Wednesday, August 8, 2012

MBA 1st Sem - FAA/AFM Notes


K. HARI KRISHNA                              MBA TUITIONS, FINANCE LIVE PROJECTS, NCFM, AMFI
M.B.A ,M.COM, M.Phil, (Ph.D),(ICWAI)                                   JOB ORIENTED TRAINING IN FINANCE & ACCOUNTS
Faculty & Director                                               WITH 100% PLACEMENT ASSISTANCE.
PRATHIBA MBA ACADEMY
HYDERABAD - 91 77 567 568           


FINANCIAL ACCOUNTING & ANALYSIS (FAA)/ ACCOUNTING FOR MANAGERS (AFM) NOTES

INTRODUCTION



Accounting is aptly called the language of business. This designation is applied to accounting because it is the method of communicating business information. The basic function of any language is to serve as a means of communication. Accounting duly serves this function. The task of learning accounting is essentially the same as the task of learning a new language.
EVOLUTION OF ACCOUNTING
Accounting is as old as money itself. It has evolved, as have medicine, law and most other fields of human activity in response to the social and economic needs of society. People in all civilizations have maintained various types of records of business activities. The oldest known are clay tablet records of the payment of wages in Babylonia around 600 B.C. Accounting was practiced in India twenty-four centuries ago as is clear from Kautilya’s book `Arthshastra’ which clearly indicates the existence and need of proper accounting and audit.

For the most part, early accounting dealt only with limited aspects of the financial operations of private or governmental enterprises. Complete accounting system for an enterprise which came to be called as “Double Entry System” was developed in Italy in the 15th century. The first known description of the system was published there in 1494 by a Franciscan monk by the name Luca Pacioli.
BOOK KEEPING AND ACCOUNTING
Book-keeping is that branch of knowledge which tells us how to keep a record of business transactions. It is considered as an art of recording systematically the various types of transactions that occur in a business concern in the books of accounts. According to Spicer and
Pegler, “book-keeping is the art of recording all money transactions, so that the financial position of an undertaking and its relationship to both its proprietors and to outside persons can be readily ascertained”.
DEFINITION OF ACCOUNTING
The American Institute of Certified and Public Accountants Committee on Terminology defined accounting as: “Accounting is the art of recording classifying and summarising, in a significant manner and in terms of money, transactions and events which are, in part at least, of a financial character and interpreting the results thereof”. Of all definitions available, this is the most acceptable one because it encompasses all the functions which the modern accounting system performs.
SCOPE AND FUNCTIONS OF ACCOUNTING
Individuals engaged in such areas of business as finance, production, marketing, personnel and general management need not be expert accountants but their effectiveness is no doubt increased if they have a good understanding of accounting principles. Everyone engaged in business activity, from the bottom level employee to the chief executive and owner, comes into contact with accounting. The higher the level of authority and responsibility, the greater is the need for an understanding of accounting concepts and terminology.
A study conducted in United States revealed that the most common background of chief executive officers in United States Corporations was finance and accounting.

Accounting which is so important to all, discharges the following vital functions:

