities that are not
the main revenue-generating tasks of business. These incomes include rental income,
interest income, or returns income. Therefore, y 8Mpany hay produce revenue from either
core company procedures or additional or supporting tasks. The income from main
company tasks is called Revenue from Operations, while all other income is other income.
Conclusion:
Preparing an economic declaration is crucial for any firm or organization. It mirrors the
monetary setting of the firm. It demonstrates how much Of the expenses have been made
by the business and, along with. it, just how much a company earns revenue in one single
fiscal year. A company has to prepare numerous kinds of financial accounts; these are ledger
loss, profit, and account and trial equilibrium at last. The profit and loss, account suggests all
the hunts expenses, losses, incomes, and gains in one financial year. Expenses are to be
revealed on the debit side of the account.

3. (A) ANSWER

Introduction:
A balance sheet is a financial statement that if organization prepares. It reveals the setting
of assets and liabilities on a given day. This date typically notes the end of the fiscal year of
the business. A balance sheet shows assets owned or rented by the company and the
sources from which they are funded. These funding resources may be borrowed capital, the
equity added by the organization participants, or a combination of both.

Concept and application:

There are two ways to prepare a balance sheet:

a. A vertical presentation

b. A horizontal presentation or the T-form

The balance sheet is drawn based on the fundamental accounting equation. It is

Assets = liabilities+ equity

A test balance creates the basis of the prep work of the balance sheet. It reveals that at a g
factor, the assets in a business need to be equal to its obligations/ liabilities and equity. Who
occurs, the balance sheet is claimed to be tallied

Thus, there are three components of a balance sheet. These are:

 LIABILITIES FIGURES FOR CURRENT ASSESTS FIGURES FOR CURRENT
YEARS (RS.) YEAR (Rs)
CAPITAL FIXED ASSETS
Land and Buildings
Common Stock 1000 equipments 15
Retained earnings 860
LONG TERM CURRENT ASSETS
LIABILITIES
LOANS 0 Cash in hand 5
Cash at Bank
CURRENT
LIABILITIES
ACCOUNT Payables 540 Account Receivables 2
Outstanding
salaries 150 Prepaid insurance 3
Underearned
revenue 200 Supplies 1
PROVISIONS INVESTMENTS
Provision for
taxation 0 FD
Provision for bad
debts 0

Total 2750 Total 27

1. Assets: This category stands for the sources owned by the entity and used to produce
future revenues.

2. Liabilities: This group represents the entity's responsibilities developing from a pre
occasion and consists of all those financial liabilities the entity owes to outsiders.

3. Equity: The equity of the business stands for the amount contributed by the owners o
business and the revenues preserved in the business. Simply put, a business's equity is
amount entrusted business after paying the responsibilities to the financial institutions

A balance sheet provides visitors with an account of the resources from which the firm
acquired funds and the sources it has invested them.

Horizontal Format of Balance Sheet

According to this format, all business liabilities exist on the left-hand side, and all assets are
revealed on the right-hand side of the balance sheet. It is likewise called the T-shaped
Balance sheet.
Conclusion:
A balance sheet is a part of the company’s economic statement to its shareholders.

3. (B). ANSWER

Introduction
The ratio between the existing properties of the business and its present responsibilities is
known as the current ratio. Existing properties can be realized within the operating cycle of
business, usually one year. Present obligations are the service's responsibilities that must be
paid or satisfied within one year.

Concept and application:

A company's monetary declarations are prepared to identify its earnings and financial
position among the industry members. Various accounting tools and techniques are utilized
to examine these statements. One such, most generally made use of the technique is ratio
evaluation. It specifies the relationship between different monetary elements existing and
controlling a service.

A current ratio derives the relationship between a business's current assets and obligations
on its annual report on a given date. It shows the size of the company's current properties
versus its existing liabilities. It is usually described as the working capital ratio.

It is calculated using the following formula:

Current ratio = Current assets/Current liabilities

Current assets will include:

• Cash-in-hand

• Bank balances

• Marketable securities

• Trade receivables

• Inventories etc.
Current liabilities will include:

• Bank overdraft

• Trade payables

• Provisions

• Outstanding liabilities

• Short-term loans etc.

Calculations of current ratio of Z and X LLP

Particulars Calculations Amount(RS)

Current assets (a) 2250
Accounts receivable 250
Supplies 150
CAsh 550
Prepaid insurance 300
Common Stock 1000
Current Liabilities (b)
890
Salaries payable 150
Unearned revenue 200
Accounts Payable 540

Current ratio (a/b) 2.53:1

Calculations above show that the current ratio of Z and X LLP is 2.53:1

Significance of current ratio:

The current ratio helps in determining the liquidity setting of the business. It shows the
ability of the business to pay its present charges or repayments using its current properties.

A ratio of 2:1 is considered an excellent ratio as it reveals that the company has doubled its
present properties compared to its current obligations. However, any ratio between 1:1 to
2:1 is considered significant. If the ratio is lower than 1:1, it suggests the lower monetary
liquidity of the business If the radio is too, high, it shows that the firm still has current
properties and is shedding an opportunity to utilize them to produce revenue.

Conclusion:
A Present Ratio is among the different liquidity ratios a company calculates. These liquidity
ratios assist in identifying the company's capability to satisfy its near-term commitments as
they specify an organized relationship between the quantum of the current/liquid
properties and the current/ temporary commitments.