FINANCIAL ACCOUNTING ANS: Q.NO: 2 Discuss how accounting satisfies needs of diffe ent g ou!s.

Importance of Accounting I) Owners: The owne s ! o"ide funds o ca!ita# fo the o gani$ation. The% !ossess cu iosit% in &nowing whethe the 'usiness is 'eing conducted on sound #ines o not and whethe the ca!ita# is 'eing e(!#o%ed ! o!e #% o not. Owne s) 'eing 'usiness(en) a#wa%s &ee! an e%e on the etu ns f o( the in"est(ent. Co(!a ing the accounts of "a ious %ea s he#!s in getting good !ieces of info (ation. ii) Management: The (anage(ent of the 'usiness is g eat#% inte ested in &nowing the !osition of the fi (. The accounts a e the 'asis* the (anage(ent can stud% the (e its and de(e its of the 'usiness acti"it%. Thus) the (anage(ent is inte ested in financia# accounting to find whethe the 'usiness ca ied on is ! ofita'#e o not. The financia# accounting is the +e%es and ea s of (anage(ent and faci#itates in d awing futu e cou se of action) fu the e,!ansion etc.iii) Creditors: C edito s a e the !e sons who su!!#% goods on c edit) o 'an&e s o #ende s of (one%. It is usua# that these g ou!s a e inte ested to &now the financia# soundness 'efo e g anting c edit. The ! og ess and ! os!e it% of the fi () two which c edits a e e,tended) a e #a ge#% watched '% c edito s f o( the !oint of "iew of secu it% and fu the c edit. . ofit and Loss Account and /a#ance Sheet a e ne "e cente s to &now the soundness of the fi (. iv) Employees: .a%(ent of 'onus de!ends u!on the si$e of ! ofit ea ned '% the fi (. The (o e i(!o tant !oint is that the wo &e s e,!ect egu#a inco(e fo the ' ead. The de(and fo wage ise) 'onus) 'ette wo &ing conditions etc. de!end u!on the ! ofita'i#it% of the fi ( and in tu n de!ends u!on financia# !osition. Fo these easons) this g ou! is inte ested in accounting. v) Investors: The ! os!ecti"e in"esto s) who want to in"est thei (one% in a fi () of cou se wish to see the ! og ess and ! os!e it% of the fi () 'efo e in"esting thei a(ount) '% going th ough the financia# state(ents of the fi (. This is to safegua d the in"est(ent. Fo this) this g ou! is eage to go th ough the accounting which ena'#es the( to &now the safet% of in"est(ent. vi) Government: Go"e n(ent &ee!s a c#ose watch on the fi (s which %ie#d good a(ount of ! ofits. The state and cent a# Go"e n(ents a e inte ested in the financia# state(ents to &now the ea nings fo the !u !ose of ta,ation. To co(!i#e nationa# accounting is essentia#. vii) Consumers: These g ou!s a e inte ested in getting the goods at educed ! ice. The efo e) the% wish to &now the esta'#ish(ent of a ! o!e accounting cont o# which in tu n wi## educe to cost of ! oduction) in tu n #ess ! ice to 'e !aid '% the consu(e s. .viii) Research cholars: Accounting info (ation) 'eing a (i o of the financia# !e fo (ance of a 'usiness o gani$ation) is of i((ense "a#ue to the esea ch scho#a who wants to (a&e a stud% into the financia# o!e ations of a !a ticu#a fi (. To (a&e a stud% into the financia# o!e ations of a !a ticu#a fi () the esea ch scho#a needs detai#ed accounting info (ation e#ating to !u chases) sa#es) e,!enses) cost of (ate ia#s used) cu ent assets) cu ent #ia'i#ities) fi,ed assets) #ong0te ( #ia'i#ities and sha e0ho#de s funds which is a"ai#a'#e in the accounting eco d (aintained '% the fi (.

A! : "#!O: $ %A!& RECO!CI'IA(IO! (A(EME!( A O! $)#*$#*+ .A5TICULA5S A;OUNT /AN: O3<5D5AFT AS .<5 CAS= /OO: : Add : ii2 Inte est de'ited '% the 'an& 'ut not %et info (ed 2>)?>@ "2 D aft de!osited 'ut not %et c edited '% 'an& 4A)B@@ "ii2 A(ount w ong#% de'ited in the !ass 'oo& >)1@@ 'ess : 00000000000000 iii2Che6ue issued 'ut not %et ! esented fo !a%(ent CC)@@@ i"2T ans!o t su'sid% ecei"ed0 not ente ed in the cash 'oo& 12)B@@ "i2/i##s fo co##ection c edited '% the 'an& on#% ?A)C@@ 00000000000000 /AN: O/ER,RA0( AS .<5 .ASS /OO:

A;OUNT 2)1BD@@

1?)>>@ 0000000000000000 2)D1)C>@ 4)D2)4@@ 0000000000000000 )1*2134*

ANS: Q.NO: 1 i2 ,ual Aspect Concept: Acco ding to this 'asic conce!t of accounting) e"e % t ansaction
has a two0fo#d as!ect) 3i$.) 4.gi"ing ce tain 'enefits and 2.5ecei"ing ce tain 'enefits. The 'asic ! inci!#e of dou'#e ent % s%ste( is that e"e % de'it has a co es!onding and e6ua# a(ount of c edit. This is the unde #%ing assu(!tion of this conce!t. The accounting e6uation "i$.) Assets 7 Ca!ita# 8Lia'i#ities o Ca!ita# 7 Assets 9 Lia'i#ities) wi## fu the c#a if% this conce!t) i.e.) at an% !oint of ti(e the tota# assets of the 'usiness unit a e e6ua# to its tota# #ia'i#ities. Lia'i#ities he e e#ate 'oth to the outside s and the owne s. Lia'i#ities to the owne s a e conside ed as ca!ita#.

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Consistency: The con"ention of consistenc% efe s to the state of accounting u#es) conce!ts) ! inci!#es) ! actices and con"entions 'eing o'se "ed and a!!#ied constant#%) i.e.) f o( one %ea to anothe the e shou#d not 'e an% change. If consistenc% is the e) the esu#ts and !e fo (ance of one !e iod can he co(!a ed easi#% and (eaningfu##% with the othe . It a#so ! e"ents !e sona# 'ias as the !e sons in"o#"ed ha"e to fo##ow the consistent u#es) ! inci!#es) conce!ts and con"entions. This con"ention) howe"e ) does not co(!#ete#% igno e changes. It ad(its changes whe e"e indis!ensa'#e and adds to the i(! o"ed and (ode n techni6ues of accounting. Going Concern Concept: Unde this conce!t) the t ansactions a e eco ded assu(ing that the 'usiness wi## e,ist fo a #onge !e iod of ti(e) i.e.) a 'usiness unit is conside ed to 'e a going conce n and not a #i6uidated one. :ee!ing this in "iew) the su!!#ie s and othe co(!anies ente into 'usiness t ansactions with the 'usiness unit. This assu(!tion su!!o ts the conce!t of "a#uing the assets at histo ica# cost o e!#ace(ent cost. This conce!t a#so su!!o ts the t eat(ent of ! e!aid e,!enses as assets) a#though the% (a% 'e ! actica##% unsa#ea'#e. -age: .

iii2

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Conservatism: In the ! e"ai#ing ! esent da% unce tainties) the con"ention of conse "atis( has its own i(!o tance. This con"ention fo##ows the !o#ic% of cautione !#a%ing safe. It ta&es into account a## !ossi'#e #osses 'ut not the !ossi'#e ! ofits o gans. A "iew o!!osed to this con"ention is that the e is the !ossi'i#it% of c eation of sec et ese "es when conse "atis( is e,cessi"e#% a!!#ied) which is di ect#% o!!osed to the con"ention of fu## disc#osu e. Thus) the con"ention of conse "atis( shou#d 'e a!!#ied "e % cautious#%. A! : "#!O: 3 In the 5oo6s of 77777777777777

.#ant E (achine % AFC

4.4@C To /a#ance 'Fd 4.42.@C To /an& 4.4.@> To /a#ance 'Fd

4.4.@?

To /a#ance 'Fd B1)@@@ RE/I E, -'A!( 8 MAC9I!ER: A;C To /a#ance 'Fd 1?)@@@ A4.42.@1 /% De! eciation To /an& 4C)?@@ A4.42.@1 /% /a#ance cFd C1)?@@ To /a#ance 'Fd B4)?1@ B4)?1@ 14)1>2 44)1@@ B2)?>2 12)2D? GGGGGGGG 12)2D? A4.42.@B A4.42.@B A4.42.@C A4.42.@C A4.42.@> A4.42.@> /% De! eciation /% /a#ance cFd /% De! eciation /% /a#ance cFd /% De! eciation /% 'a#ance cFd

4.4.@1 4.D.@1 4.4.@B

42)DC@ B4)?1@ C1)?@@ 4@)AC? 14)1>2 B4)?1@ 4@)B>1 12)2D? B2)?>2 ?)1C@ AA)?A? 12)2D?

4.4.@C 4.42.@C 4.4.@>

To /a#ance 'Fd To /an& To /a#ance 'Fd

-age: 3

(otal depreciation undercharged from 2**. to 2**4: 3.1*** < $$1+$+ = 2*1)>2 ,epreciation undercharged in the current year: +1.>* < >1*** = 21.>* (otal shortfall < Current years shortfall = 2*1)>2 < 21.>* = )414*2

?O@R!A' E!(R: ,epreciation A;C -rofit 8 'oss A;C (o Machinery A! : "#!O: > ?O@R!A' E!(RIE a) -urchase A;C ,r (o uspense A;C $1** $1 ** 21 2* 21 2* )1 3* )1 3* 21.** )12** )12** )1 )4 )1 )4 21 23 21 23 .1 3* ,r ,r 21.>* )414*2 2*1)>2