Keeping systematic records: This is the fundamental function of accounting. The transactions of the business are properly recorded, classified and summarised into final financial statements – income statement and the balance sheet.
Protecting the business properties: The second function of accounting is to protect the properties of the business by maintaining proper record of various assets and thus enabling the management to exercise proper control over them.
Communicating the results: As accounting has been designated as the language of business, its third function is to communicate financial information in respect of net profits, assets, liabilities, etc., to the interested parties.
Meeting legal requirements: The fourth and last function of accounting is to devise such a system as will meet the legal requirements. The provisions of various laws such as the Companies Act, Income Tax Act, etc., require the submission of various statements like Income Tax returns, Annual Accounts and so on. Accounting system aims at fulfilling this requirement of law.
GROUPS INTERESTED IN ACCOUNTING INFORMATION
There are several groups of people who are interested in the accounting information relating to the business enterprise. Following are some of them:
Shareholders: Shareholders as owners are interested in knowing the profitability of the business transactions and the distribution of capital in the form of assets and liabilities. In fact, accounting developed several centuries ago to supply information to those who had invested their funds in business enterprise.
Management: With the advent of joint stock company form of organisation the gap between ownership and management widened. In most cases the shareholders act merely as renters of capital and the management of the company passes into the hands of professional managers. The accounting disclosures greatly help them in knowing about what has happened and what should be done to improve the profitability and financial position of the enterprise.
Potential Investors: An individual who is planning to make an investment in a business would like to know about its profitability and financial position. An analysis of the financial statements would help him in this respect.
Creditors: As creditors have extended credit to the company, they are much worried about the repaying capacity of the company. For this purpose they require its financial statements, an analysis of which will tell about the solvency position of the company.
Government: Any popular Government has to keep a watch on big businesses regarding the manner in which they build business empires without regard to the interests of the community. Restricting monopolies is something that is common even in capitalist countries. For this, it is necessary that proper accounts are made available to the Government. Also, accounting data are required for collection of sale-tax, income-tax, excise duty etc.
Employees: Like creditors, employees are interested in the financial statements in view of various profit sharing and bonus schemes. Their interest may further increase when they hold shares of the companies in which they are employed.
Researchers: Researchers are interested in interpreting the financial statements of the concern for a given objective.
Citizens: Any citizen may be interested in the accounting records of business enterprises including public utilities and Government companies as a voter and tax payer.
NATURE AND MEANING OF ACCOUNTING PRINCIPLES (GAAP)
The rules and conventions of accounting are commonly referred to as principles. The American Institute of Certified Public Accountants have defined the accounting principle as, “a general law or rule adopted or professed as a guide to action; a settled ground or basis of conduct or practice”. It may be noted that the definition describes the accounting principle as a general law or rule that is to be used as a guide to action.

Accounting principles, rules of conduct and action are described by various terms such as concepts, conventions, doctrines, tenets, assumptions, axioms, postulates, etc. But for our purpose we shall use all these terms synonymously except for a little difference between the two terms – concepts and conventions. The term “concept” is used to connote accounting postulates i.e. necessary assumptions or conditions upon which accounting is based. The term convention is used to signify customs or traditions as a guide to the preparation of accounting statements.
ACCOUNTING CONCEPTS
The important accounting concepts are discussed hereunder:
Business Entity Concept: It is generally accepted that the moment a business enterprise is started it attains a separate entity as distinct from the persons who own it. In recording the transactions of the business the important question is: How do these transactions affect the business enterprise? The question as to how these transactions affect the proprietors is quite irrelevant. This concept is extremely useful in keeping business affairs strictly free from the effect of private affairs of the proprietors.
Going Concern Concept: This concept assumes that the business enterprise will continue to operate for a fairly long period in the future. The significance of this concept is that the accountant while valuing the assets of the enterprise does not take into account their current resale values as there is no immediate expectation of selling it. Moreover, depreciation on fixed assets is charged on the basis of their expected life rather than on their market values.
Money Measurement Concept: Accounting records only those transactions which can be expressed in monetary terms. The importance of this concept is that money provides a common denomination by means of which heterogeneous facts about a business enterprise can be expressed and measured in a much better way. For e.g. when it is stated that a business owns Rs.1,00,000 cash, 500 tons of raw material, 10 machinery items, 3000 square meters of land and building etc., these amounts cannot be added together to produce a meaningful total of what the business owns. However, by expressing these items in monetary terms Rs.1,00,000 cash, Rs.5,00,000 worth of raw materials, Rs,10,00,000 worth of machinery items and Rs.30,00,000 worth of land and building – such an addition is possible.

