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    Principle of accounts

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    © All Rights Reserved
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    11 views28 pages

    Accountes

    Uploaded by

    Peer Mohaideen
    Principle of accounts

    Copyright:

    © All Rights Reserved
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    of 28
    Principles of Accounting 16CCCCM1/16CCCCAI TWO MARKS 1. What is ‘cost concept’? It refers to the amount of payment made to acquire any goods and services. In a simpler way, the concept of cost is a financial valuation of resources, materials, undergone risks, time and utilities consumed to purchase goods and services. 2. What is ‘subsidiary books”? Subsidiary Books are books of Original Entry. They are also known as Day Book or special journals. We record transactions of similar nature are in Subsidiary Books. 3. What is ‘Balance sheet’? A balance sheet isa financial statement that reports a company's assets, liabilities, and shareholder equity. The balance sheet is one of the three core financial statements that are used to evaluate a business. 4: What is meagt by Omissioi Errors of omission are also sometimes called “false negatives." They refer to instances in which someone or something is erroneously excluded from consideration when they or it should have been included. agg hyeotiy, © Legacy isthe amount received by the not-for-profit organisation as per the will of a deceased person. It is non- recurring in nature and, therefore, treated as capital receipt. 6. What is ‘Red Ink Interest’? If the due date of a bill is after the date of closing the account, then we charge no interest for that. However, we write the interest from the date of closing to the due date in “Red-Ink” in the relevant side of the ‘Account current’. | — 7. What is Consignment? \ 508 in which a buy Consignment is a business arrangement in which a busing, \ also referred to as a consignee, agrees to pay a seller, or cons; as, \ ‘pod enor, |\ soset? for merchandise after the item sells. \ a sil 8. What is meant by joint Venture’? 4 A joint venture (JV) is a business arrangement in which two or ‘ more parties agree to pool their resources for the purpose of accomplishing a specific task. . What is ‘Straight Line Method of Depreciation? It is calculated by dividing the difference cost and its expected salvage value by the numb expected to be used. of years it is 10. What is meant by reserves? Reserves are part of profits or gain that has been allotted for @ specific purpose. Reserves are_usually set up to buy fixed assets, pay bonuses, pay an expected legal settlement, pay for repairs & maintenance and pay off debt, aa 11.What do you mean’ pple entry stem to book keeping? A double-entry bookkeeping system is where a corresponding entry is made for every transaction, ie. debits and credits, For example, if a company enters into a transaction of borrowing money froma banks, there will be two entries as an asset and a liability. Paypet: adj peter Adjustment entries are the journal entries that convert an entity's accounting record in an accrual basis of accounting. Such, accrued incomes, Incomes received in advance, outstanding and prepaid expenses require an adjustment in the books of accounts. 13. Give the purposes of preparing the final account. Final accounts gives an idea about the Profitability and financial position of a business to its management, owners, and other interested parties. e . Mention the various items of Revenue expenditure. Payment of salaries, wages, pensions, subsidies and interest fall in this category as revenue expenditure examples. . Write a note on Bill of Exchange. A bill of exchange is a binding agreement by one party to pay a fixed amount of cash to another party as of a predetermined date or on demand. Bills of exchange are primarily used in international trade. . What is an Sales’Account? A sales account contains the record of all sales transactions. This includes both cash and credit sales. The sales account concept can also refer to a current customer. Once sales are made to a customer, it is known as a sales account. . List out the important methods of ¥int venture’ unt. The equity method and the_proportional consolidation method are two types_of accounting methods used when two companies are part of ajoint venture. Why Provided be d ion? Depreciation needs to be provided because an asset is bound to undergo wear and tear over a period of time. This reduces the working capacity and effectiveness of the asset. le entry system. nderstand + Time saving * Good for small business «Helps in decision making * Evidence of transaction * Replace memory 20. Define ‘Accounting’. i . W. Johnson; “Accounting may be definea ee ee and systematie recording of business transactions in terms of money, the preparation of oa Be the analysis and interpretation of these reports and iam ese reports for the information and guidance of rhanagement”. 