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DBF Nov 2017
DBF Nov 2017
18TH NOV 17
www.AccountsClass.com
Important Topics 2
1. Rule of 72 and 69
2. Trial Balance
3. Types of Errors
4. Ratio Analysis
Important Topics 3
11. Terminologies
1) Direct Quote
2) Indirect Quote
3) Limited liability
4) Unlimited liability
5) Holding company
6) Subsidiary company
7) Shares issued at discount, par, premium
8) Under subscription, over subscription
9) Sweat equity – issued to employees
10) Forfeit of shares
Important Topics 5
11. Terminologies
11. Cost of goods sold
12. MoA, article of association,
13. Floatation of public company
14. Overhaul of machine
15. Fictitious asset
16. Capital Reserves
17. Capital Redemption Reserves
18. Bonds and types of bonds
Important Topics 6
Rule of 72 and 69
http://accountsclass.com/what-is-rule-of-72/
http://accountsclass.com/what-is-rule-of-69/
Important Topics 8
Trial Balance
http://accountsclass.com/what-is-trial-balance-and-trial-balance-
problems/
Important Topics 9
1. Ratio Analysis
1. Current Ratio
1. http://accountsclass.com/what-is-current-ratio/
2. Debt to Equity Ratio
1. http://accountsclass.com/what-is-debt-to-equity-ratio/
Important Topics 10
Types of Errors
1. Clerical Errors
1. Errors Of Omission –
2. Errors Of Commission
3. Compensating Errors
4. Errors Of Duplication
2. Errors Of Principle
Important Topics 11
Types of Errors
1. Clerical Errors
1. Errors Of Omission –
Cash paid to the suppliers has been entered in the payment side of the cash book but it will
not be entered in the debit side of the suppliers account.
2. Errors Of Commission
3. Compensating Errors
4. Errors Of Duplication
2. Errors Of Principle
Important Topics 12
Types of Errors
1. Clerical Errors
1. Errors Of Omission
2. Errors Of Commission –
Entered wrongly, partially or incorrectly - purchase of Rs.430 may be entered in the Purchase a/c as Rs.340
- Wrong casting or carry forward of a subsidiary book. Casting refers to the process of totalling the
daybooks periodically. A mistake in relation to totalling is called ‘error in casting’(the total of a page may
be Rs.235 and carried forward to the next page as Rs.325) - purchase of goods from Mr. Raj for Rs.1000 is
debited to his account [instead of crediting]
3. Compensating Errors
4. Errors Of Duplication
2. Errors Of Principle
Important Topics 13
Types of Errors
1. Clerical Errors
1. Errors Of Omission
2. Errors Of Commission
3. Compensating Errors –
Debit of one account is neutralized by an over credit in some other account to the same extent –
if tax paid Rs.2, 500 is debited in Tax a/c as Rs.3, 000 and interest received Rs.3, 500 is credited
in the interest a/c as Rs.4, 000, the excess debit of Rs.500 in tax a/c is compensated by an excess
credit of Rs.500 in interest a/c.
4. Errors Of Duplication
2. Errors Of Principle
Important Topics 14
Types of Errors
1. Clerical Errors
1. Errors Of Omission
2. Errors Of Commission
3. Compensating Errors
4. Errors Of Duplication
Entering 2 times
2. Errors Of Principle
Types of Errors 15
1. Clerical Errors
1. Errors Of Omission
2. Errors Of Commission
3. Compensating Errors
4. Errors Of Duplication
2. Errors Of Principle -
Wrong allocation between capital and revenue expenditure, or wrong valuation of assets.
For example, debiting the wage account instead of machinery account for the wage paid to the mechanics used
for the installation of machine and debiting the customer's account instead of cash account for the cash sales
made
GAAP 16
Accounting Standards
http://accountsclass.com/what-are-accounting-standards/
BRS 17
http://accountsclass.com/what-is-bank-reconciliation-statement-
brs/
Capital Classification 18
Authorized Capital
Issued Capital
Subscribed Capital
Called up Capital
Paid up Capital
Share Capital, the company should specifically state:
–Authorized capital
•1 crore shares of Rs.10 each 10,00,00,000
–Issued capital
•25 lac shares of Rs.10 each 2,50,00,000
–Subscribed capital
•24 lac shares of Rs.10/- each 2,40,00,000
–Called up
•24 lac shares-Rs.5 each called 1,20,00,000
–Less calls in arrears
•50000 shares of Rs.2 each 1,00,000
– Paid up capital 1,17,50,000
–Forfeited shares account 1,50,000
Depreciation 20
Depreciation MCQs
http://accountsclass.com/1070-2/
Depreciation types
Straight Line Method: This method is suitable for asset depreciate for lapse of time, such as
patents.
Diminishing Value Method: In this method annual depreciation is calculated on the opening
balance of the Asset Account and it reduces year by year. This method is suitable for
exhausting and costly assets like plant and machinery.
Depletion Method: This method is applicable for assets of wasting nature and also for
intangible assets such as mines, patents, copyrights etc.
