Professional Documents
Culture Documents
Processing Outputs
Accounting principles & procedures Financial statements and reports
Users
Investors, lenders, managers etc.
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Module 1
What is Accounting
Accounting is the language of business Accounting provides information for making decisions Accounting is an information system
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DEFINITION OF ACCOUNTING
Art of recording, classifying and summarising in a significant manner in terms of money transactions and events which in part, at least of financial character and interpreting the results thereof. American Institute of Certified Public Accountants
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Module 1
Module 1
Management Accounting For internal users Future-oriented Flexible format Context-specific More detailed Product cost statement; Standard costs; Budgets; Variances; Performance reports
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Module 1
Going Concern
Business is a continuing enterprise
Periodicity
Business activities divided into periods
Money Measurement
Money is a stable measurement unit
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Account
Account
An individual record of increases and decreases in an item that is likely to be of interest or importance
Debits = Credits
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Debit
Credit
Module 1
Classification of Accounts
Asset accounts
Examples: Land; Buildings; Equipment; Cash
Liability accounts
Examples: Creditors; Unearned Revenues; Wages Payable
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Module 1
CLASSIFICATION OF ACCCOUNTS
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PERSONAL ACCOUNT
Deals with the transactions relating to persons # Natural person # Artificial person # Representatives Debit the Receiver Credit the Giver
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REAL ACCOUNT
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NOMINAL ACCOUNT
Deals with the transactions relating to expenses, losses, incomes & gains
Debit all expenses & losses Credit all incomes & gains
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Q- 1 State under what heading (Personal, Real or Nominal) would you classify each of the following accounts:
a) Salary A/c b) Salary outstanding A/c c) Rent A/c d) Insurance unexpired A/c e) Proprietors A/c f) Bad debts A/c g) Furniture A/c h) Goodwill A/c i) Patents A/c j) Bank A/c
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Q- 2 State whether each of the following account is an asset a/c, a liability a/c, or an owners equity a/c:
a) Salaries expense b) Bills payable c) Supplies d) Dividends e) Cash f) Debtors g) Prepaid insurance h) Interest income i) Salary payable
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Accounting cycle
4. FINAL ACCOUNTS 1. JOURNAL
3. TRIAL BALANCE
2. LEDGER
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Exhibit: Journal
Post Ref. Debit
Amount
Amount
Date
Description
Account to be Debited Account to be Credited
Credit
Narration
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2. LEDGER
Book which contains all accounts of the business enterprise whether personal, real or nominal. Gives the summary of the transactions Process of transferring the debit and credit items from the Journal to their respective accounts in the Ledger is called Posting.
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Exhibit: Ledger
A/c Name: A/c No:
Cr Amount
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3. TRIAL BALANCE
Statement which contains the balances of various ledger accounts. Check the arithmetical accuracy of the ledger accounts prepared. Serves as the basis for the preparation of Final Accounts of a business enterprise.
Do Debits = Credits ?
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Q-3
Jan 2009 1 Started business with cash Rs. 45,000 Paid into bank Rs. 25,000 2 Goods purchased for cash Rs. 15,000 3 Purchase of furniture and payment by cheque Rs. 5,000 5 Sold goods for cash Rs.8,500 8 Sold goods to Arvind walia Rs. 4,000 10 Goods purchased from Amrit Lal Rs. 7,000 12 Goods returned to Amrit Lal Rs. 1,000 15 Goods returned by Arvind Walia Rs. 200 18 Cash received from Arvind Walia Rs. 3,760 and discount allowed to him Rs. 40 21 Withdrew from bank for private use Rs. 1,000 Withdrew from bank for bus. use Rs.5,000 25 Paid telephone rent for one year Rs. 100 28 Cash paid to Amrit Lal in full settlement of his account Rs. 5,940 30 Paid for Stationery Rs. 200 Rent Rs. 1,000 August 10, 2011 Accounting for Managers Salaries to staff Rs. 2,500
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Q-4
Jan 2007 1 Assets: Furniture Rs. 5,000; Machinery Rs. 10,000; Stock Rs. 4,000; Cash in hand Rs. 550; Cash at bank Rs. 7,450; Amount due from Ramesh Rs. 1,000; Amount due from Suresh Rs. 2,000 Laibilities:: Amount due to Ram & Co. Rs. 4,500; Amount due to Ranjeet & Co. Rs. 2,000; Amount due to Shyam Sunder Rs. 1,500 1 Purchased goods from Ajay Kumar Rs. 4,500 3 Sold goods for cash Rs. 1,500 5 Paid to Himanshu by cheque Rs. 5,500 10 Deposited in bank Rs. 2,800 13 Sold goods on credit to Mukesh Rs. 1,700 14 Paid for postage Rs. 100 16 Received cash from Rakesh Rs. 2,200 17 Paid telephone charges Rs. 250 18 Cash sales Rs. 1,500 20 Purchased govt. securities Rs. 5,000 22 Purchased goods worth Rs. 16,000, less 20% trade discount and 5% cash discount from Malhotra & Co. for cash and supplied them to Ramesh & Co. at list price less 10% discount.
