Book Principles of Accounting

For Professional BBA Students ( Principles of Finance) of all universities and Colleges.
Principles of Accounting
Questions & Solutions
Written by-
Mohammad Salim Hossain

B.Com(Hons),M.Com(Accounting), MBA major in Finance(BOU) Assistant Professor & Head, Department of Business Administration Model Institute of Science & Technology (MIST), Gazipur. Examiner of National University (BBA & MBA Program)
Prominance Publications 16, Banglabazar, Dhaka-1205
Bangladesh Published By: Hussain Trakikul Azam Prominance Publications

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DEDICATED TO -
ALLAH
Preface to First Edition

Bismillahir Rahmanir Rahim.
Alhamdulilah. I have great pleasure in placing the book "Principles of Finance" for students of BBA(Hons). and other professionals. Finance is undergoing a renaissance in response to technological changes, globalization and growing risk management concerns. In these challenging times, Principles of Finance will be helpful to make tactical decision in business concern, from this point of view I have just written this book. The Primary objective of this book is to provide the basic concepts and applications of Principles of Finance to the needs of students appearing in the examinations of BBA (Hons), & professional examinations. Most of the information is collected from website and questions of different years in National university. I have tried my best to make this book in a simple language, most systematic manner and free from errors and omission. I will be grateful if the mistakes and deficiencies are pointed out to me by the readers. Constructive criticisms and suggestions for improvement are most welcome.
Mohammad Salim Hossain E-mail: salimmist@yahoo.com Mobile: 01711-385824
Detailed Syllabus First Year / First Semester 1102 PRINCIPLES OF ACCOUNTING
1. Introduction: What is accounting? Building Blocks of Accounting Ethics, Assumptions, Equations, Transaction Analysis, Financial Statements. 2. Recording Process: The Accounts, Steps in the Recording Process, Journal, Ledger, Trial Balance. 3. Adjustment Process: Timing Issues, Basics :of Adjusting Entries, Adjusted Trial Balance and Financial Statements, Alternative Treatment of prepaid Expenses and Unearned Revenues. 4. Completion of Accounting Cycle: Using a Work sheet. Closing the Books, Reversing Entries and Correcting Entries, Classified Balance Sheet. 5. Accounting for Merchandising Operations: Merchandising Operations, Recording Purchases of Merchandise, Recording Sales of Merchandise, Completing Accounting Cycle, Forms of Financial Statements - Multiple and Single Step Income Statement -Classified Balance Sheet, Work Sheet of a Merchandiser. 6. Inventories: Inventory Basics, Periodic Inventory System, Inventory Costing Under a Periodic Inventory System, LCM, Inventory Errors, Statement Presentation and Analysis, LIFO, FIFO, Average cost Method.
7.
Accounting Information Systems: Basic Concepts of Accounting Information Systems, Subsidiary Ledgers, Special Journals. 8. Internal Control and Cash: Internal Control, Cash Control, Use of a Bank, Reporting Cash. Book Recommended 1. J J Weygandt, D E Keiso, and P D Kimmel, Accounting Principle, 8th Edition, Wiley and Sons, Inc.
Contents
SL.NO. 1. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Name of Question & solution Pages Suggestions BBA Question & Solution -2004 BBA Question & Solution -2005 BBA Question & Solution -2006 BBA Question & Solution -2007 BBA Question & Solution -2008 BBA Question & Solution -2009 BBA Question & Solution -2010 BBA Question & Solution -2011 BBA Question & Solution -2012 Chapter wise theory Exercise
BBA-1102 Chapter wise Theory suggestions Principles of Accounting 1. Introduction 1. Define accounting? 2009,2008,2007,2011 What is the importance of accounting in business? 2010 Distinguish between bookkeeping and accounting. 2. Who are the users of accounting information? 2009,2008 3. What is GAAP?2007 Discuss various important principles. 4. Describe four accounting principles with example. 5. Discuss the ethical issues of accounting. 6. Accounting is a very responsible profession- explain. 7. What is the basic accounting equation?2008,2007 Discuss the elements of accounting equation. 2010 8. What items affect owners equity?2008, 2007 What is owners equity? Discuss the elements of owners equity. 9. Define the terms of assets liabilities and owners equity.2007 10. Briefly describe four assumptions that underlie the financial accounting structure.2010 11. State two generally accepted accounting principles that relate to adjusting the accounts.2009 12. Why is ethics a fundamental business concept?2007 13.Explain the monetary unit and economic entity assumptions.2007 14.The primary purpose of accounting is to produce information that is useful in making investment and credit decisions Explain.2004 15.Describe the two main qualitative characteristics of useful financial information? Explain.2004 16. Discuss the image of accounting.2011 17. What are the essential characteristics of an event to be a transaction? 2011 18. Define accounting cycle. Mention the various phases of accounting cycle. 2011 19. Discuss any five concepts and conventions. 2011 20. Accounting is ingrained in our society and it is vital to our economic
system. Do you agree? Explain. 2. The Recording Process 1.What are the basic steps in the recording process? 2.What are the golden rules of double entry system? 2011 3.What is accounting cycle? 2007State the steps of accounting cycle.2010 4.What is journal? What are the advantages of using a journal in the recording process? 5.What is Posting? What is Trial Balance. What are the limitation of a trail balance? 2007 6. Depreciation is the allocation of cost Do you agree? Why? 2009 7. What is the purpose of an adjusted trial balance? How is an adjusted trail balance prepared?2004 3. The Adjustment Process 1.What is adjusting entries?2011 What are the purposes of adjusting entries? 2.State two generally accepted accounting principles that relate to adjusting the accounting.? 3.What is closing entries? 4.What is income statement? Mention its uses? 5.Explain the terms fiscal year, calendar year and interim periods. 6.Why does the accrual basis financial statements provide more useful information than that of the cash basis financial statement? 2004 7. What are the different type of adjusting entries? Explain with examples.2010,2008,2007 8. Distinguish between cash basis and accrual basis of accounting. 2009,2008,2007 9. State the rules regarding the adjustment of Adjustment entries 2011 10. Distinguish between a reversing entry and an adjusting entry. Are reversing entry required? 4. Completion of Accounting Cycle (Work Sheet) 1.What is work sheet? What are the objects of preparing work sheet? 2004 Is it mandatory in accounting? 2008 2. What is post closing trial balance? What is reversing entries ? 3. Distinguish between reversing entry and adjusting entry. 4. What is closing entries? Discuss in brief the closing process of
temporary accounts.2010 5.Is worksheet a part of accounting cycle? Explain the purpose of worksheet.2009 6. What are the entries an organization needs to prepare for closing its books of accounts at the end of each accounting period? 2009 7. What are the content and purpose of a post closing trail balance? 2011 8.What is retain earning statement? Why it is prepare? 2011 5. Accounting for Merchandising Operations 1 What is income statement? Mention its classes. 2 What do you mean by financial statements? 3 What is cash flow statement? Discuss its importance. 4 How does the Single-step form of income statement differ form the multi-step form? 5 What is a classified Balance sheet? Discuss the different categories of assets according to classified balance sheet. 2010,2008 6 What is periodic Inventory system? Mention its various advantages. 7 What is perpetual inventory system? Mention its various advantages. 8 Distinguish between perpetual and periodic inventory method. 9 Define FOB shipping point, FOB destination and Contra revenue accounts.2010 10 Describe the different systems to account for merchandise inventory. 2010 11 Why the merchandise inventory account is usually required to adjust at end of the year? Explain.2009 12 Explain the meaning of the credit terms i) 2/10,n/30,( ii) 1/10, EOM, (iii) n/30. 2009, 2007 13 What are the main difference between accounting for merchandise operations and accounting for service oriented organization?2004 6. Inventories 1. What are some of the reasons that may cause management to use gross profit method and retail method of estimating inventory?2009 2.Discuss the importance of inventory valuation.2099 3.What are the methods of issuing materials? When and Why we will use LIFO or FIFO method? 2009 4. How would you determine inventory quantities? 2011 7. Accounting Information Systems
1.What is an accounting information system? 2011 2.What is subsidiary ledger? Discuss the nature and advantages of subsidiary ledger.2010,2008 3.Distinguish between mechanized accounting system and manual accounting system. 4.What is special Journal? Mention its classes and uses. 5.What is subsidiary and General ledger? 6. Describe the two constraints inherent in the presentation of accounting information.2004 7. An Accounting information system applies only to a manual system Do you agree? Explain. 2011 8. Internal Control and Cash 1. Discuss the principles of internal control used generally by business organization.2010 2. What is reconciliation of bank accounts? Why reconciliation is required?2010 3. What is internal control? Briefly explain the principles of effective internal control?2008
B.B.A PART-1 (1ST SEMESTER) EXAMINATION, 2004 1102 PRINCIPLES OF ACCOUNTING Time3 hours Full marks60 [N.B.The figures in the right margin indicate full marks. Answer FOUR questions from part A and FOUR questions from part B.] Part A Marks 1."The primary purpose of accounting is to produce information that is useful in making investment and credit decisions." Explain. 5 2. (a) Why do accrual basis financial statements provide more useful information than cash basis statements? 2.5 (b) What is the purpose of an adjusted trial balance? How is an adjusted trial balance prepared? 3.What is work sheet? Discuss its uses. 4.What are the two main qualitative characteristics of useful financial information? Explain. 5.Describe the two constraints inherent in the presentation of accounting information. 6.What are the main differences between accounting for merchandising operations and accounting for service oriented organization? 5 5 5 2.5 5
Part B Marks 7.The unadjusted trial balance of 31st December, 2004 is given below : 10 Jaba and Company Unadjusted Trial Balance As at 31st December, 2004 Particulars Cash Accounts Receivable Prepaid Insurance Supplies Equipment Accounts Payable Unearned Revenue Jaba's Capital Jaba's Drawings Commission Revenue Utility Expenses Salaries Expenses Debit Taka 20,000 5,000 3,000 4,000 25,000 10,000 6,500 19,000 1,500 30,000 600 6,400 65,500 Credit Taka
65,500
Other Information: Supplies on hand at the end of the period Tk. 2800 Prepaid insurance of Tk. 1,500 expired during the year. Commission revenue earned but not received Tk. 5,000. Salaries accrued amounting to Tk. 1,600. Depreciation is to be charged on equipment @ 10%. Required: Prepare adjusting entries for December 31, 2004. (ii) Prepare adjusted Trial Balance. (iii) Prepare necessary closing entries.
Marks 8. (a) Presented below the component of Nitu Company's 5 Income Statement. Determine the missing figures: Condition-1 Condition-2 Condition-3 Sales 1, 50,000 2, 00,000 ? Cost of goods sold ? 1, 25,000 95,000 Gross profit 90,000 ? 80,000 Operating Expense ? 46,000 Net Income 27,000 31,000 ? (b) Information relating to Samsu and Co. is presented 5 below : May 2 Purchased Merchandise from Sajib and Co. for Tk. 50,000, terms 2/10, n/30, FOB Shipping Point. 5 Paid freight cost of Tk. 5,000 on merchandise purchased from Sajib and Co. 9 Purchased office equipment on account for Tk. 70,000. 12 Returned merchandise to Sajib and Co. and granted an allowance for Tk. 4,000. 12 Paid amount due to Sajib and Co. 30 Received full amount from data and Co. Required:Prepare Journal Entries to record the transactions on the books of Samsu and Co. Under periodic and perpetual inventory system. 9. The year ended Trial Balance for Ronzu Wholesale company presented below:Ronzu Wholesale Company Trial Balance December 31, 2004 Particulars Debit Taka Credit Taka
Cash Account receivable Merchandise inventory Office supplies Office equipment Accumulated depreciation Office Equipment Prepaid rent Notes payable Ronzus Capital Ronzus drawings Sales Sales discount Purchase Purchase return and allowance Salaries expenses Rent expenses Insurance expenses Freight out Heating and lighting General reserve
20,000 50,000 15,000 9,000 60,000 15,000 4,000 35,000 70,000 3,500 1,70,000 15,000 1,00,000 12,000 18,000 9,000 4,500 2,500 3,500 12,000 3,14,000 3,14,000
Adjustment data:1. Merchandise inventory actually on hand Tk. 30,000. 2. Expired rent Tk. 2,200 3. Depreciation on office equipment @ 10% per annum 4. Uncollectible account expense of Tk. 1,000 is to be written off 5. Outstanding salaries of Tk. 1,500 for the period. 6. Office supplies on hand Tk. 4,500. Other Data:Salaries expense is 70% selling and 30% administration Required: - Prepare a multiple step income statement, owners equity statement and a classified balance sheet as of December 31, 2004
10. The following information available with a trial balance of Panna Fashion House:Panna Fashion House Trial Balance December 31, 2004 Particulars Cash Accounts receivable Merchandise inventory Supplies Prepaid Insurance Buildings Equipment Accumulated Depreciation Equipment Accounts payable Pannas Capital Pannas Drawings Sales Sales return and allowances Purchases Purchase discount Salaries expense Repair expense Gas and oil expense Miscellaneous expense Freight in Debit Taka 20,000 60,000 2,50,000 70,000 22,000 80,000 78,000 8,000 47,500 5,00,000 3,000 2,90,000 15,000 1,45,000 14,500 33,000 9,000 16,000 20,000 12,000 8,60,000 Credit Taka
8,60,000
Other information:By a physical investigation it is found that supplies was Tk. 30,000 at the end of the period Merchandise inventory was Tk. 2, 40,000 of end of the period. Panna withdrew merchandise of Tk. 15,500 for personal use. Expired insurance during the year Tk. 10,000.
Estimated depreciation on equipment of Tk.7, 000. Unpaid salaries were Tk.5, 000. Required: - Prepare a ten column work sheet Marks 11. On May 31, 2004, Prime Enterprise Limited had a cash 10 balance per books of Tk. 6,781.50. The bank statement on that date showed a balance of Tk. 8,679:60. A comparison of the bank statement with the cash account revealed the following facts: The statement included a debit memo of Tk.30 for bank charges. b)An amount of Tk.836.15 was deposited in the bank on May 12. The cash book incorrectly recorded the amount as Tk.846.15. However, the bank statement shows the correct amount. (c)Outstanding checks at May 31 totaled Tk. 1,276.25 Deposits in transit were Tk.1, 936.15. (d)The company issued a check for Tk.685 to Timberland Ltd. The check duly cleared the bank in May but it was incorrectly recorded in the cash book for Tk.658. The bank collected a Tk.3, 000 note receivable for the company on May 31 along with a Tk.80 interest. The bank charged a collection fee of Tk.20. f).Prime's customers directly paid Tk.600 into this bank account. g).On May 31 the bank statement showed an NSF charge of Tk.700 for a check issued by John Lewis, a customer to Prime Enterprise. (h) May interest credited to Prime Enterprise's account Tk.65. (i) During May, the bank paid a total of Tk.400 as direct debits to Prime's utility providers (i.e., electricity, telephone, etc.). Required: A Bank Reconciliation Statement for Prime Enterprise Limited at May 31, 2004
12. The unadjusted Trial Balance of tower Holdings Ltd. At December 31, 2004 was as:Tower Holdings Ltd. Trial Balance December 31, 2004 Accounts items Debit Credit Taka Taka Cash 25,400 Accounts receivable 37,600 Merchandise inventory 90,000 Prepaid insurance 1,600 Investments 5,000 Land 2,76,000 Preliminary expenses 4,000 Buildings 1,97,000 Accumulated depreciation 84,000 Buildings equipment 83,500 Accumulated depreciation equipment 52,400 Notes payable 50,000 Accounts payable 37,500 Taxes payable 17,000 Bank loan 80,000 Tower holdings Ltd. Capital 2,60,500 Tower holdings Ltd. Drawings 4,600 Sales 9,93,825 Sales discount 4,100 Cost of goods sold 7,09,000 Salaries expense 69,000
Utilities expense Repair expense Gas and oil expense Insurance expense Advertisement expense Interest expense Supplier Traveling expense Interest on investments
19,000 6,000 7,000 3,500 15,000 46,000 7,500 1,500 175 15,70,900 15,70,900
Adjustment data:The investment carry and annual interest rate of 7 percent. Interest for the second half of 2004 has not been received. Preliminary expenses are being written off in 5 years. It has already been written off for last three years. That is, the balance must be written off in 2years. The bank loan was obtained on 1 July 2004. It carries an interest rate of 15 percent. The interest expense recognized in the trial balance exclusively relates to this loan. Depreciation for the year is Tk.15, 000 on buildings and Tk.12, 000 on equipment. Interest of Tk.2, 000 is due and unpaid on notes payable at December 31. Salaries accrued but unpaid Tk.3,000 Utilities bill received after pre-paring the trial balance Tk.1, 200 (the amount is still unpaid). Provision for bad and doubtful debts 3 percent of accounts receivable. Supplies in hand Tk.2, 500. Required:a. Pass necessary journal entries to record the above adjustments. b. Prepare and Adjusted Trial Balance. BBA-2004 Part-B Ans. to the question No:7
Req: (i) Adjusting entries Date Explanation
Jaba and Company Ref. Dr (Tk) 1,200 1,200 1,500 1,500 5,000 5,000 1,600 1,600 2,500 2,500 Cr (Tk)
Dec.31 Supplies exp. Supplies(4,000-2,800) [To record supplies exp.] Dec 31 Insurance exp. Pre Paid insurance [To record insurance exp.] Dec 31 Accounts Receivable Commission Revenue [To record commission Revenue] Dec 31 Salaries exp. Salaries Payable [To record unpaid salaries] Dec 31 Dep. exp.-Equipment Accumulated dep.-Equipment ( 25000 10% ) [To record depreciation exp.]
Req: (ii) Jaba and Company Adjusted Trial Blance As at Dec.31. 2004 SL.No. Accounts Title Ref 1 Cash 2 Accounts 3 Receivable(5000+5000) 4 Commission 5 Revenue(30000+5000) 6 Pre Paid insurance(3000-1500) 7 Insurance exp. 8 Supplies(4000-1200) 9 Supplies exp. 10 Equipment 11 Accounts Payable 12 Unearned Revenue 13 Jubas Capital 14 Jubas Drawings 15 Utilities exp. 16 Salaries exp.(6400+1600) 17 Salaries Payable Depreciation exp.-Equipment Accumulated dep.-Equipment
Dr. (Tk.) Cr (Tk.) 20,000 10,000 3,5000 1,500 1,500 2,800 1,200 25,000 10,000 6,500 19,000 1,500 600 8,000 1,600 2,500 2,500 74,600 74,600
Req (iii) Closing entries Date Dec.3 1 Explanation
Jaba and Company Ref. Dr (Tk) 13,800 1,500 1,200 600 8,000 2,500 35,000 35,00 0 1,500 1,500 21,200 21,20 0 Cr (Tk)
Dec 31 Dec 31
Dec 31
Income summary Insurance exp. Supplies exp. Utilities exp. Salaries exp Dep. exp.-Equipment [To close all exp.] Commission Revenue Income summary [To close commission revenue] Jubas Capital Jubas Drawings [To close Drawings] Income summary Jubas capital [To close net income]
Ans. to the quest No: 8 (a) Nitu Company Cal. Of the Missing figures Income Statement Explanation Condition-1 Sales 1,50,000 Less. cost of goods sold 60,000 Gross Profit 90,000 Operating exp. 63,000 Net income 27,000
Condition-2 2,00,000 1,25,000 75,000 44,000 31,000
Condidtion-3 1,75,000 95,000 80,000 46,000 34,000
8.(b) (Periodic system) Date May 2 2 9
In the book of Samsu and co. Journal entries Explanation purchase Accounts payable [Purchase merchandise inventory on account] Freight in Cash [Paid freight on shipping point terms] Office Equipment Accounts payable [Purchase office equipment on account] Accounts payable Purchase return and allowance [Merchandise inventory return to Sajib] Accounts payable Cash Purchase discount ( 46,000 2% ) [Paid to Sajib and Co. Within discount period] Cash Accounts Receivable [Cash received from Lata and Co.] Ref. Dr (Tk) 50,000 Cr (Tk) 50,000 5,000 5,000 70,000 70,000 4,000 4,000
12
12
46,000 45,080 920
30
Journal entries (Perpetual system) Date May 2 5 9 Explanation Merchandise Inventory Accounts payable [Purchase merchandise inventory on account] Merchandise Inventory Cash [Paid freight] Office Equipment Accounts payable [Purchase office equipment on account] Accounts payable Merchandise Inventory [Merchandise inventory return to Sajib] Accounts payable Cash Merchandise Inventory [Paid to Sajib and Co.with in discount period] Cash Accounts Receivable [Cash received from Lata and Co.] Ref. Dr (Tk) 50,000 5,000 5,000 70,000 70,000 4,000 4,000 46,000 45,080 920 Cr (Tk) 50,000
12
12
30
Ans. to the question No: 9 Workings: Net Sales: Sales 1,70,000 Less. sales discount 15,000 1,55,000 Net Purchase: Purchase 1,00,000 Less. purchase return 12,000 88,000 3) Cost of goods sold: Opening inventory Add. Net Purchase 15,000 88,000 1,03,000 Less. Ending inventory 30,000 73,000
4) Dep. Of office equipment = ( 60,000 10% ) = 6,000
Ronzu Wholesale Company Income Statement For the year ended 31 Dec. 2004 Explanation Net sales(W-1) Less: Cost of goods sold (W-3) Gross Profit Operating exp: Selling exp. Salaries exp. (18,000 70% ) = (12,600 + 1050) Rent exp. ( 9,000 + 2200 ) Freight out Bad debts exp. Administrative exp. Salaries exp. (18,000 30% ) = ( 5,400 + 450 ) Insurance exp. Heating and Lighting Dep. exp.-Office equipment Office supplies exp. Net income
Tk. 1,55,000 73,000
Tk. 82,000
13,650 11,200 2,500 1,000 5,850 4,500 3,500 6,000 4,500 52,700 29,300
Ronzu Wholesale Company Owners Equity Statement For the year ended 31 Dec. 2004 Explanation Ronzus Capital Add: Net income Less: Ronzus Drawings
Tk. 70,000 ____29,300__ _ 99,300 ____3,500__ __ 95,800 ============
Ronzu Wholesale Company Balance Sheet As at 31 Dec. 2004 Explanation Assets: Current assets: Cash Accounts Receivable (50,000-1000) Office supplies (9,000 4,500) Prepaid rent (4,000- 2,200) Ending inventory Fixed assets: Office equipment 60,000 Less. Accumulated Dep.(15,000 + 6,000) 21,000 Liabilities and O.E Current Liabilities Notes payable Salaries payable Owners equity
Tk.
Tk.
20,000 49,000 4,500 1,800 30,000
39,000 1,44,300 35,000 1,500 95,800
Others liability General Reserve
12,000
1,44,300
Ans. to the que. No. 10 Workings: Adjusting Supplies exp. 40,000 Supplies 40,000 (70,000-30,000) (ii) Ending inventory 2,40,000 Income summary 2,40,000 Income summary 2,50,000 Opening inventory 2,50,000 (iii) Pana;s withdraws 15,500 Purchase 15,500 (iv) Insurance exp. 10,000 Prepaid insurance 10,000 (v) Dep. exp.-equipment 7,000 Accumulated dep.-equipment 7,000 (vi) Salaries exp. 5,000 Salaries payable 5,000
Ans. to the question no: 10 Panna Fashion Worksheet Dec. 31, 2004 Accounts Titles Cash Accounts receivable Merch. Inventory Supplies Prepaid insurance Buildings Equipment Acc.Depequipment Accounts payable Pannas Capital Trial Balance Dr. (Tk) 20000 60000 25000 0 70000 22000 80000 78000 8000 47500 50000 0 7000 Cr. (Tk) Adjustments Dr. (Tk) 100 Cr. (Tk) Adjusted T/B Dr.(Tk) 20000 60000 25000 0 40000 10000 Cr.(Tk) Income Statement Dr. Cr. (Tk) (Tk) Balance Sheet Dr. (Tk) 20000 60000 Cr. (Tk)
30000 12000 80000 78000 15000 47500 500000
30000 12000 80000 78000 15000 47500 50000 0
Pannas Drawings Sales Sales return & allowance Purchase Purchase discount Salaries exp. Repair exp. Gas & oil exp. Miscellaneo us exp. Freight in Supplies exp. Income summary Ending inventory Insurance
30000 29000 0 15000 14500 0 14500 33000 9000 16000 20000 12000
15500
45500 290000 15000 15500 129500 14500 15000 12950 0 14500 38000 9000 16000 20000 12000 40000 240000 25000 0 10000 24000 0 29000 0
45500
5000
38000 9000 16000 20000
40000 25000 0 24000 0 10000 24000 0
12000 40000 250000 240000 10000
24000 0
exp. Dep.exp.equipment Salaries payable Net loss Total
7000 5000
7000 5000 111200 0 111200 0
7000 5000 2000 54650 0 54650 0 2000 56750 0 56750 0
Ans. To the question no: 12 Tower Holdings Ltd. Adjusting entries Date Explanation Ref. 2004 Interest Receivable Dec.31 Interest Revenue [To record interest revenue] 31 Amortization of preliminary exp. Preliminary exp. [To record written off preliminary 31 exp.] Interest exp. Interest payable (6,000 4,600)
6 80,000 15% 12
Debit Tk. 175 2,000
Credit Tk. 175 2,000
1,400 1,400
31
[To record unpaid interest] Dep. exp.- Building Accumulated dep.-Building Dep. exp.- Equipment Accumulated dep.- Equipment [To record depreciation on Building & Equipment] Interest exp. Interest payable [To record unpaid interest] Salaries exp. Salaries payable [To record unpaid salaries] Utilities exp. Utilities payable [To record unpaid utilities] Bad debts exp. Allowance for doubtful a/c [To record bad debts exp.]
15,00 0 12,00 0
15,000 12,000
31 31 31 31 31
2,000 3,000 1,200 1,128
2,000 3,000 1,200 1,128
Supplies exp. Supplies (7,500 2,500) [To record supplies exp.] Tower Holdings Ltd. Adjusted trial Balance Dec.31, 2004 SL.No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 Accounts title Cash Accounts Receivable Merchandise inventory Prepaid insurance Investment Land Preliminary exp.(4,000 2,000) Amortization preliminary exp. Building Acc. Dep.-Building (84,000+15,000) Depreciation exp.-Building Equipment Depreciation exp.- Equipment Acc. Dep.- Equipment (52,400+12,000) Notes Payable Accounts Payable Tax Payable Bank loan Tower Holding Ltd.- Capital Tower Holding Ltd.- Drawings Sales Sales discount Cost of goods sold Salaries exp.(69,000+9,000) Salaries Payable Ref.
5,000 5,000
Debit Tk. 25400 37600 90000 1600 5000 276000 2000 2000 197000 15000 83500 12000
Credit Tk.