21. What is Bank Reconciliation Statement? A schedule showing the items of difference between the bank statement and the bank column of Cash Book is known as Bank Reconciliation Statement. (A) Transactions recorded in Cash Book but not in Pass Book. 22. What is meant by ‘Compensating Error’? c mie wating errors occur when one wrong entry neutralises the impact of another incorrect entry. These entries cancel the other error that is recorded. 23. What do you mean by f Exchan| A bill of exchange isa written order binding one party to pay a fixed sum of money to another party on demand or at some point in the future, 24. What is ¢oin®Bank A joint_accou: share. Joint classified as preferred, ‘secured, purpose OF indicating probable amounts available to creditors in case of liquidation. 1? 26. What do you mean by Ledge unts in Which ag book or collection of acco A ledger is a boo! unt has an opening or canye A on either a dep transactions are renin record transactions ee a it op forward balance paren and the ending or closing credit in separate c¢ ar its. 27. Give the examples for current Asses! Cash and cash equivalents. Accounts receivable. Prepaid expenses, Inventory. Marketable securities. eo ceee 28. List out the features of receipts and paymi unting uses _the| formation provided by! ‘bookkeeping to Prepare financial reports and statements, I one’ Accounting start: hole ithe “bookkeeping ends} and has a broader scope | than bookkeeping. ‘Ss where! ‘The person responsible The person Tesponsible | for bookkeeping is for accounting is called! called a bookkeeper, : 8 accountant, | nancial reports ang ' & statements are prepared | the under bookkeeping Process. process, _ 30. What is ledger? A ledger isa book or collection of accounts in which account transactions are recorded, 31. What is suspense Account? A suspense account is an account used temporarily to carry doubtful entries and discrepancies pending their analysis and permanent classification. It can be a repository for monetary transactions (cash receipts, cash disbursements and journal entries) entered with invalid account numbers, 32. State the purpose of preparation of Final wu he Final accounts give an idea about the profitability and financial position of a business to its management, omnes, an and other interested parties. 33. Give examples of non profit organi * schools, . + charities, * trade unions,» __ © Welfare societies etc. 34. Compare joirf§ Venti ng joint venture is the temporary business between the two firms for a particular purpose or up to limited time period. Consignment is the dispatch of the ‘Ss y,{he consignor to the consignee to be sold by the consignee. f single entry system. :d Rules And Principles. ete Accounting System. Lacks Arithmetical Accuracy. No Final Accounts. No True Profit Or Loss. No Disclosure Of Financial Position. * Suitable For Small Business Firms. * Economical System. 36. Give the correct accounting Equation. Assets = Liabilities + Shareholder's Equity 37. What is journal? A journal isa detailed account that records all the financial transactions of a busi to be used for the future reconciling of accounts and the transfer of information to other official accounting records, such as the general ledger. 38. When do you prepare a manufacturing account? The main purpose of preparing Manufacturing Account isto determine manufacturing costs of finished goods. It helps in improving the cost-effectiveness of manufacturing activities. . What is account current? Straight line method or cost method. Written down DOUDLE ENTRY SYSTEM. ‘VERSUS. SINGLE ENTRY SYSTEM 42. What is ‘Double Entry’ System? i ts in such a wa ible Entry System is a method of arranging account vm dual oe woul be expressed by a debit amount and an equal and offseting ma amount. 43. Define ‘Trail Balance’, f A trial balance is a bookkeeping worksheet in which the balance of alledgers are compiled into debit and credit account column totals that are equal. A Company prepares a tril balance periodically, usually at the end of every reporting period. 44. What is meant by ‘Average due date? A computed date on which with fairness to debt¢ Settlement in full may be made forall variously dated items in an ac ‘count 45. What is Error of Principle? An error of principle is an accounting mistake in which 2 entry violates a fundamental principle of aécounting or a fundamen accounting principle established by a company, ‘S 46. What is Trading Account? 