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25 Cash purchases Rs. 16,500 27 Goods worth Rs. 500 were damaged in transit; a claim was made on the railway authorities fro the same. 28 Suresh is declared insolvent and 50 paise in a rupee is received from him in full settlement 28 Bought a horse for Rs. 2,600 and a carriage for Rs. 1,200 for delivering goods to customers. 30 The horse bought on Jan 28 died, and its carcase was sold fro Rs. 100 31 Allowed interest on capital @ 10% per annum for one year 31 Paid for salaries Rs. 1,500 and rent Rs. 600
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Q-5
March 2007 1 Vikas commenced business with a capital of Rs. 30,000 2 Bought machinery Rs. 5,000 3 Bought goods for cash from Madan Lal Rs. 2,500 3 Sold goods for cash to Giri Rs. 4,000 4 Purchased goods from jai Simha Rs. 3,000 6 Cash sales Rs. 5,000 10 Received interest from Mukund Rs. 2,000 11 Deposited cash into bank Rs. 6,000 14 Paid cash to Jai Simha Rs. 2,900 in full settlement of his account 16 Sold goods to Venkat Rs. 4,000 18 Venkat settled his account by cheque and deposited with the bank Rs. 3,890 29 Paid rent by cheque Rs. 500
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Q-6
April 2007 1 Started business by bringing in cash worth Rs. 2,00,000 out of which paid into bank Rs. 80,000 6 Bought furniture for Rs. 20,000 & machinery Rs. 4,000 7 Purchased goods Rs. 56,000 8 Sold goods for Rs. 32,000 9 Purchased goods from Jain & Co. on credit for Rs. 44,000 10 Received cash from travelling salesman Rs. 800 for goods sold by him 15 Bough 100 shares in PQ & Co. Ltd. at Rs.120 and paid brokerage Rs. 80 16 Goods worth Rs. 4,000 which were defective were returned to Jain & Co. and the balance amount due to them was settled by issuing a cheque in their favour 17 Paid for donations Rs. 402 20 Sold 40 shares of PQ & Co. Ltd. at Rs.130 and paid brokerage Rs. 80
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Q-7
July 2007 2 Started business with Rs. 1,00,000 Paid into bank Rs. 50,000 3 Bought furniture for cash Rs. 5,000 5 Bought goods for Rs. 3,000 6 Sold goods for cash Rs. 600 10 Bought one computer for Rs. 18,000 from Compaq company on credit. 13 Sold goods to M/s Ramya & Sons for Rs. 10,000 on credit 14 Bought goods M/s Mahindra & Co. for Rs. 2,000 on credit 15 Paid telephone rent, advertisement, salaries, rent, Rs. 2400, 1000, 2,000, 1,000 respectively. 26 Sold goods to M/s. Lal & Co. for Rs. 8,000 for cash 30 Withdrew from bank Rs. 300 for private use 31 Bought one delivery van for Rs. 3,00,000 from Delhi Motor Co. Payment to be made by monthly installment of Rs. 20,000 each together with interest at 9%. First installment paid by cheque.
