Answer number 1

Procedure and steps:

Below is the journal entry of Mrs Veena,

Journal Entries in the books of Mrs. Veena

Date Particulars of Business Transaction Folio Debit Credit
3-Dec Cash A/c Dr. 5,000
Bank A/c Dr. 5,00,000
To Capital A/c 5,05,000
(being a cash and bank balance contributed in
capital to start a business)
5-Dec furniture A/c Dr. 60,000
To bank A/c 30,000
To creditor A/c 30,000
(being furniture purchased and paid half amount
by bank)
7-Dec Purchase A/c. Dr. 3,15,000
To Bank A/c 3,15,000
(Being purchased goods for sale)
8-Dec Bank A/c. Dr. 5,00,000
To Sales A/c 5,00,000
(Being entire good sold)
10-Dec Rent A/c Dr. 10,000
Electricity A/c Dr. 10,000
Salary A/c Dr. 10,000
To Bank A/c 30,000
(Being rent, electricity, salary to employees
paid)

Conclusion
While a ledger is used to create a company's trial balance and final accounts, a journal is used
to construct a company's ledger. The ledger frequently contains the data required to produce
financial statements. An accounting journal is a thorough recording of all a company's
financial transactions. As the first place where transactions are recorded, it is sometimes
referred to as the book of original entry. The general ledger, which is created from the entries
in an accounting journal, is used to produce the financial statements of a company.
Answer number 2:
Introduction
The Profit and Loss Account statement of an enterprise is essential for representing the state
of business activities in an organization.
Following are the key components required for the preparation of a P&L Account.
Components:
1. Expenses
Any expense incurred to run the business is included in the expense section of a profit and
loss statement for small businesses. These may consist of,
a. Advertising costs
b. Employee salaries, benefits, and payroll taxes
c. Interest expenses
d. Office supplies
e. Payments to vendors or contractors
f. Professional fees for accountants, attorneys, etc.
Non-operating expenses, such as interest and taxes, are often broken out separately from
operating expenses for illustrative purposes.
2. Gross profit
The difference between revenue or gross receipts and the cost of products sold is known as
gross profit. The gross profit and gross receipts are equal if the business is a service one with
no inventory.
3. Net profit or loss
After calculating any taxes due and subtracting them from earning before tax, the net amount
will equal a company's profit or loss for the period. When trying to compare companies in
different industries and tax situations, or if exact numbers aren't yet available, net profit or
loss is often equated to the earnings before interest, taxes, depreciation, and amortization
(EBITDA).
4. Cost of Goods Sold
The complete cost incurred in the production of goods and services is shown in the cost of
goods sold. Costs related to production, direct labour, and the acquisition of raw materials are
included.
Deducting the cost of goods sold from total revenue yields gross profit.
5. Revenue
For small enterprises, the top line on a profit and loss statement is the revenue, which
contains all income items. Sales, gross receipts, fees, or any other phrase to indicate the
operating revenue of the company may be used to refer to this line on the P&L. Usually, non-
operating sources of income, like interest, are separated from operating sources of income.
Again, the accounting method affects when revenue is reported on the P&L. When using the
accrual method of accounting, revenue is reported when earned, at the time of sale, even if
payments have not yet been received. If the cash method is used, revenues will be recorded
when payment is received. To increase the accuracy of reported income, gross sales may be
adjusted based on past experience of customer returns or refund requests by setting up an
allowance and netting it against revenues.

Answer number 3(a)

Understanding and usage of formula

Every financial transaction is taken into account to have an impact on at least two of a
company's accounts in double-entry bookkeeping, a common accounting technique. To
record each transaction, a debit entry will be made in one account and a credit entry will be
made in the other. T-accounts can also be used by business owners to extract data, such as the
type of transaction that happened on a specific day or the balance and activity of each
account.

Procedure/ steps
Balance sheet as at Financial year ended____________ (Rs in ‘000)
Liabilities Rs. Assets Rs.
Share Capital Non-Current Asset
Share Capital 1050 Equipment 150
Retained earnings 860 Unearned Revenue 200
Other non-Current Liability Accounts receivable 250
Salaries payable 150 Prepaid Insurance 300
Other Current Liability Common stock 1000
Supplies 150
Accounts Payable 540 Current Asset
Cash 550
Total Liability 2600 Total Asset 2600

Conclusion

A double entry accounting system's mathematical flaws can be found by creating a trial
balance for a business. The trial balance is deemed to be balanced and there should not be any
arithmetic errors in the ledgers if the total debits and total credits are equal. This does not,
however, imply that an organisations accounting system is error-free.
Answer number 3(b)

Understanding and usage of formula

A liquidity ratio called the current ratio measures a company's capacity to settle short-term
debts or those that are due within a year. It explains to investors and analysts how a business
can use its present assets to the fullest extent possible to pay down its current liabilities and
other payables.

Procedure/ steps
Analysts evaluate the company's current liabilities to its current assets to get the current ratio.
Inventory, accounts receivable, cash, and OCA (other current assets) are the current assets
included on a company's balance sheet that it expects to liquidate or convert into cash during
the next 12 months.
Below is the formula to find current ratio,

Current Ratio = Current Asset__

Current Liability
= 550_
540
= 1.018
Significance of Current Ratio:
The current ratio is calculated to determine a company's capacity to pay down its short-term
commitments using its current assets. All current assets are expected to be transformed into
cash in order to settle the company's immediate liabilities. In other words, this ratio is
determined to assess a firm's ability to sustain itself over the near term. One of the best
current ratios is 2:1. Thus, the firm's current liabilities should be equal to twice its current
assets. However, if the current ratio is extremely high, it is assumed that funds are idle, the
company has poor inventory control, and the turnover of its debtors is slow.