5) Repair A;C ,r (o Machinery A;C c) ales A;C ,r (o uspense A;C

d) & A;C ,r (o -urchase A;C (o ales A;C e) uspense A;C (o ,r

f) Ret# Inward ,r Ret# Outward ,r (o uspense A;C

SUS.<NS< AFC D. .a ticu#a s To /a#ance 'Fd To S A(ount >?A 44> 999999 D@@ 9999999 .a ticu#a s /% .u chase /% Sa#es /% 5et. Inwa d /% 5et. Outwa d C. A(ount A@@ 4B@ 22B 22B 9999999 D@@ 999999

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A! # "#!O: 4 In the 'oo&s of H CLU/ 5<C<I.TS E .AI;<NTS AFC FO5 T=< I5 <ND<D A4.42.@> D. To O!ening /an& /a#ance To Su'sc i!tion To <nt ance fees To Inte est To Donation /% /% /% /% /% /% 9999999 /% 4)2>@@@ 9999999 41)@@@ D4)@@@ C)@@@ C)@@@ 4@)@@@ Sa#a ies 5ent T a"e##ing e,!s . inting E Stationa % Gene a# a"e ages .e iodica#s C#osing /an& /a#ance C. B2)B@@ 4@)@@@ B@@ 4)@@@ 4)B@@ B@@ C4)@@@ 4)2>)@@@ 9999999

/a#ance Sheet fo the %ea ended A4.42.2@@> Gene a# fund Add: Su !#us Lia'i#ities fo : 5ent Sa#a ies 4)>2)B@@ B@)B@@ 99999999 Fu nitu e S!o ts e6ui!(ents In"est(ent Su'sc i!tion ecei"a'#e /an& 1@)@@@ 2@)@@@ 4)@@)@@@ ?)@@@ C4)@@@ 99999999 2)2D)@@@ 99999999

2)2A)@@@ 2)@@@ 1)@@@ 999999999 2)2D)@@@ 999999999

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A! # "#!O: +

I! (9E %OO& O0 A *)#*)#*4 41>* >1C3* )21>** .13** 21*** 7777777 2*133* $)#)2#*4 .14* .1C$* )>14** >1$2* 21*** .1*** $.1.2*

tatement of affairs as at *)#*)#*4 8 $)#)2#*4 'IA%I'I(IE *)#*)#*4 $)#)2#*4 A E( undry creditors .1$)* 31$** Cash in hand Capital B5al7fig) )>12.* 2C1)2* Cash at 5an6 toc6 undry ,e5tors 0urniture Mo75i6e 2*133* $.1.2*

Opening capital (rading profit c;d ,epreciation on 0urniture Motor 5i6e %ad de5t -rovision for 5ad de5t 3;)**B>1$2* < $12* ) !E( -RO0I(

tatement of -rofit 8 'oss as at $)#)2#*4 )>12.* Closing capital )41>+* ,rawings $$1C2* (rading profit 5;d 21** +1** 777777777777 )1*** $12* $1** )>1*>* )41>+*

2C1)2* .1+** $$1C2* )41>+*

DDDDDDDD )41>+*

%alance sheet as at $)#)2#*4 Capital Bopening 5al ) Add : !et profit 'ess : ,rawings Creditors )>12.* )>1*>* $21$** .1+** 0urniture B 2*** < 2** ) Motor 5i6e B .1*** < +1**) toc6 undry de5tors B>1$2* < $#2* < $** ) Cash at 5an6 Cash in hand )1+** $12** )>14** 314** .1C$* .4* $21+**

2413** 31$** $21+**

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A! #"#!O: )* In the 5oo6s of a manufacturing company CO ( 9EE( ;ate ia#s used in Jo's Kages t acea'#e to diff Jo's =i e of c ane on Jo's -RIME CO ( 0AC(OR: O/ER9EA,: Kages !aid to (aintenance wo & .owe 5ent E 5ates Lfacto % 2 Light Lfacto % 2 ;achine % e!ai s ;achine % de! eciation Shafting e!ai s Shafting de! eciation Sto e&ee!e s wages /e#ting enewa#s E e!ai s Ko & sa#a ies EOR& CO ( O00ICE 8 A,MI!I (RA(IO! O/ER9EA, Di ecto s fees Audito s fees Office sa#a ies E e,!s .ostage E stationa % CO ( O0 -RO,@C(IO! E''I!G 8 ,I (RI%@(IO! O/ER9EA, Sa#es(an co((ission Sa#es(an sa#a ies T a"e##ing e,!s Sund % sa#es e,!s Ad"e tising D i"e s wages E othe dist i'ution e,! (O(A' CO ( DB)@@@ D@)B@@ 4)1@@ )1+>1C** 21)2@@ 4@)@@@ 1)C@@ 4)?@@ B)>@@ 42)?@@ 4)1@@ 4)>@@ ?@@ >@@ B)1@@

>C1)** 213>1***

A)@@@ 2@@ 2)D@@ C@@

>14** 21>214**

4)2@@ D)2@@ 2)?@@ 1)>@@ 2)B@@ 4@)@@@

$*1.** 21C$1)**

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