NMIMS Global Access

School for Continuing Education (NGA-SCE)

Course: Financial Accounting & Analysis

Internal Assignment Applicable for December 2022 Examination

Assignment Marks: 30
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Q.1.
Ans –
Introduction
In the Financial Accounting process most of the organizations regularly used double-entry
accounting to record their financial transactions. In a physical book called as a journal,
financial transactions are documented in reverse chronological order, beginning with the
date they occurred. Journals employ double-entry accounting regularly. A credit and a debit
transaction are opposites of one another. It serves as the basis for every transaction in
accounting ledger. The accounting transactions are further recorded in ledgers, which are
recorded after the journal. Every commercial transaction that occurred during the financial
time period is recorded.
Concept and Application
Accounting journals and ledger are used to record the sales, purchase, cash receipts, and
payables as bills and expenses among other transactions. The journals retain value even if
the corporation decides not to use for financial accounting. The organization tracks sales and
maintains a list of products and services transactions for financing and accounting. Every
monetary transaction must be recorded in a cash book, journals, and ledger.
Accounting information of transactions could become unable to manage if a company
records the transaction of business in many journals so, corporation decides to retain only
journals book. Now a days, all accounting transaction and its data is now digitally accessible,
it is much easy to save and retrieve journals from single source. Instead of all business
transactions maintained / records and documented in a paper trail.
All financial transactions of business were recorded manually in journal and then ledger
books. A book of accounting was an essential source at that time to keep tracking and record
of business transaction. Each entry of transaction is maintained in the general ledger was
recorded in this file. With digital accounting system, several financial transactions have
recorded, and security settings is used accordingly. To make the entry in journals there is the
validated transaction is necessary. These details taken from taken from the bills, invoices,
and other comparable papers and maintain the transaction records for accounting purpose.
To maintain the transaction double-entry bookkeeping process is used and it is feasible to
restrict access to journals. As per the business transaction a two-column separator is added
between the credit and debit columns. This diary contains an entry for each recorded
transaction.
As per the provided details we can make the transaction entries like below in Journal
The required entries to be passed in the Journal are as By Mrs. Veena accountant

Date Particulars Dr./Cr. Amount Amount

03.12 Cash a/c Dr. 5000

Bank a/c Dr. 500000

To capital a/c Cr. 505000

(Business capital for introduction of business)

05.12 Furniture a/c Dr. 60000

To bank a/c Cr. 30000

To sundry payable Cr. 30000

(Furniture purchased for ₹60000, ₹30000 paid

through bank and the creditors created for the
balance amount)
07.12 Stock-in-trade a/c Dr. 315000

To bank a/c Cr. 315000

(For purchase goods and payment made through
bank account)

08.12 Bank a/c Dr. 500000

To stock-in-trade Cr. 315000

To profit on sale of goods Cr. 185000

(For goods sold for cash and profit receoved)

10.12 Rent a/c Dr. 10000

 Salary a/c Dr. 10000
Electricity expense a/c Dr. 10000

To bank a/c 30000

(For paying rent, electricity and salary as expenses
and paid it through the bank account)

Conclusion:
Every business transaction is recorded as a two-line item in the mentioned column of the
diary. In a double entry accounting system, debits and credits are balanced.
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Q.2.
Ans -
Introduction:
Profit and loss account is referred as the account which summarize and provide the
information details about the revenue, expenses made for business, cost, etc. is incurred for
particular time and period like quarter, half year and financial year. Profit and loss account is
helps to conclude the status of business and according to that statement business
organization prepare the strategies for business and raise the financial budget.
The profit and loss accounts records provide the details information about a company’s
transactions and business ability or inability to generate profit by increasing revenue,
reducing costs, or both. The profit and loss accounts statements are regularly present the
transaction history and costing expenses made by organization. Company management,
financial advisors, finance department and investors refer the profit and loss accounts
statements to conclude the financial health of a company.
Concept and Application
Profit and loss account statemen refers the amount of money which is earned or lost by
business operations is documented in account. The business transactions are recorded in
account more for annual, quarterly, and month-to-month payments along with balance
sheet and cash flow statement of business transactions. As it is very common statement is
generated by business accountant department to track, control, and generate the revenue
for business and its strategy.
Profit and loss account is a Bookkeeping record which involves the recording, analyzing, and
reporting the organizational financial transactions. If a company is objectives is set and
committed for getting the long-term success and expand the business, then the organization
shall be maintained accurate financial records. All business firms should be easily accessing
the financial records to stay updated and control the unwanted expenses.
By referring such statements management develop and design the business strategy and by
Using this strategy, the value of the company's outputs can be concluded. This is the
statement of business status that is essential to the grow the business successfully. Profit
and loss statement are used for the financial auditing purpose, and it helps to Analyzing and
evaluating a company's financial health and it is effectively simplified when all business
financial transactions are accurately and adequately recorded in profit and loss accounts.
In the business cycle there is need to compare in come statement with the different
accounting periods to track and control the changes in revenues, operation cost, cost of
R&D, etc. comparing with different accounting periods is helps to get information about the
rate of expenses against expenses which organization made for the business transaction to
produce the output. By comparing the profit and loss statement with variable periods
against the statement of other company and that result is helps to make the financial
strategy to investor and financer.
The following are the primary components of a profit and loss statement account
 Revenue - Revenue is referred as the amount of money is generated by making the
business transactions such as sale of goods and services. Revenue is generated by the
business organization over the period of time by selling the goods and services.
Revenue is overall income generated by the company by producing the outputs and
its recorded in profit and loss account according to the business transactions. As it’s
also referred as the Company turnover. Revenue is also generated by the fees,
investment, interest, loyalties, etc.
 Cost of goods sold – Cost of goods sold is referred as the cost of produced product is
earned by selling into the market by the business entity. Goods cost is produced by
calculating the cost material and expense made on labor to product that product. As
per actual cost of goods and its market cost according to the market requirement is
cost of goods sold. Actual cost of goods and market cost might be different according
to the quality of product and requirement of product.
 Expenses – Expense is referred as the amount of money which is incurred to produce
the product and services by business entity. Expense is a operational cost is incurred
to produce the revenue for business purpose. Expense is made by business entity of
production and its associated services.
 Gross profit – Gross profit is referred as the total sale of product and services of
business entity. Gross profit is a total profit made by a company by selling the goods
and it’s calculated by substituting the total cost of sold goods.
 Net profit - Net profit is referred as the net value of revenue is generated by business
firm by selling the product and services. Net profit is calculated by minus the total
cost of all kinds of expenses from the total revenue amount over the period of time.

