BCOC-131 FINANCIAL ACCOUNTING ( TEE JUNE 2023 IMPORTANT QUESTIONS al. Meaning of accounting. Needs and functions. Various stages involved in the accounting process Accounting is the process of recording, classifying, summarizing, and interpreting financial transactions and information of an organization. It involves the systematic recording, analysis, and interpretation of financial data to provide relevant. and reliable information for decision- making, financial reporting, and compliance with laws and regulations. Needs of Accounting: Financial Reporting: Accounting provides financiabinformation in the form of financial statements, such as balance sheets, income statements, and cash flow-statements, which are used by internal and external stakeholders to assess the financial performance and position of an organization. Decision-making: Accounting information is used.by managers and other stakeholders to make informed decisions regarding resource allocation, investment opportunities, pricing strategies, and cost management. *Compliance: Accounting helps organizations comply. with legal and regulatory requirements, such as tax laws, financial reporting standards, and industry regulations.Functions of Accounting: Recording: Accounting involves systematically recording financial transactions, such as sales, purchases, expenses,.and receipts, in appropriate books of accounts using the double-entry bookkeeping system. Classifying: Accounting involves categorizing and classifying financial transactions into‘appropriate accounts, such as assets, liabilities, equity, revenue;-and expenses, to facilitate reporting and analysis. Summarizing: Accounting involves summarizing financial transactions and information into financial statements and reports to,provide a clear and concise overview of the organization’s financial performance and position. Interpreting: Accounting involves analyzing-and interpreting financial information to provide insights and meaningful conclusions about the organization’s financial-health and performance. Stages in the Accounting Process: identifying and analyzing financial transactions: This stage involves identifying and analyzing financial transactions, suchas sales, purchases, and expenses, to determine their financial impact on the organization. *Recording financial transactions: This stage involves recording financial transactions.in the appropriate books of accounts using the double-entry bookkeeping system, which includes recording debit and credit entries in the respective accounts.Classifying financial transactions: This stage involves categorizing and classifying financial.transactions into. appropriate accounts, such as assets, liabilities; equity, revenue, and expenses, based on their nature and characteristics. eSummarizing financial transactions: This stage involves summarizing financial transactions-and information into financial statements, such as balance sheets, income statements, and cash flow statements, which provide a snapshot of the organization’s financial performance and position. ¢Analyzing and interpreting financial information: This stage involves analyzing and interpreting financialinformation to assess the organization’s financial health and performance, and to support decision-making by internal_and external stakeholders. *Reporting financial information: This stage involves preparing and presenting financialstatements and reports to internal-and external stakeholders, suchas management, investors, creditors, and regulators, for decision-making, financialanalysis, and compliance purposes. ¢Using financial information for decision-making: This stage involves using the financial information generated through accounting to make informed decisions regarding resource allocation, investment opportunities, pricing strategies, and cost management, among others. Overall, the accounting process plays .a-critical role in providing accurate and reliable financial information to support effective decision-making, financial reporting, and compliance with laws and regulations.Q2. Matching Costs against revenue. Importance of the matching concept. The matching concept is a fundamental accounting principle that dictates thatexpenses should be recognized.in the same period as the revenue they help generate. This principle ensures that financial statements accurately reflect the financial performance of an entity. during a particular period, and it.isessential for reliable financial reporting. Matching costs against revenue is critical for the following reasons: Accurate financial performance measurement: The matching concept ensures that expenses are recognized in the same period as the revenue they help generate. This.allows for a more accurate measurement of an entity’s financial performance for a given period, as it reflects the true costs incurred in earning the revenue, Without matching, revenues may be recognized.in one period while expenses. associated with those revenues are recognized ina different period, leading to distorted financial performance measurement. Timely decision-making: Matching costs against revenue provides management with accurate and timely information to.make informed decisions. By aligning expenses with the revenue they generate, the matching concept-helps management understand the true profitability of business operations, assess the cost-effectiveness of different revenue streams, and identify areas where costs can be managed more effectively. Compliance with accounting standards: Most.accounting standards, such as Generally Accepted Accounting Principles (GAAP) andInternational.Financial Reporting Standards (IFRS), require the matching concept to be followed. Compliance with these accounting standards is crucial for preparing financial statements.that are reliable and consistent, and