BUSINESS ACCOUNTING SHORT QUESTION

´   S
SECTION A

´   EXPLAIN THE FOLLOWING

•                   BOOK KEEPING

•                   BRANCHES OF ACCOUNTING

•                   RELATION BETWEEN JOURNAL AND LEDGER

•                   AMORTIZATION

•                   ACCOUNTING STANDARD

•                   FLUCTUATING CAPITAL

•                   PARTNERSHIP DEED

•                   SACRIFICING RATIO

•                   CONTINGENT LIABILITIES

•                   MARSHALING OF BALANCE SHEET

´   SECTION B

´   DEFINE ACCOUNTING. WHICH PARTIES ARE INTERESTED IN ACCOUNTING INFORMATION AND WHY?

´   CAPITAL EXPENDITURE IS DIFFERENT FROM REVENUE EXPENDITURE? EXPLAIN BY GIVING SUITABLE EXAMPLES?

´   EXPLAIN THE METHODS OF DEALING WITH DISCOUNT ON DEBTORS AND CREDITORS? WHY ARE THEY REALLY PROVIDED? HOW DO THEY APPEAR IN BALANCE SHEET?

´   NUMERICAL QUESTION ON RECTIFICATION OF ERRORS

´   SECTION C

´   WHY DEPRECIATION IS CHARGED? EXPLAIN FIXED INSTALLMENT AND DIMINISHING BALANCE METHODS BY TAKING PRACTICAL EXAMPLES?

´   EXPLAIN THE DIFFERENT TYPES OF RESERVES. DISTINGUISH BETWEEN PROVISIONS AND RESERVES?

´   DISCUSS THE TREATMENT OF GOODWILL IN CASE OF ADMISSION OF A NEW PARTNER WITH THE NECESSARY JOURNAL ENTRIES?

´   NUMERICAL QUESTION ON PARTNERSHIP

´   MEANING OF BOOK KEEPING

´   IS THAT BRANCH OF KNOWLEDGE WHICH TELLS US HOW TO KEEP A RECORD OF FINANCIAL TRANSACTIONS.BOOK KEEPING CAN BE SUCH DEFINED AS AN ART AND SCIENCE OF RECORDING BUSINESS TRANSACTIONS INA SYSTEMATIC AND CHRONOLOGICAL ORDER.

´   A.H ROSENKAMPFF,” BOOK KEEPING IS THE ART OF RECORDING BUSINESS TRANSACTIONS IN A SYSTEMATIC MANNER.

´   BOOK KEEPING IS A PART OF ACCOUNTING AND IS CONCERNED WITH RECORD KEEPING OR MAINTENANCE OF BOOKS OF ACCOUNTING WHICH IS OFTEN ROUTINE AND CLERICAL IN NATURE.

´   COVERS THE FOLLOWING:-

´   IDENTIFICATION OF TRANSACTIONS AND EVENTS

´   MEASURED IT IN MONETARY TERM

´   RECORDING

´   CLASSIFYING OF THE RECORDED TRANSACTIONS IN THE LEDGER

´   THE ESSENTIAL LOGIC BEHIND IS THAT CAPACITY OF HUMAN MEMORY IS LIMITED AND SYSTEMATIC RECORD IS REQUIRED TO SHOW THE CORRECT POSITION REGARDING INCOME AND EXPENDITURE,

´   BRANCHES OF ACCOUNTING

´   FINANCIAL ACCOUNTING:-THE ACCOUNTING WHICH LEADS TO PREPRATION OF FINAL ACCOUNT IS CALLED FINANCIAL ACCOUNTING.IT GIVES INFORMATION REGARDING NET PROFIT OR LOSS DURING A GIVEN PERIOD OF TIME AND FINANCIAL POSITION ON PARTICULAR DATE.

´   COST ACCOUNTING:CONCERNED WITH CALSSIFICATION,RECORDING,ALLOCATION AND SUMMARISATION OF CURRENT AND BUDGETED COST. THE AIM IS TO FIND OUT TOTAL COST AS WELL AS PER UNIT COST OF PRODUCT OR SERVICES. IT HELPS IN FIXING THE SALE PRICE AND COST CONTROLLING.