Conclusion:
Every business firm must generate the financial accounting statement such as balance sheet,
profit, and loss account statements. As it presents the detailed information about the
business transaction, revenue, goods cost, expenses, profit, and loss, etc. over the financial
year period. Balance sheet, loss and profit ledger, and account and trial balance are the
three most important financial documents for the auditable purpose. With the profit and
loss statement is helps to finalize the revenue and cost made by company.
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Q.3. (A)
Ans -
Introduction:
A balance sheet is referred as the financial statement of business transactions is made by
business entity. A company's assets and liabilities are summed and presented on its balance
sheet. On the balance sheet, all assets, liabilities and their related funding and expenses are
listed out and recorded. For example, the business firm can lease these assets to third
parties, business Members can donate the funds to the organization or borrow funds from
other members to generate the revenue by operational expenses.

Concept and Application

Balance sheet is present the assets, liability, shareholder equity, at a particular time of
business firms. Balance sheet is a statement of financial activity conducted by business
firms. It helps to classify the asset and labilities of the business. In short it presents the
overview of what business owns and owes for the business firms. Balance sheet is providing
the detailed information about the company investment, expenses, and revenue amount.
The balance sheet is developed by using the below equation.
All assets = Total Liabilities + Total Equity.

A trial balance is required prior to completing the balance sheet. This trial balance
demonstrates the distribution of an organization's assets in relation to its obligations,
commitments, and equity. It is believed that the balance sheet then assumed its final form.
Assets are the resources of a business firms that use and plans to commercialize in market to
produce the revenue. Equity is a contribution of the owner to develop the business and
make the business transactions. Equity is the money amount which is remains in business
after paid all expenses and debts. On the balance sheet, liabilities mentioned on the left and
assets mentioned on the right.
Refer the below Balance sheet with mentioned particulars.

LIABILITIES Figures for ASSETS Figures for

Current Year Current Year
(Rs.) (Rs.)

CAPITAL FIXED ASSETS

Partner's capital contribution
(b/f) 2000 Land and building
Retained earnings 860 Equipment 1500

CURRENT ASSETS
LONG-TERM LIABILITIES Cash-in-hand 550
Loans Cash at bank
Account receivables 250
CURRENT LIABILITIES Prepaid insurance 300
Account payables 540 Stock-in -trade 1000
Outstanding salaries 150 Supplies 150
Unearned revenue 200
INVESTMENTS
PROVISIONS Fixed deposit
Provision for taxation
Provision for bad debts

TOTAL 3750 TOTAL 3750

Conclusion:
Business firms and Shareholders are generally provided the balance sheet that summarizes
the financial position of the company and its help to develop the business strategy in future.
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Q.3. (B)
Ans - Introduction:
Current ratio is referred as the Liquidity ratio of business that determines ability of the
business firm to pay the obligation within time period of one year. Current ratio is the ratio
of a business organizations short-term liquid assets to its short-term liabilities. Financial
liabilities with a one-year maturity date are referred to as current liabilities. These debts are
referred to in financial "current liabilities to pay.
Concept and Application
By referring the company's financial records and statements, it is easy to conclude the
organization revenue and how it compares to the other businesses revenue in the same
industry. The current ratio is the inline with industry average ratio. Various accounting
information and tools can be used and analyze this financial information. Accounting Experts
in finance uses the current ratio in their annual statements and This statement describe the
relationship between the current assets and liabilities. Using the working capital to total
capital ratio is a standard method to finalize the Current ration.
Current Ration is defined as below Formula
Current Assets
Current Ration = --------------------------
Current liabilities
Calculation of current ratio of Z and X LLP

Particulars Calculations Amount (₹)

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

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

Significance of current ratio: 

Current ratio is the standard process of evaluating a company's capacity to make payments
and obligations within the certain period. This suggests that the company having the
adequate current assets or generating the adequate revenue as per profit margin to pay the
liabilities.
A ratio of 2:1 for asset and liabilities is best current ratio for business firm as it indicates the
good profit is generated by the business organization and having the good balance sheet.
Ration is more than 1 is a good and indicate the business firm having the resources and
ability pay the obligations and Ratio less than 1 does not sounds good for the payment of
business obligations. A high value of Ration indicates the business organization having the
enough resources and assets and it could not be use as earnings to the obligations and If
ratio is at low level, then business organization liquidate all assets.

Conclusion:
The calculation of the present ratio is useful and accurate method to confirm the liquidity of
a corporation. Using these standard criteria, we may evaluate and confirm the ability of
companies to make payments and liabilities of its short-term loans.

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