99000
64400 50000 37500 17000 80000 260500 4600 993825 4100 709000 72000 3000 20200 1200
28 29 30 31 32 33 34 35 36 37 38 39 40 41
Utilities exp. (19,000+1,200) Utilities Payable Repair exp. Gas & Oil exp. Insurance exp. Advertising exp. Interest exp. (4,600+3,400) Interest Payable Supplies exp. Supplies (7,500 - 5,000) Traveling exp. Interest Receivable Interest Revenue(175+175) Bad debts exp. Allowance for doubtful a/c Difference in trial balance/Suspense a/c
6000 7000 3500 15000 8000 3400 5000 2500 1500 175 350 1128 1128 4500 16,11,303 16,11,303
B.B.A PART-I (FIRST SEMESTER) EXAMINATION,2005 PRINCIPLE PF ACCOUNTING 1102
Time-3 hours Full marks-70 [N.B.-Figures in the right margin indicate full marks. Answer all questions from part-A, two question from part B and four questions from part-C] Part-A Marks 1 10 = 10 (Answer all questions) (i) The document that is prepared to authorize payment for all acquisitions of goods or services by a company is calleda purchase requisition a purchase order credit note a voucher (ii) Depreciation is one kind of(a) allocation (b) revaluation (c) replacement (d) appreciation (iii) Accounting principles(a) are universally and eternally true (b) often change to meet the needs of emerging and changing financial conditions (c) are passed by the Supreme Court (d) are a part of national constitution (iv) The Balance Sheet revealsthe financial position of an organization over a period of time the fair market value of assets and liabilities the financial position of an organization at a specific point of time the profitability of organization at a point of time (v) Fixed assets are recorded according to which accounting principle? Full disclosure Current markets price Historical cost Conservatism (vi) Which of the following transaction will affect one side of the accounting equation? Purchase of inventory in cash Payments of accounts payable
Borrow from a bank Additional investment by the owners (vii) Accounts that normally have debit balances areAssets, expenses and revenue Assets, expenses and owners equity Assets, expenses and losses Assets, liabilities and revenues (viii) Adjustments of un-earned service revenue to service revenuehave an assets and revenues account relationship increase assets and increase revenues decrease liabilities and increase revenues decrease liabilities and decrease revenues (ix) Sales discount are recordedat the time of the sale when the receivable is collected period to the end of the discount period when the receivable is collected after the discount period at the time of the month-end closing entry (x) Which of the following would not be included in ending inventory? Goods in transit purchased FOB shipping point Goods in on consignment Goods in transit sold FOB destination Goods out on consignment. Part-B Marks (a) Identify and describe the steps in the accounting process. 3 (b) Why accounting is called the language of business? 3 (c) Accounting is ingrained in our society and it is vital to our economic 4 system. Do you agree? Explain. (a) What is basic accounting equation? What are the elements of an 2 accounting equation? (b) Mr. Rahman opened a law office. Mr. Rahman, Attorney at law on July 31, the balance sheet showed cash Tk. 8,000, Accounts Receivable Tk.3,000, Supplies Tk. 1,000 , Office Equipment Tk. 10,000, Accounts Payable Tk. 8,400 and Mr. Rahman, Capital Tk. 13,600. During August the following transactions occurred:(i) Collected Tk.2,800 of accounts receivable. (ii) Paid Tk.5,400 cash on accounts payable. (iii) Earned revenues of Tk.15,000 of which Tk.6,000 is collected
in cash and the balance is due in September. (iv) Purchase additional office equipment for Tk.2,000; paying Tk.800 in cash and the balance on account. Paid salaries Tk. 6,000; rent Tk. 1,800 and advertising expenses Tk.700 Withdrew Tk.1,100 in cash for personal use. Received Tk.4,000 from Standard bank-money borrowed on a notes payable. Incurred utility expenses for month on account Tk.500. 8 Required:Prepare a tabular analysis of the August transactions beginning with July 31 balances. The column heading should be as fallows: Cash + Accounts Receivable + Supplies + Office Equipment = Accounts Payable + Notes Payable + Mr. Rahman, Capital
(a) An adjusting entry may affect more than one balance sheet or income statement. Do you agree? Why or why not? (b) Radison company started his own consulting firm. Radison company. on June 1, 2005. The Trial balance at June 30 is as follows:Radison Company Trial Balance June 30, 2005 Particulars Debit Credit Taka taka Cash 7,150 Accounts receivable 6,000 Prepaid Insurance 3,000 Supplies 2,000 Office Equipment 15,000 Accounts Payable 4,500 Unearned Service Revenue 4,000 Radison, Capital 21,750 Service Revenue 7,900 Salaries expenses 4,000 Rent expenses 1,000 38,150 38,150 Others data:Supplies on hand at June 30, are Tk. 1,100. A utility bill for Tk. 300 has not been recorded and will not be paid until next month. The insurance policy is for a year. Tk. 2,500 of unearned service revenue has been earned at the end of the month. Salaries of Tk. 1,500 are accrued. The office equipment has a 5 years life no salvage value. It is being depreciation at Tk. 250 per month for 60months Invoices responding Tk. 2,000 of services performed during the month have not been recorded as of June 30. Required:Prepared the adjusting entries for the month of June. 3
5
Prepared an adjusted trial balance at June 30. 2005. Part-C 5. The October Bank Statement for Lockheed Company indicates a balance on October 31 of Tk. 6942.14. On other hand in the books of Lockheed Company the balance is Tk. 4,811.82. Upon comparing the statement with cash records, the following facts were developed:A deposit in the amount of Tk. 552.00 was mailed to the bank on October 31 and has not yet been recorded by the bank. Five checks issued in October or prior months have not yet been paid by the bank, as follows:
Check No. 551 576 Oct 30 578 Oct 31 579 Oct 31 580 Oct 31 Date Amount Sep 14 300.00 81.36 1,000.00 740.00 261.00
The deposit for cash sales of October 6 was incorrectly recorded in Lockheed Companys records as Tk. 650.00. The bank correctly recorded the deposit as Tk. 600.00. Among the returned checks was a credit memorandum showing that the bank had collected a promissory note from A. Jacobs in the amount of Tk. 560.00 plus Tk. 40.00 in interest on the note. A
Debit memorandum was also enclosed for the Tk. 10.00 collection fee. No entry had been made on Lockheed Companys records. Also returned with the bank statement was NSF check for Tk. 256.28. This check had been received from a customer named Arthur. The NSF check from Arthur was not reflected in the companys accounting records. A debit memorandum was enclosed for the regular monthly service change of Tk. 25.00. This charge was not yet recorded by Lockheed Company. Interest earned by the company on the average balance was reported as Tk. 51.24. Required:(i) Construct a bank reconciliation statement as an October 31. (ii) Give the journal entries required. 6.(a) A work sheet is a permanent accounting record and its use is required in the accounting cycle. Do you agree? Explain. (b) ABC Electric Constructing Company has the following trial balance as of August 31, 2005:ABC Electric Constructing Company Trial balance August 31, 2005 Particulars Debit Credit Taka Taka Cash 10,800 Accounts Receivable 5,600 Prepaid Insurance 4,800 Store Supplies 2,600 Equipment 1,20,000 Accounts payable 4,800 Notes payable 70,000 Capital 60,000 Drawing 2,000 Service Revenue 19,800 Salaries expenses 6,400 Utilities expense 1,600 Advertising expenses 800 1,54,600 1,54,600
Others data consists of the following:(i) Insurance expired at the rate of Tk. 400. (ii) There are Tk. 2,000 supplies on hand at August 31. (iii) Monthly depreciation on the notes equipment Tk. 1,800. Interest of Tk. 1,000 on the notes payable has accrued during August. Salaries accrued but not paid Tk. 600. Required:8 Enter the trial balance on a work sheet and complete the work sheet. 7. Students Book Housing distributes books to retail stores and extends credit terms of 3/10, n/30 to all its customers. At the end of June, Students inventory consisted of 250 books purchased at Tk. 2,000. During the month of July the following merchandising transactions occurred:July 1 Purchased 160 books on account for Tk. 7 each from Chowdhury Publishers, FOB destination, terms 2/10, n/30. The appropriate party also made cash payment of Tk. 200 for the freight on this data. 3 sold 120 books from beginning inventory on account to Mallik Brothers for Tk. 1,200. 6 10 books returned to Chowdhury Publishers. 9 Paid Chowdhury Publishers in full. 15 Received payment in full from Mallik Brothers. 17 Sold 120 books from July 1 purchase on account to Mokarrram Book House for Tk. 9 each. 18 Purchased 110 books on account for Tk 6 each from Angle Publishers, FOB shipping point, terms 1/10, n/30. The appropriate party also made cash payment of Tk 150 for the freight on this date. 20 Granted Mokarram Book House Tk 90 credit for 10 books returned. 24 Received payment in full from Mokarram Book House. 31 Paid Angle Publishers in full. You are required to pass the Journal Entries for the month of July for Students Book House using perpetual inventory system. 10 8. Following is the trial balance of Mr. Chowdhury Enterprise as at December 31, 2005:Mr. Chowdhury Enterprise Trial Balance as at December 31, 2005
Accounts TitleDebit Amount Credit Amount Taka Accounts Receivable 30,000.00 Cash 37,500.00 Accounts payable 20,000.00 Capital 1,00,000.00 Machinery 60,000.00 Purchases 50,000.00 Sales 90,000.00 Rent Expenses5,000.00 Advertising Expenses 4,000.00 Apprenticeship Premium 6,000.00 Merchandise Inventory (Jan.1, 2005) 25,000.00 Return 3,000.00 2,000.00 Insurance expenses 7,000.00 Supplies 6,000.00 Allowance for doubtful accounts 400.00 6% Notes Payable 20,000.00 Investments (Long-term) 10,000.00 Gain on sale of fixed assets 1,600.00 Carriage Inwards 2,500.00 2,40,000.00 2,40,600.00
Taka
Additional information:(i) Merchandise inventory at December 31, 2005, cost Tk. 35,000.00. (ii) Insurance has been covered for two years of which one year has expired. Supplies on hand Tk. 500.00 at the end of the year. Maintain an allowance of 5% on accounts receivable for doubtful accounts. Repair expense of Tk. 2,000.00 has been debited to machinery at the beginning of the year. Depreciated machinery @ 10% p.a. Interest is due for the whole year on notes payable. Interest accrued on investments is Tk. 500.00. You are required to prepare multiple-step Income Statement, Owners Equity Statement for the year ended December 31, 2005 and Classified Balance Sheet as on that date.
9. (a) What are the major objectives in accounting for inventories? 2 (b) You are provided with the following information for Keya Inc for the month ended June 30, 2005. Keya uses the periodic method for inventory:-
Date ____ June
Description
Quantity Unit cost or Selling price Taka
1 Beginning inventory 50 60 4 Purchase 170 64 10 Sales 140 90 11 Sales Return 20 90 18 Purchase 70 68 18 Purchase Return 10 68 25 Sales 100 95 28 Purchase 40 72 Required:Calculate (i) Ending inventory; (ii) Cost of goods sold; (iii) Gross profit; (iv) Gross profit rate under the following methods: LIFO; (2) FIFO; (3) Average Cost Compare results for the three cost flow assumptions. Write short notes (any five) :(i) Generally Accepted Accounting Principles; (ii) Unearned Revenue; Accounting Information System; FOB destination; Book Value Accrual-basis Accounting; Revenue recognition principle.
BBA-2005 Ans. to the que. No.3(b) Mr. Rahman (Tabular Analaysis) For the month of August 30, 2005 A A/c Date Supplie Cash Receivabl s e July31 8,000 3,000 1,000 Augus t +2,80 (2,800) (i) 0 (ii) (5400 +9,000 (iii) ) (iv) +6,00 (v) 0 (vi) (800) (vii) (8500 (viii) ) (1100 ) +4,00 0 5,000 9,200 1,000
Office Equipme nt 10,000
= L + O.E Notes A/c payabl Payabl e e 8,400 (5,400)
capital 13,600
Remarks Investment
+2,000 +4,000
+1,200
+15,00 0 (8,500) (1,100)
Earned Rev. Salaries,Rent,Advt.ex p. Withdrawn Utilities exp on a/c
+500 (500)
12,000
4,000
4,700
18,500
27,200
27,200
Ans. to the que. No. 4 ( b) Req: (a) Radison company Adjusting Journal Entries Date Explanation Ref. Debit 2005 Supplies exp.(2000-1100) 900 Jun30 Supplies [To record supplies expense] 30 300 Utilities exp. Utilities payable [To record utilities expense] 30 250 Insurance exp. ( 3000 12) Prepaid Insurance [To record prepaid insurance expired] 30 2,50 Unearned Service Revenue 0 Service Revenue [To record Unearned Service Revenue 30 earned] 1,50 Salaries exp. 0 Salaries payable [To record unpaid salaries expense] 30 Depreciation Exp.-Office equipment 250 Accumulated dep.-Office equipment [To record depreciation exp. on office 30 equipment] 2,00 Accounts Receivable 0 Service revenue [To record service revenue on account
Credit 900 300 300 2,500 1,500 250 2,000
Radison company Req: (b) June 30, 2005 Sc. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Accounts Title
Adjusted Trial Balance Ref Debit (Tk.) 7,150 8,000 2,750 1,100 15,000 Credit (Tk.)
Cash Accounts Receivable Pre Paid insurance Supplies Office Equipment Accumulated dep.-Off. Equipment Accounts Payable Utilities payable Salaries payable Unearned Service Revenue Radisons Capital Service Revenue Salaries exp. Rent Exp. Depreciation exp.-Off. Equipment Insurance exp. Utilities exp. Supplies exp. Totals
250 4,500 300 1,500 1,500 21,750 12,400 5,500 1,000 250 250 300 900 42,200
42,200
Ans: Adjusted Trial Balance Total 42,200
Ans. to the Que. No. 6(b) Adjusting entries Workings: (i) Insurance exp. 400 Prepaid Insurance (ii) supplies exp. 600 Supplies (2600-2000) (iii) Dep.exp-Equipment 1,800 Accumulated dep-Equipment 1,800 (iv) Interest exp. 1,000 Interest payable (v) salaries exp. 600 Salaries payable
400 600
1,000 600
[N.B.-Assume work sheet prepare as one month]
Ans. to the question No:6 (b) ABC Electric contracting company Work Sheet For the month ended August 31, 2005 Accounts Titles Cash A/c Receivable Prepaid insurance store Supplies Equipment Accounts payable Notes payable Capital Drawings Service Revenue Salaries exp. Utilities exp. Trial Balance Dr.(Tk) Cr.(Tk) 10800 5600 4800 2600 120000 4800 70000 60000 2000 19800 6400 1600 600 7000 1600 2000 19800 7000 1600 19800 400 600 Adjustments Dr. (Tk) Cr. (Tk) Adjusted T/B Dr. (Tk) 10800 5600 4400 2000 120000 4800 70000 60000 2000 Cr. (Tk) Income Statement Dr. Cr. (Tk) (Tk) Balance Sheet Dr.(Tk) Cr.(Tk) 10800 5600 4400 2000 120000 4800 70000 60000
Advertising 800 exp. Insurance exp. Supplies exp. Dep.exp.Equip ment Acc.dep.Equip ment Interest exp. Interest payable Salaries payable Net income 1,54,600 Total
800 400 600 1800 1800 1000 1000 600

1,54,600 4,400 4,400 1,58,000
800 400 600 1800 1800 1800 1000 1000 600 6600
1,58,000 19,800 19,800 1,44,800
400 600 1800
1000
1000 600 6600

1,44,800
Ans. to the question No: 7 Students bank house Journal entries (Perpetual inventory system) (Cost per Book = 2000 250 = 8 ) Date Explanation Ref. Debit July Merchandise Inventory 1,120 1 Accounts payable (160 7 ) [Purchase M.I on account FOB 1,200 destination] 3 Accounts Receivable Sales 960 [Sold M.I on account] Cost of goods sold Merchandise Inventory (120 8) 70 [To record cost of goods sold 6 Accounts payable Merchandise Inventory (10 7 ) 1,050 [M.I return to Chowdhury Publishers] 9 Accounts payable Cash Merchandise Inventory 1,200 [Paid to Accounts Payable less discount] 15 Cash Accounts Receivable 1,080 [Cash received from Malik &brothers in 17 full] 840 Accounts Receivable (120 9) Sales [Sold M.I to Mokarram books House] 660 Cost of goods sold Merchandise Inventory (120 7 ) [To record cost of goods sold]
Credit 1,120 1,200 960 70 1,029 21 1,200
1,080 840 660
18 18 20
Merchandise Inventory Accounts Payable (110 6) [Purchase M.I on account] Merchandise Inventory Cash [Paid Freight in cash] Sales return Accounts Receivable Merchandise Inventory Cost of goods sold (10 7 ) Cash Sales discount Accounts Receivable (1080 90) [Cash received from Mokarram books House] Accounts Payable Cash [Cash paid to accounts payable less discount]
150 150 90 90 70 70 960.3 0 29.70 990
24
31
660 660
Ans. to the question No. 8 Workings: Net Sales: Sales 90,000 Less. sales discount 3,000 87,000 Net Purchase: Purchase Less. purchase return 50,000 2,000 2,500 50,500 3) Cost of goods sold:
48,000 Add. Carriage inward
Opening inventory Add. Net Purchase Less. Ending inventory
25,000 50,000 75,500 35,000 40,500
Mr. Chowdhury Enterprise Income Statement For the year ended 31 Dec. 2005 Explanation Net sales(W-1) Less: Cost of goods sold (W-3) Gross Profit Operating and Other exp. Rent exp. Advertising exp. Insurance exp. (7,000-3,500) Supplies exp. (6,000-500) Repair exp. Dep. exp.-Machinery New allowance for doubtful a/c 1500 Less. Old allowance for doubtful a/c Other income: Apprenticeship premium Gain on sales of fixed assets Non operating exp: Interest exp. Non operating income: Interest Revenue
Tk. 87,000 40,500
Tk. 46,000
5,000 4,000 3,500 5,500 2,000 5,800 400 1,100 (6,000) (1,600) 1,200 (500) 20,000 26,500
Net income Mr. Chowdhury Enterprise Owners Equity Statement For the year ended 31 Dec. 2005 Explanation Ronzus Capital Add: Net income
Tk. 1,00,000 26,500 1,26,500
Mr. Chowdhury Enterprise Balance Sheet As at 31 Dec, 2005 Explanation Current assets: Accounts Receivable Less. allowance for doubtful a/c 1,500 Cash Supplies 6,000 Less. supplies exp. Prepaid Insurance Interest Receivable Ending inventory Fixed assets: Machinery Less. Repair exp. 2,000 Less. Depreciation Investment (Long term)
Tk. 30,000 28,500 37,500 500 3,500 500 35,000
Tk.
5,500
60,000 1,67,700 58,000 5,800 52,200 10,000
Liabilities and O.E Current Liabilities Accounts payable Notes payable Interest payable Owners equity
1,67,700 20,000 20,000 1,200 1,26,500
Ans. to the que.No. 9 (b) (1) (Under LIFO method) Date 2005 June 1 4 10 11 18 18 25 28 Explanation Beginning inventory Purchase Sales Sales Return Purchase Purchase Return Sales Purchase 40 320 72 70 (10) 68 68
Keya Inc. Receipts Units Rate Amount 50 170 60 64 3,000 10880 140 (20) 4760 (680) 100 2880 20,840 220 20,300 95 9500 90 90 12600 {1800) Issue / sales Units Rate Amount Balance Units Rate Amount 50 50 170 50 30 50 50 50 50 70 50 50 60 50 10 50 10 40 100 60 60 64 60 64 60 64 60 64 68 60 64 68 60 64 60 64 72 3000 3000 10880 3000 1920 3000 3200 3000 3200 4700 3000 3200 4080 3000 640 3000 640 2880 6,520
(i) Ending inventory 100 units Tk. 6,520 (ii) Cost of goods sold = Cost of goods available for sale Value of ending inventory = 20,840 6,520 = 14,320 (iii) Gross Profit = Net sales Cost of goods sold = 20,300 14,320 = 5,980 Gross Pr ofit 100 (iv) Gross Profit Rate = Netsales 5,980 100 = 20,300 = 29.45 %
2) Date 2005 June 1 4 10 11 18 18 25 28 Explanation Beginning inventory Purchase Sales Sales Return Purchase Purchase Return Sales Purchase
Keya Inc. (Under FIFO method) Receipts Issue / sales Units Rate Amount Units Rate Amount 50 170 60 64 3000 10880 140 (20) 70 (10) 40 320 68 68 72 4760 (680) 100 2880 20,840 220 20,300 95 9500 90 90 12600 {1800)
Balance Units Rate Amount 50 50 170 80 100 100 70 100 60 60 60 40 100 60 60 64 64 64 64 68 64 68 68 68 72 3000 3000 10880 5120 6400 6400 4760 6400 4080 4080 4080 2880 6,960
3) (Average method) Date Explanation
Keya Inc. Receipts Issue / sales Balance Units Rate Amount Units Rate Amount Units Rate 50 170 64 10880 140 (20) 70 (10) 40 270 68 68 72 4760 (680) 100 2880 20,840 220 95 9500 20,300 90 90 12600 {1800) 220 80 100 170 160 60 100 100 60 63.090 9 63.090 9 63.090 9 65.112 65.112 65.112 67.87
Amount 3000 13880 5047 6309.09 11069.09 10418 3907 6787 6,787
2005 Beginning June1 inventory 4 10 11 18 18 25 28 Purchase Sales Sales Return Purchase Purchase Return Sales Purchase
B.B.A PART-I (FIRST SEMESTER) EXAMINATION, 2006 [According to the New syllabus] PRINCIPLE PF ACCOUNTING
Code No. 1102 Time-3 hours Full marks-70 [N.B.-The Figures in the right margin indicate full marks. Answer all questions from part-A, any four two questions from part B and any four questions from part-C] Part-A Marks
1 10 = 10
Write the correct answer of the following question:The first part of the accounting process is(a) Communication (b) Identifying (c) Processing (d) Recording (ii) The primary criterion by which accounting information can be judged is(a) Consistency (b) Predictive value (c) Decision-usefulness (d) Comparability (iii) Which of the following financial statements is prepared as of a specific date? (a) Balance sheet (b) Income statement (c) Owners equity statement (d) Statement of cashflows (iv) Expenses paid and recorded as assets before they used are called(a) Accrued expenses (b) Interim expenses (c) Prepaid expenses (d) Unearned expenses (v) A revenue account(a) is increased by debits (b) is decreased by credits (c) has a normal balance of a debit (d) is increased by credits (vi) A ledger(a) contains only assets-and liability accounts (b) should show accounts maintained by a company (c) is a collection of the entire group of accounts maintained by a company (d) is a book of original entry (vii) Outstanding salaries is(a) an expenses (b) an assets
(c) a liability (d) Revenue (viii) Which of the following accounts will normally appear in the ledger of a merchandising company that uses a perpetual inventory system? (a) Purchase (b) Freight-in (c) Cost of Goods Sold (d) Purchase Discounts (ix) The principle dictating that efforts (expenses) be matched with accomplishments (revenues) is that(a) Matching principle (b) Cost principle (c) Periodicity principle (d) Revenue recognition principle (x) FOB shipping point means that the(a) goods are placed free on board to the buyers place of business (b) buyer pays the freight (c) seller pays the freight (d) common carrier pays the freight Part B 2.Briefly describe four assumptions that underlie the financial accounting structure. 3. Who are the users of accounting information? Why it is necessary to the Investors, Creditors and Tax authority? 4. (a) What are the essential characteristics of a transaction? (b) Classify the transaction on the basis of exchange of cash with example. 5. Pass adjusting journal entries on December 31, 2006 for the following transactions:Charge annual depreciation of Machinery @ 10% on cost price. Cost price is Tk. 50,000; accumulated depreciation is Tk. 5,000 of that machine Administrative Manager is to be allowed a commission @ 10% on net profit before charging his commission. The net profit before charging commission is Tk. 50,000. On December 20, 2006 goods costing Tk. 5,000 were destroyed by fire. The insurance company admitted a claim up to 80% of that loss. Ending inventory valued at: Market price Tk. 80,000; Cost price Tk. 75,000.
Make an allowance for bad and doubtful debts @ 10% on account receivable, where accounts receivable balance is Tk. 50,000. 6. (a) (b) Systems. What is Bank Reconciliation Statement? Describe three principles of Accounting Information
7. (a) Describe the advantages and disadvantages of FIFO and LIFO inventory cost methods. (b) Explain the term (i) FOB shipping (ii) FOB destination. Part C 8. Mr. Ali started his own consulting firm-Ali Consulting on July 01, 2006. The following transactions occurred during the month of July, 2006:July 1 He invested Tk. 50,000 cash and Tk. 10,000 books on engineering. Paid office rent for three months in advance @ Tk. 3,000 per month. Purchased office supplies on credit Tk. 2,000. Received cash for service provided Tk. 25,000. Withdrew Tk. 1,500 cash from business for personal use. Performed services to the clients on account Tk. 25,000. Paid utility bill for month of July Tk. 1,500. Received cash Tk. 23,000 for services provided on account on July 15 31 One months office rent had become expired and treated as expenses 31 Paid cash for insurance premium for 3 months in advance including current month Tk. 1,500. You are required to prepare a tabular analysis of the transactions using appropriate account titles and arrange them in the format of accounting equation. 9. (a) What is purchase discount lost? Show the difference between periodic and perpetual inventory system. (b) Purchase and sales transactions of the tops and bottoms Boutique are listed below:-
May 1 n/30. 7 10 1/10, n/30. 11 200 14 n/30. 25 27 28 n/30, 31
Purchase merchandise on account Tk. 3,000; terms 2/10, Paid for merchandise purchased on May 1. Purchased merchandise on account, Tk. 5,000; terms Returned part of merchandise purchased on may 10, Tk. Sold merchandise on accounts, Tk. 2,000; terms 2/10, Paid amount owed on May 10, purchase. Received payment for sold may 14. Sold merchandise on account Tk. 4,000, terms 2/10, cost of goods sold is Tk. 3,500. Received payment for goods sold May 28.
Required: Make journal entries to record the transactions, using perpetual and periodic inventory system. 10. The following is the trial balance of Hanif Enterprise as on December 31, 2006. Hanif Enterprise Trial Balance December 31, 2006 Account titles Accounts receivable and payable Notes receivable and payable Furniture Accumulated depreciation- Furniture Equipment Accumulated depreciation- Equipment Hanifs Capital Debit Tk. 15,000 6,000 30,000 60,000 12,000 73,000 Credit Tk. 13,600 4,000 6,000
Hanifs Drawing Allowance for doubtful debts 10% mortgage loan Cash Utilities expense Apprenticeship premium Beginning inventory Merchandise purchase Sales Purchases return and allowance Sales return and allowance Delivery expense Rent expense General expense Salaries expense Selling expense Total
10,000 400 15,000 20,000 3000 15,000 20,000 75,000 130,000 5,000 3,000 2,000 4,000 6,000 7,000 13,000 2,74,000 2,74,000
The following adjustments are to be accounted for: Ending inventory Tk.30, 000. Accrued salaries expense Tk. 1,500 Depreciation on furniture and equipment is to be provided for @10% per annum Make an allowance for bad debts at the rate of 6% on accounts receivable. Apprenticeship premium received on first January, 2006 for a period of five years. Hanif withdraw goods worth Tk. 1,500 from business for personal use. Rent prepaid is Tk 1,000. Required: Prepare a multiple step income statement, owners equity
statement for the year ended December 31, 2006 and classified balance sheet as on that date. 11. Merchandise Transactions of BRAC Ltd. During the month of March, 2006 were as follows: March 1 3 10 12 20 25 unit. 31 Sold 20 units at Tk. 24 per unit. Assume all sales and purchases are made on credit. Required: Using the data above, calculate the value of ending inventory and cost of goods sold for the month of march, 2006 using FIFO method under a perpetual inventory systems and find out gross profit. 12. The following Trial Balance and additional date are for Shohag Paribahan Pvt. Ltd. Shohag Paribahan Pvt. Ltd. Trial Balance December 31, 2006 Accounts Titles Debit Credit Taka Taka Land 1,00,000 Buildings Accumulated depreciation- Buildings Office equipment Accumulated 80,000 16,000 1,60,000 40,000 Beginning inventories 24 units Tk. 10 per unit. Sold 12 units at Tk. 23.50 per unit. Purchase 40 units at Tk. 12 per unit. Sold 20 units at Tk. 24 per unit. Sold 18 units at Tk. 24 per unit. Purchased 40 units at the rate of 12.50 per
depreciation office equipment Cash Accounts receivable Insurance expense Prepaid advertising Notes receivable Salaries expense Traveling expense Interest income Interest expense Accounts payable Notes payable Capital Service revenues Supplies Total 5,000 8,84,000 8,84,000 3,000 60,000 75,000 3,37,000 3,55,000 1,10,000 1,50,000 6,000 20,000 14,000 1,26,000 110000 1,000
Additional Data: A supply on hand at the end of the accounting period is Tk. 3,000.
Interest expense paid in advance is Tk. 1,000. Accrued interest income is Tk. 2,000. Insurance expenses paid for 15 months starting from January 1, 2006. Expire prepaid advertising is Tk. 18,000. The buildings have an expected life o9f 40 years with no salvage value. The office equipment has an expected life 10 years with no salvage value. You are required to prepare a 10 column work sheet for the year ended de4cember 31, 2006. 13. Write short notes: Owners equity. Classified balance sheet. Cash and accrual basis of accounting. The accounting equation. Special Journal. Bank reconciliation statement.
BBA Solution-2006 Ans. to the question No. 5 Adjusting entries Date Explanation Ref. Dr (Tk) Cr (Tk)
2006 Dec.31 Depreciation exp-Machinery Accumulated dep.-Machinery [To record depreciation exp] Dec 31 Managers commission Managers commission payable [To record managers commission] Dec 31 i)Accidental loss/Goods Destroyed by fire purchase/cost of goods sold [Goods destroyed by fire adjusted] ii) Insurance company Income statement Goods destroyed by fire Dec 31 [To record insurance claim and actual loss] Dec 31 Ending inventory / Stock Purchase / cost of goods sold Bad debts exp. Allowance for doubtful accounts [To record bed debts exp.]
5,000 5,000 5,000 5,000 5,000 5,000 4,000 1,000 5,000 75,000 75,000 5,000 5,000
Part-C Ans. to the question no. 8 Mr. Ali Tabular Analysis For the month of July, 2006 A Date A/c Cash Books Rec. 2006 July: 1 3 4 10 11 15 16 17 31 31 50,00 0 (9,00 0) 25,00 0 (1,50 0) (1,50 0) 23,00 0 (4,50 25,000 (23,000 ) 10,000
Suppli es
Pre Paid Rent 9,000
Pre Paid insuran
= L + O.E A/c Payable
capital +60,0 00
Remarks Invested
2,000
+2,000 +25,0 00 (1,500 ) 25,000 (1,50 0) (3,00 0) (1,500 ) Service Revenue Withdraw Service Rev. on a/c Utilities exp. Rent exp. Insurance exp.
(3,000) 3,000
0)
81,50 2,000 0 1,04,500
10,000
2,000
6,000
3,000
2,000 1,04,500
1,02,5 00
Ans. to the question no: 9 (b) Top and Brothers Journal entries (Perpetual system) Date May 1 Explanation Merchandise inventory Accounts payable [Purchases merchandise inventory on accounts] Accounts payable Cash Merchandise inventory Ref. Dr (Tk) 3,000 Cr (Tk) 3,000 3,000 2,940 60 5,000 5,000 200 200 2,000 2,000 1,800 1,800 5,000 5,000 2,000 2,000 4,000
( 3000 2% )
10 11 14
[Paid to accounts payable less. discount] Merchandise inventory Accounts payable [Purchase merchandise inventory on account] Accounts payable Merchandise inventory [Return merchandise inventory to a/c payable] Accounts receivable Sales Cost of goods sold Merchandise inventory [Sold merchandise inventory on a/c and record cost of goods sold] Accounts payable Cash [Paid to a/c payable out of discount period] Cash
25 27
28
A/c Receivable [Cash received from a/c receivable less discount] A/c Receivable Sales Cost of goods sold Merchandise inventory 31 [Sold merchandise inventory on account and record cost of goods sold] Cash Sales discount ( 4000 2% ) A/c Receivable [Cash received from A/c receivable less discount] Journal entries (Periodic inventory system) Date May 1 Explanation purchase Accounts payable [Purchases merchandise inventory on accounts] Accounts payable Cash Purchase discount ( 3000 2% ) [Paid to accounts payable less. discount] Purchase Accounts payable [Return merchandise inventory to a/c payable] Accounts payable Purchase return and allowance [Return merchandise inventory to a/c payable] Accounts receivable Ref.
