1. What is accounting?

Ans- Accounting is a practice and body of knowledge concerned  primarily with

 Method for recording transactions,

 Keeping a financial record,

 Performing internal audit

 Reporting and analyzing financial information to the management and

 Advising on taxation matters.

 Language of business
 Leads to increase in efficiency of business.

Therefore accounting can be defined as” the process of recording, summarising,

reporting and analyzing required financial information relating to the economic
events of an organization to the interested users for making decisions.”

2. Difference between SLM and WDV.

Ans.- SLM and WDV are two popular methods of determining depreciation (which is the technique
for writing off the value of an asset during its useful life time.

Straight Line Method Written Down Value

(SLM) Method (WDV)

Definition

It is a method of It is a method of
calculating calculating
depreciation where a depreciation where
fixed amount of there is a fixed rate of
depreciation is interest that is
charged to the charged to the assets
assets

Rate of Depreciation

Differs as the value Rate of depreciation

of depreciation charged is constant
 charged is constant every year till assets
useful life

Asset Value

Fully becomes zero Does not become

zero

Written Off

Written off Does not get written

completely off completely

Depreciation charged

It is initially lower It is relatively higher

Ease of understanding

Easier to understand It is a little more

and determine complicated than the
depreciation straight line method

1.Straight Line Method:

Under this method of charging depreciation, the amount charged as depreciation
for any asset is fixed and equal for every year. The amount of depreciation is
deducted from the original cost of an asset and charged on the debit side of the
Profit and Loss A/c as a loss. The concerned asset is depreciated with an equal
amount every year until the book value of the asset becomes equal to the scrap
value of the asset. It is also called the ‘Equal Installment Method’ or ‘Fixed
Installment Method’.

Formula for Calculating Depreciation:

1. When Scrap Value is given:
2. When Rate of Depreciation is given:

2.Written Down Value Method:

Under this method of charging depreciation, the amount charged as depreciation for
any asset is charged at a fixed rate, but on the reducing value of the asset every year.
The amount of depreciation is deducted from the written down value (i.e., cost less
depreciation) of an asset and charged on the debit side of the Profit and Loss A/c as a
loss. It is also called the ‘Diminishing Balance Method.
Formula for Calculating Depreciation:
1. When Scrap Value is given (To find the rate of depreciation):

2. When Rate of Depreciation is given:

Basis Straight Line Method Written Down Value Method

Meaning Under this method of charging Under this method of charging

depreciation, the amount charged depreciation, the amount charged as
as depreciation for any asset is depreciation for any asset is charged at
 Basis Straight Line Method Written Down Value Method

a fixed rate, but on the reducing value

fixed and equal for every year.
of the asset every year.
Depreciation is calculated
Depreciation Depreciation is calculated on the
on the original cost of the
Charged written-down value of the asset.
asset.
The amount of The amount of depreciation charged is
Amount of
depreciation charged is different for every year. It is higher in
Depreciation
same for every year. the initial year and gradually decreases.
The amount of depreciation charged
Amount of The amount of depreciation is different for every year. It is
Depreciation charged is same for every year. higher in the initial year and
gradually decreases.
The value of an asset under this The value of an asset under this
Value of Asset method is completely written method is not completely written
off. off.
Under this method, the cost of Under this method, the cost of
maintenance increases year by maintenance increases year by year,
year adding to the increased but depreciation decreases in later
Burden
burden on the company as years. Because of this, the burden
depreciation is also fixed for on the company is more or less the
every year. same throughout the year.
This method is not recognised by the This method is recognised by the
Tax Income Tax Department, and Income Tax Department, and
Purpose therefore, it is not applicable for therefore, it is applicable for
Income Tax purposes.  Income Tax purposes

3. Accounting standards bring uniformity in business language. Discuss.

 Ans. - An accounting standard is a set of practices and policies used to
systematize bookkeeping and other accounting functions across firms
and over time.
  Accounting standards apply to the full breadth of an entity’s financial
picture, including assets, liabilities, revenue, expenses, and
shareholders' equity.
 Banks, investors, and regulatory agencies count on accounting
standards to ensure information about a given entity is relevant and
accurate.
Attains Uniformity in Accounting

Accounting Standards provides rules for standard treatment and recording of

transactions. They even have a standard format for financial statements. These are
steps in achieving uniformity in accounting methods.

4.Discuss Subdivisions of journal

Ans.- Subdivisions of Journal

Based on the type of journals, we can divide them into general journals and special
journals. Let us look at each of them. 

General Journal

IN this subdivision of journals in accounting, people record all their transactions in

chronological sequences. These people record all those transactions that do not
occur regularly or do not find a place in special journals.  

It is important to learn two terminologies associated with general journal-

journalizing and journal entry. Journalizing is the act of recording the transactions.
Journal entry is the record of transactions that the companies maintain in the
journal.
 General journals mainly include the opening and closing entries, any adjustment
entries, rectification entries, as well as the due income and expense entries. 