´   MGMT ACCOUNTING:- CONCERNED WITH USING OF DATA PROVIDED BY FINANCIAL ACCOUNTING AND COST ACCOUNTING FOR THE PURPOSE OF DECISION MAKING. IT IS CONCERNED WITH USING ACCOUNTING INFORMATION IN SUCH A WAY TO HELP THE MGMT IN FORMULATION OF POLICY AND DECSION MAKING

´   RELATION BETWEEN JOURNAL AND LEDGER

´   JOURNAL IS A BOOK OF ORIGINAL ENTRY IN WHICH ALL BUSINESS TRANSACTIONS ARE RECORDED SYSTEMATICALLY.

´   LEDGER IS THE PRINCIPLE OR PRIMARY BOOK OF ACCOUNTS WHICH SUPPLIES CONSOLIDATED INFORMATION OF EACH ACCOUNT FOR A GIVEN PERIOD OF TIME AT ONE PLACE.

´   INTER RELATION BETWEEN JOURNAL AND LEDGER

´   SEQUENCE:-RECORDING OF BUSINESS TRANSACTIONS DATE WISE AND POSTING IN THE LEDGER IS NEXT STEP

´   ORDER:-IN JOURNAL WE FOLLOW ORDER OF OCCURRENCE BUT IN LEDGER IT IS ANALYTICAL WHICH MEANS THE TRANSACTIONS BELONGING TO ONE ACCOUNT ARE KEPT AT ONE PLACE

´   SOURCE:-JOURNAL ON STRENGTH OF DOCUMENTARY EVIDENCE KNOWNAS VOUCHERS AND POSTING INTO LEDGER DOES NOT REQUIRE ANY EVIDENCE

´   INTERDEPENDENCE: LEDGER FOLLOW JOURNAL BUT JOURNAL DOES NOT REQUIRE ANY LEDGER

´   RECORDING PROCESS IN JOURNAL IS KNOWN AS JOURNALISING AND IN LEDGER IT IS POTING

´   THE AIM OF JOURNAL IS RECORD AND IDENTIFY THE REAL NATURE(NARRATION) BUT LEDGER PROVIDES SUMMARISED INFORMATION

´   AMORTIZATION

´   THE PROCESS OF WRITING OFF IS INTANGIBLE ASSETS SUCH AS GOODWILL,PATENTS,TRADE MARKSOR LICENSE ETC. WHICH CAN NOT BE SEEN OR TOUCHED IS CALLED AMORTIZATION

´   THESE INTANGIBLE ASSETS HAVE VALUE BASED ON THE RIGHTS AND PRIVILLEGES THOSE BELONG TO OWNER. IT IS AN EXPENSE ACCOUNT AND APPEARS ON THE DEBIT SIDE OF THE INCOME STATEMENT.

´   FLUCTUATING CAPITAL ACCOUNT

´   THE PARTNERSHIP FIRM MAY OPEN THE FLUCTUATING CAPITAL ACCOUNT IF IT IS PROVIDED IN PARTNER SHIP DEED.

´   NO NEED TO OPEN

´   CURRENT ACCOUNT

´   ALL THE TRANSACTION RELATING TO PARTNERS E.G SALARY,FEES,BONUS,COMMISSION,INTEREST ON CAPITAL ,SHARE IN PROFIT,GOODWILL.RESERVE,INTEREST ON DRAWINGS ARE MADE THERE.

´   OPENING AND CLOSING BALANCE DO NOT REMAIN THE SAME

´  FEATURES

´  PERSONAL ACCOUNT OF PARTNERS

´  MAY HAVE DEBIT OR CREDIT BALANCE

´  DR BALANCE IS SHOWN ON THE ASSET SIDE

´  INCREASE IN CAPITAL IS ALWAYS CREDITED

´  DECREASE IN CAPITAL IS ALWAYS debited

´   PARTNERSHIP DEED

´   PARTNERSHIP IS COMMERCIAL RELATION AMONG THE PARTNERS.THERE MUST BE AN AGREEMENT AMONG THE PARTNERS FOR THE PRACTICAL APPLICATION OF THIS RELATIONSHIP. PARTNERSHIP AGREEMENT IS AN INSTRUMENT DRAFTED AND SIGNED BY PARTNERS FOR DEFINING THE VARIOUS RULES AND REGULATIONS OF THE FIRM

´   IT IS NOT REQUIRED UNDER LAWAS IT IS OPTIONAL DOCUMENTS WHICH IS PREPARED BY PARTNERS MUTUALLY. IT DEFINES THE RIGHT,DUTIES AND LIABILITIES OF EACH PARTNER AND IT IS ALSO LEGAL DOCUMENT WHICH HELP IN SETTLING THE DISPUTE WHICH MAY ARISE AMONGST PARTNERS IN FUTURE.