3,500
4,000 3,500
3,920 80 4,000
Dr (Tk) 3,000
Cr (Tk) 3,000
3,000 2,940 60 5,000 5,000 200 200 2,000 2,000
10 11 14
25 27
28
31
Sales [Sold merchandise inventory on a/c and record cost of goods sold] Accounts payable Cash [Paid to a/c payable out of discount period] Cash Accounts Receivable [Cash received from a/c receivable less discount] Accounts Receivable Sales [Sold merchandise inventory on account and record cost of goods sold] Cash Sales discount Accounts Receivable [Cash received from A/c receivable less discount]
5,000 5,000 2,000 2,000 4,000 4,000 3,920 80 4,000
Ans. to the question No.10 Workings: Net Sales: Sales 1,30,000 Less. sales return 3000 1,27,000 Net Purchase: Purchase Less. purchase return 75,000 5,000 70,000 Less. personal withdraw 1500
68,500 3) Cost of goods sold: Opening inventory Add. Net Purchase 20,000 68,500 88,500 Less. Ending inventory 30,000 58,500
4) Depreciation on Furniture = 30,000 10% = 3,000 5) Depreciation on Equipment = 60,000 10% = 6,000 6) New allowance for doubtful a/c = 15,000 6% = 900
Hanif Enterprise Income Statement For the year ended 31,Dec. 2006 Explanation Net sales(W-1) Less: Cost of goods sold (W-3) Gross Profit Operating and Other exp. Utilities exp. Delivery exp. Rent exp. (4,000-1,000) General exp. Salaries exp. 7,000 1,500 Add. Due Selling exp. Dep. exp.-Furniture 3,000 6,000 Dep. exp.-Equipment New allowance for doubtful a/c 900 Less. Old allowance for doubtful a/c 400 Non operating exp: Interest exp. Non operating income: App. Premium Less. advance 15,000 12,000 Net income
Tk. 1,27,000 58,500
Tk. 68,500
3,000 2,000 3,000 6,000 8,500 13,000 9,000 500 1,500
(3,000)
43,500 25,000
Hanif Enterprise Owners Equity Statement For the year ended 31 Dec. 2006 Explanation Hanif;s Capital Add: Net income Less. Hanifs Drawings Less. Personal withdrawn
Tk. 73,000 25,000 98,000 10,000 88,000 1,500 86,500
Hanif Enterprise As at 31 Dec, 2006 Explanation Assets: Current assets: Accounts Receivable Less. allowance for doubtful a/c 900 Notes Receivable Cash Ending inventory Prepaid Rent Fixed assets: Furniture Less. Acc. Dep.(6000+3000) Equipment Less. Acc.Dep.(12000+6000) Liabilities and O.E Current Liabilities Accounts payable
Tk.
Tk.
15,000 14,100 6,000 20,000 30,000 1,000
30,000 9,000 60,000 18,000
21,000 1,34,100 42,000
Notes payable Mortgage payable Salaries payable Advance apprenticeship premium Interest payable Owners equity
13,600 4,000 15,000 20,000 1,500 12,000 86,500
1,34,100
Ans. to the question No:11 BRAC Ltd. Store ledger (Under FIFO method) Date Explanation 2006 March 1 3 10 12 20 25 31 Beginning inventory Sold Purchase Sold Sold Purchase Sold
Receipt / Purchase Issue / sales Balance Units Rate Amount Units Rate Amount Units Rate Amount 24 10 240 12 40 12 480 20 18 40 12.5 500 20 1,220 24 480 1674 24 24 480 432 23.5 282 24 12 12 40 32 14 14 40 34 34 10 10 10 12 12 12 240 120 120 480 384 168
12 168 12.5 500 12.5 425 425
Value of Ending inventory 34 Units Tk. 425 Cost of goods sold = cost of goods available for sale value of ending inventory = 1,220 425 = 795 Gross Profit = Net sales cost of goods sold = 1674 795 = 879 Ans. To the que.: 12 Workings: Adjusting: Supplies exp. 2,000 Supplies 2000 (5,000 3,000) (b) Advance interest 1,000 Interest exp. 1,000 Interest Receivable 2,000 Interest income 2,000 (d) Prepaid insurance 1,200 Insurance exp. 1,200 6000 3 15 (e) Advertising exp. 18,000 Prepaid advertising 18,000 (f) Dep. Exp.- Building 4,000 Acc. Dep- Building 4,000 1,60,000 40 (g) Dep. Exp.- Equipment 8,000 Acc.Dep.- Equipment 8,000 80,000 = 8000 10
Shohag Paribahan Pvt. Ltd. Work Sheet Dec. 31, 2006 Accounts Titles Land Building Trial Balance Dr.(Tk) Cr.(Tk) 1,00,00 0 1,60,00 0 40,000 4,000 80,000 Adjustments Dr. (Tk) Cr. (Tk) Adjusted T/B Dr.(Tk) Cr.(Tk) 1,00,00 0 1,60,00 0 44,000 80,000 Income Statement Dr.(Tk) Cr.(Tk) Balance Sheet Dr.(Tk) Cr.(Tk) 1,00,00 0 1,60,00 0 44,000
Acc.dep.Building Office equipme 80,000 nt Acc.dep.Off. Equipme nt 1,10,00 Cash 0 A/c 1,50,00 receivabl 0
16,000
8,000 1,10,00 0 1,50,00 0
24,000 1,10,00 0 1,50,00 0
24,000
e Insurance exp. Prepaid advertisi ng Notes receivabl e Salaries exp. Traveling exp. Interest income Interest exp. Accounts payable Notes payable Capital Service
6,000 20,000 14,000 1,26,00 0 1,10,00 0 1,000 3,000 60,000 75,000 3,37,00 0 3,55,00
1,200 18,00 0
4,800 2,000 14,000 1,26,00 0 1,10,00 0
4,800 2,000 14,000 1,26,00 0 1,10,00 0 3,000 3,000 2,000 60,000 75,000 3,37,00 0 3,55,00 60,000 75,000 3,37,00 0 3,55,00
2,000 1,000 2,000
Revenue Supplies Supplies exp. Advance interest Interest Receivab le Prepaid insurance Advertisi ng exp. Dep.exp. -Building Dep. Exp.equipme nt Net income Total
0 5,000 2,000 1,000 2,000 1,200 18,00 0 4,000 8,000 2,000 3,000 2,000 1,000 2,000 1,200 18,000 4,000 8,000
0 2,000
0 3,000
1,000 2,000 1,200 18,000 4,000 8,000 83,200 83,200

3,58,000 6,23,200 6,23,200
8,84,000
8,84,000
36,200
36,200
8,98,000
8,98,000
3,58,000
BBA FIRST YEAR FIRST SEMESTER EXAMINATION,2007 PRINCIPLES OF ACCOUNTING Subject code: 1102 Examination code:106 Time- 3 hours Full marks- 70 [N.B- The figures in the right margin indicate full marks. Answer all questions from part A, any four questions from Part B and any four questions from part c.] Part A Marks 1. Writte the correct answer of the following questions:--------The term debit indicates--Right Assets Left Both left and right Service provided by a public account included---Internal auditing, budgeting and management consulting Auditing, budgeting and management consulting Auditing, budgeting and cost accounting Auditing, taxation and management consulting Accrued revenue is----An expense An asset A liability Revenue Which of the following is not part of the recording process? Analyzing transactions Preparing an income statement Entering transactions in a journal Posting transactions
Unearned revenue is ---an expense An asset a liability Revenue Each of the following is a major type of adjusting entries except-------------earned revenue Accrued expense accrued revenues unearned revenues Cost of goods sold-------------an expense An asset a liability revenue current assets are listed-------by importance by longevity by liquidity by alphabetically Which of the following appears on both a single-step and a multiplestep income statement? Gross profit cost of goods sold income from operations merchandise inventory If a customer returns goods for credit an entry is normally made in the ---------sales journal general journal cash receipts journal cash payments journal
2. (a) What is accounting? (b) Why is ethics a fundamental business concept? 3. (a) what is meaning of GAAA? (b) Explain the monetary unit and economic entity assumptions. 4. (a) What are the major types of adjusting entries? (b) Determine the missing amounts from the following informations:-----Alpha company January 1,2006 Assets Liabilities Owners equity December 31,2006 Assets Liabilities Owners equity Owners equity changes in year Additional investment Drawings Total revenue Total expense Taka 2,00,000 a 1,00,000 b 60000 2,00,000 20,000 10,000 c 4,00,000
5 (a.) what is a trial balance and what is its primary purpose? b. what are the limitations of a trial balance? 6. (a) Define the terms assets, liabilities and owners equity. ( b. )what items does affect owners equity? 7. (a). Explain the meaning of the credit terms 2\10 .n\30 ( b.) explain the income measurement process in a merchandizing company.
8. The following transactions took place during the month of April, 2007 on account of brothers corporation, Dhaka:---April 1 Invested TK.10, 00,000 cash to start the business. paid TK 4,000 cash for office rent. purchase office equipment for TK 25,000cash incurred TK 30,000 of advertising cost in the Bangladesh times: on account paid TK 6,000 cash for office supplies Withdrawn TK 20,000 cash for personal use of the owner. paid the Bangladesh times due on advertising on April 9 paid employee salaries TK22,000 28. performed services to the clients on account tk. 35.000. 30. Received provided on account April 28. 3 7 9 Required : Prepare a tabular analysis of the transactions using appropriate account titles and arrange them in the format of accounting equation. 9. Mr. Firoj is a licensed architect. During the first month of the operation of his business, the following events and transactions occurred.June 1 invested tk. 50.000 cash. Hired a secretary-receptionist at a salary of tk.5,000 per month. Paid office rent for the month tk. 2.000. Purchased architectural supplies on account from Dhaka Company tk.20000. 10. Completed blueprints on a carport and billed client tk. 3,000 for services. 20. Received tk.5,000 cash for services completed and delivered to salma and co. 30. Paid secretary reception for the month tk.5000. 30. Paid tk. 1,000 to Dhaka Company for accounts payable due. Instructions: a) Journalize the transactions.
b) Post to the ledger accounts. c) Prepare a trial balance on June 30, 2008. 10. The following particulars are extracted from the books of Diamond Traders relating to the year ended December 31.2006:Account Titles Debit Taka Credit Taka Cash 22,500 Prepaid advertising 8,000 Prepaid rent 12,000 Land 50,000 Building 60,000 Accumulated depreciation building 12,000 Equipment 12,000 Accumulated depreciation equipment 2000 Notes payable 20,000 Accounts payable 13,000 Capital 80,000 Drawings 10,000 Services revenues 73,000 Salaries expense 20,000 Prepaid insurance 2,000 Office supplies 1,000 Electricity expense 500 Office expense 1,500 Interest expense on notes payable 500 2,00,000 2,00,000 Adjustments: 30 months Notes payable issued on January 1, 2006at the rate of interest 10/ Accrued office expense tk 800 Prepaid insurance has been expired @ tk 100 per month. Unearned services revenue tk 2,000 include in service revenue. Prepaid rent paid on January 1,2006for 24 months period. Prepaid advertising paid on March 31, 2006for 12 months period. depreciation on equipment tk 1,000 and on building tk 5,000 p.a
Prepare 10 column work sheet. 11.The trial balance of Rebeka fashion center contained the following accounts at December 31,the end of the companys fiscal year:---Rebeka Fashion Center Trial Balance December31,2006 Account titles Debit Taka 29,000 33,700 44,700 6,200 87,000 Credit Taka
Cash Accounts receivable Merchandise Inventory Store supplies Store Equipment Accumulated Depreciation store equipment Delivery equipment Accumulated depreciation delivery equipment Notes payable Accounts payable Rebekas capital Rebakas drawing 12,000 Sales Sales returns and allowances 8,800 Cost of goods sold 1,97,400 Salaries expense (administrative) 1,40,000 Advertising expense 24,400 Utilities expense (administrative) 14,000 Repair expense (administrative) 12,100 Delivery expense 16,700 Rent expense (administrative) 21,000
22,000 50,000 6,000 52,000 50,000 1,10,000 7,60,000
Adjustment data:
(i) Store supplies on hand totaled tk3,200 (ii) Depreciation is Tk 8,000 on the store equipment and tk 4,000 on the delivery equipment. (iii) Interest of tk 4,000 is accrued on notes payable at december31. iv)Merchandise inventory actually on hand is tk 44,400 v) Tk 25,000 of notes payable are due for payment next year 12. Eagle heart company has the following inventory. Purchases and sales data for the month of March, 2007:----Inventory: march 1 200 units @Tk.4.00 tk 800 Purchases: March 10 500 units @Tk.4.50 tk 2250 March 20 400 units @TK 4.75 tk 1900 March 30 300 units @tk 5.00 tk 1500 Sales: March 15 500 units March 25 400 units The physical inventory system determines count on March 31 shows 500 units on hand. Under a personal inventory system determine the cost of inventory on hand at March 31and the cost of goods sold for March under the FIFO method and LIFO method and average cost method.
13. Writes shorts notes (any four) :
Accounting Equation Balance Sheet Accounting Cycle Materiality Concept FIFO Depreciation Accrual Vs. Cash-basis Accounting
BBA-2007 Ans. to the question No:4 (b) Part B Alpha Company January 1, 2006 We know that, A = L+ O.E =) 2,00,000 = L + 1,00,000 =) L = 1,00,000 equity
Here, A = Assets L = Liabilities O.E = Owners
Dec. 31, 2006 We know that, A = L+ O.E =) A = 60,000 + 2,00,000 A= 2,60,000 Owners equity changes in year: Ending O.E = Opening O.E + Additional investment +Net income Drawings =) 2,00,000 = 1,00,000 + 20,000 + (Total revenue Total expense) - 10,000 =) 2,00,000 = 1,20,000 + Total Revenue 4,00,000 10,000 =) Total Revenue = 1,20,000 -4,00,000 -10,000 -2,00,000 =) Total Revenue = - 4,90,000 Total Revenue = 4,90,000
Part C Ans. to the question No: 8 Brothers Corporation ,Dhaka Tabular analysis For the month of April, 2007 A = L + O.E Date Cash A/c Rec. Supplies Equipment A/c Payable capital April 1 3 7 9 14 19 22 26 28 30 +10,00,000 (4,000) (25,000) (6,000) (20,000) (30,000) (22,000) +35,000 +35,000 (35,000) +6,000 (20,000) (30,000) (22,000) +35,000
Remarks
+10,00,000 Investment (4,000) Rent exp. +25,000 +30,000 (30,000) Advertising exp. Withdraw Salaries exp. Service Revenue
9,28,000 9,59,000
Nill
6,000
25,000
Nill 9,59,000
9,59,000
Ans.to the question No:9 Mr. Firoj Req: (a) Date Explanation June 1 Cash Firojs Capital [Cash received by owner] 1 No entry 2
Journal entries Ref.
Debit 50,000
Credit 50,000
Office rent exp. Cash [Paid office rent] 3 Architectural supplies Accounts payable [Purchase supplies on account] 10 Accounts Receivable Service Revenue [Service performed on account] Cash 20 Service Revenue [Service performed in cash] Salaries exp. 30 Cash [Paid salaries secretary receptionist] Accounts payable 30 Cash [Paid to Dhaka company] Req: (b) Ledger Firojs Capital Date June 1 Explanation Ref Debit
2,000 2,000 2,000 2,000 3,000 3,000 5,000 5,000 5,000 5,000 1,000 1,000
Credit 50,000 Credit
Balance 50,000 Balance 2,000
Office rent exp. Date Explanation June 2
Ref
Debit 2,000
Architectural supplies Date Explanation June 3 Accounts payable Date Explanation June 3 30 Accounts Receivable Date Explanation June 10 Service Revenue Date Explanation June 10 20 Cash Date June 1 2 20 30 30 Explanation
Ref Ref
Debit 2,000 Debit 1,000
Credit Credit 2,000
Balance 2,000 Balance 2,000 1,000 Balance 3,000 Balance 3,000 8,000 Balance 50,000 48,000 53,000 48,000 47,000 Balance 5,000
Ref
Debit 3,000 Debit
Credit
Ref
Credit 3,000 5,000 Credit 2,000
Ref
Debit 50,000 5,000
5,000 1,000 Ref Debit 5,000 Credit
Salaries exp. Date Explanation June 30
Req: (c) Trial Balance June 30, 2008 Acc .. Accounts Title No. 1 Cash 2 Forojs Capital 3 Office Rent exp. 4 Architectural supplies 5 Accounts payable 6 Accounts Receivable 7 Service Revenue 8 Salaries exp.
Mr. Firaj
Ref Debit 47,000
Credit 50,000
2,000 2,000 1,000 3,000 8,000 5,000 59,000 59,000
Ans. to the question No. 10 Workings: (i) Interest exp. 1,500 Interest payable 1,500 (2000-500) (ii) Office exp. 800 Office exp. payable 800 (iii) Insurance exp. 1,200 Prepaid insurance 1,200 (iv) Service Revenue 2,000 Unearned Service Revenue 2,000 (v) Rent exp. 6,000 Prepaid Rent 6,000 12,000 12 24 (vi) Advertising exp. 6,000 Prepaid Advertising 6,000
(vii)
8000 9 12 Dep. exp.-Equipment 1,000 Accumulated dep.-Equipment1,000 Dep. exp.-Building 5,000 Accumulated dep.-Building 5,000
Ans. to the question No. 10 Dimond Traders Work Sheet Dec.31, 2006 Trial Balance Accounts Titles Dr.(Tk) Cash Prepaid Advertising Prepaid Rent Land Building Acc.depBuilding Equipment Acc.dep.Equipment Notes payable Accounts payable Capital Drawings 22,500 8,000 12,000 50,000 60,000 12,000 12,000 2,000 20,000 13,000 80,000 10,000 10,000 1,000 6,000 6,000 Cr.(Tk) Dr.(Tk) Adjustments Cr. (Tk) Adjusted T/B Dr.(Tk) 22,500 2,000 6,000 50,000 60,000 17,000 12,000 3,000 20,000 13,000 80,000 10,000 12,000 3,000 20,000 13,000 80,000 Cr.(Tk) Income Statement Dr. Cr. (Tk) (Tk) Balance Sheet Dr.(Tk) Cr.(Tk) 22,500 2,000 6,000 50,000 60,000 17,000
5,000
Service Revenue Salaries exp. Prepaid Insurance Office Supplies Electricity exp. Office exp. Interest exp. Interest payable Office exp. Office exp. payable Insurance exp. Unearn Service Rev. Rent exp. Advertising exp. Dep.exp.Equipment Dep.exp.Building Net income 20,000 2,000 1,000 500 1,500 500
73,000
2,000 20,000 1,200 800 1,000 500 1,500 2,000 1,500 800 800 1,200 2,000 6,000 6,000 1,000 5,000 6,000 6,000 1,000 5,000 1,200 800
71,000 20,00 0
71,00 0
800 1,000 500 1,500 2,000 1,500 800 800 1,200 2,000 6,000 6,000 1,000 5,000 27,00 27,000 2,000 800 1,500
1,500
0 Total
2,00,000 2,00,000
23,500
23,500 2,08,300 2,08,300
71,000
71,000
1,64,300
1,64,300
Ans. to the Que. No: 11 Workings: Net Sales: Sales 7,6,0000 Less. sales return 8,800 7,51,200 Net Purchase: Nill
3) Cost of goods sold: Opening inventory Add. Net Purchase
44,700 Nill 44,700 Less. Ending inventory 44,400 300
Total cost of goods sold = 4,97,400 + 300 = 4,97,700
Rebeka Fashion Center Income Statement For the year ended 31, Dec. 2006 Explanation Net sales(W-1) Less: Cost of goods sold (W-3) Gross Profit Operating and Other exp. Selling exp.: Advertising exp. 1 Rent exp. 2 Dep. exp.-Delivery Equipment Administration exp. Salaries exp. Utilities exp. Repair exp. Delivery exp. 1 Rent exp. 2 Depreciation exp.-Store Equipment Supplies exp. Non-operating exp: Interest exp. Net income
Tk. 7,51,200 4,97,700
Tk.
2,53,500
24,400 12,000 4,000 1,40,000 14,000 12,100 16,700 12,000 8,000 3,000 4,000 2,50,200 3,300
Rebeka Fashion Center Owners Equity Statement For the year ended 31,Dec.2006 Explanation Rebeks Capital Add: Net income Less. Rebeks Drawings
Tk. 1,10,000 3,300 12,000 1,01,300
Rebeka Fashion Center Balance Sheet As at Dec. 2006 Explanation Assets: Current assets: Cash Accounts Receivable Store Supplies (6,200 3,000) Ending inventory Fixed assets: Store equipment 87,000 30,000 Less. Acc. Dep.(22,000 + 8,000) Delivery equipment 50,000 10,000 Less. Acc.Dep.(6,000 + 4,000) Liabilities and O.E Current Liabilities Accounts payable Interest payable Notes payable Long term liability: Notes payable
Tk.
Tk.
29,000 33,700 3,200 44,400
57,000 40,000 3,07,300
50,000 4,000 27,000
Owners equity
25,000 1,01,300 _______
3,07,300
Ans. to the que. No: 12 Store ledger (Under FIFO method) Date March .1 10 15 20 25 30 Explanation Opening inventory Purchase Sales Purchase Sales Purchase 300 5 1500 6,450 4000 400 4.75 1900 200 200 4.5 4.75 900 950 Receipt / Purchase Units Rate Amount 200 4 800 500 4.5 2250 200 300 4 4.5 800 1300 Issue / sales Units Rate Amount Balance Units Rate 200 4 200 4 500 4.5 200 200 400 200 200 300 500 4.5 4.5 4.75 4.75 4.75 5 Amount 800 800 2250 900 900 1900 950 950 1500 2450
Value of Ending inventory Tk. 2,450 Cost of goods sold = cost of goods available for sale value of ending inventory = 6,450 2,450 = 4,000
Store ledger (Under LIFO method) Date March .1 10 15 20 25 30 Explanation Opening inventory Purchase Sales Purchase Sales Purchase 300 5 1500 6,450 4150 400 4.75 1900 400 4.75 1900 Receipt / Purchase Units Rate Amount 200 500 4 4.5 800 2250 500 4.5 2250 Issue / sales Units Rate Amount Balance Units Rate 200 200 500 200 200 400 200 200 300 500 4 4 4.5 4 4 4.75 4 4 5 Amount 800 800 2250 800 800 1900 800 800 1500 2300
Value of Ending inventory Tk. 2,300 Cost of goods sold = cost of goods available for sale value of ending inventory = 6,450 2,300 = 4,150
BBA FIRST YEAR, FIRST SEMESTER EXAMINATION, 2008 PRINCIPLES OF ACCOUNTING Subject Code: 1102 Examination Code: 601 Time3 hours Full marks70 [N.B.The figures in the right margin indicate full marks. Answer any five questions from Part A and any four questions from Part B.J Part A Marks 1. (a) What is accounting? 2 (b) Who are the users of accounting? 4 2. (a) What is the basic accounting equation? 2 (b) What items affect owner's equity? 4 3. (a) What is worksheet? 2 (b) What are the major sections in a classified balance sheet? 4 4. (a) Distinguish between cash basis and accrual basis. 3 (b) Briefly explain the major types of adjusting entries. 3 5. (a) What do you mean by worksheet? 2 (b) Why worksheet is prepared? Is it mandatory in accounting? 4 6.(a) What is accounting information system? 2 (b) What is subsidiary ledger? What are the advantages of 4 maintaining subsidiary ledgers? 7. (a) What is internal control? 2 (b) Briefly explains the principles of effective internal control? 4 8. Mr. Salman started his own consulting firm, Salman Consulting on January 1, 2008. The following transactions occurred during the month of January. January 1 Salman invested Tk. 20,000 cash in the business. 2 Purchased office equipment for Tk. 15,000. Salam paid Tk. 5,000 cash and signed a note payable for the remaining balance. 3 Paid Tk. 1000 for office rent for the month. 5 Performed Tk. 10,000 of services on account. 10 Withdraw Tk. 500 cash for personal use. 12 Purchased supplies for Tk. 300 on account.
14 Received a cash payment of Tk. 7,000 for services provided on January 5. 18 Incurred Tk.500 of advertising cost in the Bangladesh Observer on account. 21 Received a cash payment of Tk. 5,000 for service provided. 23 Made cash payment of Tk. 3,000 on the note payable. 25 Paid Tk. for utilities. 30 Paid Bangladesh Observer amount due on January 18. 31 paid Tk. 2,000 for employee salaries. Instructions: Show the effects of the previous transactions on the accounting equation using the suitable format. Prepare an income statement for the month of January. Prepare a balance sheet at January 31, 2008.ssss 9 (a) what is FOB destination? (b) By considering the following unadjusted Trial Balance and adjustments prepare a 10 column worksheet for singer Bangladesh Ltd:-
Singer Bangladesh Ltd. Unadjusted Trial Balance December 31, 2007 Particulars Cash Office supplies Prepaid rent Buildings Accumulated depreciation- Building Accounts payable Long term note payable Owners Capital Drawings of owner Sales revenue Wages expenses Rent expense Insurance expense Property tax expense Utilities expense Salaries expenses Other revenues Accounts receivable Unearned revenue Advertising expense Debit Taka 40,000 8,900 6,200 2,50,000 25,250 5,800 24,000 1,96,650 30,000 1,56,000 45,860 2,640 13,200 4,600 11,800 32,000 40,000 5,500 13,000 10,000 4,60,700 00 Adjustments: An inventory count shows Tk. 4,500 of office supplies on hand at the end of the year. Rent expenses for the year was Tk. 5,000. Estimated depreciation on building for the year was Tk. 10,000. Accrued Wages for the year was Tk. 8,000. 4,60,7 Credit Taka
Uncollected and unbilled service revenue for the year was Tk. 20,000. The interest @ 12% on long term note payable was due for 7 months. 10. You are provided with following information for City Ltd. For the month ended June 30. 2008. City Ltd. Uses the periodic method for inventory:Date Description Quantity Unit cost or Selling Price June 1 4 10 11 18 18 25 28 Beginning inventory Purchase Sale Sale return Purchase Purchase return Sale purchase 25 85 70 10 35 5 40 20 60 64 90 90 68 68 95 72
Instructions: Calculate the followings Ending inventory Cost of goods sold. Gross profit and Gross profit rate under each of the following methods:- (a) LIFO (b) FIFO 11. Sohana started her own consulting firm, named consult Sohana, on January 1. 2008. During the first month of operation the following transactions occurred. January 1 Sohana invested Tk. 10000 in cash in the business. 10 Paid Tk. 800 for the monthly rent. 15 Purchased office equipment of account Tk. 3000 19 Rendered consulting services to the clients for cash Tk. 1500. 22 Borrowed Tk. 700 cash on a not payable. 25 Rendered consulting services to the clients on credit Tk. 2000.
28 Paid monthly salary Tk. 500. 29 Paid monthly utilities Tk. 400. 30 Paid Tk. 1000 for equipment purchased on January 15. 31 Cash received Tk. 1000 for services rendered on January 25. 31 Sohana withdrew Tk. 200 from business for personal use. Required: Prepare Journal for the above transaction in the books of Consult Sohana. Prepare ledgers in the books of Consult Sohana from the Journal. Prepare Trial Balance in the books of Consult Sohana as January 31. 2008 12. Consult Sonia Ltd. Is a provider of taxation services. The following unadjusted Trial Balance has been taken from the books of accounts of consult Sonia Ltd.:Consult Sonia Ltd. Trial Balance August 31, 2008 Accounts Titles Cash Accounts receivable Prepaid insurance Supplies Equipment Notes payable Accounts payable Sonia, Capital Sonia, Drawings Consulting Fees Salary expense Utilities expense Advertising expense Debit Taka 5,400 2,800 2,400 1,300 60,000 30,000 2,400 30,000 1,000 14,900 3,200 800 400 77,300 77,300 Credit Taka
Adjustments:Insurance expires at the rate of Tk. 150 per month. A supply on hand at the month is Tk. 300. Monthly depreciation on the equipment is Tk. 900. Interest accrued on the note is Tk. 500. Salaries accrued Tk. 1,000. Consulting services provided but it has not been recorded Tk. 1,000. Required: Journalize the adjusting entries for month in the books of consult Sonia Ltd. Prepare adjusted Trial balance as at August 31, 2008. 13. The following adjusted Trial Balance has been taken from the books of accounts of the Rupa Trading and co. Rupa Trading and co.
Adjusted Trial Balance
December 31, 2007 Accounts Titles Cash Account receivable Prepaid insurance Equipment Buildings Cost of goods sold Depreciation exp.Buildings Depreciation exp.Equipment. Rupa Drawing Insurance expense Office Salaries expenses Interest expense Utilities expense Sales salaries expense Merchandise inventory Property tax expense Sales commission expense Sales return and allowance Debit Taka 20,800 50,300 2,400 1,10,000 1,90,000 4,12,700 10,400 12,700 28,000 9,200 32,000 11,000 12,000 76,000 75,000 4,800 15,500 6,000 Accounts Titles Accumulated dep.building Accumulated dep.equip Rupa, capital Interest revenue Interest payable Mortage payable Accounts payable Property tax payable Sales Sales commission payable Utilities payable Credit Taka 52,500 42,900 176,600 5,000 4,000 80,000 78,700 4,800 6,28,000 5,300 1,000
10,78,800 Additional Data:-
10,78,800
Insurance expense and utilities expense are 60% selling and 40% administration. Tk. 20000 of the mortage is due for payment in the next year.
Depreciation on building and property tax expense are administration expense. Depreciation on equipment is a selling expense. Required: 1. Prepare a multi-step income statement. 2. Prepare a statement of owners equity. 3. Prepare a classified balance sheet.
BBA-2008 Ans. to the question No: 8 Req: (i) Tabular Analysis For the month of January, 2008 Date A
Mr. Salman Consulting Remarks Investment Rent exp. Service Rev. Withdraw Adv. exp. Service Rev. Utilities exp. Salaries exp.
= L + O.E A/c Cash A/c Rec. Equipment Supplies Notes payable capital payable July 1 +20,000 +20,000 2 (5,000) +15,000 +10,000 3 (1,000 (1,000) 5 +10,000 +10,000 10 (500) (500) 12 +300 +300 14 +7,000 (7,000) 18 +500 (500) 21 +5,000 +5,000 23 (3,000) (3,000) 25 (200) (200) 30 (500) (500) 31 (2,000) (2,000) 19,800 3,000 15,000 300 300 7,000 30,800 38,100 38,100
Req: (ii) Mr. Salman Consulting Income Statement For the year ended July 31, 2008 Explanations Tk. Tk. Service Revenue 15,000 Less. Expenses: Rent exp. 1,000 Advertising exp. 500 Utilities exp. 200 Salaries exp. 2,000 3,700 11,300 Mr. Salman Consulting Balance Sheet As at July 31, 2008 Explanations Assets: Cash Accounts Receivable Equipment Supplies Liabilities and O.E: Accounts payable Notes payable O.E: Capital Add. Net income Less. Withdraw 20,000 11,300 31,300 500
Tk. 19,800 3,000 15,000 300
Tk.