for meeting legal and regulatory requirements. Investor confidence: Reliable financial statements that follow the matching concept enhance investor confidence.in the financial performance of an entity. Investors rely on financial statements to makeinvestment decisions, and matching costs against.revenue provides them with a-clearer picture of an entity’s financial performance and profitability. Facilitates financial analysis: Matching costs against revenue allows for meaningful financial analysis and comparison over time, Financial ratios, trend analysis, and other financial analysis techniques rely on accurate and consistent recognition.of expenses and revenues, whichis made possible through the matching concept. In conclusion, the matching concept is of utmost importance in financial accounting as it ensures that expenses are recognized in the same period as the revenue they.help generate, providing accurate and reliable financial performance measurement, facilitating timely decision-making, ensuring.compliance with accounting standards, boosting investor confidence, and enabling meaningful financial analysis.Q3. Business Income: Why income should be computed? Business income in accounting refers to the total,revenue earned.by a business during a specific period of time, typically a month, quarter, or year, fromiits regular business activities. It is also known as operating income, operating revenue, or sales revenue. Business income includes all the amounts a business earns from selling goods, providing services, orany other type of business operations, before deducting any expenses or taxes. Income computation is an essential aspect of managing a business as it serves multiple purposes: Here are some key reasons why income should be computed.for a business: Taxation: Income computation is necessary for,determining the taxable income of a business, which.is used as the basis for calculating the amount of taxes owed to the government. Businesses are typically required to report their income to the tax authorities and pay taxes on their profits. Accurate income computation ensures that a business complies with tax laws and avoids potential penalties for underreporting or overreporting income. Financial Reporting: Accurate income computation is essential for preparing financial statements, such as. income statements and balance sheets, which are used to assess the financial performance of a business. Financial statements provide valuable information to business owners, investors, creditors,.and other stakeholders about the profitability and financial health of the business, which can influence decisions related to investments, loans, and business operations. Business Planning: \ncome computation is also crucial for business. planning purposes. By knowing the actual income earned, a business can assess its financial performance, identify areas of improvement,and set realistic goals for future growth. Income computation can help a business owner make informed decisions about pricing, cost control, budgeting, and resource allocation to achieve financial objectives. Legal-and Regulatory Compliance: Businesses are subject to various legal and regulatory requirements, and accurate income computation is necessary to ensure compliance. For example, businesses may need to provide income information to government agencies, regulatory bodies, or financial institutions. Failing to~accurately compute income may result in legal or regulatory penalties, fines, or other consequences. Performance Evaluation: Income computation is crucial for evaluating the performance of a business over time. By comparing income data from different periods, a business owner Can assess the progress, identify trends, and evaluate the effectiveness of business strategies. Income computation also provides a basis for benchmarking against industry standards or competitors, which can help a business owner assess their’ competitive position and make informed decisions. In summary, income computation is essential for managing a business effectively and complying with legal, regulatory, and financial requirements. Accurate income computation provides crucial information for taxation, financial reporting, business planning, legal compliance, and performance evaluation, helping business owners. make informed decisions and achieve their financial objectives.Q4, Short notes:- a) Returns Inward journal: A type of accounting journal used to record-the return of goods or merchandise from customers. It typically includes details such as the date of return, customer information, description of the returned items, quantity, and value. Returns Inward journal is used to keep track of returned goods and their associated financial impact on the business, such as adjustments to sales revenue and.inventory. b) Returns Outward journal: A type of accounting journal used to. record the return of goods or.merchandise to suppliers or vendors. It typically includes details such as the date of return, supplier information, description of the returned items, quantity, and.value. Returns-Outward journal is used to keep track of returned goods and their associated financial impact on the business, suchas adjustments to purchases and accounts payabledfustration 10 Journalise the following transactions: 2018 Rs. June 1 Cash sale to Ashok 1,800 “2 Bought goods from Vinod 10,000 “3 Old newspapers sold 100 “4 Paid Municipal taxes by cheque 900 “4. Paid for repairs tomachinery 600 “8)- Received commission by cheque. 