48. What is by ‘Deleredere Commission? A del crede commission is a commission instead of paying through someone else. surety who is liable to the principal should the which is paid as direct commission Del Crede commission is that of Purchaser make default, 49. What is meant by ‘Joint Venture’? A joint venture (JV) is a business arrangement in which two or more Parties agree to pool their resources for the puspose of accomplishing a specific task: This task can be a new project or any other business activit ee cyt ‘50, What is Single entry system? A single entry system of bookkeeping is where the transactions of the business affect only one account, i.e. only one account's value will decrease or increase based on the transaction amount. Si. Define ‘Depreciation’. ‘The monetary value of an asset decreases over time due to use, wear and tear or obsolescence. This decrease is measured as depreciation. > ' SF PARTB (5 MARKS) g standards. in 1, Explain any two account disclosure (ASI) aPotictes related to secounting disclosure of significant accounting policics which gy. ; with : fatowed pacar oi presenting financial statements ‘Valuation of Inventories (AS2) ee | i it ination of value at , e femei fewenen os ae ned ¢ of cost of inventories and any write-down thereof to net realizable value. Thr cand fe oe historical changes in cash and cash eo of = enterprise. This is done by preparing a statement popularly called Cash Flow Stat a This statement classifies cash flows during the period f rom operating, investing financing activities. * Contingencies and Events Occurring After Balance Sheet Date (AS 4) This Standard deals with the treatment of contingencies and events occurring after the balance sheet date. + Net profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies (AS 5) . This standard should be applied by an enterprise in presenting profit or loss from activities in the normal course of business, extraordinary items and prior period items. This also includes changes in accounting estimates and changes in accounting policies. 2 What are the advantages of Double Entry System? & Double Entry System ts Scicntific System: le Entiy i ‘This is scientifte system for: « : tecording business transactions as ‘compared to a single entry. It helps to eae and counter check the books of accounts, : esos e Double Entry System Record Complete ‘Transactions: i : y In ‘ Sides of «tansation are recorded as debit and credit so we noes oe Pe ¢, Recheck the Accounts: In this system, the account jj checked Is __ When We pass an entry on both sides, If both sides of the trial “Matched we can easily ind the mistake. 4. Calentation of Profit o Loss: Profit and Loss. Accot int provic shoul he Prot eamed ors incureddunga sea Powe? nfomation automatically are not. ¢. Finanelal Position: The financial position of the business can be determined at the end of the year as we prepare profit and loss account & Balance Sheet £ Comparison becomes Easy: We can compare theprofit and loss account & Balance Sheet of any two ot more- years as we have the accounting books, 8 Helps to Manager: Manager can take decisions on the basis of the financial condition of the business and make plans accordingly. ‘hh. Easily Frauds and Misappropriations: Frauds and misappropriations can be ° asily found as every transaction haye two records. 3, What are the difference between consignment and joint venture? BASIS ‘OF | JOINT VENTURE ‘CONSIGNMENT DIFFERENCE : NATURE Joint venture is the temporary business | Consignment is the dispatch of between the two firms for a particular Purpose or up to limited time period. the goods by the consignor to the consignee to be sold by the consignee. PARTIES Tho parties involved are known as Co- | The parties involved are known INVOLVED venturers. as Consignor and the Consignee. RELATIONSHIP | The relationship between the co-venturers | The relationship between the BETWEEN THE PARTIES is of associates and partners. consignor and consignee is of principal and agent. LEGISLATION Joint venture is not govemed by any special act, but being a particular partnership, some rules of partnership law are applicable. Consignment is governed by the law of agency as given under the Indian Contract Act, 1872. DURATION Joint venture is for @ specific purpose. That is why is generally for short time period. ‘The consignment agreement is for a long period and does not come. to dn end on the completion of a particular transaction. ‘SHARING OF PROFITS ‘Co-venturers share the profits or losses in the agreed ratio or equally in the absence of the agreement. In consignment, all the profit is | of consignor. CONSIDERATION |The profits eamed on the venture is the | The consignee gets the consideration for the risk undertaken by | commission as consideration for the co-venturer. the goods sold by him on the behalf of the consignor. OWNERSHIP OF | The co-venturers are the joint owners of | The consignor is the owner of Goops the goods and property of the business. | the goods, only the possession is transferred to the consignee. POWERS/ All the co-venturers have equal rights or | The consignee has not right in AUTHORITY ‘powers. regard to the goods. SCOPE The scope of joint venture is wider, It|The scope of consigameat is consists of buying and selling of ‘goods narrow. It is concerned with the 2 erring of sbaret and deberr sale of goods onl if consignment busi all the co- | In case of o¢ it _ GONTRIBUTION — | The finances are potted consignor is the main provider OF FINANCE -venturers in case of a joint of finance. furer takes | In consignment, only consignor WANAGEMENT [Tn joint venture, each co tes [is responsible of managing the part in the management o wl things. e eonsignor is responsi TOSS OF GOODS ~ | Co-veaturers are equally responsible for be al and abnormal loss of Joss of goods. the goo = : , accounts V