38,100 300 7,000
30,800
38,100
Ans. to the que. No: 9 (b) Singer Bangladesh Ltd. Work Sheet Dec. 31 2007 Trial Balance Accounts Titles Dr. Cr. (Tk) (Tk) 40,00 Cash 0 Office supplies 8,900 Prepaid Rent 6,200 2,50,0 Building 00 25,25 Acc.dep.-Building 0 A/c Payable 5,800 Long term notes 24,00 payable 0 1,96,6 Owners Capital 50 Drawings of 30,00 owner 0 1,56,0 Sales Revenue 00
Adjustments Dr. Cr. (Tk) (Tk) 4,400 5,000 10,00 0
Adjusted T/B Dr.(Tk) 40,000 4,500 1,200 2,50,00 0 35,250 5,800 24,000 1,96,65 0 30,000 1,56,00 0 Cr.(Tk)
Income Statement Balance Sheet Dr.(Tk) Cr.(Tk) Dr.(Tk) Cr.(Tk) 40,000 4,500 1,200 2,50,00 0 35,250 5,800 24,000 1,96,65 0 30,000 1,56,00 0
Wages exp. Rent exp. Insurance exp. Property tax exp. Utilities exp. Salaries exp. Others Revenue A/c Receivable Unearned Revenue Advertising exp. Office supplies exp. Dep. exp.Building Wages payable Interest exp.
45,86 0 2,640 13,20 0 4,600 11,80 0 32,00 0 40,00 0 5,500 13,00 0 10,00 0
8,000 5,000
53,860 7,640 13,200 4,600 11,800 32,000 20,00 0 60,000 25,500 13,000 10,000
53,860 7,640 13,200 4,600 11,800 32,000 60,000 25,500 13,000 10,000 4,400 10,000 8,000 8,000 1,680
20,00 0
4,400 10,00 0 8,000 1,680
4,400 10,000 1,680
Interest payable Net income Total 4,60,7 00 4,60,7 00

49,080
1,680
49,080 5,00,380
1,680 36,280
5,00,380 2,16,000 2,16,000 3,21,200
1,680 36,280
3,21,200
Working Notes: Adjustments: (i) Office supplies exp. 4,400 Office supplies 4,400 (8,900 4,500) (ii) Rent exp. 5,000 Prepaid Rent 5,000 (iii) Dep. exp. Building 10,000 Acc. Dep.- Building 10,000 (iv) Wages exp. 8,000 Wages payable 8,000 (v) Accounts Receivable 20,000 Service Revenue 20,000 (vi) Interest exp. 1,680 Interest payable 1,680
7 24,000 12% 12
Ans. to the que.No. 10 (a) City Ltd.
LIFO Method
Periodic inventory system For the month of June 30, 2008 Receipt / Purchase Issue / sales Date Explanation Units Rate Amount Units Rate June .1 Opening inventory 25 60 1500 4 10 11 18 18 25 28 Purchase Sales Sales return Purchase Purchase return Sales Purchase 20 72 1440 35 (5) 68 68 2380 (340) 40 95 85 64 5440 70 (10) 90 90
Amount
6300 (900)
3800
Balance Units Rate 25 60 25 60 85 64 25 60 15 64 25 60 25 64 25 60 25 64 35 68 25 60 25 64 30 68 25 60 15 64 25 60 15 64
Amount 1500 1500 5440 1500 960 1500 1600 1500 1600 2380 1500 1600 2040 1500 960 1500 960
20
160 10420
72
1440
3,900
100
9,200
60
(i) Ending inventory (LIFO) = 3,900 (ii) Cost of goods sold = cost of goods available for sale value of ending inventory = 10,420 3,900 = 6,520 (iii) Gross Profit = Net sales cost of goods sold = 9,200 6,520 = 2,680 Gross Pr ofit 100 (iv) Gross Profit Rate = Netsales 2,680 100 = 9,200 = 29.130 %
(a) (2) (i) Ending Inventory For the month of June 30, 2008 Date June .1 4 10 11 18 18 25 28 Explanation Opening inventory Purchase Sales Sales return Purchase Purchase return Sales Purchase 20
160
FIFO Method City Ltd. Receipt / Purchase Units Rate Amount 25 60 1500 85 64 5440 70 (10) 35 (5) 68 68 2380 (340) 40 72 1440
10420
Issue / sales Units Rate
Amount
90 90
6300 (900)
95
3800
Balance Units Rate 25 60 25 60 85 64 40 64 50 64 50 64 35 68 50 64 30 68 10 64 30 68 10 64 30 68 20 72

60
100
9,200
Amount 1500 1500 5440 2560 3200 3200 2380 3200 2040 640 2040 640 2040 1440 4,120
(i) Ending inventory (FIFO) = 4,120 (ii) Cost of goods sold = cost of goods available for sale value of ending inventory = 10,420 -4,120 = 6,300 (iii) Gross Profit = Net sales cost of goods sold = 9,200 6,300 = 2,900 Gross Pr ofit 100 (iv) Gross Profit Rate = Netsales 2,900 100 = 9,200 = 31.522 %
Ans. to the Que.No.11 In the Books of Consult Sohana Journal entries Date Jan 1 10 15 19 22 25 28 29 Explanation Cash Shohanas Capital [Cash invested by owner in his business] Rent exp. Cash [Paid to rent] Office equipment Accounts payable [Purchase office equipment on account] Cash Service Revenue [Service 4revenue to customer in cash] Cash Notes Payable [Money borrowed on a notes payable] Accounts Receivable Consulting Revenue [Service rendered to customer on account] Salaries exp. Cash [Paid to salaries] Utilities exp. Cash [Paid to the utilities exp.] Accounts Payable Cash [Paid to accounts payable] Cash Accounts Receivable [Cash received from a/c receivable] Sohanas withdraw Cash [Withdraw by sohana in his personal use] Ref Dr (Tk) 10,000 800 800 3,000 3,000 1,500 1,500 700 700 2,000 2,000 500 500 400 400 1,000 1,000 1,000 1,000 200 200 Cr (Tk) 10,000
30 31 31
Req: (ii) Ledger Cash account Date Explanation 2008 January 1 10 19 22 28 30 31 31 Sohans Capital Date Explanation January 1 Rent exp. Date January 10 Explanation
In the Books of counsult Sohana Ref Debit 10,000 800 1,500 700 500 1,000 1,000 200 Ref Debit Credit 10,000 Credit Credit Balance 10,000 9,200 10,700 11,400 10,900 9,900 10,900 10,700 Balance 10,000 Balance 800 Balance 3,000 Balance 3,000 2,000 Balance 1,500 Balance 700
Ref
Debit 800 Debit 3,000 Debit 1,000
Office equipment Date Explanation January15 Accounts payable Date Explanation January 15 30 Service revenue Date Explanation January 19 Notes payable Date Explanation January 22
Ref
Credit
Ref
Credit 3,000
Ref
Debit
Credit 1,500 Credit 700
Ref
Debit
Accounts receivable Date Explanation January 25 31 Consulting revenue Date Explanation January 25 Salaries exp. Date Explanation January 28 Sohans withdraw Date Explanation January 31
Ref
Debit 2,000
Credit 1,000
Balance 2,000 1,000 Balance 2,000 Balance 500 Balance 200
Ref
Debit
Credit 2,000 Credit Credit
Ref Ref
Debit 500 Debit 200
Req: (iii) In the Books of consult Sohan Trial Balance January 31, 2008 Acc ..No. Accounts Title Ref 1 Cash 2 Sohans Capital 3 Rent exp. 4 Office equipment 5 Accounts payable 6 Service Revenue 7 Notes Payable 8 Accounts Receivable 9 Consulting Revenue 10 Salaries exp. 11 Sohans withdraw
Debit 10,700 800 3,000
Credit 10,000 2,000 1,500 700
1,000 2,000 500 200 16,200
16,200
Req:(a) Ans. to the Que.No: 12 In the Books of Consult Sonias Ltd. Adjusting entries For the month of August 31, 2008 Date Explanation 31 Insurance exp. Prepaid Insurance [To record insurance exp.] 31 Supplies exp. Supplies (1300 300)
Ref Dr (Tk) Cr (Tk) 150 150 1,000 1,000
31 31 31 31
[To record supplies exp.] Depreciation exp.-equipment Accumulated dep.-equipment [To record depreciation exp.] Interest exp. Interest payable [To record interest on notes payable] Salaries exp. Salaries payable [To record unpaid salaries] Accounts Receivable Consulting fees [To record consulting revenue]
900 900 500 500 1,000 1,000 1,000 1,000
Req: (b) In the Books of Consult Sonias Ltd. Adjusted Trial Balance August 31, 2008 SL.No. Accounts Title Ref Debit Credit 1 Cash 5,400 2 Accounts Receivable (2,800 +1,000) 3,800 3 Consulting fees (14,900 + 1,000) 15,900 4 Prepaid insurance (2,400 150) 2,250 5 Insurance exp. 150 6 Supplies (1,300 1,000) 300 7 Supplies exp. 1,000 8 Equipment 60,000 9 Notes payable 30,000 10 Accounts payable 2,400 11 Sonia Capital 30,000 12 Sonia Drawings 1,000 13 Salaries exp. 200 14 Salaries payable 1,000 15 Utilities exp. 800 16 Advertising exp. 400 17 Depreciation exp.- Equipment 900 18 Accumulated dep.-Equipment 900 19 Interest exp. 500 20 Interest payable 500 80,700 80,700 Ans. to the Que.No: 13 Rupa Trading and Co. Income Statement For the year ended 31, Dec. 2007
Explanation Net sales(W-1) Less: Cost of goods sold (W-3) Gross Profit Operating exp. Selling exp.: Depreciation exp.-Equipment Insurance exp. ( 9,200 60% ) Utilities exp. (12,000 60% ) Sales salaries exp. Sales commission exp. Administration exp. Depreciation exp.-Building Property tax exp. Insurance exp. ( 9,200 40% ) Office salaries exp. Utilities exp. (12,000 40% ) Non-operating exp: Interest exp. Non- operating income: Interest Revenue Net income Rupa Trading and Co. Owners Equity Statement For the year ended 31, Dec. 2007 Rupas Capital Add: Net income Less. Rupas Drawings
Tk. 6,22,000 4,12,700
Tk. 2,09,300
12,700 5,520 7,200 76,000 15,500 10,400 4,800 3,680 32,000 4,800 11,000 (5,000) 1,78,600 30,700
1,76,600 30,700 2,07,300 28,000 1,79,300
Rupa Trading and Co. Balance Sheet As at Dec. 2006 Explanation Assets: Current assets: Cash Accounts Receivable Prepaid insurance Merchandise Inventory Fixed assets: Equipment Less. Accumulated Dep. Building Less. Accumulated Dep. Liabilities and O.E: Current Liabilities: Interest payable Mortgage payable Accounts payable Property tax payable Sales commission payable Utilities payable Long term liability: Mortgage payable Owners equity 1,10,000 42,900 1,90,000 52,500
Tk.
Tk.
20,800 50,300 2,400 75,000
67,100 3,53,100 1,37,500
4,000 60,000 78,700 4,800 5,300 1,000 3,53,100 20,000 1,79,300
Working: Net sales: Sales Less. Sales return
6,28,000 6,000 6,22,000
Note: Merchandise inventory treated as current assets.
BBA FIRST YEAR, FIRST SEMESTER EXAMINATION, 2009 PRINCIPLES OF ACCOUNTING Subject Code: 1102 Examination Code: 601 Time3 hours Full marks70 [N.B.The figures in the right margin indicate full marks. Answer any five questions from part-A and any four questions from part-B.J Part A Marks 1. (a) Define Accounting. 2 (b) Who are external users of accounting information? What 4 uses of financial accounting information are made by (i) Shareholders; (ii) Creditors? 2. (a) Is worksheet a part of accounting cycle? Explain the 3 purpose of worksheet. (b) What are the entries an organization needs to prepare for 3 closing its books of accounts at the end of each accounting period? 3. (a) Distinguish between cash basis and accrual basis of 3 accounting. (b) State two generally accepted accounting principles that 3 relate to adjusting the accounts. 4. (a) Why the merchandise inventory account is usually 3 required to adjust at end of the year? Explain. (b) Explain the meaning of the credit terms (i) 2/10, n/30, 3 (ii) 1/10 EOM, (Hi) n/30. 5. (a) What are some of the reasons that may cause 3 management to use gross profit method and retail method of estimating inventory? (b) Discuss the importance of inventory valuation. 3 "Depreciation is the allocation of cost"Do you agree? Why? 6 What are the methods of issuing materials? When and why 6 we will use LIFO or FIFO method?
Part B 8. Mr. Sanaf started his own consulting firm, Sanaf Consulting, on May 1, 2008. The trial balance at May 31, 2008 is as follows : . Sanaf Consulting Trial Balance May 31,2008 Account Titles Debit (Tk.) Credit (Tk.) Cash 6,500 Accounts Receivable 4,000 Prepaid Insurance 3,600 Supplies 1,500 Office Furniture 12,000 Accounts Payable 3,500 Unearned Service Revenue 3,000 Sanaf Capital 19,100 Service Revenue 6,000 Salaries Expense 3,000 Rent Expense 1,000 Total : 31,600 31,600
Marks
In addition to those accounts listed on the trial balance, the chart of accounts for Sanaf Consulting also contains the following accounts : Accumulated Depreciation-Office Furniture, Travel Expense Payable, Salaries Payable, Depreciation Expense-Office Furniture, Insurance Expense, Travel expense and Supplies Expense. Other Informations: (i) Tk. 700 of supplies has been used during the month; (ii) The office furniture has a 10-years life with no salvage value; (Hi) Travel expense incurred but not paid on May 31, 2008, Tk. 300; (iv) The insurance policy is for two years; (v) Tk. 500 of the balance of unearned service revenue account remains unearned at the end of the month; (vi) May 31 is a Tuesday, and employees are paid on Fridays. Sanaf Consulting has three employees, who are paid Tk. 250 for a 5-days workweek; (vii) Invoice representing Tk. 1,500 of services provided during the month have not been recorded as of May 31, 2008. Required : Prepare a 10-column worksheet for Sanaf Consulting.
9. You are provided with the following information for Ideal Corporation for the month ended June 30, 2009 : Date Description Quantity in Units 50 100 80 10 30 05 75 10 Unit cost or Selling price (Tk.) 10 12 23 ? 16 9 23 18
June 01 Beginning inventory 05 Purchase 08 Sales 10 Sales return 15 Purchase 16 Purchase return 20 Sales 30 Purchase Required : Using the data above calculate the (i) cost of goods sold, (ii) 10 ending inventory, (Hi) gross profit for the month of June, 2009 using (a) FIFO; and (b) Weighted-Aver age cost method under a perpetual inventory system. 10. Lewis Companys chart of accounts includes the following selected accounts : 101 Cash 401 Sales 112 Accounts Receivable 414 Sales discount 120 Merchandise Inventory 505 Cost of Goods sold 301 J. Lewis, Capital On June 01 the Accounts receivable ledger of Lewis Company showed the following balances : Bernard & Sons Tk. 3,500; Farely Co. Tk. 1,900; Grinnel Bros. Tk. 1,600 and Masquoketa Co. Tk. 1,300. The June transactions involving the receipt of cash were as follows : June 1 The owner, J. Lewis, invested additional cash in the business Tk. 10,000 June 3 Received check in full from Masquoketa Co. less 2% cash discount; June 6 Received check in full June7 Made cash sale of Merchandise totaling Tk. 6,135 The cost of the merchandise sold was Tk. 4,090 June 9 Received check in full from Bernard & Sons less 2% cash discount; June 11 Received cash refund from a supplier for damaged merchandise Tk. 320 June 15 Made cash sales of merchandise totaling Tk.
4,800. The cost of the merchandise sold was Tk, 3,200 June 20 Received check in full from Grinnel Bros. Tk. 1,600 Required :(a) Journalize the transactions above in a cash receipts Journal. Prepare Accounts Receivable Control Account and its Subsidiary ledger accounts.
11. Raffi Traders started his own delivery service. The following transactions occurred during the month of June : 1.Raffi invested Tk. 20,000 cash in his business; 2Purchased a delivery van for Tk. 10,000. Raffi paid Tk. 3000 in cash and signed a note payable for the remainder balance; 3Paid 800 for office rent; 4.Performed 5,400 of service on account; 5.Withdrew Tk. 300 cash for personal use; 6.Purchase supplies for Tk. 350 on account; 7.Receive a cash payment of Tk. 750 for services provided on June 5; 8.Purchase gasoline for Tk. 100 on account; 9.Receive a cash payment of Tk. 1,500 for services provided; 10.Made cash payment of Tk. 500 on the note payable; 11.Paid Tk. 250 for utilities; 12.Paid for the gasoline purchased on account on June 17. 13.Paid Tk. 500 for employees salaries. Required : You are required to show the effects of the above transactions on accounting equation.
10
12. Auhon opened a business on September 2009. During the first month of operation the following transactions occurred : September 1 Invested Tk. 20,000 cash in the business; 2.Paid Tk.1,000 cash for store rent for the month September; 3.Purchased washer and dryer for 25,000 paying Tk. 10,000 in cash and signing a 15,000 six month 125 notes payable; 4.Paid Tk. 1200 for one year accident policy; 10 Received bill from the daily news for advertising the opening of the business Tk. 200; 20 Withdrew Tk., 700 cash for personal use; 30. Determine that cash receipts for laundry services for the month were
Tk. 6,200. Instructions: Journalize the September transactions; Open ledger accounts and post the September transactions; Prepare a trial balance at September 30, 2009.
13. The Trial balance of Navana Ltd. for the year ending Dec. 10 31, 2008 is shown below: Navana Ltd. Trial Balance Dec. 31, 2008 Accounts TitleDebit (Tk.) Credit (Tk.) Cash 30,000 Accounts receivables 55,200 Merchandise Inventory 60,000 Prepaid Insurance 3,600 Equipment 70,000 Land 14,000 Accumulated depreciation-Equipment 20,000 Accounts payable 62,400 , Sales revenue 4, 82,000 Sales returns and allowances 9,200 Capital 1, 00,600 Sales discount 7,800 Purchase 3, 44,000
Freight in 10,000 Purchase returns and allowance 2,400 Purchase discounts 4,000 Salaries expenses 41,400 Interest' 14,000 Utilities 12,200 Total: 6, 71,400 6, 71,400 Other information: (1) Merchandise inventory on hand at Dec. 31, 2008 is Tk. 80,000; (2) Prepaid salaries Tk. 4,000; Insurance expired Tk. 2,000 during the year; Provide depreciation @ 10% on equipment. Requirements : (a) Prepare a Multiple steps income statements for the year ended on Dec. 31, 2008; (b) Prepare a classified balance sheet as at Dec. 31, 2008.
BBA- 2009
Ans. to the Que. No: 8 1) Supplies exp. Supplies 700 700
2) Dep. exp.-Furniture 100 Accumulated dep.-Furniture 100 3) Travel exp. 300 Travel payable 300
4) Insurance exp. 150 Pre paid insurance 150 3600 1 24 5) Unearn Service Revenue 2,500 Service Revenue 6) Salaries exp. Salaries payable 250 3 5 7) Accounts Receivable Service Revenue 150 150
2,500
1,500 1,500
Sanaf Consulting Work Sheet For the month of May.31, 2008 Explanation Cash A/C Receivable Prepaid Insurance Supplies Office Furniture A/c Payable Unearn Ser. Rev. Sanaf Capital Service Revenue Salaries exp. Rent exp. Supplies exp. Dep.exp.Furniture Acc.dep.3,000 1,000 Trial Balance Dr. 6,500 4,000 3,600 1,500 12,00 0 Cr. adjustments Dr. 1,500 150 700 3,500 3,000 19,10 0 6,000 150 700 100 100 Cr. Adjusted T/B Dr. 6,500 5,500 3,450 800 12,00 0 Cr. Income statement Dr. Cr. Balance sheet Dr. 6,500 5,500 3,450 800 12,00 0 Cr.
2,500
4,000 3,150 1,000 700 100
3,500 500 19,10 0 10,00 0 3,150 1,000 700 100 100
3,500 500 19,100 10,000
100
Furniture Travel exp. Travel payable Insurance exp. Salaries payable Net income Total
31,600 31,600
300 300 150 150
300 300 150 150
300 300 150 150 4,600 9,700

28,250 28,250
4,600 5,400 5,400 33,650 33,650 9,700
Ans. to the que no: 9 (a) Indeal corporation Store ledger (Under FIFO method) For the month of June 30, 2009 Date 2009 June 1 5 08 10 15 16 20 30 Explanation Beginning inventory Purchase Sales Sales return Purchase Purchase return Sales Purchase 10 135 18 180 2,280 145 3,335 30 (5) 16 16 480 (80) 75 23 1725 Receipt / Purchase Units Rate Amount 50 100 10 12 500 1,200 80 (10) 23 23 1840 (230) Issue / sales Units Rate Amount Balance Units Rate Amount 50 50 100 70 80 80 30 80 25 5 25 5 25 10 40 10 10 12 12 12 12 16 12 16 12 16 12 16 18 500 500 1,200 840 960 960 480 960 400 60 400 60 400 180 640
Cost of goods sold: Cost of goods available for sale = 2,280 Less: Value of Ending inventory = __640__ 1,640 ======== Ending unit 40 Tk.-640 Gross profit = Net sales Cost of goods sold = 3,335 1,640 = 1,695
9 (b) Ideal corporation (Under Weighted Average cost method) For the month of June 30, 2009 Receipt / Purchase Issue / sales Balance Date Explanation Units Rate Amount Units Rate Amount Units Rate June 1 Beginning inventory 5 08 10 15 16 20 30 Purchase Sales Sales return Purchase Purchase return Sales purchase 10 18 180 2,280 30 (5) 16 16 480 (80) 75 23 1725 3335 50 100 10 12 500 1,200 80 (10) 23 23 1840 (230) 50 150 70 80 110 105 30 40 40 10
Amount 500
11.333 1700 11.333 793 11.333 906.64 12.609 1387 12.609 1324 12.609 378 13.95 558 558
Cost of goods sold = cost of goods available for sale value of Ending inventory = 2,280 558 = 1,722 (ii) Ending inventory 40 unit Tk. 558 (iii) Gross profit = Net sales Cost of goods sold = 3,335 1,722 = 1,613 Grossaprofit 100 (iv) Gross Profit rate = Netsales 1,613 100 = 3,335 = 48.36 % Ans. to the Que No: 10 Lewis Company Cash Receipt Journal Accoun Da ts R te credite ef d Ju n 1 3 6 7 9 11 15 20 Cash Dr Sales Disco unts Cr Accou nts Recei vable Cr Sales Cr Cost of Other good s sold Dr Acco Mercha unts ndise Cr Invento ry Cr 10,00 0 6,135 70 3500 4,800 1,600 320 3,200 1,090
J.Lews, Cap Maquo Co. Farley Co.
3 0 1
Block& 1 Sons 2
10,000 1,274 1,862 6,135 3,430 320 4,800 1,600
26 38
1,300 1,900
Merchi. 0 Inv Green Bros. Foot Cross foot

29,421 ( 134 8,300 10,935 ( 10,320 7,590
101)
29,555
(414)
(112)
29,555
401)
(505)
Lewis Company General journal Accounts Receivable Date Explanation June 1 Balance 30 Accounts Receivable Subsidiary Ledger Bernard & Sons Date Explanation June 1 Balance 9 Farley Co. Date June 1 6
Ref CR1
Debit
Credit 8,300
Balance 8,300 0
Ref CR1
Debit
Credit 3,500
Balance 3,500 0
Explanation Balance
Ref CR1 Ref CR1 Ref CR1
Debit
Credit 1,900
Balance 1,900 0 Balance 1600 0 Balance 1,300 0
Grinnell Bros. Date Explanation June 1 Balance 20 Maquoketa Co. Date Explanation June 1 Balance 3
Debit
Credit 1,600
Debit
Credit 1,300
Ans. to the que. No: 11 Raffi Traders For the month of June Tabular Analysis Date A Delivery Cash 1 Van 2 +20,000 3 (3,000) +10,000 4 (800) 5 6 (300) 7 8 +750 9 10 +1,500 11 (500) 12 (250) 13 (100) (500) 16,800 31,800 10,000
A/c Receivable
= L + O.E Notes Supplies payable 7,000
Remarks A/c payable Capital +20,000 Investment
5,400 +350 (750) +100 (500) (100) +350
(800) +5,400 (300) (100) +1,500 (250) (500)
Rent exp. Ser. Rev. Withdraw Gasoline exp. Ser. Rev. Utilities exp. Salaries exp.
4,650
350
6,500 31,800
350
24,950
Ans. to the que.No: 12 Req: (a) Journal entries Date Explanation
Auhon Ref Dr (Tk) 20,000 Cr (Tk)
2009 Cash Sep.1 Auhons Capital 20,000 [Cash invested by owner in his 2 business] 1,000 1,000 Rent exp. Cash 3 25,000 [Paid to rent] 10,000 Washer and dryer 15,000 Cash Notes payable [Purchase Washer and dryer in cash and 4 1,200 on notes payable] 1,200 Prepaid insurance Cash 10 200 [Paid one year account policy] 200 Advertising exp. Accounts Payable 20 700 [Receive advertising bill from daily 700 news] withdraw 30 6,200 Cash 6,200 [Withdraw by owner for his personal use] Cash Laundry Service Revenue [Cash received from laundry Service] Req: (b) Ledger Cash Date Explanation Ref Debit Credit Balance 2009 Sep. 1 20,000 20,000 2 1,000 19,000
3 4 20 30 Authon Capital Date Explanation Sep. 1 Rent exp. Date Explanation Sep. 2 Washer and dryer Date Explanation Sep. 3 Notes payable Date Explanation Sep. 3 Prepaid insurance Date Explanation Sep. 4 Advertising exp. Date Explanation Sep. 10 Accounts Payable Date Explanation Sep. 10 Withdraw Date Explanation Sep. 20 Ref
10,000 1,200 700 6200 Debit Credit 20,000 Credit
9,000 7,800 7,100 13,300 Balance 20,000 Balance 1,000 Balance 2,500 Balance 15,000 Balance 1,200 Balance 200 Balance 200 Balance 700
Ref
Debit 1,000 Debit 2,500 Debit
Ref
Credit
Ref
Credit 15,000 Credit
Ref
Debit 1,200 Debit 200 Debit
Ref
Credit
Ref
Credit 200 Credit
Ref
Debit 700
Laundry Service Revenue Date Explanation Sep. 30
Ref
Debit
Credit 6,200
Balance 6,200
Req: I Auhon Trial Balance For the month of Sep.30, 2009 Acc ..No. Accounts Title 1 Cash 2 Rent exp. 3 Washer and dryer 4 Notes payable 5 Authon Capital 6 Prepaid insurance 7 Advertising exp. 8 Accounts Payable 9 Withdraw 10 Laundry Service Revenue
Ref
Debit 13,300 1,000 25,000 1,200 200
Credit
15,000 20,000 200 700

41,400
6,200 41,400
Ans. To the question No.13 Workings: Net Sales: Sales 4,82,000 Less. Sales return 9,200 4,72,800 Less. Sales discount 7,800 4,65,000 Net Purchase: Purchase Less. Purchase return 3,44,000 2,400
3,41,600 Less. Purchase discount 4,000 3,37,600 Add. Freight in 3,47,600
10,000
Cost of goods sold: Opening inventory Add. Net Purchase
60,000 3,47,600 4,07,600 Less. Ending inventory 80,000 3,27,600
Navana Ltd. Income Statement For the year ended 31,Dec. 2008 Explanation Net sales(W-1) Less: Cost of goods sold (W-2) Gross Profit Operating and Other exp. Insurance exp. Salaries exp. 41,000 4,000 Less. Prepaid Utilities esp. Depreciation exp.-Equipment Non operating exp: Interest exp. Net income Navana Ltd.
Tk. 4,65,000 3,27,600
Tk. 1,37,400
2,000 37,400 12,200 7,000 14,000
72,600 64,800
Owners Equity Statement For the year ended 31, Dec. 2008 Explanation Capital Add: Net income
Tk. 1,00,600 64,800 1,65,400
Req: (b) Navana Ltd. Balance Sheet As at 31, Dec 2008 Explanation Assets: Current assets: Cash A/c Receivable Prepaid insurance (3600 2000) Ending inventory Prepaid salaries Fixed assets: Equipment 70,000 Less. Acc.Dep.-Equipment(20000 + 7000) 27000 Land Liabilities and O.E Current Liabilities Accounts payable Owners equity
Tk.
Tk.
30,000 55,200 1,600 80,000 4,000 43,000 14,000 62,400 1,65,400 2,27,800
2,27,800
BBA FIRST YEAR FIRST SEMESTER EXAMINATION, 2010 PRINCIPLE OF ACCOUNTING (1102) Time- 3hours Full marks- 70 [N.B- The figures in the right margin indicated full marks. Answer any five questions from Part one and four from from Part two]. Part One Marks- 6 5 = 30 (a) What is accounting? What is the importance of accounting in business? 3 (b)What is the basic accounting equation? Discuss the elements of the basic accounting equation. 3 2. (a) Explain in short the accounting cycle. 3 (b) What is a closing entry? Discuss in brief the closing process of temporary accounts. 3 3. (a) What are the different types of adjusting entries? Explain with examples. 3 (b) What is a classified balance sheet? Discuss the different categories of assets according to classified balance sheet. 3 4. (a) Describe the different systems to account for merchandise inventory. 3 (b) Define the following concepts:3 (i) FOB destination; (ii) FOB shipping point; (iii) Contra revenue accounts. 5. (a) Discuss the principle of internal control used generally by business organizations. 4 (b) What is reconciliation of bank accounts? Why reconciliation is required? 2 6. Briefly describe four assumptions that underline the financial accounting structure. 6 7. (a) What is Accounting Information System? 3 (b) Discuss the nature and advantages and advantages of subsidiary ledger. 3 Marks- 10 4 = 40 M/s Harun Traders started its delivery business on August 2010. In the month, the following transactions occurred:-
August 1 Mr. Harun, the owner, invested Tk. 1,50,000 in the business. 2 Purchased a delivery van for Tk. 50,000 paying Tk. 20,000 in cash and singing a Tk. 30,000 note. Occupied an office and Tk. 5,000 cash as rent. 10 Purchase supplies of Tk. 3,500 in cash. Performed delivery service of Tk. 9,000 on acoount. 18 Received cash payment of Tk. 5,000 for August 15 transaction. 23 Performed delivery services for cash, Tk,. 6,000 Paid Tk. 1,500 cash for trade license fees. 31. Paid utilities expense, Tk 2,000 and salaries expenses, Tk. 5,000 in cash.