1,700 To Sales Account (Being tash sales) To Vinod’s Account (Being credit purchase) CashAccount Dr. To Miscellaneous Income Account (Being the incomé received by Sale of old newspaper) Municipal Taxes Account Dr, To Bank Account (Being Munivipal taxes paid by cheque) Repairs Account Dr. To Cash Account (Being repairs to machinery) BankAcéount Dr. To.Commission Account (Being commissionteceived ‘by cheque)eee tee eS & Ss A Delhi trader has independent s. Its Tri ce for the ending Decem| GIy 2018 is Beet. Pass j entries to ge e books of Bitgteahiaed prepare its Head Offige)Account. < 1) The accounts ose sein of which sho ~ 000 and fu of Rs. 2. 2) is to be 10% on Machinery and 15% on jiture. K 3) Rs. 300 are due fof salaries. > oe : a sy # =e Pl ms \ ° coe at ai Rs. 28,7 6 Ss < =a & SS eo: 1. wd | Y Conipeg SS Oc ee . SS ; i 2 Ovnetin anit St ~> ee oe © ‘‘ the consignor il they ae eS eo | sit > al masse the aimee wi consignee is that of a . Ss } oan anon mS on conto. 4. name x incurred © ® ea cm < oi re S> Risk eS Seep jaca ts » oe AN sere igned lies with a\ or as soon onsignor till the goods : ~ 0 In cases the] consigned feat In 3 © fe eosin qperedby| despegh. the loss ig Ss bome by the consi 6. Vas Goo ds can be if S | they are not sol the a 7 Sales) A Sale has to Fr yp o cium ~ op aS cnc ton tinea vata pea | & gh the goods which could coi wil ones SS Nw ee17.3 JOINT VENTURE AND CONSIGNMENT Even though both consignment and joint venture are in the nature.Of an agreement between different parties, there are many points of difference’ between the two: The main points of~ difference are as follows: 1 | Normally two persons are Number of co-venturersis usually two, involved, the Consignor and but it may also be-more than two? the Consignee- 2 | The relationship between the’ | The relationship between co-venturers Consignor and the Consignee _|is that-that of partnership, is of Principal and Agent. 3 | The arrangement may continue |The relationship comes to an end as for a long time, soon as the-yenture is completed. 4 | The funds.are provided by All the co-venturers contribute to the Consignor. a common pool. 5 | The consignee acts*merely as | The to-venturers have equal authority. an agent and:he~has to follow-jto take decisigns- instructionS;ef the Consignor. 6 Consigiment is generally” Joint Venture may be for'sale of goods concerned with the;sale of or for carrying on any other activity , movable goods» like ‘construction of building, investment ( fin shares, etc, 7 | The profit belongs to the The profit-is shares by all the co Consignor only. The Consignee ventures» is entitled only to his ¢ commission. > iN e * mY The Consigtior owns the goods} There is joint ownership. ~ There is only one method Of | There are four methods of maintaining maintaining the accounts for accounts for the joint yenture. consignment transactions.systemim which we ical register of j ledger for keeping othe Pecos of each then we transfer figures to elated accounts. debit or ‘credit side by manually process the system and-will make all the accounts’ ledgers of all the balances of all accounts inour ledger, and on this(basis we manually. pregare the trial balance: 4. Adjustment} ‘Both, the adjustment system will automatically ‘produce the Tria! Balance. Only adjustment entriés Will be Entries journal entries and its passed in the computerized Record posting inthe ledger accounting software, these will accounts will be done then be automatically posted to. respective edger accounts manually, one after another.ve re ee | PSF OS Os & \ WS S o $ Payment Voucher © ° cher (F6) ge” e cher me A # Sales Voucher — Fs) eS ae © ‘, Credit SF et (Cth F8) aN Xe) +P) O) S» . e J joural-¢F10) & no" VS e sae ee a yn Ww S & [ s 6 S oa —Vouchers are documents or instruments that are used as évidence of a financial transaction or as a proof of entitlement for a particular benefit or service. There are several types of vouchers, including: Payment Vouchers: These vouchers are used to authorize and document payments made by an organization: They typically include details such as the payee’s name, amount of payment, purpose of payment, and relevant-account codes? Purchase Vouchers: These vouchers are used to record purchases made by an organization. They typically contain details such as the supplier’s name, invoice number, date of purchasé, description of items or services purchased, and the amount. Sales Vouchers; These vouchers are used to document sales made by a business. They typically inclide details suchas the customer's name, date of sale, description of items sold, quantity, price, andthe total amount. Receipt Vouchers: These vouchers.are used to acknowledge receipt of funds or goods.’ They typically include details such as the name of the payer, date)of receipt, description of goods oF services received, quantity,and the total.value. Gift Vouchers: These vouchers are‘uSed as a form of gift or incentive) allowing the recipient to redeem them for goods op services froma specific business or establishment up to a certain value. Travel Vouchers: These\Vouchers are used.to reimburse employees for travel-related expenses, such as airfare hotel accommodations, meals, ahd transportation costs. They typically include details such as the employee’s namé; travel dates, purpose of travel)and a breakdown of expenses incurred.‘iG - ‘i | SS FS SP OS we e& a s roS Sas gr SS SF © > e A © ¥ aS ee we io s exSvo mele cnenn Oo int Vou Grose vou ire used to prov ide customers a discounts o1 jases or me . They wee contain a cane nique code or le that re plied —— aw to rec the © discoun' xk Gift Cards: Altho' Svan n Ka gift catds a a type oe pre-paid card een be used =< form of paves ata nar business or. blishment certain val ey are ue issued with a fixed smoantan can be the recipewso make Aas we OS ee. we A Y ee are vr ommon ty} a ae SNarous financial transactit ind business ‘ations. It’s pats int to not cele Oo vouchet ae and fort may vary —— on ee ic x organization or O v ‘ganizati i dusty WS oy Y © = ge? A WV = Pp ss EE SS > © ws o} Y °} “ “v ‘ oe & a e | S ss 2 p S pe St s ey A LG Ae