A serious limitation of this concept is that accounting does not take into account pertinent non-monetary items which may significantly affect the enterprise. For instance, accounting does not give information about the poor health of the Chairman, serious misunderstanding between the production and sales manager etc., which have serious bearing on the prospects of the enterprise. Another limitation of this concept is that money is expressed in terms of its value at the time a transaction is recorded in the accounts. Subsequent changes in the purchasing power of moneys are not taken into account.
Cost Concept: This concept is yet another fundamental concept of accounting which is closely related to the going-concern concept. As per this concept: (i) an asset is ordinarily entered in the accounting records at the price paid to acquire it i.e., at its cost and (ii) this cost is the basis for all subsequent accounting for the asset.
The implication of this concept is that the purchase of an asset is recorded in the books at the price actually paid for it irrespective of its market value. For e.g. if a business buys a building for Rs.3,00,000, the asset would be recorded in the books at Rs.3,00,000 even if its market value at that time happens to be Rs.4,00,000.
Dual Aspect Concept: According to this basic concept of accounting, every transaction has a two-fold aspect, Viz., 1.giving certain benefits and 2. Receiving certain benefits. The basic principle of double entry system is that every debit has a corresponding and equal amount of credit. This is the underlying assumption of this concept. The accounting equation viz., Assets = Capital + Liabilities or Capital = Assets – Liabilities
Periodicity Concept: Under this concept, the life of the business is segmented into different periods and accordingly the result of each period is ascertained. Though the business is assumed to be continuing in future (as per going concern concept), the measurement of income and studying the financial position of the business for a shorter and definite period will help in taking corrective steps at the appropriate time. Each segmented period is called “accounting period” and the same is normally a year.
Matching Concept: The essence of the matching concept lies in the view that all costs which are associated to a particular period should be compared with the revenues associated to the same period to obtain the net income of the business. Under this concept, the accounting period concept is relevant and it is this concept (matching concept) which necessitated the provisions of different adjustments for recording outstanding expenses, prepaid expenses, outstanding incomes, incomes received in advance, etc., during the course of preparing the financial statements at the end of the accounting period.
Realisation Concept: This concept assumes or recognizes revenue when a sale is made. Sale is considered to be complete when the ownership and property are transferred from the seller to the buyer and the consideration is paid in full.
Accrual Concept: According to this concept the revenue is recognized on its realization and not on its actual receipt. Similarly the costs are recognized when they are incurred and not when payment is made. This assumption makes it necessary to give certain adjustments in the preparation of income statement regarding revenues and costs.
Objective Evidence Concept: This concept ensures that all accounting must be based on objective evidence, i.e., every transaction recorded in the books of account must have a verifiable document in support of its, existence. Only then, the transactions can be verified by the auditors and declared as true or otherwise.



Accounting Conventions
The following conventions are to be followed to have a clear and meaningful information and data in accounting:
Consistency: The convention of consistency refers to the state of accounting rules, concepts, principles, practices and conventions being observed and applied constantly, i.e., from one year to another there should not be any change. If consistency is there, the results and performance of one period can he compared easily and meaningfully with the other.
Disclosure: The convention of disclosure stresses the importance of providing accurate, full and reliable information and data in the financial statements which is of material interest to the users and readers of such statements.
Conservatism: In the prevailing present day uncertainties, the convention of conservatism has its own importance. This convention follows the policy of caution or playing safe. It takes into account all possible losses but not the possible profits or gains.
BRANCHES OF ACCOUNTING
The changing business scenario over the centuries gave rise to specialized branches of accounting which could cater to the changing requirements. The branches of accounting are;
i) Financial accounting;
ii) Cost accounting; and
iii) Management accounting.
Now, let us understand these terms.
Financial Accounting
The accounting system concerned only with the financial state of affairs and financial results of operations is known as Financial Accounting. It is the original from of accounting. It is mainly concerned with the preparation of financial statements for the use of outsiders like creditors, debenture holders, investors and financial institutions. The financial statements i.e., the profit and loss account and the balance sheet, show them the manner in which operations of the business have been conducted during a specified period.
Cost Accounting
In view of the limitations of financial accounting in respect of information relating to the cost of individual products, cost accounting was developed. It is that branch of accounting which is concerned with the accumulation and assignment of historical costs to units of product and department, primarily for the purpose of valuation of stock and measurement of profits. Cost accounting seeks to ascertain the cost of unit produced and sold or the services rendered by the business unit with a view to exercising control over these costs to assess profitability and efficiency of the enterprise. It generally relates to the future and involves an estimation of future costs to be incurred. The process of cost accounting based on the data provided by the financial accounting.
Management Accounting
It is an accounting for the management i.e., accounting which provides necessary information to the management for discharging its functions. According to the Anglo-American Council on productivity, “Management accounting is the presentation of accounting information is such a way as to assist management in the creation of policy and the day-to-day operation of an undertaking.” It covers all arrangements and combinations or adjustments of the orthodox information to provide the Chief Executive with the information from which he can control the business e.g. Information about funds, costs, profits etc. Management accounting is not only confined to the area of cost accounting but also covers other areas (such as capital expenditure decisions, capital structure decisions, and dividend decisions) as well.
BASES OF ACCOUNTING
There are three bases of accounting in common usage. Any one of the following bases may be used to finalise accounts.
1. Cash basis
2. Accrual or Mercantile basis
3. Mixed or Hybrid basis.
Accounting on ‘Cash basis