Required:Journalize the above transaction with proper explanation. 4 Post the journal entries in the respective ledger accounts. 6 The trial balance of Razib Repairing Services on October 31, 2010 is as the following: Razib Repairing Services Trial Balance October 31,2010 Dr.(Tk) Cr.(Tk.) Cash 48,800 Accounts receivable 35,200 Office Supplies 20,000 Repair equipment 1,50,000 Prepaid Insurance 18,000 Accounts payable 34,000 Unearned service revenue 14,000 Salaries Payable 5,000 Owners capital 1,86,000 Repair service revenue 75,000 Salaries expense 31,000 Rent expense 5,000 Utilities expense 6,000
3,14,000
3,14,000
By examining the books of original of entry, it was revealed that: i)The insurance is for one year starting from March 1. (ii) A count of supplies shows Tk. 6,000 of unused supplies. (iii) The store equipment has a salvage value of Tk. 10,000 and an estimated life of 10 years. (iv) The unearned revenue of Tk. 9,000 has been earned by October 31. (v) Salaries of Tk. 3,000 is accrued and unpaid on October 31. Required: (a) Journalize the adjusting entries with proper explanations. (b) Post the journal entries into the respective T-accounts. c) Prepare an adjusted trial balance. After the first month of operation, the adjusted trial balance of Marine Enterprise was the following:Marine Enterprise Adjusted Trial Balance September 30, 2010 Dr.(Tk) Cr(Tk.) Cash 54,000 Accounts receivable 28,000 Supplies 10,000 Prepaid insurance 22,000 Equipment 6,00,000 Accumulated depreciation Equipment 9,000 Notes payable 4,00,000 Accounts Payable 24,000 Interest payable 5,000 Owners capital 3,00,000 Owners drawings 10,000 Service revenue 49,000 Salaries expense 32,000 Utilities expense 8,000 Advertising expense 4,000 Insurance expense 2,000 Supplies expense 3,000
Depreciation expense Interest expense
9,000 5,000 7,87,000
7,87,000
Required : Marks 5 Prepare a classified balance sheet assuming that Tk. 350,000 of notes payable is long-term. Prepare an income statement of Marine Enterprise for 2 September 2010. Journalize the closing entries. 3 11. Ready-Set-Go distributes suitcases to retail stores and 10 extends credit terms of 1/10, n/30 to all of its customers. At the end of July, R-S-Gs inventory consisted of 40 suitcases purchased at Tk. 30 each. During the month of July the following merchandising transactions occurred: July 1 Purchased 50 suitcases on account for Tk. 30 each from Trunk Manufactures, FOB destination, terms 2/10, n/30. The appropriate party also made a cash payment of Tk. 100 for freight on this date. 3 Sold 40 suitcases on account to Satchel World for Tk. 55 each. 9 Paid Trunk Manufacturers in full. 12 Received payment in full from Satchel World. 17 Sold 30 suitcases on account to The Going Concern for Tk. 55 each. 18 Purchased 60 suitcases on account for Tk. 1,700 from Holiday Manufacturers, FOB shipping point, terms 1/10, n/30. The appropriate party also made a cash payment of Tk. 100 for freight on this date. Received Tk. 300 credit (including freight) for 10 suitcases returned to Holiday Manufacturers. Received payment in full from The Going Concern. 22 Sold 45 suitcases on account to Fly-By-Night for Tk. 55 each. Paid Holiday Manufacturers in full. Granted Fly-By-Night Tk. 220 credit for 4 suitcases returned costing Tk. 120. Instructions : Journalize the transactions for the month of July for Ready-Set-Go
using a Perpetual inventory system. 12. The chart of accounts of Dutch Company Includes the 10 Marks following selected accounts : 112 Accounts Receivable 401 Sales 120 Merchandise Inventory 412 Sales Return and Allowance 126 Supplies 505 Cost of Goods Sold 157 Equipment 610 Advertising Expense 201 Accounts Payable In May the following selected transactions were completed. All purchases and sales were on account except as indicated. The cost of all merchandise sold was 65% of the sales price : May 2 Purchased merchandise from Van Houk Company Tk. 9,500. 3 Received freight bill from. Ruden freight on Van Houk purchase Tk. 360. 5 Sales were made to Ellie Company Tk. 1,980, Cornells Bros. Tk. 2,700 and Jan Company Tk. 1,500. 8 Purchased merchandise from Tulip Company Tk. 8,000 and Zeider Company Tk.8,700. 10 Received credit on merchandise returned to Zeider Company Tk. 500. Purchased supplies from Sandvoort Supply Tk. 900. Purchased merchandise from Van Houk Company Tk. 4,500 and Tulip Company Tk. 7,200. Returned supplies to Sandvoort Supply, receiving credit Tk. 100. Received freight bills on May 16 purchases from Ruden Freight Tk. 500. 20 Returned merchandise to Van Houk Company receiving credit Tk. 300. 23 Made sales to Cornelis Bros. Tk. 2,400 and to Jan Company Tk. 3,100. Received bill for advertising from Amster Advertising Tk. 900. Granted allowance to Jan Company for merchandise damaged in shipment Tk. 200. Purchased equipment from Sandvoort Supply Tk. 250.
Instructions : Journalize the transactions above in a purchase journal, a sales journal, and a general journal. 13. On October 31, 2009, M/s Khan & Co. had a cash balance per books of Tk. 678,150^ The bank statementfrom One Bank Ltd. On the same day showed a balance of Tk. 640,460. A comparison of the statement with the cash account revealed the following facts :(i) The statement included a debit memo of Tk. 4,000 for the printing of additional company checks. (ii) Cash sales of Tk. 83,615 on October 12 was deposited on the bank. The cash receipt journal entry and the deposit slip were incorrectly made for Tk. 89,615. The bank credited M/s Khan & Co. for the correct amount. (Hi) Outstanding checks at October 31 totalled Tk. 57,625 and deposits in transit were Tk. 191,615. (iv) On October 18, the company issued check no. C-011817 for Tk. 68,500 to Mollah Traders. The check, which was cleared in October by the bank, was incorrectly journalized and posted by M/s Khan & Co, for Tk. 65,800. A Tk. 250,000 note receivable was collected by the bank for M/s Khan & Co. on October 31 plus Tk. 8,000 interest. The bank charged a collection fee of Tk. 2,000. No interest has been accrued on the note. (vi) Included with the cancelled checks, was a check issued by Star Enterprise to M/s Karim & Sons, for Tk. 80,000 that was incorrectly charged to M/s Khan & Co. by the bank. On October 31, the bank statement showed an NSF charge of Tk. 68,000 for a check issued by Sojib Enterprise, a customer, to M/s Khan & Co. on account. Required : Prepare the bank reconciliation statement at October 2009 31, b)Prepare the necessary adjusting entries for M/s Khan & Co. at October 31, 2009. BBA-2010 Ans. To the que.No: 8 Req: (a) M/S Harun Traders
Journal entries Date Explanation 2010 Aug.1 Cash Mr. Haruns Capital [Cash invested by owner in his 2. business] Delivery Van Cash Notes payable [Purchased delivery van by cash and signing a note] 10. Supplies Cash [Purchase supplies in cash] 15. Accounts Receivable Service Revenue [Service provided on account] Cash 18. Accounts Receivable [Cash received from accounts receivable] Cash 23. Service Revenue [Service provided in cash] Trade license fees Cash 27. [Paid license fees in cash] Utilities exp. Salaries exp. 31. Cash [Paid utilities and salaries exp. in cash]
Ref. Dr (Tk) 1,50,00 0 50,000
Cr (Tk) 1,50,000 20,000 30,000
3,500 9,000 5,000
3,500 9,000 5,000
6,000
6,000
1,500 2,000 5,000
1,500
7,000
Ledger Req(b) Date Accounts Title 2010 Aug1 2 10 18 23 27 31 Delivery Van Date Accounts Title Aug 2 Notes Payable Date Accounts Title Aug 2 Supplies Date Aug 10
Cash Ref. Dr (Tk) 1,50,000
Cr (Tk)
Balance 1,50,000 1,30,000 1,26,000 1,31,500 1,37,500 1,36,000 1,29,000
20,000 3,500 5,000 6,000 1,500 7,000
Ref.
Dr (Tk) 50,000
Cr (Tk)
Balance 50,000
Ref.
Dr (Tk)
Cr (Tk) 30,000
Balance 30,000
Accounts Title
Ref.
Dr (Tk) 3,500
Cr (Tk)
Balance 3,500
Accounts Receivable Date Accounts Title Aug 15 18 Mr. Harun Capital Date Accounts Title Aug 1 Service Revenue Date Accounts Title
Ref.
Dr (Tk) 9,000
Cr (Tk) 5,000
Balance 9,000 4,000 Balance 1,50,000 Balance
Ref.
Dr (Tk)
Cr (Tk) 1,50,000 Cr (Tk)
Ref.
Dr (Tk)
Aug 15 23 Trade license fees Date Accounts Title Aug 27 Utilities exp. Date Accounts Title Aug 31 Salaries exp. Date Accounts Title Aug 31 Ref. Dr (Tk) 1,500
9,000 6,000 Cr (Tk)
9,000 15,000 Balance 1,500
Ref.
Dr (Tk) 2,000
Cr (Tk)
Balance 2,000
Ref.
Dr (Tk) 5,000
Cr (Tk)
Balance 5,000
Ans. to the que. No: 9 Req: (a) Razib Repairing Services Date Explanation 2010 Oct.31 31 31 31 31 Insurance exp. Prepaid Insurance [To record prepaid insurance expired] Office Supplies exp. Office Supplies [To record supplies exp.] Dep.exp.-Store equipment Accumulated dep.-Store equipment [To record dep. Exp.] Unearn service Revenue Service Revenue [Unearn service Revenue has been earn] Salaries exp. Salaries payable
Ref. Dr (Tk) 12,000 14,000
Cr (Tk) 12,000 14,000
11,667 11,667 9,000 9,000 3,000 3,000
[To record unpaid salaries]

Oct. Bal. 18,000 31. 12000 31.Bal c/d 6000 Insurance exp. Oct 31 12,000
Req: (b) 18,000 Prepaid insurance
18,000
Oct.31.
Supplies 20,000 31. 31. Bal. 6,000 20,000
14000 20,000
Oct.31.
Supplies exp. 14000
Oct.31. 11,667
Dep.exp.-Equipment 11,667
Acc.Dep.-Equipment Oct.
Unearned Service Revenue Oct.31. 9,000 Oct.31. 14,000 Oct.31.Bal 75,000 31.Bal. 5000 9000 14,000 14,000 84,000
Service Revenue Oct.31.Bal 84,000 31. 84,000
Salaries exp. Payable
Salaries
Oct.31.Bal 31,000 31. 5,000 31, 3,000 34,000 8,000
Bal 34,000 31. 34,000 3,000
31. Bal 8,000
Bal.
8,000
Cash Oct.31.Bal
48,000
Repair equipment Oct.31.
19,000
A/c Payable Oct.31. Bal. 34,000
A/c Receivable Oct.31.Bal. 35,200
Owners Capital Oct.31.Bal 1,86,000
Rent exp. Oct.31.Bal. 5,000
Utilities exp. Oct.31.Bal. 6,000
Req: (c) Razib Repairing Services Adjusted Trial Balance Oct.31,2010 Date Accounts Title Ref. 1. Prepaid Insurance 2. Insurance exp. 3. Supplies 4. Supplies exp. 5. Dep.exp.-Equipment 6. Acc.dep.-Equipment 7. Unearn Service Revenue 8. Service Revenue 9. A/c Receivable 10. Salaries exp. 11. Salaries payable 12. Cash 13. Repair equipment 14. A/c payable 15. Capital 16. Rent exp. 17. Utilities exp.
Dr (Tk) 6,000 12,000 6,000 14,000 11,667
Cr (Tk)
11,667 5,000 84,000 35,200 34,000 8,000 48,800 1,50,000 34,000 1,86,000 5,000 6,000 3,28,667 ========== 3,28,667 ==========
Ans. to the que. No: 10 Req:(a) Marine Enterprise Balance Sheet Sep.30,2010 Explanation Current assets: Cash Accounts Receivable Supplies Prepaid Insurance Fixed assets: Equipment Less-Accumulated depreciation 6,00,000 9,000
Tk. 54,000 28,000 10,000 22,000
Tk.
5,91,000 7,05,000
Liability: & O.E Current liability: Notes payable Accounts payable Interest payable Long term liability: Notes payable O.E
50,000 24,000 5,000 3,50,000 2,76,000 7,05,000
Marine Enterprise Req. (b) For the year ended Sep 30,2010 Explanation Revenue: Service Revenue Less: Operating & Other exp.: Salaries exp. Utilities exp. Advertising exp. Insurance exp. Supplies exp. Dep. exp. Non operating exp.: Interest exp. Net loss
Income statement Tk. Tk. 49,000 32,000 8,000 4,000 2,000 3,000 9,000 5,000 ___________ 63,000 14,000 ==========
Marine Enterprise Owners Equity Statement For the year ended Sep 30, 2010 Explanation Owners Capital Less: Net loss Less: Withdrawn
Tk. 3,00,000 14,000___ 2,86,000 10,000___ 2,76,000 ==========
Marine Enterprise Req: (c) Closing entries Date Explanation Ref. 2010 Sep.30 Service Revenue Income Summary [To close service revenue] 30 Income Summary Salaries exp. Utilities exp. Advertising exp. Insurance exp. Supplies exp. Dep. exp. [To close all expenses] 30 Capital Income Summary [To close Net loss] 30 Capital Drawings [To close drawings] Ans. to the que. No: 11 Journal entries (Perpetual Inventory System) Date Explanation July1 Merchandise inventory Accounts payable [To record goods purchased on account from Trunk Manufacturer] 3 Accounts receivable Sales [to record goods sold on account to Satchel World] Cost of goods sold Merchandise inventory
Dr. Tk. 49,000
Cr. Tk. 49,000
63,000 32,000 8,000 4,000 2,000 3,000 9,000 5,000 14,000 14,000 10,000 10,000
Ref. Debit 1,500
Credit 1,500
2,200 2,200
1,200 1,200
12
17
[To record cost of goods sold] Accounts payable Merchandise inventory Cash [To record paid the creditor less discount] Cash Sales discount Accounts Receivable [To record cash received from A/c receivable at discount] Accounts Receivable Sales [To record goods sold on account to the going concern] Cost of goods sold Merchandise inventory [To record cost of goods sold] Merchandise inventory Accounts Payable Cash [To record goods purchased on account from Holiday Manufacturer] Accounts Payable Merchandise inventory [To record goods return to Holiday Manufacturers] Cash Sales discount Accounts Receivable [To record cash receivable from A/c receivable at discount] Accounts Receivable Sales [To record goods sold on account to Fly-By-Night]
1,500 30 1470 2,178 22 2,200 1,650 1,650
900 900 1,800 1,700 100 300 300
18
20
21
1,633. 5 16.5
1,650
22
2,475
2,475
Cost of goods sold Merchandise inventory 30 [To record cost of goods sold] Accounts Payable Cash [To record paid the creditor without 31 discount] Sales return & allowance Accounts Receivable [To record return of goods] Merchandise inventory Cost of goods sold [To record cost of goods sold] Ans. to the que.No: 12 Req: (a) Dutch Company Purchase Journal Date May 2 3 8 8 15 16 16 18 25 28 Accounts Credited Ref. Other Accounts Dr.
1,350 1,400 220 120
1,350 1,400 220 120
Merchandise Inventory Dr. A/c Payable Cr. 9,500 360 8,000 8,700 900 4,500 7,200 500 900 250 40,810
Van Houk company Ruden Freight Tulip company Zeider company Sandvoort supply Van Houk company Tulip company Ruden company Amster advertising Sandvoort supply
900
900 250 2,050
( )
Dutch Company Sales Journal Date Accounts Debited Ref. Other Accounts
(120)( 201)
Merchandise
Dr. May 5 5 5 23 23 Ellie company Cornelis Bros. Jan company Cornelis Bros. Jan company 1,980 2,700 1,500 2,400 3,100 11,680
Inventory Dr. A/c Payable Cr. 1,287 1,755 975 1,560 2,015 7,592
(112)( 401)
( 505)
Dutch Company General Journal Entries Date Explanation Ref. Debit May10 Accounts Payable-Zeider company 500 Merchandise inventory [To record purchase returns and 17 allowances] 100 Accounts Payable-Sandvoort Supply Supplies 20 300 [To record supplies returns and allowances] Accounts Payable-Van Houk company 26 200 Merchandise inventory [To record purchase returns and allowance] Sales return and allowances Accounts Receivable-Jan company [To record sales returns and allowances]
Credit 500 100 300 200
BBA FIRST YEAR FIRST SEMESTER EXAMINATION, 2011 Subject Code: 1102 (Principles of Accounting) Time3 hours Full marks70 [N.B,The figures in the right margin indicate full marks. Answer any five questions from part A and any four questions from part B.J Part AShort Questions Marks6x5=30 Marks 1. (a) What is accounting? Discuss the image of accounting. 3 (b) What are the golden rules of double entry system? 3 2. (a) What are the essential characteristics of an event to be a 3 transaction? (b) Define accounting cycle. Mention the various phases of 3 Accounting cycle. (a) Discuss any five concepts and conventions. 3 (b) "Accounting as a information system", Explain. 3 (a) State the rules regarding the adjustment of "Adjustment 3 entries". (b) What do you mean by "Adjustment entries"? 3 5. (a) What are the content and purpose of a post-closing trial 3 balance? (b) Distinguish between a reversing entry and an adjusting 3 entry. Are reversing entries required? 6. (a) Accounting is ingrained in our society and it is vital to our 3 economic system. Do you agree? Explain. (b) What is retain earning statement? Why it is prepare? 3 7. (a) "An accounting information system applies only to a 3 manual system." Do you agree? Explain. (b) How would you determine inventory quantities? 3
Part BBroad Questions Marks - 10x4=40 Marks 10 8. James Barger opened law office on July 1st . On July 31st the 10 the balance sheet showed Cash Tk. 4,000, Account Receivable Tk. 1,500, Supplies Tk. 500, Office Equipment Tk. 5,000, accounts payable Tk. 4,200 and James Barger capital Tk. 6,800. During August the following transactions occurred: . Collected Tk. 1,400 of account receivable. Paid Tk. 2,700 cash on accounts payable. Earned revenue of Tk. 7,500 of which Tk. 3,000 is collected
in cash the balance is due in September. Purchased additional office equipment for Tk. 1,000, paying Tk. 400 in cash and the balance is due in September. Paid salaries Tk. 2,500 rent for August Tk. 900 and Advertising expense Tk. 350. (f) Withdrew Tk. 550 in cash for persona! use. (g) Received Tk. 2,000 from Standard Chartered Bankmoney borrowed on a note payable, (h) Incurred utilities expenses for month on account Tk. 250. Instructions: Prepare a tabular analysis of the August transactions beginning with July balances.
9. The trial balance of Jan. and Sons is as follows: Trial Balance As at 31st December, 2010 Debt Balance Drawing Purchase Sales Returns Merchandise Inventory Carriage In Office Salaries Expense Rent and Taxes Expense Sales Salaries Expense Carriage on Sales Advertising Expense Insurance Expense Sundry Office Expense Furniture Accounts Receivable Cash in hand Cash at Bank Building Taka 3,600 55,300 1,900 12,000 1,000 6,000 1,200 2,200 1,400 700 1,800 200 6,500 26,000 900 14,000 20,000 1,54,700 Credit Balance Capital Purchases Returns Sales Rent Income Commission Income Allowance for bad debts Allowance for depreciation Furniture Tk. 200 Building Tk. 500 Accounts payable Notes payable Loan on Mortgage (Payable on 30th June, 2003)
Marks 10
Taka 45,000 1,300 80,900 1,000 200 150
700 12,450 3,000 10,000
1,54,700
Adjusting data: Merchandise Inventory on 31 st December, 2010 Tk. 18,000. Carry forward for prepaid Insurance Tk. 450. Interest on Mortgage loan accrued Tk. 500. Office salaries accrued but not paid Tk. 600. Depreciation to be provided. Furniture Tk. 200, Building Tk. 500. Increase allowance for bad debts to Tk. 1,190 on Accounts Receivable. Goods taken by the proprietor for private use Tk. 100. Required: Prepare a ten column worksheet.
Marks 10 10. Maria Gonzalez opened a veterinary business in Nashville, Tennesse, on August 1. On August 31, the balance sheet showed cash Tk. 9,000, Accounts Receivable Tk. 1,700, Supplies Tk. 600, Office Equipment Tk. 6,000. Accounts Payable Tk. 3,600 and M. Gonzalez Capital Tk. 13,700. During September the following Transactions occured: Paid Tk. 2,900 cash on accounts payable. Collected Tk. 1,300 on accounts receivable. Purchased additional office equipment for Tk. 2,100, paying Tk. 800 in cash and the balance on account. Earned revenue of Tk. 8,000 of which Tk. 2,500 is paid in cash and the balance is due in October. Withdrew Tk. 1,000 cash for personal use. Paid salaries Tk. 1,700 rent for September Tk. 900 and advertising expense Tk. 300. Incurred utilities expenses for month on account Tk. 170. Received Tk. 10,000 from capital Bank-money borrowed on a note payable. Required: Show the effects of the transactions on accounting equation in a tabular form using appropriate head of money columns. 11. (a) Furnished below are the selected transactions of Shahin Company during July of the current year: 4
July 2 Purchased merchandise on account from Hermanson at a cost of Tk. 30,000. FOB shipping point, terms 2/10, n/30. 5 Paid freight charges of Tk. 1,500 on merchandise purchased from Hermanson on July 02. 7 Returned damaged goods costing Tk. 3,000 to Hermanson. 8 Sold merchandise to Shohag costing Tk. 10,000 on account for Tk. 14,000, terms 1/10, n/30. 14 Paid Hermanson the balance due related to July 02 purchases. 15 Received the balance due from Shohag. Required: Journalize the July transactions using perpetual inventory system. (No explanation is required.)
Marks (b) Nishan Ltd. is a retailer operating in Dhaka. Nishan uses the 6 Perpetual inventory method. All sales returns from customers result in the goods being returned to inventory, the inventory is not damaged. Assume that there are no credits transactions, all amounts are settled in cash. You have been given the following particulars for Nishan Ltd. for the month of January, 2011: Date Particulars Quantity Unit cost (Tk)
December 31 Ending Inventory 150 units 27 June 6 8 10 11 15 17 3 Purchase Sales Sales Return Purchase 110 units 31 160 units 50 20 units 85 units 50 34 34 55
Purchase Return 25 units Sales Purchase 60 units
110 units 38
Required: Compute (i) Cost of goods sold (ii) Ending inventory (Hi) Gross profit (iv) Gross profit rate by using LIFO method.
12. Account balances taken from the ledger of the Ideal Company on December 31, 2010: Marks 10 Ideal Company Trial Balance December 31,2010
Account titles Accounts payable Accounts receivable Building Accumulated depreciationbuilding Allowance for doubtful accounts Capital stock Cash Dividends Purchases Insurance expense Interest expense Interest revenue Inventory January 1, 2010 Land Long term investment Mortgage payable Office expenses Retained earnings January 1, 2010 Sales Sales Return Selling expenses Supplies expenses Payroll taxes
Amount (Tk.) 46,000 77,200 82,000 29,800 1,380 2,00,000 24,000 14,000 1,40,940 1,440 2,640 660 84,800 69,600 22,600 63,000 16,480 14,040 2,56,000 8,760 54,240 4,200 7,980
Marks Adjustments on December 31, 2010 are as follows: The inventory on hand is Tk. 90,720. The allowance for doubtful accounts is to be increased to a balance of Tk. 3,000.
Buildings are depreciated at the rate of 5% per year. Accrued sellings expenses are Tk. 3,840. There are supplies of Tk. 780 on hand. Prepaid insurance relating to 2011 totals Tk. 720. Income tax is estimated to 30% of the income before income tax. Out of mortgage payable Tk. 10,600 payable in 2010. Required: a)Prepare an income statement for the year ended December 31, 2010. b.)A balance sheet on December 31, 2010. 13. Write the following short notes: Projected Financial Statement; Break-even analysis; Accounting Equation; Liquidity and profitability ratios. 2.5x4=10
BBA- 2011 Ans. to the que. no: 8 James Barger Tabular Analysis:For the month of July A Date A/c Cash Receivable 4,000 1,500 1 +1,400 (1,400) 2 (2,700 3 ) +4,500 4 +3,000 5 (400) 6 (3,750 7 ) 8 (550) 9 +2,000 3,000 4,600 14,100 =========
= L + O.E Notes A/c Supplies Equipment Payable Payable 500 5,000 4,200 (2,700)
Capital 6,800 +7,500
Remarks Investment Earned Revenue Salaries,Rent,Advt. Withdrawn Utilities exp. an a/c
+1,000 +2,000
+600 (3,750 ) (550) +250 (250)
500
6,000
2,000 2,350 14,100 =========
9,750
Ans. to the que. No: 9 Jan and Sons Work sheet For the year ended 31 Dec. 2010 Trial Balance Accounts Titles Dr.(Tk) Cr.(Tk) Drawing 3600 urchases 55300 ales Return 1900 Merchandise 12000 nventory Carriage in 1000 Office salary exp. 6000 Rent & Taxes 1200 xp. ales Salaries 2200 xp. Carriage on sales 1400 Advertising exp. 700 nsurance exp. 1800 undry office 200 xp. urniture 6500 A/c Receivable 26000
Adjustments Dr.(Tk) Cr.(Tk) 100 100 18,000 600 12000
Adjusted T/B Dr.(Tk) Cr.(Tk) 3700 55,200 1900 18,000 1000 6600 1200 2200 1400 700 1350 200 6500 26000
Income Statement Dr.(Tk) Cr.(Tk) 55,200 1900
Balance Sheet Dr.(Tk) Cr.(Tk 3700
18,000 1000 6600 1200 2200 1400 700 1350 200 6500 26000
450
Cash in hand 900 Cash at Bank 14000 Building 20000 Capital urchase Return ales Rent income Commission ncome Allowance for ad debts Allowance for ep: Furniture Allowance for ep: Building A/c Payable Notes payable oan of Mortgage ncome summary re-Paid nsurance nterest exp. nterest payable alaries payable
900 14000 20000 45000 1300 80900 1000 200 150 200 500 12450 3000 10000 12,000 450 500 500 600 18,000 12,000 450 500 500 600 500 1040 200 500 45000 1300 80900 1000 200 1190 400 1000 12450 3000 10000 18,000 1300 80900 1000 200
900 14000 20000
45000
1190 400 1000
12450 3000 10000 12,000 18,000 450 500 600
Dep.exp.Furniture Dep.exp.Building Bed debts exp. Net income

1,54,700 1,54,700
200 500 1040 33,390 33,390
200 500 1040 1,75,540 1,75,540
otal
200 500 1040 15410 1,0,1400
1,01400
89,550
15410 89,550
Ans. to the que. no: 10 Maria Gonzalez For the month of Sep. Tabular Analysis A Date A/c Cash Rec. 1 9,000 1,700 1 (2,900) 2 +1,300 (1,300) 3 (800) 4 +2,500 +5,500 5 (1,000) 6 (2,900) 7 8 +10,000 15,200 5,900 29,800
= L + O.E Supplies Equipment 600 6,000 +2,100 N/P A/c Payable 3,600 (2,900) +1,300 +8,000 Earned Rev. (1,000) (2,900) Withdraw (170) Salaries, Rent,& Advertising Exp. 17,630 Utilities exp. Capital 13,700 Remarks Investment
+170 600 8,100 +10,000 10,000 2,170 29,800
Ans. to the que. No:11 (a) Shahin company Journal entries Date Explanation 2 Merchandise inventory A/c Payable 5 Merchandise inventory Cash 7 A/c Payable Merchandise inventory 8 A/c Receivable Sales Cost of goods sold Merchandise inventory 14 A/c Payable Cash 15 Cash Sales discount A/c Receivable
Ref. Dr (Tk) 30,000 1,500
Cr (Tk) 30,000 1,500
3,000 3,000 14,000 14,000 10,000 10,000 27,000 27,000 13,860 140 14,000
11. (b)
Date 2011 Dec.31 June:31 6 8 10 11 15 17
Explanation Ending inventory Purchase Sales Sales Return Purchase Purchase Return Sales Purchase
Nishan Ltd. Store ledger (Under LIFO method) Receipt / Purchase Issue / sales Units Rate Amount Units Rate 150 110 27 31 4,050 3,410 160 (20) 85 (25) 110 280 === 34 34 38 2,890 (850) 60 4,180 13,680 ===== 200 === 55 50 50
Amount
Balance Units Rate 150 150 110 100 120 120 85 120 60 120 120 110 230 === 27 27 31 27 27 27 34 27 34 27 27 38
Amount 4,050 4,050 3,410 2,700 3,240 3,240 2,890 3,240 2,040 3,240 3,240 4,180 7,420 =====
8,000 (1,000)
3,300 10,300 =====
Cost of goods sold: Cost of goods available for sales = 13,680 Less: Value of Ending inventory = 7,420__ 6,260 ======== Ending inventory 230 units Tk.-7,420 Gross profit = Net sales Cost of goods sold = 10,300 6,260 = 4,040 Gross Pr ofit 100 Gross profit rate = NetSales 4,040 100 = 10,300 = 39.22 % 12. Working Notes: Net Sales: Sales 2,56,000 Less: Sales return
__8,760_ 2,47,240 =========
Net purchase 1,40,940 Purchase Cost of goods sold: Opening inventory = 84,800 Add: Net purchase = _1,40,940_ 2,25,740 Less: Ending inventory = __90,720 1,35,020 Ideal company Income Statement For the year ended 31 Dec. 2010 Explanation Net sales Less: Cost of goods sold (W-3) Gross Profit Operating and other exp: Insurance exp. 1,440 Less: Pre paid exp. ___720_ Office exp. Selling exp. (54,240 + 3,840) Supplies exp. (4,200 - 780) Payroll exp. Bad debt to exp. Dep. exp- Building
Tk. 2,47,24 0 1,35,02 0
Tk. 1,12,220
720 16,480 58,080 3,420 7,980 1,620
Non operating exp. Interest exp. Non operating income: Interest Revenue Net income before tax Less: Income tax 30 % Net income after tax
4,100 2,640 (660) 94,380 17,840 5,352 12,488 ========
Ideal company Retained earning Statement For the year ended 31 Dec. 2010 Explanation Balance b / d Add: Net income Less: Dividend Ideal company Balance Sheet As at 31 Dec. 2010 Explanation Assets: Current assets: A/c Receivable Less: Allowance for doubtful a/c Cash Ending inventory Supplies on hand Prepaid insurance
Tk. 14,040 _12,488_ 26,528 14,000 12,528
Tk.