Sinking Fund Method: According to this method the amount of depreciation is invested in
interest earning securities.
Depreciation 21
Sum of the years digit method
Machine Hour Rate Method: This method is used for machines where
productivity is relevant in their performance and in the case of machines
with high cost.
Revaluation Method: In the assets are revalued each year. The method is
normally adapted to charge depreciation on numerous inexpensive fixed
assets like small tools, live stock. Excess of the opening over the closing
inventory thus gives the periodic depreciation expenses.
For example, if the value of tools at the beginning of the year was Rs. 8,000,
during the year tools worth Rs. 6,000 were purchased more and when at the end
revaluation was undertaken it amounted to Rs. 11,000. The amount of
depreciation for the year shall be as under:
(Rs. 8,000 + Rs. 6,000) - Rs. 11,000
=Rs. 14,000 - Rs. 11,000
= Rs. 3,000
Insurance policy method: In this method annual depreciation amount is
invested as the payment to an insurance policy as premium.
Terminologies – Company Accounts 22
Limited liability
Unlimited liability
Holding company
Subsidiary company
Shares issued at discount, par, premium
Under subscription, over subscription
Sweat equity – issued to employees
Forfeit of shares
Subsidiary Books 23
a) Purchases Day Book – for recording credit purchase of goods only. Cash
purchase or assets purchased on credit are not entered in this book.
b) Sales Day Book – for recording credit sales of goods only. Assets sold or cash sales
are not recorded in this book.
c) Purchases Returns Book – for recording the goods returned to the suppliers when
purchased on credit.
d) Sales Returns Books – for recording goods returned by the customers when sold
on credit.
e) Bills Receivable Book – for recording the bills received [Bills Receivables] from
customers for credit sales.
f) Bills Payables Book – for recording the acceptances [Bills Payables] given to the
suppliers for credit purchases.
g) Cash Book – for all receipts and payments of cash.
h) Journal Proper – for recording any transaction which could not be recorded in
the above-mentioned subsidiary books. For example, assets purchased or sold on
credit and opening entry etc., are entered in this book
Cash Book
• It is a special journal where all cash receipts and cash payments are
recorded
• Types of cash book:
– Single column cash book – Only cash column
– Two column cash book- Cash with discount columns
– Three column cash book – Cash, Bank and Discount columns
DR CR
Date Particula Dis- Cash Date Particulars Dis- Bank Cash
rs count Bank count
25
Technical terms 26
(MOA)
Memorandum of Association (MOA) is the supreme public
document which contains all those information that are required for
the company at the time of incorporation. It can also be said that, a
company cannot be incorporated without memorandum. At the
time of registration of the company, it needs to be registered with
the ROC (Registrar of Companies).
It contains the objects, powers and scope of the company, beyond
which a company is not allowed to work, i.e. it limits the range of
activities of the company
Articles of Association (AOA) 30
When any amount is kept separate by a company out of its profit for
future purpose then that is called as general reserves. In other words
the general reserves are the retained earnings of a company which
are kept aside out of company’s profits to meet future known or
unknown obligations. General reserves are the part of Profit and Loss
Appropriation Account
Capital Reserves 35
https://www.quora.com/What-is-the-logic-behind-the-creation-of-the-capital-
redemption-reserve
BRS - Causes of differences between cash book & pass book
Causes & position Effect in cash book (Debit balance) Effect in Pass book (credit
of cash book balance)
Cheques issued but not presented Would immediately appear on the No entry till it is presented for
for payment credit side. payment
Balance would come down
Cheques deposited into the bank Would immediately appear on the No entry till the cheques are
but not yet credited debit side. cleared.
Balance would go up.
Bank charges No entry till the customer gets the Debited in the pass book
Interest on overdraft intimation. immediately.
Amount paid by the bank on SI. Balance would come down.
Dishonour of cheque deposited.
Interest credited by bank No entry till the customer gets the Credited in the pass book
Amount collected by bank on SI. intimation. immediately.
Direct credits recd by bank Balance would go up.
Clerical Errors Over casting, under casting, Wrong entries, wrong balancing
wrong entries etc etc 38
BRS 39
Particulars
Balance as per cash book (+debit -credit)
ADD
•Interest credited by bank
•Direct credits received by bank
•Amount deposited but not recorded in cash book
Deduct
•Bank charges
•Interest on overdraft
•Dishonor of cheque deposited.
Accounting equation
Rectification of error
Company accounts
Important Topics 41
Terminologies
http://accountsclass.com/golden-rules-acounting/
45
• Adjusting entries –
– Entries made for adjustment of receivables and payables for the
year in the final accounts.
• Closing entries –
– Entries made for transfer of all revenue items (income and
expenditure) to Trading and profit and loss account are called
closing entries.
Capital and Revenue Expenditure 46
http://accountsclass.com/capital-expenditure-revenue-
expenditure/
Distinction between capital and revenue expenditure
47
Accounting Equation 48
http://accountsclass.com/format-of-bank-balance-sheet-format-of-
banking-companies-balance-sheet/