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Q-8
April 2007 1 Hari started business with cash Rs. 60,000 2 Purchased furniture for cash Rs. 10,000 4 Purchased goods for cash Rs. 25,000 5 Bough goods from Kamlesh Rs. 15,000 6 Sold goods for cash Rs. 36,000 8 Sold goods to Ram Rs. 30,000 10 Paid cash to kamlesh Rs. 15,000 14 Received cash from Ram 18,000 16 Purchased goods from Sohan Rs. 6,000 18 Purchased goods from Sohan for cash Rs. 8,000 20 Paid rent for the office Rs. 1,000 26 Received commission Rs. 750 27 Paid salary to Gopal Rs. 1,200 28 received cash from Ram Rs. 12,000 29 Withdrew cash from office for personal use Rs. 4,000 30 Wages paid Rs. 7,200
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Q-9
August 2007 1 Sumit started business with cash Rs. 10,000 2 Paid into bank Rs. 6,000 3 Bought goods from Mohan on credit Rs. 2,000 4 Purchased furniture Rs. 200 Purchased adding machine Rs. 800 Purchased typewriter Rs. 600 6 paid for postage Rs. 15 8 Sold goods for cash Rs. 400 9 Sold goods on credit to Mac & Co. Rs. 1,000 15 Paid to Mohan Rs. 1,950 Discount allowed by them Rs. 50 20 Sold goods to Ray & Co. Rs. 560 26 Received cheque from Mac & Co in full settlement of amount due to them Rs. 975 31 Paid for electric charge Rs. 10 Paid rent by cheque Rs. 200
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Q-10
Jan1,2007 Akash commenced business with Rs. 1,00,000 Jan 3, Purchased goods for cash Rs. 50,000 Jan 6,Purchased goods from Mohan on credit Rs. 1,000 Jan 10, Goods sold for cash Rs. 7,000 Jan 12, Goods sold on credit to Suresh Rs. 5,000 Jan 16, Furniture purchased Rs. 10,000 Jan 19, Machinery sold Rs. 12,000 Jan 22, Salaries paid Rs. 3,200 Jan 23, Rent received Rs. 2,000 Jan 25, Amount received from Mohan Rs. 990 & discount allowed Rs. 10 Jan 26, Amount paid to Suresh Rs. 4,800 & discount received Rs. 200 Jan 27, Depreciation on furniture Rs. 2,000 Jan 28, Outstanding salaries Rs. 1,500 Jan 30, Amount withdrawn by proprietor for his personal use Rs. 3,000 Jan 31,Tax paid Rs. 1,000
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Q-11 Ganesh left his job as carpenter and started Woodcraft Co. The transactions for July 2007 are as follows
1 Began business by depositing Rs. 10,000 in a Bank in the name of the company in exchange for 1,000 shares of Rs. 10 each in the company. 4 Paid two months rent in advance for a shop, Rs. 2,000. 5 Purchased equipment for cash, Rs. 1,200. 7 Purchased supplies on credit, Rs. 700. 10 Received Rs. 8,600 for remodelling a kitchen. 14 Paid cash for an advertisement that appeared in the local newspaper, Rs. 1,400 17 Received Rs. 11,200 for furnishing an office room 23 Billed customers for work done rather than on cash terms, Rs. 13,100 25 Paid wages to assistant, Rs. 1,500 28 Paid electricity charges, Rs. 240 29 Received partial payment from customers billed on July 23rd, Rs. 4,800 30 Declared and paid a dividend, Rs 2,500
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REQUIRED
1. 2. Prepare Journal entries for the above transactions. Post the entries from the journal to the following ledger accounts: Equipment (105), Supplies (109), Debtors (110), Cash (112), Prepaid rent (116), Creditors (203), Share capital (301), Dividends (318), Professional charges earned (402), Salaries expense (501), Electricity expense (504) and Advertisement expense (506). 3. Prepare a trial balance
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Locating errors
Error -?
Debit Credit
Once an error is located, it must be corrected. Wrong posting of journal entries should be rectified by correcting entries.
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Suspense Account
An account in which the difference in Trial Balance is recorded. Opened after a Trial Balance is prepared. It is cleared when the balance in Suspense account gets cleared.
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Case Incident
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Module 1
Institutional Environment
Institute of Chartered Accountants of India Department of Company Affairs
National Advisory Committee on Accounting Standards
Securities and Exchange Board of India Central Board of Direct Taxes Reserve Bank of India Comptroller and Auditor General of India International Organisations
International Accounting Standards Board International Organization of Securities Commission
Accounting for Managers
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Module 1
Partnership
A few individuals
Limited company
Numerous individuals, often strangers Large business Limited liability
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Assets
Probable future economic benefits What a business owns Examples
Cash Investments Buildings Plant and machinery Patents and copyrights
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Module 1
Liabilities
Probable future sacrifices of economic benefits What a business owes Contractual, statutory, or constructive Examples
Loans payable Warranty obligations Pensions payable Income tax payable
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Module 1
Equity
Residual interest of owners Examples
Share capital Share premium Revenues Expenses Dividends Retained profit
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Module 1
Financial Statements
Profit and loss account
Statement of financial performance
Balance sheet
Statement of financial position
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