Special Journal

It is popularly known as the subsidiary books. In these books also, we record

transactions in the chronological order.

However, we record transactions in these books which occur frequently and on a

regular basis. All the transactions of similar type are recorded in a separate book.

There are eight subsidiary books that an organization maintains, viz., Cash Book,
Purchases Book, Sales Book, Purchase Return or Return Outwards Book, Sales Return
or Return Inwards Book, Bills Receivable Book, Bills Payable Book and Journal
proper.

5.Difference btw balance sheet and cash flow statement.

Ans.

BASIS FOR
BALANCE SHEET CASH FLOW STATEMENT
COMPARISON

Meaning A statement that shows the assets owned and A statement that shows the cash inflow
the liabilities owed by the company. and outflow of the company.

Classified into Two parts Three parts

Importance Discloses financial position of the Helpful in budgeting and forecasting.

company.

Information Assets. Equity and Liabilities. Movement of cash and cash equivalent.
Disclosed
 BASIS FOR
BALANCE SHEET CASH FLOW STATEMENT
COMPARISON

Basis It is prepared taking profit & loss It is prepared taking profit & loss account and
account into consideration. balance sheet into consideration.

6.Explain the components of Financial statements.

The four components are discussed below:

1 – Balance Sheet
The balance sheet reports the business’s financial position at a
particular point in time. It is also known as the Statement of Financial
Position or Statement of Financial Condition or Position Statement.

 The formula for the balance sheet is as Assets = Liabilities + Owners Equity

 “Assets less liabilities” is the book value or worth of the entity.

 In the asset side, the receivables should be not be on a higher side as compared to total assets.

Higher inventories reflect lower sales of the organization.

 Using the balance sheet, the most useful ratios are debt to assets ratio, debt to equity ratio,

receivables turnover ratio, quick ratio, current ratio, etc.

 However, the liabilities do not include contingent liabilities (i.e. those liabilities which may arise

in the future when a specific event occurs).

 On the other side, liabilities are listed in the order in which they would be paid by the

organization. Short term debt & a current portion of long-term debt are to be paid within one year

from closing of books. Accounts payables are the obligations of the organization to pay. Other

liabilities may include provisions, taxes payable, etc.

2. Income Statement
 The income statement (also known as profit & loss statement) presents the financial performance

of the organization over a period of time. On a gross basis, the statement depicts a picture of

direct expense, indirect expense and capital (through depreciation) expense over the period.

 The statement starts with revenue from the core operating activities of the organization. Other

income includes revenue from non-operating (i.e. non-primary sources of revenue) activities such

as interest income, dividend income, rental income, discounts, rebates, etc.

 The cost of goods sold reflects the cost incurred to earn revenue. The difference between revenue

and cost of goods sold is the gross profit of the organization. This is a basic profit an organization

should survive in the long term.

 Selling, general and administrative expenses show the selling costs incurred by the entity which

may include salaries of sales personnel, warehousing expenses, storage expenses, etc.

 Depreciation expense is the apportioned capital expense for the period. An entity applies a rate of

depreciation over the cost of property, plant, and equipment, to arrive at the charge for the year.

This charge reflects the usage of fixed assets by the entity. Amortisation reflects the usage of

intangible assets of the entity.

 Interest paid includes the cost of borrowing and other bank charges. Other expenses include

miscellaneous expenses such as printing & stationery, legal and professional expense, store

expenses, electricity, transportation, etc.

 All the expenses are deducted from the revenue to arrive at the bottom line i.e. net income before

taxes. Taxes are corporate taxes levied on by the federal government. Income after taxes belongs

to the owners of the entity.

 Income statements shows the operating efficiency of the organization year on year. The important

ratios used for analyzing the efficiency of the entity are gross margin nation, net margin ration,

operating margin ratio, interest coverage ratio, etc.

3. Cash Flow Statement
 Cash flow shows the sources form where the organization generates its cash & where it expends.

The net cash movement from all activities is then added to the beginning cash & cash equivalents

to arrive at the closing cash & cash equivalents. It shows the financing backing of the

organization.

 The statement is broadly dividend into three sources to earn cash i.e. operating activities,

investing activities, and financing activities.

 Operating activities shows the cash earned by the organization through the core-activities. The

Income statement is prepared as per the accrual basis of accounting. So as to arrive cash profit we

make certain adjustments to the net income as per the income statement.

 The investing activities show how the organization procures the property, plant, and equipment.

This area shows the cash flow from the purchase and sale of assets of the entity. Also, any

income earned from deposits with banks, rental income is reflected in this area.

 The financing activities present the movement in the capital structure of the entity. This area has

the effect of long-term and short-term borrowings’ repayments and procurements, payment of

dividend and interest on obligations, movement in the equity holding of the entity.

 The ending cash and cash equivalents should match with the cash & cash equivalents reflected in

the balance sheet of the entity for the said period.