Under cash basis accounting, entries are recorded only when cash is received or paid. No entry is passed when a payment or receipt becomes due. Income under cash basis of accounting, therefore, represents excess of receipts over payments during an accounting period. Government system of accounting is mostly on cash basis.
Accrual Basis of Accounting or Mercantile System
Under accrual basis of accounting, accounting entries are made on the basis of amounts having become due for payment or receipt. Incomes are credited to the period in which they are earned whether cash is received or not. Similarly, expenses and losses ere detailed to the period in which, they arc incurred, whether cash is paid or not. The profit or loss of any accounting period is the difference between incomes earned and expenses incurred, irrespective of cash payment or receipt. All outstanding expenses and prepaid expenses, accrued incomes and incomes received in advance are adjusted while finalising the accounts. Under the Companies Act 1956, all companies are required to maintain the books of accounts according to accrual basis of accounting.
Mixed or Hybrid Basis of Accounting
When certain items of revenue or expenditure are recorded in the books of account on cash basis and certain items on mercantile basis, the basis of accounting so employed is called ‘hybrid basis of accounting’. For example, a company may follow mercantile system of accounting in respect of its export business. However, government subsidies and duty drawbacks on exports to be received from government are recorded only when they are actually received i.e., on cash basis.
Methods of Accounting
Business transactions are recorded in two different ways.
1 Single Entry
2 Double Entry
Single Entry: It is incomplete system of recording business transactions. The business organization maintains only cash book and personal accounts of debtors and creditors. So the complete recording of transactions cannot be made and trail balance cannot be prepared.
Double Entry: It this system every business transaction is having a two fold effect of benefits giving and benefit receiving aspects. The recording is made on the basis of both these aspects. Double Entry is an accounting system that records the effects of transactions and other events in at least two accounts with equal debits and credits.
Steps involved in Double entry system
(a) Preparation of Journal: Journal is called the book of original entry. It records the effect of all transactions for the first time. Here the job of recording takes place.
(b) Preparation of Ledger: Ledger is the collection of all accounts used by a business. Here the grouping of accounts is performed. Journal is posted to ledger.
(c) Trial Balance preparation: Summarizing. It is a summary of ledge balances prepared in the form of a list.
(d) Preparation of Final Account: At the end of the accounting period to know the achievements of the organization and its financial state of affairs, the final accounts are prepared.
Meaning of Debit and Credit
The term ‘debit’ is supposed to have derived from ‘debit’ and the term ‘credit’ from ‘creditable’. For convenience ‘Dr’ is used for debit and ‘Cr’ is used for credit. Recording of transactions require a thorough understanding of the rules of debit and credit relating to accounts. Both debit and credit may represent either increase or decrease, depending upon the nature of account.
Types of Accounting
Types of Accounts
The object of book-keeping is to keep a complete record of all the transactions that place in the business. To achieve this object, business transactions have been classified into three categories:
(i) Transactions relating to persons.
(ii) Transactions relating to properties and assets
(iii) Transactions relating to incomes and expenses.
The accounts falling under the first heading are known as ‘personal Accounts’. The accounts falling under the second heading are known as ‘Real Accounts’, The accounts falling under the third heading are called ‘Nominal Accounts’. The accounts can also be classified as personal and impersonal.

