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FINANCIAL ACCOUNTING ASSIGNMENT

Description:
 The assignment which was assigned to us is to solve two questions from mid-term exam
paper, in order to find out common mistakes we have made in the paper. As well, to revise
the mid-course of better understanding.

QUESTION 1:
 What are accounting concepts? Discuss the business entity and going concern concepts
of account. Also, discuss any three advantages of adhering to accounting concepts,
principles and standards.
SOLUTION:
Part “A” Accounting Concepts:
 Accounting concepts are basically the assumptions on which we base our accounting
records. They are things that we assume which in certain cases may not necessary be
correct or true. For example; in accounting the data is recorded in term of currency
ignoring the time value of money concept that is the currency loses its value with time in
reality while the accounting record ignores it. Finally, we can say that accounting concepts
are the basic assumptions on which accounting records and statements are based. These
concepts provide the general framework in which an accountant operates. Following are
the basic accounting concepts which are explained and discussed in detail.
Part “B” Entity & Going Concern Concepts:
1. The Business Entity Concept:
 The account record must be prepared in a manner that it affects a separate individuality
that it is treated as a single unit separate from its owners. The point where the business
firms and the owners are treated is the capital invested by the owners in the firm. Finally,
we can say that this concept states that a business is an entity in itself and it should be
treated as a separate person which is different from its owner.
2. Going Concern Concept:
 As a general idea it will be more appropriate that the accounting data is prepared at the
close of a business, but the business is taken as a going concern and the decision makers
are interested to compare and evaluate the accounting record on a regular basis that the
accounting data shall be prepared on the regular basis. However, if the business is about

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FINANCIAL ACCOUNTING ASSIGNMENT

to close down within a determinable time the accounting record is to be prepared not at
the cost but rather at the liquidation. Finally, we can say that this concept states that all
records are made on the assumption that the business will continue for foreseeable
future. Unless it is known that the business will close down at a determinable time all
transactions recorded in the routine manner and there is no need for any special valuation
or adjustment. However, if it is known that the business is about to close down within a
determinable time the accounting record is to be prepared not at the cost but rather at
the liquidation.
Part “C” Advantages of Adhering To Accounting Concepts:
 Following are some of the advantages of adapting the accounting principles.
1. The accounting records prepared in the light of accounting principles are more
accurate and reliable
2. The financial statements, so prepared are looked credible by the outside agencies like
financial institutions government departments and so on.
3. Companies often are interest to compare their performance against their
competitors, so that they may improve their performance if under performed and
may bring some changes in their strategies.
4. Following laid down rules makes the job of an accounting easier. He is saved the
trouble of making subjective decisions. For example having a laid down policy on what
is considered material for the purposes of booking expenses or capitalization can save
a lot of hassle for the accounting staff. Once the capitalization limit is set it makes
accounting much simple.
QUESTION 3:
 To solve the bank reconciliation question of the paper. At Dec. 31,the company has
provided the following data I 10 for its account as on 31 march:
1. Balance as per the accounting records of the company,
Rs. 18,106.69.
2. The bank statement showed a balance of Rs. 22,134.27.
3. Accompanying with the bank statement was a debit memorandum
relating to check for Rs. 186 returned as NSF.

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FINANCIAL ACCOUNTING ASSIGNMENT

4. Outstanding were check no. 82 for Rs. 11 no.86 for Rs. 1,323-, and no. 88 for Rs.
16.26.
5. A debit memorandum for Rs. 44.80 for safe deposit locker charges that was
erroneously debited from the company’s account.
6. The bank collected a non interest bearing note for the company for Rs. 2,963-.
7. A deposit of Rs. 2,008.50 was in transit deposited in the bank after banking hours on
31 March.
8. A check received from the customer for Rs. 160- was erroneously recorded by the
company's accountant as Rs. 16-.
9. The bank service charges for Rs. 20.40 debited by the bank during March.
Required:
 Prepare a bank reconciliation statement as on 31 March.
 Pass necessary journal vouchers for the entries.

Solution:
Bank Reconciliation
1. Balance Shows As Per Bank Statement Rs. 22134.27/-
Add:
 Deposits Rs. 2008.50/-
 Debit Memorandum Locker Charges Rs. 44.80/-
-------------------
Total: Rs. 2053.3/-
Grand Total: Rs. 24187.57/-
Less:
 Outstanding Checks:
 Check No. 82 for Rs. 1841.02/-
 Check No. 86 for Rs. 1323/-
 Check No. 88 for Rs. 16.26/-
Total Rs. 3180.28/-

Grand Total: Rs. 21007.29/-


Adjusted Balance Rs. 21007.29

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FINANCIAL ACCOUNTING ASSIGNMENT

2. Balance Shows As Per Company Record Rs. 18106.69/-


Add:
 Non-Interest Bearing Note Rs. 2963/-
 Debit Memorandum Rs. 186
-------------------
Total: Rs. 3149/-
Grand Total: Rs. 21255.69/-
Less:
 Check received for Rs. 160 mistakenly recorded as Rs. 16, so
160-16 = Rs. 144
 The bank service charges Rs. 20.40
Total Rs. 164.4/-

Grand Total: Rs. 21091.29/-


Adjusted Balance Rs. 21091.29/-
Journal Voucher Entries
Dr. Company Record Rs. 18106.69
Cr. Non Interest Bearing Note Rs. 2963
Cr. Debit Memorandum Rs. 44.80
-----------
Dr. Check Received Erroneously Rs. 144
Dr. The Bank Service Charges Rs. 20.40
Cr. Total of both Rs. 164.4

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