METHODS OF | There are four methods of Keeping | The — . me ACCOUNTING accounts i.e. separate set of ‘books are | follow . method Tmaintained, joint venture records | Cost price aad maintained by all co-venturers or records | Invoice Price i met maintained by one of the co-venturer or ‘Memorandum Methoc ‘memorandum method. _ ‘ACCOUNT SALES [No ‘Account sales / is sent by the one co- | An “Account Sales’ is prepred ‘venturer to another co-venturer. and submitted by the consignee to his consignor. : ‘SUBJECT MATTER | Co-venturers can deal in both movable | Only movable property is the OF DEALING and immovable property. subject matter of the consignment. ‘TREATMENT OF |The unsold stock belongs to all the co-|The unsold stock belongs to CLOSING STOCK _| venturers. consignor only. ACCOUNTS ‘The accounts maintained ‘are: |The accounts maintained are: MAINTAINED Joint ‘Venture Alc | Consignor’s Ak Co-Venturer Personal A/c Consignee’s Alc Consignment Alc Stock Reserve Alc Commission Ale 4, Explain the objectives of accounting. A. To keep Systematic Records Stock sent’on Consignment A/c ‘The mainobjective of accountingis to keep a systematic record of financial transactions which helps the users to understand the day to day transactions. in a systematic ‘mannet 50 as to gain knowledge about overall business, B, To Protect Business Properties Accounting provides protection to business properties from unjustified and unwarranted use. Information about the above matters helps the proprietor in assuring that the funds of the ‘business are not necessarily kept idle or underutilized, C. Ascertain Profit Another objective of accounting is that it helps in ascertaining the net profit eamed or loss suffered on account of carrying the business which is done by keeping a proper record of \ all 3 ‘books of accounts with respect to revenues and expenses of particular period. D. Ascertain the Financial Position : The accounting dlso helps the businessman to know about his financial position. This objective is served by the Balance Sheet or Position Statement. The Balance Sheet is a statement of assets and Liabilities ofthe business on a particular date. It serves as tool for ascertaining the financial health of the business. ~' E. Facilitate Decision Making ‘Accounting also helps inthe collection analysis, and reporting of information at the required points of time to the required levels of authority in order to facilitate rational F, Information System ‘Anothe? objective of sccdunting is that it cai be defined as accounting fictions as on information system for collecting and communicating economic information about the business enterprise. This information helps the management in taking appropriate decisions. 5, Explain the different methods of preparing final accounts of Non-Trading concern ‘Steps in preparation of income and expensiture account from receipts and payments account Following are the steps tobe followed in preparing income and expenditure account from receipts and payments account: i. Opening and closing balances of cash and bank accounts in receipts and payments accouiit must be excluded. ii, Capital receipts and capital expenditures must be excluded. iii. Only revenue receipts pertaining to the current year should be taken to the credit side of income and expenditure account. Due adjustments should be made for income received in advance, income accrued for the current year aad for the amount relating to the previous year or years. jv. Similarly, revenue expenditure relating to the current year only must be taken in the debit side of income and expenditure account. Adjustments must be made for outstanding ‘expenses of the previous year and current year and for the prepaid expenses of the previous year and current year, : vy. Any income or expense relating to specific fund must not be taken to income and expenditure account. ‘vi. Non-cash items such as bad debts, depreciation, loss or gain on sale, of assets, etc., which are not recorded in receipts and payments account must be recorded in income and expenditure account, ancing ither surplus or deficit ang figure of income and expenditure account i et Se ne tn epi fund inthe bane abe it +2. Format of Income and Expenditure Accoun ‘Name of the club / Institution ‘Nameof the dub / Institution. _ Be De Tacbiit and ispendiinre Accountfor theyeateidednn HHH R HEH BaP RR EEE (Bxeess nk expenditure over tncorne) ‘nna fire nay beer suri 6. What are the benefits of a joint venture? . Benefits of Joint Ventare: Provides companies wit the opportunity to gain new capacity and expertise... Enables companies to enter related businesses or new geographic markets or gain access to modem technology. ¥ Provides access to greater resources - inchuding specialized staff aid technology. ¥ Shares risks with a venture partner. ¥ Enables flexibility: «joint venture can have a limited life span and only caver part of | What you do, thus limiting both your commitment and the business exposure, | ¥ Offers a creative way for companies to exit from non-core business. |

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