Personal Accounts: Accounts recording transactions with a person or group of persons are known as personal accounts. These accounts are necessary, in particular, to record credit transactions. Personal accounts are of the following types:
(a) Natural persons: An account recording transactions with an individual human being is termed as a natural persons’ personal account. eg., Kamal’s account, Mala’s account, Sharma’s accounts. Both males and females are included in it
(b) Artificial or legal persons: An account recording financial transactions with an artificial person created by law or otherwise is termed as an artificial person, personal account, e.g. Firms’ accounts, limited companies’ accounts, educational institutions’ accounts, Co-operative society account.
(c) Groups/Representative personal Accounts: An account indirectly representing a person or persons is known as representative personal account. When accounts are of a similar nature and their number is large, it is better tot group them under one head and open a representative personal accounts. e.g., prepaid insurance, outstanding salaries, rent, wages etc.
When a person starts a business, he is known as proprietor. This proprietor is represented by capital account for all that he invests in business and by drawings accounts for all that which he withdraws from business. So, capital accounts and drawings account are also personal accounts.
The rule for personal accounts is:
 Debit the receiver
Credit the giver
Real Accounts
Accounts relating to properties or assets are known as ‘Real Accounts’, A separate account is maintained for each asset e.g., Cash Machinery, Building, etc.,
Real accounts can be further classified into tangible and intangible.
(a) Tangible Real Accounts: These accounts represent assets and properties which can be seen, touched, felt, measured, purchased and sold. e.g. Machinery account Cash account, Furniture account, stock account etc.
(b) Intangible Real Accounts: These accounts represent assets and properties which cannot be seen, touched or felt but they can be measured in terms of money. e.g., Goodwill accounts, patents account, Trademarks account, Copyrights account, etc.
The rule for Real accounts is:
Debit what comes in
Credit what goes out
Nominal Accounts
Accounts relating to income, revenue, gain expenses and losses are termed as nominal accounts. These accounts are also known as fictitious accounts as they do not represent any tangible asset. A separate account is maintained for each head or expense or loss and gain or income. Wages account, Rent account Commission account, Interest received account are some examples of nominal account
The rule for Nominal accounts is:
Debit all expenses and losses
Credit all incomes and gains
ACCOUNTING EQUATION
As indicated earlier, every business transaction has two aspects. One aspect is debited other aspect is credited. Both the aspects have to be recorded in accounts appropriately. American Accountants have derived the rules of debit and credit through a ‘novel’ medium, i.e., accounting equation. The equation is as follows:
Assets = Equities
The equation is based on the principle that accounting deals with property and rights to property and the sum of the properties owned is equal to the sum of the rights to the properties. The properties owned by a business are called assets and the rights to properties are known as liabilities or equities of the business. Equities can be subdivided into equity of the owners which is known as capital and equity of creditors who represent the debts of the business know as liabilities. These equities may also be called internal equity and external equity. Internal equity represents the owner’s equity in the assets and external represents he outsider’s interest in the asset. Based on the bifurcation of equity, the accounting equation can be restated as follows:
Assets = Liabilities + Capital
(Or)
Capital = Assets – Liabilities
(Or)
Liabilities = Assets – Capital.
The equation is fundamental in the sense that it gives a foundation to the double entry book-keeping system. This equation holds good for all transaction and events and at all periods of time since every transaction and events has two aspects.
JOURNAL
When the business transactions take place, the first step is to record the same in the books of original entry or subsidiary books or books of prime or journal. Thus journal is a simple book of accounts in which all the business transactions are originally recorded in chronological order and from which they are posted to the ledger accounts at any convenient time. Journalsing refers to the act of recording each transaction in the journal and the form in which it is recorded, is known as a journal entry.
ADVANTAGES OF JOURNAL
The following are the inherent advantages of using journal, though the transactions can also be directly recorded in the respective ledger accounts;
1. As all the transactions are entered in the journal chronologically, a date wise record can easily be maintained;
2. All the necessary information and the required explanations regarding all transactions can be obtained from the journal; and
3. Errors can be easily located and prevented by the use of journal or book of prime entry.
The specimen journal is as follows:
Date                             Particulars         L.F.                              Debit                            Credit
                                                                                                Rs.                               Rs.
1                                  2                      3                                  4                                  5