Tk.
77,200 3,000
74,200 24,000 90,720 780 720
Fixed assets: Building 82,000 Less: Accumulated dep.(29,800 + 4,100) 33,900 Land Long term investment Share capital & liabilities: Capital stock Current liability: A/c Payable Mortgage payable Selling exp. payable Tax payable Long term liability: Mortgage payable Retained earning Balance
48,100 69,600 22,600 2,00,000 46,000 10,600 3,840 5,352 52,400 12,528
3,30,720
3,30,720
Chapter One Introduction Study Objectivesafter studying the chapter, you should be able to: Define accounting? (2007, 2008, 2009, 2010, 2011) What is the importance of accounting in business? (2010) Distinguish between bookkeeping and accounting. Who are the users of accounting information? (2008,2007 2009) Why is ethics a fundamental business concept? 2007 Briefly describe four assumptions that underlie the financial accounting structure. 2010 Describe the accounting Conventions /Constraints / Principles. What is the basic Accounting Equation? 2007, 2008 Discuss the elements of accounting equation. 2010 Define Business transaction. Features of Transactions. Describe the Financial statement. Explain the monetary unit and economic entity assumptions? 2007 Discuss the ethical issues of accounting. Importance and necessity of Accounting. Define Owners Equity. What items affect owners equity? 2007, 2008 Discuss the Images of Accounting 2011 What is GAAP?(2007) Discuss various important principles. Define the terms of assets liabilities and owners equity. 2007 Chapter-1 Introduction Question 1: Define accounting. (2007, 2008, 2009, 2010, 2011) Answer: Accounting may be defined as the collection, compilation an systematic recording of business transactions in terms of money, the preparation of financial reports, the analysis and interpretation of these reports and the use of these reports for the information and guidance of management. Some important definitions are as follows: According to Weygandt, Kieso and Kimmel, Accounting is an information system that identifies records and communicates the economic events of an organization to interested users. According to the American Institute of Certified Public Accountants (AICPA): Accounting is the part of art of recording, classifying and summarizing 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 result thereof, According to the American Accounting Association (AAA): Accounting refers to the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information From the above discussion at last we can say, Accounting is a discipline, well-equipped with techniques and methods through which all types of transactions measurable in terms of money or moneys worth, can be recorded, classified and summarized in a proper and systematic way. Question 2: What is the importance of accounting in business? (2010) Answer: The importance and necessity of Accounting are felt essential in trade and commerce. The necessity of Accounting arises where financial transactions occur. In the light of multi-purpose uses and utilities of Accounting its necessity and importance are stated below:
(1) Finding out profit and loss: One of the main objects of trade and commerce is to earn profit. Accounts are to be kept properly to know whether the business concern has made profit or loss during a particular period. Exhibiting financial condition: After every year ending the financial position of a business concern can be known with the help of Accounting. The actual financial position of a particular business concern on a particular date can be known through balance sheet.. Comparative analysis: Comparative analysis of various information of a business concern is very much needed to run the business successfully. It is possible to determine the financial position and trend of making profit from the past and particular business concern if the accounts are maintained correctly. Cost Control: It is very much needed to maintain cost accounts to control the products cost. The role of cost accounting is very important in cost determination and cost control. Finding out tax: Income tax is determined on the basis of income of a business concern. To pay income tax is a mandatory for all business concerns. So reliable income statement is to be prepared following the scientific method of recording transactions on the income tax of a business concern for a particular period is fixed. VAT fixation: In the present day world VAT system has been introduced in many countries including Bangladesh. It is necessary to keep accounts of a business concern for a particular period to determine the amount of VAT that is to be paid. Prevention of fraud and forgery: Fraud and forgery can't be prevented if accounts are maintained properly. Maintaining of accounts properly influences the morality of employees positively and this restricts the trend of fraud and forgery. Decision making: Many people term Accounting as information supply system. Because accounting mainly keeps accurate information of a business organization. For planning and making decision by the management various information is needed. Control over cost: Minimization of expenses under different heads is the best way of development of a business. A businessman can be aware of daily expenditure of his business through accurate accounting system. 10) Loan taking: On many occasions the business organization is to take loan from banks or other financial institutions for running business. Loan giving institutions want to study the financial statements of a particular business concern to be sure of its debts repaying capability before sanctioning loan. Question 3: Distinguish between bookkeeping and accounting. Answer: Difference between Bookkeeping and Accounting are as follows:Bookkeeping Accounting 1. It is the recording stage of 1. It is the summarizing phase of an accounting system. an accounting system. 2. It is one of the functions of 2. It is the basis for business accounting. language. 3. Persons responsible for 3. Persons responsible for bookkeeping are called accounting are called bookkeepers. accountings. 4. It does not require any 4. It is requires special special professional professional knowledge. knowledge. 5. Bookkeeper is not an 5. Accountant is independent independent personnel. personnel. 6. Primary source of 6. Financial statements are information of the financial prepared in accordance with statement is the accounting rules and bookkeeping record. regulation. 7. Complete picture of the 7. Complete picture of the business cannot be found business can be found from the
8. 9. 10 .
from the bookkeeping records. It does not help in complying with legal formalities. It does not provide any ready information to take managerial decision. It is merely a recording process, thus have no branch.
accounting records. 8. 9. 10 . Legal formalities can be complied with the help of accounting. It provides ready information to take managerial decision. It has several branches, e.g. financial accounting, cost accounting and management accounting etc.
Question 4: Who are the users of accounting information? (2008, 2007,2009) Answer: 1. Internal users: Personnel who use accounting information for making plan and to operate or to run the business, those uses are generally treated as internal users, this are as follows: a) Owners: The owners provide funds for the operations of a business and they want to know whether their funds are being properly used or not. b) Managers: To manage smooth operation of business, accounting information is needed different level of mangers. Such as production managers collects those information that ensure the target production. Like these, all managers in different level of organization, work to accomplish their daily business activities. c) Employees and personnel: Employees and different level personnel of the organization seek accounting information to determine and to analyze their relative matters, such as any discrepancies in the process of determining their wages, salaries and other facilities. So they can bargain with their moral and ethical issues. d) Management: Management is the art of getting things done through others; the management should ensure that the subordinates are doing work properly. Accounting information is an aid in this respect because it helps a manager in appraising the performance of the subordinates. Two of the most important functions of management are planning and controlling. 2. External users: The external parties cannot parties cannot participate in decision making process and operational level of the organization, but they have an interest in the organization. So different types of external users seek the accounting information for their own interest, they are: a.)Investors: By relying on the accounting information, investors can be ensured about their invested amount in organization and they can take decision about re-investment in the organization. b) Creditors: Creditors are interested about the risk ness of granting credit. c) Consumers/Customers: Consumers always want the highest quality with lowest price. So they always want to establish their right and demand to the organization. d)Government: Government seeks accounting information for greater benefit. By using accounting information government determine the income tax, sales tax etc. e) Regulatory bodies: Regulatory bodies like chambers of commerce and industries, Securities and Exchange Commissions, federal chambers association etc. need accounting information for overall welfare of the business organization.
Question 5.Why is ethics a fundamental business concept? 2007 Answer : The standards of conduct by which one's actions are judged as right or wrong, honest or dishonest, fair or not fair, are' ethics. Effective financial reporting depends on sound ethical behavior. To sensitize you to ethical situations and to give you practice at solving ethical dilemmas. When analyzing these various ethics cases, as well as experiences in your own life, it is useful to apply the three steps outlined are given below:1. Recognize an ethical situation and the ethical issues involved. Use your personal ethics to identify ethical situations and issues. Some businesses and professional organizations provide written codes of ethics for guidance in some business situations. 2. Identify and analyze the principal elements in the situation. Identify the stakeholders persons or groups who may be harmed or benefited. Ask the question: What are the responsibilities and obligations of the parties involved? 3. Identify the alternatives, and weigh the impact of each alternative on various stakeholders. Select the most ethical alternative, considering all the consequences. Sometimes there will be one right answer. Other situations involve more than one right solution; these situations require an evaluation of each and a selection of the best alternative. Question 6. Briefly describe four assumptions that underlie the financial accounting structure. 2010 Answer: The major underlying assumption or concepts are as follows: i) Accounting/ Business Entity Concept: According to this concept, business and owner is separate and the one business is separate from another business. This Principles requires every business to be accounted for separately and distinctly from its owner or owners. ii) Going Concern concept: This concept assumes that an entity will continue to operate indefinitely and will not be sold or liquidated. This concepts requires accountants to prepare financial statements under the assumptions that the business will continue operating instead of being put up for sale or closed. iii)Money measurement concept/ Assumption: Measuring unit concept specifies that a monetary unit(such as taka) be to be used, instead of physical or other unit of measurement to measure and record of an entitys economic activity. iv) Accounting period concept: A business runs for indefinite period of time. So we are not supposed to prepare the financial statement at the end of the indefinite period. According to this concept, we need to prepare the financial statements after dividing that indefinite period to a small period of time, generally a year. The period for which we prepare the financial statements is called the accounting period. v)Cost concept: The cost concept states that assets are initially recorded at the amount paid to acquire the assets. vi)Matching concept: According to this concept, expenses are to be matched with revenue to determine net income. vii) Revenue Recognition/ Realization Concept: This concept states that revenue should be recorded when the services are performed or the goods are sold. The revenue recognition principle requires two conditions: the revenue must be earned, and realized. Question 7.Describe the accounting Conventions/Constraints/Principles. Answer: Accounting Conventions/Constraints/Principles are as follows i) Accounting is the language of a business. It provides information to the users for making economic decision. The more information will have to the users, the more reliable decision can be made. This principles states that, information is to be fully disclosed for reliable decision making.
ii) Cost benefit convention: The cost benefit consideration involves deciding the benefit of including optional financial information in financial statements exceeds the cost of providing the information. iii)Materiality convention: According to this convention, information is to be presented according to relative importance. Non-relevant information is not to be shown in the financial statement. iv)Conservatism convention: Conservatism means being cautious or prudent and making sure that new assets and net income are not overstated. According to this convention assets and income should be stated in their respective lower value rather than higher value. Accountants will tend to show lower amount of profit rather than higher profit. v)Timeliness: One of the efficient accounting conventions is the timeliness. The general users of financial statements can expert that the respective company would publish their financial statements on time. Timeliness is an ingredient of relevance. vi) Industry practice: Practical consideration may require departure from the basic accounting principles discussed above the unique characteristics or peculiar nature of some industries and business concern require the use of different accounting methods and procedures to produce realistic and useful financial reporting. vii)Consistency: Consistency generally requires that a company use the same accounting principles and reporting practices through time. viii)Articulation: This concept states that the financial statements are fundamentally related and articulate with each other. Question 8. What is the basic Accounting Equation? 2007, 2008 Discuss the elements of accounting equition.2010 Answer: Accounting transaction takes place within a framework called accounting equation. The accounting equation states that the economic resources of a specific entity are equal to the claims on those resources. Another term used to refer to the claims on resources is equities. The accounting equitation is also called the Balance sheet equation. Assets=Liabilities +Owners equity. Elements of Accounting Equation An accounting equation has the following three elements. 1. Assets: Assets are defined as being 'probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events' and are also commonly called 'economic resources'. Example: Equipment, Land Building etc. 2. Liabilities: Liabilities are defined as 'probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events'. Example: Accounts Payable, Mortgage Payable, Notes Payable etc. 3. Owners Equity: Owners Equity is the owner's interest or claim in an entity. It is the residual interests in the assets in the reporting entity after deduction of its liabilities. It is the excess of assets over liabilities and the amount of owner's investment in a business, including profit from successful operations, which have been retained in the business. The owner's equity in a company is called the shareholders equity. Example: Capital, Net Revenue, Reserve Fund etc. Question 9. Define Business transaction: Answer: In accounting the basis of recording is t he economic event. So non-economic event is not recorded
in accounting. Any event that brings changes in the financial position of the business is the transaction. So transaction can be defined as the recordable event, which brings a change in the business. According to Hermanson says, Transaction is recordable happenings or events that effect the assets, liabilities, owners equity, revenues and expenses of an entity. In short the monetary events can be termed as transitions. Question 10.Describe the Features of Transactions. Answer: Following are the features of transactions: (i) To be a transaction, there is to be changes in the financial position. (ii) The events in the transaction are to be measurable in monetary unit. (iii)According to the dual aspect concept, every transaction should have double effect. (iv) The event in the transactions should no the dependent on another. It is to be complete and independent. (v) The transactions may be visible or invisible are some transactions like depreciation, which is not visible. (vi)Historical events are those events tarred past. In accounting transactions are always historical events. These are: probable future events. (vii) Every transaction is to be supported by entry evidence. Otherwise it cannot be treated as transactions. Question 11. Describe the Financial statement. Answer: 1. Income statement: The income statement, sometimes called an earnings statement, reports the profitability of a business organization. In accounting profitability is measured for a period of time, such a month or a year, by comparing revenues generated with the expenses incurred to produce these revenues. If the revenues of period exceed the expenses of the same period, net income results. Thus, Net income=Total Revenues - Total expense 2.The Statement of owners equity: One of the purposes of the statement of owners equity is to connect the income statement and balance sheet. The statement of owners equity explains the changes that occurred in the owners capital balance sheet. 3. Balance Sheet: Balance sheet shows the financial position of a business organization. It lists the companys assets, liabilities and owners equity as of a specific moment in time. 4. Statement of Cash flows: The statement of cash flow describes where cash come from and where it went during the period. Question 12. Explain the monetary unit and economic entity assumptions.2007 Answer: Monetary Unit Assumption:The monetary unit assumption states that only transaction data that can be expressed in terms of money be included in the accounting records. For example, the value of a company president is not reported in a company's financial records because it cannot be expressed easily in dollars. An important corollary to the monetary unit assumption is the assumption that the unit of measure remains relatively constant over time. This point will be discussed in more detail later in this chapter. Economic Entity Assumption The economic entity assumption states that the activities of the entity be kept separate and distinct from the activities of the owner and of all other economic entities. For example, it is assumed that the activities of IBM can be distinguished from those of other computer companies such as Apple, Dell, and HcwIctM'iii'k.irel. Question 13: Discuss the ethical issues of accounting. Answer: In accounting there are many ethical issues that are to be considered by the accountant. The accounting professional bodies regulate the accounting profession. There are many professional organizations around the world that have codes of ethics, or code of professional conduct to regulate the accounting profession. Most of these codes have been evaluated and revised in recent years. Ethics is important in accounting because accountants often are required to make decisions that have ethical implications. The activities
performed by accountants have a profound impact on many individuals, businesses, and other institutions. An accountants decisions can affect such things as the amount of money a company distributes to its stockholders, the price a buyer pays for a business enterprise, the compensation levels of managers and executives, the success or failure of specific products and divisions, and the amount of taxes paid by and individual or a business. These are important, as managers will have to work in the best interest of the investors. Professional accountants, like C.A, CMA, and CPA are the persons in safeguarding the interest of the investors. Since the professional accountants are the members of the professional body. So they are required to comply with the regulations of that particular professional body. Finding anything unethical their membership may be terminated. Question 14:Describethe Importance and necessity of Accounting Answer: The importance and necessity of Accounting are felt essential in trade and commerce. The necessity of Accounting arises where financial transactions occur. In the light of multi-purpose uses and utilities of Accounting its necessity and importance are stated below: 1. Finding out profit and loss: One of the main objects of trade and commerce is to earn profit. Accounts are to be kept properly to know whether the business concern has made profit or loss during a particular period. 2. Exhibiting financial condition: After every year ending the financial position of a business concern can be known with the help of Accounting. The actual financial position of a particular business concern on a particular date can be known through balance sheet 3.Comparative analysis: Comparative analysis of various information of a business concern is very much needed to run the business successfully. It is possible to determine the financial position and trend of making profit from the past and particular business concern if the accounts are maintained correctly. Cost Control: It is very much needed to maintain cost accounts to control the products cost. The role of cost accounting is very important in cost determination and cost control. Finding out tax: Income tax is determined on the basis of income of a business concern. To pay income tax is a mandatory for all business concerns. So reliable income statement is to be prepared following the scientific method of recording transactions on the income tax of a business concern for a particular period is fixed. VAT fixation: In the present day world VAT system has been introduced in many countries including Bangladesh. It is necessary to keep accounts of a business concern for a particular period to determine the amount of VAT that is to be paid. Prevention of fraud and forgery: Fraud and forgery can't be prevented if accounts are maintained properly. Maintaining of accounts properly influences the morality of employees positively and this restricts the trend of fraud and forgery. Decision making: Many people term Accounting as information supply system. Because accounting mainly keeps accurate information of a business organization. For planning and making decision by the management various information is needed. Control over cost: Minimization of expenses under different heads is the best way of development of a business. A businessman can be aware of daily expenditure of his business through accurate accounting system. 10) Loan taking: On many occasions the business organization is to take loan from banks or other financial institutions for running business. Loan giving institutions want to study the financial statements of a particular business concern to be sure of its debts repaying capability before sanctioning loan. Question 15: Define Owners Equity. What items affect owners equity? 2007, 2008 Answer: Owners Equity: Owners Equity is the owner's interest or claim in an entity. It is the residual interests in the assets in the reporting entity after deduction of its liabilities. It is the excess of assets over liabilities and the amount of owner's investment in a business, including profit from successful operations, which have been retained in the business. The owner's equity in a company is called the shareholders equity. Example: Capital, Net Revenue, Reserve Fund etc.
Following are the example of some items which effects the owner's equity: Capital Investment: It is the initial and additional contribution by the owner to the business. Drawings: It is the opposite of the capital investment. It is the money or anything that can be measured in monetary terms withdrawn by the owners. Revenues: The revenues are inflows or other enhancements or savings in inflows of economic benefits or service potential in the form of increases in assets or reduction in liability other than those relating to contribution by owner that result in an increase in equity during the reporting period. Expenses: Expenses is the consumption or losses of economic benefits or service potential in the form of reduction in assets or increases in liability of the reporting entity other than those relating to distributions to equity participants, which results in a decrease in equity during the accounting period. Question :16 Discuss the Images of Accounting. 2011 Answer: In respect to the uses and practical application of Accounting, the images of accounting can be classified in the following six categories. (a) Accounting as the Language of Business: The users of financial accounting information are the interested parties out side the business known as stakeholder group. The users of such information include shareholders, creditors or suppliers, customer government, SEC and society. The interested parties receive that information in a variety of forms. In that sense accounting is called the language of business. (b) Historical or Stewardship Functions: The recording, classifying, summarizing and analyzing the transactions of an enterprise is the basic functions of accounting. The accounting performs the recording, classifying, summarizing and analyzing functions of a business to be reported. (c) Accounting as Current Economic Reality: Accountants sometimes argues for the economic reality rather than the historical cost system. Under the historical cost system the transactions are entered in the actual cost involved.. For example expenses are deducted from the revenue earned in a particular year. (d) Accounting as an Information System: Accounting is an information system; it provides information to the users of that information to make economic decision. The system of collecting and processing transactions data and delivering financial information to the user of such information is known as the accounting system. (e) Accounting as a Commodity: Accounting itself provides various services to the interested parties. For example accounting presents data to the various users in their speculative form.. (f) Accounting as an Ideology: Accounting is an ideological phenomenon in the society. By providing a legal foundation accounting is considered as an ideological phenomenon. (g) Accounting as a controlling mechanism: Manager exercises the management functions by using the accounting information, which is the controlling mechanism of accounting. (h) Accounting as an ethical profession: Every organizational progress depends on proper accounting activities. To be accounting activities proper, it is to be neutral and thus ethical. Question 17: What is GAAP?(2007) Discuss various important principles. Answer: Generally Accepted Accounting Principles Professional bodies have developed an overall set of standards and Procedures that apply to the preparation of financial statements. GAAP are the foundation and "ground rules" for financial reporting. These Principles provide the general framework determining what information is included in financial statements and how this information is to be Presented. In short financial statements are prepared in accordance with GAAP. So the definition of GAAP can be provided as follows:Following are some famous definition of GAAP: According to Ahmed Belkoui, one of the five best accountants in the world, "GAAP are those principles that guide accounting practice". According to Eric Kohler, "GAAP are the general rules followed by accountants." According International Accounting Standards Committee (IASC), "GAAP are the standard that indicates how to report economic events." According to the AICPA, "GAAP are the constitution for accountants and the canons of their art."
Question 18: Define the terms of assets liabilities and owners equity.2007 Answer:1. Assets: Assets are defined as being 'probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events' and are also commonly called 'economic resources. Example: Equipment, Land Building etc. 2. Liabilities: Liabilities are defined as 'probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events'. Example: Accounts Payable, Mortgage Payable, Notes Payable etc. 3. Owners Equity: Owners Equity is the owner's interest or claim in an entity. It is the residual interests in the assets in the reporting entity after deduction of its liabilities. It is the excess of assets over liabilities and the amount of owner's investment in a business, including profit from successful operations, which have been retained in the business. The owner's equity in a company is called the shareholders equity. Example: Capital, Net Revenue, Reserve Fund etc.
Chapter Two Recording Process Study Objectivesafter studying the chapter, you should be able to: 1. Define Accounting Cycle. 2007,2011 2. State the steps of accounting cycle. 2010, 2011 3. Define Journal. 4.Objects and Advantages of Journal What is Ledger Define events What are the Differences between events and transaction? Describe the steps in the Recording Process
What do you mean by Debit and Credit? What is a Trial Balance? 2007 Describe the characteristics of Trial Balance What are the objects of Trial Balance? Describe the limitations of Trial Balance 2007 What are the advantages of Trail Balance? Define double entry system. Write down the debit / Credit rules.
Question 1.Define Accounting Cycle. 2007,2011 Answer: Accounting is a statutory working process in determining financial results. The statutory rules of accounting require systematic and successive recording of business transactions. The process of recording of transactions occurs repeatedly. The successive working process of accounting method is called accounting cycle. Meigs & Meigs say, The sequence of accounting procedures, used to record, classify and summarize accounting information, is often termed. The accounting cycle. The term 'cycle' indicates that these procedures must be repeated continuously to enable the business to prepare new up-to-date financial statements at reasonable intervals." At last we can say the accounting process takes place in cyclic order it is called accounting cycle.
Question 2. State the steps of accounting cycle. 2010,2011 Answer: The various steps or phases of an accounting cycle are shown in the following diagram along with explanation: In fact accounting cycle is the stage wise expression of accounting activities of an organization. The maximum ten steps of accounting cycle are shown below in a diagram.
1. Identification of Transaction
10. Reversing Entries
2. Journalizing
9. Post-closing Trial Balance
3. Posting to Ledger Accounts
8. Closing Entries
4. Preparation of Trial Balance
7. Preparation of Financial Statement
5. Adjusting Entries
6. Adjusting Trial Balance
Work Sheet (Optional)
Question 3. Define Journal Answer: The word 'Jour' means day journal has been derived from the word jour. The world Journal means day book or daily book of accounting. Journal is called subsidiary book, The book where in the transactions are recorded in a chronological order of dates after determining the debit account and credit account of transactions with explanation is called journal. From the above discussion it can be said that, the book of accounts, where after determining the credit accounts of the transactions occurred in an organization are first recorded in chronological order of dates with brief explanation, is called journal. Question 4.What are the Objects and Advantages of Journal? Answer: Objects and advantages of journal are as follows:(1) Detail descriptions of transactions are available in journal. (2) It is the primary and basic book for recording transactions. (3) It is the daily book of transactions. (4) From various subsidiary journals necessary information can be known easily. (5) Increases efficiency in accounting tasks. (6) It helps distribution of accounting tasks among the employees according to their efficiency. Help to minimize errors. As various subsidiary journals are maintained, they become smaller in size and can be
handled easily. Possibility of omission of transactions - recording is removed. (7) It is used as future reference. (8) Ledger can be kept briefly and in a neat and clean manner. (9) It helps rectification of errors. Question 5.What is Ledger? Answer: Ledger is the book wherein various entries of journal are posted in brief permanently according to debit and credit under separate heads of accounts is called ledger. Some definitions of ledger propounded by some famous writers are stated below Willium Pickles says, "Ledger is the destination of all entries made in the subsidiary book or journals." Arthur Field House says, "Ledger is the permanent store house of all the transactions." L. C. Croper says, "The book in which a trader's transactions are recorded in a classified permanent form is called the Ledger." From the above discussion we can say that the book wherein all the transactions of business organizations are recorded in a classified permanent form under different heads of accounts transferring them from journal is called ledger. Question 6. Define events. Answer: An event is any happenings, whether it involves money or not. Events are of two types. 1. Monetary events: The event, which involves the money, is the monetary events. Such as, purchase of furniture for business amounting to Tk.5,000. 2. Non-monetary events: The event, which does not involve the money, is the non-monetary events. Such as appointment of a cashier with a monthly salary of Tk.5,000. Accounting is not concerned with any events which does not involve money.
Question 7. What are the Differences between events and transactions? Answer: Differences between events and transactions are as follows: Events Transactions 1. Every happening in the 1. Every events that changes the everyday life is an event. financial position of the business, is a transaction. 2. All events are not 2. All transactions are events. transactions. 3. The scope of event is 3 The scope of transactions are narrow. wide. 4. Dual aspect is not needed 4. Dual aspect is needed for a for an event. transaction. 5. The earnings of profit is 5. The earning of profit is the main not the objectives of all objectives of the business transaction. events. Question 8. Describe the steps in the Recording Process Answer: The basic steps in the recording process are as follows:(1) Analyzing the Transactions: The sequence of the events in the receive process begins with the transactions. Evidence of the transaction supported by documents, which is called voucher. This supposed analyzed to determine the effects of the transactions. (2) Entering the Transactions in the Books of Accounts: Thetransactier.5are there after is entered in the journal. Every transaction is recorded it .the journal on the basis of dual aspect. The chronological order: A transaction is also maintained in the journals. (3) Posting the Transactions to the Ledger: Ledger is the permanent record of the all transactions and is prepared by posting or transferring to the particular ledger. In this way the recording process ends. In conclusion analyzing the transactions, journalizing and posting to the ledger are the basic three steps in
the recording process. Question 9. What do you mean by Debit and Credit? Answer: The word debit came from Latin word debitum; it means writing something at the left hand side of an account. The word credit came form the Latin word, credere; it means to write something at the right-hand side of the account. The word debit and credit does not carry any significance. These are just an indicator of the left or right hand side of an account. Debit and credit be written as Dr. and Cr. in short respectively. Question 10. What is a Trial Balance? 2007 Answer: A trail balance is a statement which is, prepared at a particular date with the ledger account balances to test the arithmetical accuracy of the ledger accounts and also to facilitate preparation of financial statements is called a trial balance. A trial balance contains the columns - serial number of ledger accounts, Account tittles, Ledger folio, debit balance and credit balance. Some definition are as follows: R.N. Carter says, "A trial balance is a schedule or a list of balances both debit and credit extracted from the accounts in the ledger and including the cash and bank balances from the cash book. According to J.R. Batliboi, "A trial balance may be defined as a statement of debit and credit balances extracted from the ledger with a view to testing the arithmetical accuracy of the books." Question 11. Describe the characteristics of Trial Balance. Answer: The trial balance contains the following features:(a) Trial balance is neither an account nor a part of it. It is a statement containing all balances of ledger accounts. (b) It is not recorded in any book of account. Trial balance is prepared in a separate sheet or paper. (c) A trial balance is prepared with the balances of accounts at the end of a particular accounting period. A trial balance is prepared before preparation of financial statements at the end of accounting period. (d) The statement contains all kinds of accounts, irrespective of their classifications, such as assets liabilities, income-expenses etc. It helps testing arithmetical accuracy of accounts. Question 12. What are the objects of Trial Balance? Answer: Although trial balance is not an account, it is prepared to fulfill the following objects:(i) The main object of trial balance is to proof the arithmetical accuracy of accounts. (ii) It is prepared to check whether the debit and credit accounts of each transaction have been recorded properly. (iii) For convenient preparation of financial statements trial balance is prepared bringing debit and credit ledger balances together. (iv) To proof accurate balancing of ledger account. (v) To detect mistakes in the process of accounts, if any. (vi) To provide information to the proper authority in time. (vii) To compare the balances of various ledger accounts of current year with those previous year. Question 13. Describe the limitations of Trial Balance. 2007 Answer: The totals of debit and credit money columns of trial balance are same it, is presumed that the accounting process is accurate. But the agreement of both debit and credit money columns of trial balance does, not necessarily prove that there is no error in the accounting process. Because there might have some undetected errors despite the agreement of trial balances. These are called the limitations of trial balance. Question 14. What are the advantages of Trial Balance? Answer: Following are the various advantages of Trial Balance: 1. Ensures the equal debits and credits. 2. Discovers the errors in journalizing. 3. Helps to find the errors of posting. 4. Locates the errors in ledger accounts.