´   IT ALSO GUIDES VARIOUS ISSUES OF ACCOUNTING.IT IS NOT PUBLIC DOCUMENT AND IT PRIMARILY COVERS ALL THOSE MATERIAL POINTS WHICH ARE LIKELY TO ARISE IN THE COURSE OF BUSINESS.

´   MARSHALLING OF BALANCE SHEET

´   A BALANCE SHEET IS PREPARED AT A PARTICULAR POINT OF TIME AND IT DISCLOSES THE TOTAL ASSETS OWNED BY THE ENTITY AND TOTAL CLAIMS OF OUTSIDERS AND OWNERS AGAINST THESE ASSETS.

´   MARSHALLING DENOTES THE SEQUENCE OF ASSETS AND LIABILITIES TO BE SHOWN IN THE BALANCE SHEET. FOR SOLE PROPREITTORSHIP OR PARTNERSHIP NO STATUTORY GUIDELINES FOR MAKING BALANCE SHEET.

´   TWO PROMINENCE METHODS TO PREPARE BALANCE SHEET

•                   PERMANENCE METHOD:-FIXED ASSETS ARE SHOWN AT THE TOP,FOLLOWED BY CURRENT ASSETS. ON THE LIABILITIES SIDE CAPITAL.RESERVE,LONGTERM LIABILITIES AND CURRENT LIBAILITES

•                   LIQUIDITY METHOD:-CURRENT ASSETS AT THE TOP AND THEN FOLLOWED BY FIXED ASSETS AND LIABILITIES SIDE CURRENT LIABILITIES FIRST AND THEN LONG TERM LIABILITIES.

´   SACRIFICING RATIO

´   WHEN A NEW PARTNER COMES INTO BUSINESS OLD PARTNERS HAVE TO GIVE HIM HIS PROFIT SHARE FROM THEIR PORTION. CHANGE IN ROFIT SHARING RATION IS AN IMPORTANT ASPECT TO BE CONSIDERED ON RESTITUTION BY ADMISSION. WHEN THE PROFIT SHARING RATIO IS REVISED AMONG EXISTING PARTNERS,THERE OUGHT TO BE A PARTIAL SACRIFICE OF PROFIT SHARE BY SOME PARTNERS IN FAVOR OF OTHERS. THE SACRIFICE OF OTHER PARTNERS BECOMES GAINING RATIO.

´   SACRIFICING RATIO= OLD RATIO-NEW RATIO

´   CONTINGENT LIABILITIES

´   CONTINGENT MEANS WHICH MAY HAPPEN OR NOT HAPPENED

´   THESE ARE NOT ACTUALLY LIABILITIES BUT THEY MAY BECOME LIABILITY IN FUTURE ON THE HAPPENING OF CERTAIN EVENT. IF IT DOES NOT OCCUR NO LIABILITY IS INCURRED. LIKE DISCOUNTED BILL OF EXCHANGE IF DISHONORED WILL BECOME A LIABILITY.NOT SHOWN IN THE BALANCE SHEET. IT IS MENTIONED IN THE FORM OF FOOTNOTE.

´   ACCOUNTING STANDARDS

´   ARE WRITTEN DOCUMENTS AND POLICIES THAT PROVIDE PRINCIPLES FOR RECOGNITION,MEASUREMENT,TREATMENT,PRESENTATION AND DISCLOSURES OF ACCOUNTING TRANSACTIONS IN THE FINANCIAL STATEMENTS. THESE ARE RECOMMENDED BY THE INSTITUTE OF CHARTERED ACCOUNTANT OF INDIA AND BECOMES APPLICABLE WHEN NOTIFIED BY CENTRAL GOVT.

´   THEY HAVE BEEN INTRODUCED WITH THE OBJECTIVE TO STANDARDIZE ACCOUNTING PRACTICES.PRESENTLY THERE ARE 31 ACCOUNTING STANDARDS IN FORCE.