The journal has five columns, viz. (1) Date; (2) Particulars; (3) Ledger Folio; (4) Amount (Debit); and (5) Amount (Credit)
SUB-DIVISION OF JOURNAL
When innumerable number of transactions takes place, the journal, as the sole book of the original entry becomes inadequate. Thus, the number and the number and type of journals required are determined by the nature of operations and the volume of transactions in a particular business. There are many types of journals and the following are the important ones:
1. Sales Day Book- to record all credit sales.
2. Purchases Day Book- to record all credit purchases.
3. Cash Book- to record all cash transactions of receipts as well as payments.
4. Sales Returns Day Book- to record the return of goods sold to customers on credit.
5. Purchases Returns Day Book- to record the return of goods purchased from suppliers on credit.
6. Bills Receivable Book- to record the details of all the bills received.
7. Bills Payable Book- to record the details of all the bills accepted.
8. Journal Proper-to record all residual transactions which do not find place in any of the aforementioned books of original entry.
LEDGER
Ledger is a main book of account in which various accounts of personal, real and nominal nature, are opened and maintained. In journal, as all the business transactions are recorded chronologically, it is very difficult to obtain all the transactions pertaining to one head of account together at one place. But, the preparation of different ledger accounts helps to get a consolidated picture of the transactions pertaining to one ledger account at a time. Thus, a ledger account may be defined as a summary statement of all the transactions relating to a person, asset, expense, or income or gain or loss which have taken place during a specified period and shows their net effect ultimately. From the above definition, it is clear that when transactions take place, they are first entered in the journal and subsequently posted to the concerned accounts in the ledger. Posting refers to the process of entering in the ledger the information given in the journal. In the past, the ledgers were kept in bound books. But with the passage of time, they became loose-leaf ones and the advantages of the same lie in the removal of completed accounts, insertion of new accounts and arrangement of accounts in any required manner.
Ruling of ledger account
The ruling of a ledger account is as follows:

Dr.                                                                                                                                            Cr.
Date                 Particulars         J.F.      Rs.       Date                 Particulars                     J.F.      Rs.
To name of the                                                  By name of the
account to be credited                                       account to be debited.

Sub-division of ledger
In a big business, the number of accounts is numerous and it is found necessary to maintain a separate ledger for customers, suppliers and for others. Usually, the following three types of ledgers are maintained in such big business concerns.

(i) Debtors’ Ledger: It contains accounts of all customers to whom goods have been sold on credit. From the Sales Day Book, Sales Returns Book and Cash Book, the entries are made in this ledger. This ledger is also known as sales ledger.

(ii) Creditors’ Ledger: It contains accounts of all suppliers from whom goods have been bought on credit. From the Purchases Day Book, Purchases Returns Book and Cash Book, the entries are made in this ledger. This ledger is also known as Purchase Ledger.