5. Laps in preparing the financial statements. 6. Helps to make the adjustment for the non-recordable transactions. 7. Helps to find the missing amount of an account in special case. 8. Ells to test the mathematical accuracy of the recording process. Question :15. Define double entry system. Write down the debit / Credit rules. Ans.:- Double entry system: Double entry system means that the both side (Dr & Cr) of every account should be recognized and recorded. The basis of double entry system is every debit must have its corresponding credit. There the term, Corresponding means equal and opposite i.e. Debit = Credit Debit and Credit rules: Under the double entry system the dual effect of the double transaction is recorded in appropriate accounts. It is a logical method for recording transaction. It also offers a means of proving the accuracy of the recorded amounts. After recording all transaction the amount of debit and the amount of credit will be equal. There are some rules of debit and credit for assets, liabilities, owners equity or owners capital, revenues, expense, drawings. They areAssets: For assets, increases in assets must be recorded in Debit side and the normal balance of Assets are Debit. Debit Increase Credit Decrease Normal Balance Debit
Liabilities: Increases in Liabilities must be recorded in Credit sides and decreases in Liabilities must be recorded in Debit said and the normal balance of Liabilities are Credit. Debit Decrease Credit Increase Normal Balance Credit
Owners equity of capital: Increases in capital must be recorded in credit side and Decreases in capital must be recorded in Debit side and its normal balance is Credit. Debit Decrease Credit Increase Normal Balance Credit
Revenues: Increases in revenues must be recorded in Credit side and decreases in revenues must be recorded in Debit side and its normal balance is Credit. Debit Decrease Credit Increase Normal Balance Credit
Expense: Increases in expenses in expenses must be recorded in Debit side and decreases in expense normal balance is Debit. Debit Increase Credit Decrease Normal Balance Debit
Drawings: Increases in Drawings and decreases in Drawings must be recorded respectively in Debit side and Credit side and its normal balance is Debit. Debit Increase Credit Decrease Normal Balance Debit
Chapter Three Adjustment Process Study Objectivesafter studying the chapter, you should be able to: 1. Define adjusting entries 2. Distinguish between cash basis accounting and accrual basis of accounting. 2007,2008,2009 3. Why does the accrual basis financial statement provide more useful information than that of cash basis financial statement? 2004 4.Explain the accrual basis of accounting 5.Explain the time period assumption 6. Explain why adjusting entries are needed 7.Identify the major types of adjusting entries 8.Prepare adjusting entries for deferrals (prepayments) 9.Prepare adjusting entries for accruals 10.Describe the nature and purpose of an adjusted trial balance
11.Prepare adjusting entries for the alternative treatment of prepayments
Question 1. Define adjusting entries. Answer: Adjusting entries are journal entries made at the end of an accounting period to change the balances of certain accounts to reflect economic activity that has taken place but not yet been recorded that is know as adjusting entries. In other word, the entries required at the end of accounting period to record internal transactions are called adjusting entries. Question 2. Distinguish between Cash basis and accrual basis of accounting. 2007, 2008,2009 There are two bases of accounting treatment : cash basis & accrual basis of accounting. The cash basis of accounting recognizes revenues, when cash is received and recognizes expenses, when cash is paid out. On the contrary , accrual basis of accounting recognizes revenue when sales are made or services are performed regardless of when cash is receiver. Cash is realizable (receivable). The accrual basis of accounting also recognizes expenses when they incur regardless of when cash to paid. Cash is payable at any future date. Cash basis vs. accrual basis of accounting compared Recognition Cash basis Accrual basis Revenues are When cash is received When goods or recognized services are delivered and cash is realizable at a future date Expenses are When cash is paid When expenses are recognized incurred and cash is payable at a future date Example: Cash basis of accounting Accrual basis of accounting 1.purchase is made by paying cash 1.purchese is made on account for tk. 2,000 tk. 2,000 to paid within next 30 2.cash received for sales made days. tk.3,500 2.goods are sold to a customer for tk. 3,500 to be received within nest 60 days. Question: 3.Why does the accrual basis financial statement provide more useful information than that of cash basis financial statement? 2004 or Superiority of accrual basis of accounting over cash: Most of the transactions today take place on the credit basis. Thats why, most business enterprises follow accrual basis of accounting. There are certain advantages of accrual basis of accounting in comparison with cash basis of accounting in comparison with cash basis of accounting as follows: 1. Cash basis of accounting is not in compliance with generally accepted accounting principles (GAAP) it is not consistent with the revenue recognition principle, matching principle and accounting periodicity concept. On the contrary, accrual basis follows GAAP. 2. The cash basis of accounting very often gives us a misleading picture of the financial results. As it fails to record those revenues in the period for which cash is not received and those expenses for which cash is not paid. The problem does not exist in case of accrual basis of accounting.
Question 4. Accrual Basis Accounting applies these principles: Define the cash basis and the accrual basis of accounting: Cash basisan accounting method in which an expense is recorded when cash is paid and revenue is recorded when cash is received. Cash-basis accounting is NOT in accordance with GAAP. Accrual basisan accounting method in which an expense is recorded when it is incurred and revenue is recorded when it is earned. It is the basis of accounting in which transactions that change a companys financial statements are recorded in the periods in which the events occur. Define the matching principle. Matching principlethe accounting principle that states that revenue earned during an accounting period should be offset by the expenses that were incurred in earning that revenue. The principle that efforts (expenses) be matched with accomplishments (revenues). How to apply the matching principleat the end of the accounting period expenses and revenues must be examined to find out what amounts belong to the period regardless of when the related cash payments and receipts occur which means you will need to adjust both expenses and revenues in order to apply the matching principle. To determine Accrual Net Income: All Recognized Revenues All Matched Expenses Recognized - Matched = Accurate net income for the period Revenues Expenses Question 5. Time period assumption: An assumption that the economic life of a business can be divided into artificial time periods. Owners and managers as well as other users need timely results of operations of a business: Management usually wants monthly financial statements. Internal Revenue Service (IRS) requires all businesses to file annual tax returns. Fiscal and Calendar Years: Accounting time periods are generally a month, a quarter, or a year. Monthly and quarterly time periods are called interim periodsless than one year. Fiscal yearan accounting period that is one year in length. A fiscal year usually begins on the first day of a month and ends twelve months later on the last day of a month. Calendar yearan accounting period that extends from January 1 to December 31. Define the revenue recognition principle: The principle that revenue be recognized in the accounting period in which it is earned. In a service enterprise, revenue is considered to be earned at the time the service is performed. Define accruals and deferrals. AccrualsExpenses incurred and revenue earned in the current accounting period but not recorded as of the end of the period. To accrue means to build up or to accumulate. Thus, an accrual is a buildup or accumulation of revenue or an expense that has not been recorded by a routine journal entry. DeferralsExpenses and revenues that have been recorded in the current accounting period but are not incurred or earned until a future period. To defer means to put off or to postpone. Thus a deferral is a putting off or a postponement of revenue or an expense that has been recorded by a routine journal entry but belongs to the future. Define the Going Concern Conceptfinancial reports of a business are prepared with the expectation that the business will remain in operation indefinitely. Since this concept assumes that a business will continue indefinitely into the future, by accruing expenses and revenues, it is understood that the business has a future. The Basics of Adjusting Entries: Adjusting entries are entries made at the end of an accounting period to ensure that the revenue recognition and matching principles are followed. Adjusting entries are required every time financial statements are prepared and are dated as of the balance
sheet date. Question 6.Explain why Adjusting entries are needed ? Adjusting entries are needed because: Some events are not journalized daily because it is inexpedient to do so. Examples are the consumption of supplies and the earning of wages by employees. Some costs are not journalized during the accounting period because they expire with the passage of time rather than through recurring daily transactions. Examples are equipment deterioration, and rent and insurance expiring. Some items may be unrecorded. An example of a utility bill that will not be received and/or paid until the next accounting period. Question 7. Describe the types of Adjusting Entries: Prepayments: Prepaid Expensesexpenses paid in cash and recorded as assets (or expenses as shown in the chapter appendixalternative treatment of prepaid expenses) before they are used or consumed. Depreciation of plant assets falls into this category. Unearned Revenuescash received and recorded as liabilities (or revenues as shown in the chapter appendixalternative treatment of unearned revenues) before revenue is earned. Accruals: Accrued Revenuesrevenues earned but not yet received in cash or recorded. Accrued Expensesexpenses incurred but not yet paid in cash or recorded. II. Accounting for Accrued ExpensesADJUSTING ENTRIES FOR ACCRUALS. The accrual of expenses creates liabilities. Expenses that have been incurred but not yet recorded at the end of an accounting period require an adjusting entry to recognize both the proper amount of expense for the period on the income statement and the proper amount of liabilities on the balance sheet. Accrued Expenses are also called Accrued Liabilities because accrued expenses have not been paid as of the end of the period and thus represent a liability of the firm. Helpful hint to remember what is done with Accruals: The A in Accrual means add to expense or revenue as the adjusting entry will be adding to expenses or to revenues. Explain ACCRUED SALARIES and the adjustment needed: How accrued salaries occuraccrued salaries occur only when the last day of the payroll period and the last day of the accounting period are different days. Steps to accrue salaries: Determine the days to accrue: BE CAREFUL determining the number of days to accrue salaries. Best way to determine the number of days to accrue is to set up a calendar of the week and notate what day the year ends. YOU ARE ACCRUING THE EXPENSE FOR THE CURRENT YEAR (2014) NOT THE FOLLOWING YEAR (2015). If $20,000 is the weekly payroll, the daily amount for a five-day work week would be $4,000: 2014 2015 Dec. 29 30 31 Jan. 1 2 Monday Tuesday Wednesday Thursday Friday Total $4,000 $4,000 $4,000 $4,000 $4,000 $20,000 $12,000 is Accrued $8,000 is NOT Accrued Determine the amount to accrue: $20,000 is total payroll 5 days = $4,000 per day x 3 days (Dec. 29 Dec. 31) = $12,000. Prepare the adjusting entry: General Journal Page 1 Date Account Title P.R. Debit Credit 2014 Adjusting Entries Dec. 31 Salaries Expense 12,000.00 Salaries Payable 12,000.00 An adjusting entry, such as one for an accrued expense, affects both the income statement and the balance
sheet) as it results in an increase (debit) to an expense account and an increase (credit) to a liability account. In the case of an accrued expense such as accrued salaries, the income statement is affected because an expense account (Salaries Expense) is debited; a balance sheet account is affected because a liability account (Salaries Payable) is credited. Affect if the adjusting entry for accrued expenses is OMITTED: Expenses are understated as did not accrue the additional expense of Salaries Expense. Set up the accounting equation with simple balances in the accounts if fail to do the adjustment: A = L + OE + R E or 200 = 100 + 50 +100 -50. Expenses are showing a balance of $50 but the balance SHOULD BE (S/B) $60 as an additional expense of $10 should have been accrued. Therefore expenses are understated by $10 if the adjusting entry is omitted. Liabilities are understated as did not accrue the additional liability owed of Salaries Payable. The first line on the handout is showing the balances in the accounts if fail to do the adjustment. Liabilities are showing a balance of $100 but the balance SHOULD BE (S/B) $110 as an additional liability of $10 should have been accrued. Therefore liabilities are understated by $10 if the adjusting entry is omitted. Net income is overstated as did not accrue the additional expense of Salaries Expense which would reduce the amount of net income as expenses decrease income and owners equity. The accounting equation is showing a net income of $50 ($100 Revenues - $50 Expenses) if fail to do the adjustment. When the accrued expense is made the net income is $40 ($100 Revenues - $60 Expenses). Therefore net income is overstated by $10 if the adjusting entry is omitted. TYPICAL STUDENT MISCONCEPTION: Students often want to use the Cash account when making an adjusting entry for an accrual. This point needs to be emphasizedCash is NEVER involved in ANY adjusting entry. The reason is that the Cash account should already be reconciled BEFORE adjusting entries are made. If an adjusting entry is made to the Cash account, the account WILL NO LONGER BE RECONCILED to the balance per the bank statement. Explain accrued interest and the adjustment needed. Helpful hint to remember what is done with Accruals: The A in Accrual means add to expense or revenue as the adjusting entry will be adding to expenses or to revenues. Thus with accrued interest, additional interest will be added to the interest expense account. How to calculate the due date of a note: Determine Due Dates of Notes Begin with last day of month that the note was dated Subtract the date of the note Days in the first month Add the total days in the following month Add the total days in the following month Days needed in the next month for a total of 90 days Total days of note (a) May May May June July Aug 90 days from May 8: 31 -8 23 30 31 6 90 84 days Due Date of Note
How to calculate interest: Interest (I): The cost of borrowing money that accumulates with the pages of time or the charge for credit; calculated as principal (P) x rate (R) x time (T). Bankers interest uses a 360-day year if the note is by days but if notes are by months, then the denominator will use 12 for months in a year. Accrued interest arises when the accounting period ends BEFORE THE NOTE REACHES ITS MATURITY DATE. The interest from day of note to the end of the accounting period is an expense and a liability and must be recorded with an adjusting entry. Steps to make an adjusting entry for accrued interest: Determine the days from the date of the note to the end of the accounting period. Refer to the example: Assume that on November 1, 20--, Bluff City Supply Company borrowed $12,000 on a 90-day, 14% note (the day after the note is signed is the first day when counting days).
Begin with last day of month that the note was dated Subtract the date of the note
Nov. Nov.
30 -1
Days in November Nov. 29 Add the total days in December Dec. 31 Total days from the date of the note to end of period 60 Calculate the interest from the date of the note to the end of the accounting period. Principal x Rate x Time = Interest $12,000 X 14% X 60/360 = $280 Make the adjusting entry: General Journal Page 1 Date Account Title P.R. Debit Credit 20-Adjusting Entries Dec. 31 Interest Expense 280.00 Interest Payable 280.00 Post to the General Ledger: Assets Cash = Liabilities + Owner's Equity + Rev. - Expenses
Interest Payable Interest Expense Dec.31 Adj. Dec. 31 Adj. 280 280 5. Affect if the adjusting entry for accrued expenses is OMITTED: Expenses are understated as did not accrue the additional expense of Interest Expense. Set up the accounting equation with simple balances in the accounts if fail to do the adjustment: A = L + OE + R E or 200 = 100 + 50 +100 -50. Expenses are showing a balance of $50 but the balance SHOULD BE (S/B) $60 as an additional expense of $10 should have been accrued. Therefore expenses are understated by $10 if the adjusting entry is omitted. Liabilities are understated as did not accrue the additional liability owed of Interest Payable. Liabilities are showing a balance of $100 but the balance SHOULD BE (S/B) $110 as an additional liability of $10 should have been accrued. Therefore liabilities are understated by $10 if the adjusting entry is omitted. Net income is overstated as did not accrue the additional expense of Interest Expense which would reduce the amount of net income as expenses decrease income and owners equity. The accounting equation is showing a net income of $50 ($100 Revenues - $50 Expenses) if fail to do the adjustment. When the accrued expense is made the net income is $40 ($100 Revenues - $60 Expenses). Therefore net income is overstated by $10 if the adjusting entry is omitted. Describe other types of accrued expensesthe adjusting entry always involves a debit to an expense and a credit to a liability. To accrue rent that is owed but unpaid at the end of the accounting perioddebit Rent Expense and credit Rent Payable. To accrue taxes that are owed but unpaid at the end of the accounting perioddebit Taxes Expense and credit Taxes Payable. To accrue utilities that are owed but unpaid at the end of the accounting perioddebit Utilities Expense and credit Utilities or Accounts Payable. III. Accounting for Accrued Revenue . The accrual of revenue creates assets. Accrued revenue has been earned in the current accounting period but the cash will NOT BE RECEIVED until the next period. Accrued revenue is also called an Accrued Asset as the debit will be to a Receivable (an asset) account when accrued revenue is credited). Helpful hint to remember what is done with Accruals: The A in Accrual means add to expense or revenue as the adjusting entry will be adding to expenses or to revenues in this case. Remember that the goal is to adhere to the revenue recognition principlea business earns (realizes) revenue when goods or services are sold to customers, even though cash may not be collected until sometime in the future. Therefore, to make sure that the correct amount of revenue is shown that is earned
each fiscal year for the accrual basis of accounting, some revenue may need to be accrued that has been earned but not yet recorded. Adjusting entries to accrue revenue will affect both an income statement (credit to a revenue) and a balance sheet (debit to a receivable) account ALL adjusting entries effect one Income Statement account and one Balance Sheet account. Explain accrued rent revenue and the adjustment needed. Accrued rent revenuerevenue earned but not yet received. Steps to prepare the adjusting entry: Calculate the amount of rent earned. Prepare the adjusting entryan adjusting entry for accrued revenues results in an increase (debit) to an asset account and an increase (credit) to a revenue: General Journal Page 1 Date Account Title P.R. Debit Credit 20-Adjusting Entries Dec. 31 Rent Receivable 1,200.00 Rent Income 1,200.00 Post to the General Ledger where the Rent Receivable will be shown under the current asset section on the Balance Sheet and Rent Income account will be closed and its balance listed as nonoperating revenue on the income statement: Owner's Assets = Liabilities + + Revenues - Expenses Equity Cash Rent Income Dec.31 Adj. 1,200 Rent Receivable Dec.31 Adj. 1,200 A good way to understand the concept of accrued revenue is the mirror image conceptaccrued revenue is the mirror image of accrued expenses. A rent accrual can be shown as follows: From the Lessor perspective, the entry would be: DebitRent Receivable 1,200 CreditRent Income 1,200 From the Lessee perspective, the entry would be: DebitRent Expense 1,200 CreditRent Payable 1,200 Affect if the adjusting entry for accrued revenues is OMITTED: Revenues are understated as did not accrue the additional revenue of Rent Income. Set up the accounting equation with simple balances in the accounts if fail to do the adjustment: A = L + OE + R E or 200 = 100 + 50 +100 -50.. Revenues are showing a balance of $100 but the balance SHOULD BE (S/B) $110 as an additional revenue of $10 should have been accrued. Therefore revenues are understated by $10 if the adjusting entry is omitted. Assets are understated as did not accrue the additional receivable owed to the company of Rent Receivable. The accounting equation is showing the balances in the accounts if fail to do the adjustment. Assets are showing a balance of $200 but the balance SHOULD BE (S/B) $210 as an additional receivable of $10 should have been accrued. Therefore assets are understated by $10 if the adjusting entry is omitted. Net income is understated as did not accrue the additional revenue of Rent Income which would increase the amount of net income as revenues increase income and owners equity. The net income shows $50 ($100 Revenues - $50 Expenses) if fail to do the adjustment. When the accrued revenue is made the net income is $60 ($110 Revenues - $50 Expenses). Therefore net income is understated by $10 if the adjusting entry is omitted. Describe other types of Accrued Revenue: In Chapter 8 Notes Receivable are covered and should be considered as the mirror image of Notes
Payable. Calculations of due date and interest are identical for notes payable and notes receivable and where one companys interest expense is another companys interest income. To accrue interest income: Calculate interest earned from the date of the note until the end of the accounting periodP x R x T. Record the adjusting entry: DebitInterest Receivable CreditInterest Income Any unbilled revenues such as fees earned or sales made but where the cash has not yet been received needs to be accrued to accounts receivable. Normally the name of the receivable account will match the name of the revenue account as shown in the above examples (i.e. Rent Receivable/Rent Income; Interest Receivable/Interest Income, etc.) unless the revenue is for the regular income for the business. The example of fees earned, but not yet recorded example: DebitAccounts Receivable CreditFees Earned IV. Summary of Accruals: Accruals ALWAYS Addthe A in accrual means Add. You always Add to expense or Add to revenue (bringing in something not yet recorded into the present) and you ALWAYS Add to the Balance Sheet (liabilities or assets and Add to the Income Statement (expenses or revenues). The adjustment for accruals usually (unless you are accruing the service or sales revenue for the normal operations of the business in which case accounts receivable is the account) ALWAYS creates a balance sheet account. Accruals can ALWAYS be reversed. This point is a key one before going on to deferrals, which can only SOMETIMES BE REVERSED. The RULE TO MASTER: Whenever an adjusting entry creates a Balance Sheet account (liability or asset) reversal is possible and desirable as well so that the adjusting entry into the created account WILL NOT BE FORGOTTEN. When the salaries are paid the following period, the debit to Salaries Payable must be made along with the amount for Salaries Expense. But the amount in Salaries Payable is often FORGOTTEN and the entire amount of $4,000 in this example is debited to Salaries Expense. V. Accounting for Prepayments: Prepaid (Deferred) Expenses. Deferred expenses are also called prepaid expenses or deferred charges. A key letter, D and a key word, Deduct, to remember with Deferrals as amounts are deducted from deferrals during the adjusting process to record correct expenses incurred and revenues earned. With deferred expenses and deferred revenues, not all adjusting entries can be reversed as can be done with accrued expenses and accrued revenues. Explain the entries needed when deferred expenses are first recorded as assets. Define deferred expenseadvance payment for goods or services that benefit more than one accounting period. Deferred expenses are actually Prepaid expenses (supplies, prepaid insurance, prepaid rent, prepaid advertising, etc.). Deferred expenses have already been paid, but will benefit future periods. To match (Matching principle) revenue and expenses properly, a part of the deferred expense must be put off into the future (part that has future benefit) and part must be recognized in the current period (part that has been used or expired). Be Careful with the word, Expense, as many students get confused thinking that the account must be an Expense account but the usual transaction is to record the amounts paid for expenses paid in advance as an asset NOT AN EXPENSE. If the prepayment will become an expense in one year or less, then the prepaid expense account is listed under the Current Asset section of the Balance Sheet. If the prepayment will become an expense longer than one year, it is shown in the Other Asset section (long-term section) of the Balance Sheet as a Deferred charge. To differentiate between Accruals and Deferrals, think of the phrase: Show me the money!. With Deferrals, money has changed hands where the money has been paid in advance BEFORE an expense has been incurred. With Revenues, money was received BEFORE a revenue has been earned. With Accruals, money has NOT changed hands where the expense has not yet been paid by the end of the
accounting period but it HAS BEEN INCURRED. For Revenues: revenues HAVE BEEN EARNED but the money has not yet been received at the end of the accounting period. When deferred or prepaid expenses are initially recorded as assets, an adjusting entry is needed to transfer the amount of the asset used or expired from the asset account to an expense account. For the initial recording when the cash was paid example: On October 1, an entry for $3,600 for a one-year insurance policy: debit to Prepaid Insurance and a credit to Cash. The adjusting entry transfers the amount of expenditure (for insurance in the example) expired or used to an expense account. To calculate the amount expired, divide the amount by 12 (months in a year) and then multiply by the number of months that have expired as follows: $3,600 12 = $300/month x 3 months = $900 expired. Debit Insurance Expense and credit Prepaid Insurance. The closing entry that closes the balance of the expense account to the income summary which then becomes part of owners equity for the net income or net loss of the company. Consider the concept of whether a reversing entry will be considered or not (Reversing entries are introduced in the Appendix, chapter 4 of the textbook). NOTE that no reversing entry will be made. Recall the RULE TO MASTER: Whenever an adjusting entry creates a Balance Sheet account (liability or asset) reversal is possible. When a deferred or prepaid expense is initially recorded as an asset, the adjusting process will create an expense account that is closed in the normal closing routine at the end of the fiscal year. Since NO ASSET or LIABILITY account was created during the adjustment, there is no support for a reversing entry. Describe the adjustment for supplies used. The supplies account will contain the amount that was in the account at the beginning of the period plus (+) any supplies purchased during the period Example: purchased advertising supplies costing $2,500 on October 5. A debit (increase) was made to the asset Advertising Supplies. This account shows a balance of $2,500 on the October 31 trial balance (T.B.). The adjustment will be the amount of supplies that have been USED. At October 31st, an inventory of supplies is taken and it is determined that $1,000 of supplies is still on hand. In order to determine the amount of supplies used, you must SUBTRACT. THIS STEP IS OFTEN FORGOTTEN and should be done as follows: Balance of account on T.B. 2,500.00 - Inventory count (amount on hand) 1,000.00 = Amount USED (the adjustment) 1,500.00 Assets = Liabilities + Owners + Revenues - Expenses Equity Adver. Adver. Supplies Supplies Exp. 2,50 1,500 USED 1,500 0 1,00 0 Note that after the adjusting entry, the balance of the Advertising Supplies account, $1,000 reflects the amount shown in the inventory count or the amount of the supplies still on hand. Every adjusting entry affects both the balance sheet and the income statement. For example, the adjustment for supplies used, the debit is to Supplies Expense (an income statement account) and the credit is to supplies (a balance sheet account). This will always hold true. Illustrate the adjustment needed for depreciation of assets. Define depreciationan allocation process in which the cost of a long-term asset (except land as land is considered permanent and is assumed to last forever, so depreciation is not allowed) is divided over the periods in which the asset is used (useful life) in the production of the businesss revenue in a rational and systematic manner. The objective of depreciation accounting is to spread the cost of a long-term asset over the assets useful life, rather than treating the cost of an asset as an expense in the year of purchase. TYPICAL STUDENT MISCONCEPTION: in accounting for depreciation, students often think of depreciation in the economic sense. That is, they view it as a valuation process used to record the decline in the value of an asset. In accounting, depreciation has nothing to do with value. It refers only to the allocation of an assets cost over its estimated useful life. As time passes, the usefulness of assets will decline, and eventually they will no longer serve their original purpose so the accounting system, must,
therefore, reflect the fact that the equipment and furniture will gradually wear out or become obsolete and will have to be replaced. Describe the straight-line method of computing depreciationa popular method of calculating depreciation that yields the same amount of depreciation for each full period an asset is used. When calculating the amount of the adjustment for straight-line depreciation, you should always calculate a yearly amount first, then a monthly amount. See example on page 99 of the textbook. Describe the contra-account Accumulated Depreciation. The depreciation adjustment is not reflected directly in the asset account. Accumulated Depreciation is a contra asset accountan account whose balance is opposite (offset against) the asset to which it relates. Since asset accounts have debit balances, contra asset accounts (the opposite of assets) have credit balances. Contra means opposite or against like in the words contradiction, contraband, and contrary (similar to what drawing and expenses do to owners equity). Depreciation is recorded in the Accumulated Depreciation account , rather than directly in the asset account, so as to maintain both the asset account showing the original (or historical) cost of the asset and the Accumulated Depreciation account showing how much the asset has depreciated (the total cost that has expired to date). This is especially needed when the asset is sold to determine any gain or loss on the sale of the asset. The questions that must be answered on the tax return are: What was the original cost of the asset? (the amount is found in the asset account) What is the total depreciation that has been taken on the asset? (the amount is found in the accumulated depreciation account) How much was the asset sold for? What is the gain or loss on sale? The use of a contra account provides disclosure of both the original cost of the equipment and the total cost that has expired to date. The following example illustrates the process of allocating expired (deferred) prepayments to expenses: Assets = Liabilities + Owners Equity + Revenues - Expenses Office Supplies Office Supplies Exp. 125 45 USED 45 150 275 230 Prepaid Insur. Insurance Expense 240 20 USED (EXPIRED) 20 220 Office Equip. 3,000 Acc.Dep-Off Eq USED (ALLOCATED) Depr.Exp.-Off. Eq. 50 50 Office Furn. 2,000 Acc.Dep-Off USED (ALLOCATED) Depr.Exp.-Off.Furn. Furn 30 30 Every adjusting entry affects both the balance sheet and the income statement. For example, the adjustment for depreciation, the debit is to Depreciation Expense (an income statement account) and the credit is to accumulated depreciation (a balance sheet account). Book Value of an asset. Refer to Illustration 3-8 on page 100 of the text showing the partial balance sheet. Note how the balance sheet discloses the book value of each assetthe difference between an assets cost and its accumulated depreciation. The book value of an asset and its market value are not the same. The book value is just the value that is being shown on the books, also sometimes referred to as carrying value or unexpired cost. Book value is cost minus (-) accumulated depreciation; market value is what the asset would sell for. A question that often comes up is: Can a business continue to use an asset if it has been fully depreciated (book value is equal to zero). The answer is, YES, because the purpose of depreciation accounting is to spread the cost of an asset over its useful life. An asset may last longer than its estimated
useful life Affect if the adjusting entry for deferred expenses, initially recorded as assets, is OMITTED: Expenses are understated as did not accrue the additional expense of Insurance or Supplies Expense. Set up the accounting equation with simple balances in the accounts if fail to do the adjustment: A = L + OE + R E or 200 = 100 + 50 +100 -50.. Expenses are showing a balance of $50 but the balance SHOULD BE (S/B) $60 as an additional expense of $10 should have recorded. Therefore expenses are understated by $10 if the adjusting entry is omitted. Assets are overstated as did not adjust the asset for the portion used or expired. The accounting equation shows the balances in the accounts if fail to do the adjustment. Assets are showing a balance of $200 but the balance SHOULD BE (S/B) $190 as an asset should have been reduced by $10 for the portion used or expired. Therefore assets are overstated by $10 if the adjusting entry is omitted. Net income is overstated as did not record the additional expense of Insurance or Supplies Expense which would reduce the amount of net income as expenses decrease income and owners equity. The accounting equation shows a net income of $50 ($100 Revenues - $50 Expenses) if fail to do the adjustment. When the additional expense is recorded the net income is $40 ($100 Revenues - $60 Expenses). Therefore net income is overstated by $10 if the adjusting entry is omitted. Explain the entries needed when deferred expenses are first recorded as expenses. There are two ways to initially record deferred or prepaid expenses (1) as assets or (2) as expenses. Both methods yield the identical results on the income statement and the balance sheet. A question usually arises at this point as to WHY would this entry be initially recorded as an EXPENSE and believe it or not, from an auditors perspective, this is the METHOD that I have observed is the MORE COMMON method done in practice. Some of the reasons are: The entry was made by an inexperienced or not properly educated bookkeeper who believes that any time an expenditure is made; IT MUST BE AN EXPENSE because money has been spent and anytime money is spent, it is an expense with that thinking. There is actually a conceptual reason for recording this type of expenditure initially as an expense especially dealing with the expenditure for supplies. If it is believed that all of the supplies would be used by the end of the accounting period, then it would be wise to initially record the amount as an expense because then it would not be necessary to make an adjusting entry at the end of the accounting period. This reasoning does not make sense, though, when paying for an insurance policy because you would know at the time of the payment if the policy would totally expire or not by the end of the accounting period. But if most of the policy will be expired, then it could be initially recorded as an expense. The adjusting entry that transfers the amount of the expenditure that is unexpired (insurance in the example) to an asset account. The closing entry that closes the balance of the expense account to the income summary which then becomes part of owners equity for the net income or net loss of the company. Consider the concept of whether a reversing entry will be considered or not. . Recall the RULE TO MASTER: Whenever an adjusting entry creates a Balance Sheet account (liability or asset) reversal is possible and desirable as well so that the adjusting entry into the created account WILL NOT BE FORGOTTEN. Since an asset account had been created in the adjusting process (prepaid insurance in the example), a reversing entry is needed to return the prepayment to an expense in the next accounting period. VI. Accounting for Prepayments: Unearned (Deferred) Revenues. Deferred revenue can also be called unearned revenue or deferred credits. End-of-the-year adjustments are different for the two methods. A key letter, D and a key word, Deduct, to remember with Deferrals as amounts are deducted from deferrals during the adjusting process to record correct expenses incurred and revenues earned. With deferred expenses and deferred revenues, not all adjusting entries can be reversed as can be done with accrued expenses and accrued revenues. Another liability called unearned (deferred) revenue that does not have the word, "payable," with the name of the account but it is a liability (a debt owed by the company) as it originates from receiving cash in advance before a revenue (income earned from carrying out the activities of a firm) is performed. The reason that this account is a liability is that a service or sale must be made
requiring a performance in the future (a liability as a debt of performance is owed) or the money must be refunded (a liability as a debt owed) if the job is not done. Explain the entries needed when deferred revenue is first recorded as a liability: The initial recording when the cash was received: Debit Cash and credit Unearned Subscriptions. The adjusting entry that transfers the amount of money received (for subscriptions in the example) in advance that has been earned to a revenue account: Debit Unearned Subscriptions and credit Subscriptions or Subscription Income, etc. The closing entry that closes the balance of the revenue account to the income summary which then becomes part of owners equity for the net income or net loss of the company. (Closing entries are covered in chapter 4 of the textbook). Decide whether a reversing entry will be considered or not. NOTE that no reversing entry will be made. Recall the RULE TO MASTER: Whenever an adjusting entry creates a Balance Sheet account (liability or asset) reversal is possible. When deferred or unearned revenue is initially recorded as a liability, the adjusting process will create or increase a revenue account that is closed in the normal closing routine at the end of the fiscal year. Since NO ASSET or LIABILITY account was created during the adjustment, there is no support for a reversing entry. Affect if the adjusting entry for deferred expenses, initially recorded as assets, is OMITTED: Revenues are understated as did not record the additional revenue earned. Set up the accounting equation with simple balances in the accounts if fail to do the adjustment: A = L + OE + R E or 200 = 100 + 50 +100 -50.. Revenues are showing a balance of $100 but the balance SHOULD BE (S/B) $110 as additional revenue of $10 should have been recorded. Therefore revenues are understated by $10 if the adjusting entry is omitted. Liabilities are overstated as did not adjust the portion of the unearned revenue that has now been earned and should be transferred to a revenue account. The accounting equation shows the balances in the accounts if fail to do the adjustment. Liabilities are showing a balance of $100 but the balance SHOULD BE (S/B) $90 as a liability should have been reduced by $10 for the portion earned. Therefore liabilities are overstated by $10 if the adjusting entry is omitted. Net income is understated as did not record the additional revenue that had been earned where revenues increase income and owners equity. A net income shows of $50 ($100 Revenues - $50 Expenses) if fail to do the adjustment. When the additional revenue is recorded the net income is $60 ($110 Revenues - $50 Expenses). Therefore net income is understated by $10 if the adjusting entry in omitted. Explain the entries needed when deferred revenue is first recorded as revenue. The initial recording when the cash was received: Debit Cash and credit a revenue account. There are two ways to initially record deferred or unearned revenues (1) as liabilities or (2) as revenues. Both methods yield the identical results on the income statement and the balance sheet. A question usually arises at this point as to WHY would this entry be initially recorded as an REVENUE and believe it or not, from an auditors perspective, this is the METHOD that I have observed is the MORE COMMON method done in practice. Some of the reasons are: The entry was made by an inexperienced or not properly educated bookkeeper who believes that any time cash is deposited; IT MUST BE REVENUE because money has been RECEIVED and anytime money is RECEIVED, it is revenue with that thinking. There is actually a conceptual reason for recording this type of expenditure initially as revenue. If it is believed that all of the revenue will be earned by the end of the accounting period, then it would be wise to initially record the amount as revenue because then it would not be necessary to make an adjusting entry at the end of the accounting period. This reasoning does not make sense, though, when receiving cash for subscriptions because you would know at the time when the cash is received whether all the subscriptions will be sent or not by the end of the accounting period. But if most of the subscriptions will be sent, then it could be initially recorded as revenue since the interim financial statements would be showing closer to revenue that will be or has been earned. The adjusting entry that transfers the revenues unearned (unearned subscriptions in the example) to a liability account: Debit the revenue account and credit the Unearned Subscriptions.