What Is Inventory Turnover Ratio?
The inventory turnover ratio is the number of times a company has sold and
replenished its inventory over a specific amount of time. The formula can also
be used to calculate the number of days it will take to sell the inventory on
hand.

The turnover ratio is derived from a mathematical calculation, where the cost
of goods sold is divided by the average inventory for the same period. A
higher ratio is more desirable than a low one as a high ratio tends to point to
strong sales.

Knowing your turnover ratio depends on effective inventory control, also

known as stock control, where the company has good insight into what it has
on hand.

What is Turnover Ratios Formula?

Turnover ratios measure how efficiently the facilities, including the
assets and liabilities of the organization, are utilized. The turnover
ratios formula includes inventory turnover ratio, receivables turnover
ratio, capital employed turnover ratio, working capital turnover ratio,
asset turnover ratio, and accounts payable turnover ratio.

The Inventory turnover ratio indicates how efficiently inventory is

managed in a particular period.

Inventory Turnover Ratio = Cost of Goods Sold / Average

Inventory.
The Receivables turnover ratio indicates the effectiveness of a
company in collecting its debts.
Receivables Turnover Ratio = Credit Sales / Average Accounts
Receivable 
The capital employed turnover ratio indicates the efficiency with which
a company utilizes its capital employed with reference to sales.

Capital Employed Turnover Ratio = Sales /Average Capital

Employed

Working Capital Turnover Ratio Working Capital Turnover

RatioWorking Capital Turnover Ratio helps in determining that how efficiently the

company is using its working capital (current assets – current liabilities) in the

business and is calculated by diving the net sales of the company during the period

with the average working capital during the same period. read more  indicates the
efficiency with which a company generates its sales with reference to
its working capital.
Working Capital Turnover Ratio = Sales / Working Capital
The asset turnover ratio is a measure of a company’s ability to utilize
its assets for the purpose of generating revenues.

Asset Turnover Ratio =  Sales/ Average Total Assets.

The accounts payable turnover ratio measures the speed with which a
company pays off its suppliers.

Accounts Payable Turnover Ratio =Supplier Purchases / Average

Accounts Payable

8.Discuss the use of debt/ equity ratio ?

Ans- What Is Debt-to-Equity (D/E) Ratio?
Debt-to-equity (D/E) ratio is used to evaluate a company’s financial
leverage and is calculated by dividing a company’s total liabilities by
its shareholder equity. D/E ratio is an important metric in corporate finance. It
is a measure of the degree to which a company is financing its operations
with debt rather than its own resources. Debt-to-equity ratio is a particular
type of gearing ratio.

D/E Ratio Formula and Calculation

Debt/Equity=Total Liabilities/Total Shareholders’ Equity

9.What is human resource accounting?

Ans- Human Resource Accounting: Concept, Objectives, and
Benefits
Human resources accounting is the process of identifying and measuring your organisation’s
Human Resources (HR) budget. The term can be slightly misleading, as it implies that HR
spending is something to be tracked and analysed like financial or operational expenses.
Human Resource Accounting is a broad term that refers to collecting, analysing, and reporting
data about employee benefits, compensation practices, and benefits in general.
It is easy to define human resource accounting. Human Resource Accounting tracks and
manages employees’ costs and values, including performance, compensation, benefits, and
training. HR professionals use various tools to track and analyse data, such as employee
surveys, performance reviews, and compensation and benefits reports. In addition to tracking
employee performance, HR professionals also need to track the performance of the
organisation as a whole. For example, HR professionals need to track the success of
recruitment and retention efforts as well as the success of initiatives that improve employee
morale and satisfaction.
In order to track employee performance effectively, HR professionals need to use a variety of
tools. One important tool is an employee survey. An employee survey is a method for collecting
data from employees about their experiences with their employers. Another essential tool is a
performance review. A performance review is a method for evaluating an employee’s
performance against desired standards. Finally, HR professionals also need to track
compensation and benefits reports. A compensation and benefits report is a report that provides
information about an employee’s salary, benefits, and other compensation details.

The HR accounting process involves the following:

 Identifying and understanding the needs of the organisation and its employees
 Identifying and developing the appropriate human resources
 Implementing effective recruitment, selection, training, development, and compensation
programs
 Maintaining an accurate and up-to-date HR system
 Ensuring that all employees are treated equally and fairly
  Maintaining an accurate and up-to-date payroll system

Concept of Human Resource Accounting

Human Resource Accounting definition refers to a system of accounting that tracks the financial,
human, and non-financial aspects of an organisation’s employees.
It is used to measure the effectiveness of an organisation’s human resources strategy and to
evaluate the performance of employees.
A Human Resource Accounting system should include metrics that measure employee
engagement, training effectiveness, and productivity. It should also track employee turnover and
absenteeism.
The primary purpose of a Human Resource Accounting system is to provide an accurate and
reliable record of employee performance.
It should also be used to measure the effectiveness of employee training programs and
evaluate employees' performance
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