(iii) General Ledger: It contains all the residual accounts of real and nominal nature. It is also known as Nominal Ledger.
TRIAL BALANCE
Meaning
Trial balance is a statement prepared with the balances or total of debits and credits of all the accounts in the ledger to test the arithmetical accuracy of the ledger accounts. As the name indicates it is prepared to check the ledger balances. If the total of the debit and credit amount columns of the trail balance are equal, it is assumed that the posting to the ledger in terms of debit and credit amounts is accurate. The agreement of a trail balance ensure arithmetical accuracy only, A concern can prepare trail balance at any time, but its preparation as on the closing date of an accounting year is compulsory.
Definition
According to M.S. Gosav “Trail balance is a statement containing the balances of all ledger accounts, as at any given date, arranged in the form of debit and credit columns placed side by side and prepared with the object of checking the arithmetical accuracy of ledger postings”.
OBJECTIVES OF PREPARING A TRAIL BALANCE
(i) It gives the balances of all the accounts of the ledger. The balance of any account can be found from a glance from the trail balance without going through the pages of the ledger.
(ii) It is a check on the accuracy of posting. If the trail balance agrees, it proves:
(a) That both the aspects of each transaction are recorded and
(b) That the books are arithmetically accurate.
(iii) It facilitates the preparation of profit and loss account and the balance sheet.
(iv) Important conclusions can be derived by comparing the balances of two or more than two years with the help of trail balances of those years.
METHODS OF PREPARING TRAIL BALANCE
A trail balance refers to a list of the ledger balances as on a particular date. It can be prepared in the following manner:
Total Method
According to this method, debit total and credit total of each account of ledger are recorded in the trail balance.
ST’s Books
Trail Balance as on……..
S.No.                      Name of Account                L.F                         Debit Total                            Credit Total
Amount                 Amount
Rs.                                Rs.
Balance Method
According to this method, only balance of each account of ledger is recorded in trail balance. Some accounts may have debit balance and the other may have credit balance. All these debit and credit balances are recorded in it. This method is widely used.
MT’s Books
Trail Balance as on……..
S.No.                      Name of Account                L.F                         Debit                                      Credit
Balance                                 Balance
Rs.                                          Rs.
Note: Accounts of all assets, expenses, losses and drawings are debit balances. Accounts of incomes, gains, liabilities and capital are credit balances.
Trial balance disclosed some of the errors and does not disclosed some other errors. This is given below.
A) Trial Balance disclosed by the Errors
i) Wrong totaling of subsidiary books
ii) Posting of an amount on the wrong side
iii) Omission to post an amount into ledger
iv) Double posting or omission of posting
v) Posting wrong amount
vi) Error in balancing
B) Trail Balance not disclosed by the Errors
i) Error of principle
ii) Error of omission
iii) Errors of Commission
iv) Recording wrong amount in the books of original entry
v) Compensating errors
Account                       Name of the Account                                        Debit                Credit
Code                                                                                                   Amount            Amount
Rs.                   Rs.
Capital Account                                                                                    
Fixed Asset Accounts:
● Land and Buildings                                        
● Plant and Machinery                          
● Equipment                                                    
● Furniture and Fixtures                                    
Current Asset Accounts:
● Cash in Hand                                                
● Cash at Bank                                                
● Accounts Receivables                                   
● Bills Receivable                                             
● Stock of Raw Materials                                  
● Work in progress                                           
● Stock of Finished goods                               
● Purchases                                                     
● Carriage inwards                                            
● Carriage outwards                                         
● Sales                                                                                                
● Sales Returns                                                
● Purchase Returns                                                                              
● Interest paid                                      
● Commission/Discount received                      
● Salaries                                                        
● Long term loan                                                                                  
● Bills Payable                                                                         
● Accounts payable                                                                             
● Outstanding Salaries                                                             
● Prepaid Insurance                                                                              
● Outstanding interest earned                                                   
● Advances from Customers                                                                
● Drawings                                                      
● Reserves and Surplus                                                                        
● Provision for bad and doubtful debts                                     

Total                                                    xxx                               xxx

FOR FULL NOTES CONTACT: 91 77 567 568 

1 comment:

  1. Sir
    Do you give tuitions. I hardly have one month for 1st sem exams. and don't have 3 or 4 materials

    Can you help me out

    ReplyDelete