The closing entry that closes the balance of the revenue account to the income summary which then becomes part of owners equity for the net income or net loss of the company. (Closing entries are covered in chapter 4 of the textbook). Decide whether a reversing entry will be considered or not. Recall the RULE TO MASTER: Whenever an adjusting entry creates a Balance Sheet account (liability or asset) reversal is possible and desirable as well so that the adjusting entry into the created account WILL NOT BE FORGOTTEN. When a deferred or unearned revenue is initially recorded as revenue, the adjusting process will create or increase a liability account (some unearned revenue accountunearned subscriptions income in the example) and since a liability account had been created or increased in the adjusting process, a reversing entry is needed to return the prepayment to revenue in the next accounting period. VII. Summary of Deferrals. Deferrals always result in a DEDUCTION. You will always be reducing what already happened. The final amount of expense or revenue that is shown in the expense or revenue account will always be less than the dollar value that you started to work with. There are always two methods to account for deferrals. However, though there are two ways of recording deferrals, there is still just ONE CORRECT RESULT. IX. Accounting Records Formats for Adjusting Entries. General Journal showing adjusting entries: The caption, Adjusting Entries, is entered on the first line opposite the year of the adjusting entries. This caption helps to inform the readers of the general journal that the entries that are following are the adjusting entriesentries made at the end of an accounting period to insure that the revenue recognition and the matching principles are followed which bring the account balances up-to-date. Explanations are OPTIONAL if you use the caption at the beginning of the adjusting entries, Adjusting Entries, as this is all that is needed to inform the readers that the entries following are the adjusting entries at the end of the accounting period. General Ledger: The words Adjusting Entry are entered into the Explanation column which again alerts the readers of the general ledger that these entries were made at the end of the accounting period to bring the balances of the accounts up-to-date. The date transferred from the general journal shows that the entries were made the last day of the accounting period. Preparing the Adjusted Trial Balance: It proves the equality of the total debit balances and the total credit balances in the ledger after all the adjustments have been made. The accounts in the adjusted trial balance contain all the data that are needed for the preparation of the financial statements except for the capital account that may have additional investments in which case that information would show in the general ledger account. Preparing Financial Statements: The income statement is the first prepared from the revenue and expense accounts where the numbers are entered from the adjusted trial balance with the adjusted account balances. The statement of retained earnings shows the net income (loss) from the income statement and dividends that have been declared. The balance sheet is then prepared from the asset and liability accounts and the ending retained earnings from the statement of retained earbubgs.
Chapter Four Completion of accounting cycle (Work sheet) Study Objectivesafter studying the chapter, you should be able to: Define Work sheet 2004 Describe the Types of work sheet What are the objective & Preparation of a work sheet? Show Structure of work sheet Define closing entries? Define reversing entry with example Define Post closing Trial Balance
Question 1. Define Work sheet. 2004 Answer. A Work sheet is a working tool of an accountant while preparing financial statements in a large company. This is certainly a step of an accounting cycle, but is optional. In other words, a work sheet is a multiple column form that may be used in the adjustment process and in preparing financial statements. Question 2. Describe the Types of work sheet. Answer. Work sheet can be classified in three categories. General Worksheet: The worksheet in which contains the ten or twelve columns, is the general worksheet. Generally it is prepared with ten columns, like (i) Trial Balance, (ii) Adjustments, (iii) Adjusted Trial Balance, (iv) Income Statement and (v) Balance Sheet. Detailed Worksheet: The worksheet, in which the necessary columns can be added, is called the detailed worksheet. In this worksheet additional schedule is added when needed. The additional schedule include (i) Debtors and Creditors list, or Accounts Receivable and Accounts Payable list, (ii) Production Cost list, (iii) Fixed Assets and Current Assets list, (iv) Current Liabilities list, (v) Insurance Policy list. Audit Worksheet: The worksheet is similar to the detailed worksheet. The additional lists are added so that, the audit can be made easily. Question 3. What are the objective & Preparation of a work sheet? Answer. The preparation of work sheets serves the following basic objectives. i)The work sheet is prepared as a preliminary steps in the preparation of financial statements. ii)They help accountants organize their work and thus avoid omitting important data. iii) They provide evidence of past work. iv) It helps which accounts are to be closed at the end of the accounting period. v)Interim financial reports can be prepared with the help of work sheet.
A work sheet preparation is a five step process. Each step consists of two columns (Dr & Cr.) Thats why the general purpose work sheet is commonly known as ten-column work sheet. The following are the five steps: 1.Trial balance 2. Adjustments 3. Adjusted Trail balance 4.Income statement & 5. Balance sheet. Question 4.Show Structure of work sheet. Answer. Structure of work sheet are as follows 1.Ten column work sheet XY Company Work shet For the year ended ----Trail balance Dr. Cr.
Adjustments Dr. Cr.
Adjusted Trial balance Dr. Cr.
Income Statement Dr. Cr.
Balance sheet Dr. Cr.
2. Eight column work sheet XY Company Work shet For the year ended ----Trail balance Adjustments Dr. Cr. Dr. Cr.
Income Statement Dr. Cr.
3.Twelve column work sheet XY Company Work shet For the year ended ----Trail balance Dr. Cr.
Adjustme Adjusted nts Trial balance Dr. Cr. Dr. Cr.
Income Statemen t Dr. Cr.
Retained earning statemen t Dr. Cr.
Question 5. Define closing entries The are many revenue, expense and dividends are called temporary accounts or nominal accounts. These balance are not carried forward to the next year, such types of accounts are closed in the current accounting period. These accounts are closed transferring them to income statement by journal entry which is called closing entry. The closing entries are stated below: 1) Income accounts are closed passed the following closing journal entries: Debit Credit Tk. Tk. Sales *** Interest Income *** Discount Income *** Purchase Return *** Gain on sales of Assets *** Dividend Income *** Profit on Consignment *** Commission Income *** Income Summary *** *** 2) Expenditure accounts are closed passing the following closing journal entry: Debit Credit Tk. Tk. Income Summary *** Wages Expense *** *** Sales Return *** Purchase *** *** Discount Expense *** *** Salaries Expense *** *** Advertising Expense *** *** Rent Expense *** *** Insurance Expense *** *** Bad Debt Expense *** *** 3) The profit of income summary is closed by passing the following entry: Debit Credit Tk. Tk. Income summary *** Owners Equity Or; Retained Earning Statement *** *** 4) The loss of income summary is closed by passing the following entry: Debit Credit Tk. Tk. Owners Equity Or; Retained Earning Statement *** Income Summary *** 5) Withdrawal of owner of a sole tradership or partnership is closed by passing the following entry: Debit Credit
Tk. Capital *** Drawings
Tk. ***
6) The dividend of joint stock company paid is closed passing the following entry: Debit Credit Tk. Tk. Retained Earning Statement *** Dividend *** Question 6. Define reversing entry with example. Ans.:- Reversing entry: Reversing entry is a last optional step of accounting cycle. Passing reversing entry not mandatory. At the end of a particular accounting period an organization at beginning of the successive accounting period passes entries for some certain adjusting entries. These entries are called reversing entries. Reversing entry is not necessary for all kinds of adjusting entries. Reversing entries are needed only for outstanding income; prepaid expanse, accrued, earned income & advance unearned income received. Example: Say, Tk.3,000 remains unpaid on 31 December 2005, the accounting year end day. Pass adjusting entry and reversing entry for this adjustment. Adjusting entry: Debit Credit Tk. Tk. 31.12.2005 Salary expense 3,000 Salary payable Reversing entry: Debit Credit Tk. Tk. 01.01.2006 Salary payable 3,000 Salary expense
3,000
3,000
Question 7. Define Post closing Trial Balance? Answer: After the revenues and expenses accounts have been closed, it is desirable to prepare an after closing trial balance, which o0f course will consist solely of Balance Sheet accounts. The post closing trial balance gives assurance that the accounts are in balance and ready for the recording of the transactions of the accounting period.
Chapter Five Accounting for Merchandising operation Study Objectivesafter studying the chapter, you should be able to: 1.Differences between a service enterprise and a merchandiser 2004 2.Periodic versus perpetual inventory system 3.Explain the meaning of credit terms i)n/10,n/30, ii)2/10,n/30 iii)2/10,n/60 iv) 2/EOM,n/60. 2007,2009, 4. What is classified balance sheet? Discuss the different categories of assets according to classified balance sheet. 2008, 2010
Question 1.Differences between a service enterprise and a merchandiser. 2004 Answer: Businesses are of two types one is service enterprise and another is merchandise enterprise. Though these are two business concerns, they have some differences in the following cases: Service enterpriser Merchandiser (1) Business pattern: it is a service oriented (1) Business pattern: it is a product oriented business. business. (2) Basic revenue: service revenue is the basic (2) Basic revenue: sales revenue of the basic revenue of service enterprise. revenue of a merchandiser. (3) Journal: it uses only periodic journal. (3) Journal: it uses both periodic and perpetual journal. (4) Scope: it has comparatively narrow scope (4) Scope: it has comparatively wide scope of of businesses. businesses. (5) Cost of goods sold: it does not deal with (5) Cost of goods sold: it deals with cost of cost of goods sold. goods sold. (6) Limitation: it provides limited services (6) Limitation: it has no limitation to sell within a limited area. merchandises. (7) Example: schools, colleges, universities, (7) Example: stores, stalls, shops, companies, medical, clinic, repair workshop, chartered incorporations, industries, etc accountants firm, law concern, transportation concern, transportation concern etc Question 2. Periodic versus perpetual inventory system. Periodic versus perpetual inventory system are as follows Periodic inventory system Perpetual inventory system 1. Actual physical court of goods Continuous physical count of at a specific period of time. goods over the period of time. 2. Does not maintain the detailed Maintain the detail record of
record of physical inventory on hand during the period. 3. Generally large organization maintains this system. 4. Comparatively less expansible and less affordable. 5. Sometimes it hampers the normal activities of business. 6. It doesnt accelerate the overall performance of the organization.
physical inventory on hand during the period. Generally small organization maintains this system. For continuous recording it is more expansible and more affordable. Normal activities of the organization dont hamper for it. It accelerated the overall performance of the organization.
Question 3.Explain the meaning of credit terms i)n/10,n/30, ii)2/10,n/30 iii)2/10,n/60 iv) 2/EOM,n/60. 2007,2009 Answer: n/10 or n/30 (read as net 10 or net 30) meaning that the amount of the invoice is due ten days or thirty days. 2/10, n/30 or 2/10, n/60 meaning that the debtor may take a 2 percent discount if the invoice is paid within ten days, otherwise he must paid full amount of the invoice by thirty days or sixty days. 2/EOM, n/60 (EOM means End of month) meaning that 2 percent discount may take if paid end of the month. Question 4. What is classified balance sheet? Discuss the different categories of assets according to classified balance sheet. Answer: A classified balance sheet presents assets and liabilities in defined subgroups to facilitate financial analysis and management decision-making reader of the classified balance sheets can better judge the adequacy of different assets used in the business. Also they can better estimate the probable availability of funds to meet the various liabilities as they become due in a classified balance sheet. Assets are classified into five subgroups. (a) Current assets: current assets are those assets, which can be converted into cash in a accounting period usually a year. (b) Plant assets: plant assets are fixed assets used and retained in the business for a longer period. (c) Investment: investment is the acquisition of shares, debentures, securities etc. (d) Natural resources: it is resources supplied by the by the nature, such as ore deposits, mineral reserves oil deposits etc. (e) Intangible assets: intangible assets consist of non-current non-monetary non-physical assets of a business. Liabilities are classified into two subgroups: (a) Current liabilities: current liabilities are those liabilities, which is to be paid off within an accounting period. (b) Long term liabilities: long-term liabilities are those liabilities, which are not usually paid off within an accounting period.
Chapter Six Inventories Study Objectivesafter studying the chapter, you should be able to: 1. What are the methods of issuing materials? 2009 2. Describe the Inventory valuation-Lower of cost or market. 3.Describe the steps in determining inventory quantities. 4.Explain the accounting for inventories and apply the inventory cost methods. 5.Explain the financial effects of the inventory cost flow assumptions.
Question 1. What are the Methods of issuing materials ? 2009 The methods of pricing of issues that are generally used are discussed below: (1) FIFO method (2) LIFO method (3) Average price method (4) Periodic average method (5) Periodic Weighted average method (6) Base stock method (7) Fixed price method (8) Standard price method (9) Market price method (10) Inflated price method.
Question: 2. Describe the Inventory valuation-Lower of cost or market. Answer: We explained how costs are assigned to ending inventory and cost of goods sold using FIFO.LIFO or average costing method. Yet the cost of inventory is not necessarily the amount always reported on the balance sheet. Lower of cost or market (LCM) is such a case. Lower of cost of market is basically an exception to the historical cost principle and employed when the market value of inventory is lower then the historical cost to acquire inventory. It id an accounting inventory valuation method used for financial reporting to the external users. This rule is set up to account for the loss of inventory value due to change in price, deterioration, obsolescence (loss of being obsolete) etc, using this method will assist in prudence principle. Conservatism principle suggests not overstating assets on the balance sheet or income statement i.e. we would rather be conservative while presenting our financial statements. LCM states that inventory should be valued at lower of cost or market value. Here, the term cost refers to the original cost of inventory. On the contrary, the term market is defined as the replacement cost of inventory. The replacement of the market cost must lie between a ceiling and floor. The ceiling is the net realizable value or selling price less disposal cost (costs to be incurred to sell the inventory). The floor is net realizable value less a normal profit margin. Question :3. Describe the steps in determining inventory quantities. Ans.:- The steps (1) take a physical inventory of goods on hand and (2) determine the ownership of goods in transaction or consignment. Question 4: Explain the accounting for inventories and apply the inventory cost methods. Ans.:- The primary basis of accounting for inventories is cost. Cost of goods available for sale includes (a) cost of beginning inventory and (b) cost of goods purchased. The inventory cost flow methods are: specific identification and three assumed cost flow methods- FIFO, LIFO, and average-cost. Question 5: Explain the financial effects of the inventory cost flow assumptions. Ans.:- Companies may allocate the cost of goods available for sale to cost of goods sold and ending inventory by specific identification or by a method based of an assumed cost flow. When prices are rising, the first-in , first-out (FIFO) method results in lower cost of goods sold and higher net income than the other methods. The reverse is true when prices are falling. In the balance sheet, FIFO result in an ending inventory that is closest to current value; inventory under LIFO is the farthest from current value, LIFO results in the lowest income taxes.
Chapter seven Accounting Information System Study Objectives- after studying the chapter, you should be able to: Define accounting information 2008,2010 Define subsidiary ledger 2008,2010 Describe the features of subsidiary ledgers Describe the advantages of subsidiary ledgers 2008,2010 Define Special journal
What are the Purposes of using special journals?
Question: 1.Define accounting information. 2008,2010 Answer: The accounting information systems id a specialized sub system of management information systems (MIS) whose purpose is to collect, process and report information related to financial transaction. It consists of a set of transactions leading to the recognition of major economic event in the financial statements. Accounting information systems is an organizational component which accumulates, classifies, processes, analyzes and communicates relevant financial oriented decision making information to a companys external parties (such as investors, creditors) and internal parties (principally management). Question: 2. Define subsidiary ledger. 2008,2010 Answer: A subsidiary ledger is a group of accounts that are used to keep track of individual balances of a number of similar transactions. Accounting information systems employ a subsidiary ledger (a group of subsidiary accounts) associated with particular general ledger. The subsidiary ledger can effectively identify the change (increase or decrease) in a particular general ledger accounting. Example: The use of the subsidiary ledger is generally found in case of accounts receivable, accounts payable, plant & equipment investments and other accounts. Question 3. Describe the features of subsidiary ledgers. I. subsidiary ledger shows the individual balances of certain account. II. It is used for a number of similar transactions. III. A large business concern (a MNC) may need to prepare a lot of subsidiary ledger accounts. IV. A subsidiary ledger may contain a group of accounts to facilitate the accounting system. Question 4. Describe the advantages of subsidiary ledgers. 2008,2010 Answer: The use of a subsidiary ledger facilitates the accounting system in the following ways: 1. Subsidiary ledger accounts keep the general ledger trees the general ledger from detailed record of transactions. 2. The use of subsidiary ledger facilitates control over transactions and systems. The accountant can easily find out the accuracy of trace out the errors. 3. Facilitates the recording in an efficient and effecting way in a large concern. 4. Management can know the detailed information regarding individual balances of a certain account at any time as and when required for control and decision-making purpose. 5. Make possible a division of labor in posting the ledgers. Question 5. Define Special journal. Answer: A special journal is used by the business entity where a number of transactions occur and which uses modern accounting system (computerized system) usually. The special journal is used to record one particular type of (similar) transactions quickly and efficiently.
Example: Sales on account, purchases on account, cash payments, cash receipts etc. Question 6. What are the Purposes of using special journals? Answer: The special journal is used to serve the following benefits: I. Easy, efficient and speedy recording of transaction. II. Saves time in recording and posting the transactions. III. Eliminates detail from the general ledger. IV. Computerized system may reduce the risk if errors. V. provides management with information of specific type of transactions for any relevant decision. VI. Helps the accountants to handle a good number of transactions systematically. VII. Finally, the use of special journals aids in division of labor.
Chapter Eight Internal Control & Cash Study Objectives- after studying the chapter, you should be able to: 1.Define Internal Control 2.Identify the Principles of internal control. 2006 3. Describe the Features of Internal Control System. 4.Define Bank Reconciliation Statement. 2006
Question 1.Define Internal Control. Internal control is the related methods and procedure adopted within an organization to safeguard its assets and to enhance the accuracy and reliability of its accounting records. Question 2.Identify the Principles of internal control. 2006 The principles of internal control are: establishment of responsibility; segregation of duties; documentation procedures; physical, mechanical. and electronic controls; independent internal verification; and other controls such as bonding and requiring employees to take vacations. Question 3. Describe the features of Internal Control System. An effective internal control system includes organizational planning of a business and adopts all worksystem and process to fulfill the following objects: Safeguarding business assets from stealing and wastage. Ensuring compliance with business policies and the law of the land. Evaluating functions of each employee and officer to increase efficiency in operation. Ensuring true and reliable operating data and financial statements. It is to be kept in mind, a business organization, be its small or large, can enjoy the benefits adopting internal control system. Prevention of stealing-plundering and wastage of assets are apart of internal control system. Question 4. Define Bank Reconciliation Statement. 2006 A bank reconciliation statement is certain type of statement explaining any differences between the banks record of cash and the Companys record of cash periodically. In other words the bank reconciliation statement is a process of accounting for the differences between the balances of cash as shown by the bank statement (pass book).
Chart of Accounts List of Assets Current Assets Cash Temporary Investment (Marketable Securities) Accounts Receivable Notes Receivable Accrued Interest Receivable Merchandise Inventory Office Supplies Store supplies Prepaid Insurance Prepaid Rent Prepaid Advertising Fixed Assets Land Building Store Building Office Building
List of Expenses Purchases Sales return and allowance Sales discount Transportation in Selling expenses Sales salaries expenses Delivery salaries expenses Rent expenses Advertising expense Transaction out expense Gas oil and sundry expense Store supplies expense Repair supplies expense Delivery expense Sales promotion expense Heat, light &
List of Liabilities Current Liabilities Accounts Payable Notes Payable Accrued salaries Accrued Rent Other accrued expenses Short term loan Income tax payable Accumulated depreciation-office equipment Accumulated depreciation-office Building Owners equity Capital Drawings Common stock Preferred stock
List of Revenue Sales Purchases returns and allowance Purchases discounts Repair Revenue Service Revenue Accounting Fees earned Plumbing Revenue Commission earned Rent Revenue Interest earned Rent earned Bad debts recovered Dividend earned Gain on sales of assets Miscellaneous Revenue Sales discounts not taken Others Revenues
Equipment Machinery Store Furniture & Fixtures Delivery equipment Trucks Office equipment Intangible Assets Patents Trade Marks Goodwill Copyrights Franchises Lease Rights
Power expense Insurance expense Interest expense Loss on sales of assets Tax expense Depreciation expenseStore Building Depreciation expenseStore Furniture Depreciation expenseDelivery equipment Depreciation expenseTrucks Depreciation expenseStore equipment Miscellaneous selling expense Payroll expense Postage expense Utilities expense Telephone expense Repair expense Security expense Cleaning expense Bad debts expense Bank service charge expense Collection fee expense Amortization expenseGoodwill Amortization expensePatents
General Journal & Tabular Analysis Exercise 1. Mr. Tanjim started a Tanjim Travelling agency business on 1st January,2010. He invested Cash Tk.4,00,000 and equipment Tk. 1,00,000. During the first month his transactions were as follows: January 2. Hired a building for office use for Tk. 1,000 per month and paid Tk. 2,000. 4. Purchase one steel cabinet for Tk. 60,000 on account. 10.Paid 15,000 cash for advertising bill. 11. Cash received from customers in advance Tk. 5,000 for future service. 13. Received Tk. 60,000 cash for service rendered. 16. Purchase office supplies Tk. 5,000 cash. 18. Withdraw Tk. 8,000 cash for personal use. 19. Service rendered and earned Tk. 10,000 but not yet received. 22. Borrow Tk. 50,000 from Exim Bank against notes payable. 24.Received cash Tk 5,000 from accounts receivable. 25. Paid cash : Salaries Tk. 2000, telephone bill Tk. 5,000 and electricity bill Tk. 1,000. 27. Recovered Tk. 3,000 from accounts receivable and the unrealized balance be treated uncollectible.
27. Depreciation expense during the month Tk.2000. 28. During the month supplies worth Tk. 2,000 were use. 31, Treat on months rent expired out of advance payment of rent. Req: a) Prepare Journal entries b) Tabular Analysis c)Income statement, Owners equity statement and Balance Sheet from the above transactions. Exercise 2. Mr. Babu completed his civil engineering degree on 31 December 2008 and from 1st January 2008 set up his engineering practice. During the first month of operation be completed the following transactions : a. Began engineering practice by exchanging Tk. 2,00,000 for 1,00,000 shares of Tk. 2 par value common stock of the corporation. b. Purchased engineering books for Tk. 80,000 cash. c. Purchase office supplies for Tk. 20,000 on credit, d. Accepted Tk. 4,000 in cash for completing a contract. e. Billed clients Tk. 11,000 for service rendered during the month. f. Paid Tk. 2,000 of the amount owed for office supplies. g. Received Tk. 2,500 in cash from one client who had been billed previously for services rendered. h. Paid rent expense for the month in the amount of Tk. 10,000. i. Declared arid paid a dividend of Tk. 2,000. j. Paid insurance premium expense Tk. 2,000 for the month. Required : Show the effect of each of these transactions on the balance sheet equation by completing a table. Identify each stockholders' equity transaction
Exercise 3. On January 1, 2011, Bengal Travel Agency. The following transactions were completed during the month : January 1. Invested cash to start the agency Tk. 3,00,000. 2. Paid cash for January office rent Tk. 10,000. 5. Purchased office equipment for cash Tk. 25,000. 10. Incurred advertising costs in the Daily Times, on account Tk. 10,000. 14. Purchased office supplies for cash Tk. 5,000, 18. Earned for services rendered Tk. 30,000 (Tk. 20,000 cash received from customers and the balance Tk. 10,000 is billed to customers on account). 20. Withdrew cash for personal use Tk. 6,000. 23. Paid the Daily Times amount due on January 10. 25. Purchased additional office supplies on account Tk. 4,000. 31. Paid employees' salaries Tk. 5,000. 31. Received in cash from customers who have previously been billed on January 18.
31. Received cash from a new customer for services rendered Tk. 10,000. 31. Paid telephone, gas and electricity bills Tk. 3,000. Exercise 4. Abid owns and operates Abid plumbing service, which has the following assets : Cash Tk. 10,000, Plumbing supplies Tk. 2,000, tools Tk. 2,000 and truck Tk. 8,000. The business owes plumbing supply company Tk. 1,000 for supplies previously purchased. During a short period, the Service Company completed these transactions. 2002 Jan. 1. Paid the rent on the shop space for two months in advance Tk. 2,000. 2. Purchased tools for cash Tk. 2,000. 4. Purchased plumbing supplies on credit from plumbing supply company Tk. 2,500. 5. Completed repair work for a customer and immediately collected Tk. 3,000 cash for the work done. 6. Completed repair work for X Co. on credit Tk. 3,000. 1 5. Purchased plumbing supplies on credit from plumbing supply company Tk. 1,500. 20. Paid the electric bill for the month Tk. 1,500. 9. Abid withdrew Tk. 600 cash from the business to pay personal expenses. 1. Paid for the supplies purchased in transaction Jan. 4. 3 1. Treat one month's rent expired out of advance payment of rent. Required : Arrange the following assets, laibility and owner's equity titles on an equation cash, accounts receivable, prepaid rent, supplies, tools, truck, accounts payable and Abid - Capital. Enter the beginning assets and liability under the proper titles of the equation. Determine Abid beginning equity and enter it. Prepare also an Income Statement, an Owner's Equity Statement and a Balance Sheet.
Exercise 5. Hoque owns the Hoque Repair Centre. On 31st Dec. 2002 the centre had the following ledger balances : Cash Tk. 5,000, Supplies Tk. 1,500, Accounts receivable Tk. 3,000, Tools Tk. 2,000 and Motor vehicles Tk. 8,000 and Accounts payable Tk. 4,000. During the month January, 2003, the following transactions were completed: 2003 January 1, Paid rent for the month January Tk. 1,000. 2. Paid cash on accounts payable Tk. 2,500. 4. Purchased supplies for cash Tk. 500. 6. Received cash Tk. 6,000 for service rendered. 10. Purchased tools for cash Tk. 1,000. 15. Billed for service rendered Tk. 3,000.
20. Purchased supplies on account Tk. 2,000. 25. Received payment against bill of January 15 for service rendered Tk.2,000. 27. Hoque withdrew Tk. 500 for his personal use. 28. Paid cash Tk. 500 for Hoque's residence. 29. Paid cash for Salaries Tk. 1,000, Electricity bill Tk, 350 and gas bill Tk. 350 and water bill Tk. 500. 31. During the month supplies worth Tk. 3,500 were used. Required : Arrange the assets, liabilities and owner's equity in an equation using the following account titles, 'cash, accounts receivable, supplies, tools, motor vehicles, accounts payable and Hoque's capital. Show the effects of the above transactions over the accounting equation in a tabular summary. Prepare four financial statements : Income statement, Owner's equity, Balance Sheet and Cash flow statement. Exercise 6. On January 1, 2003, Abdullah established Bengal Travel Agency. The folloging transactions were completed during the month : January 1, Invested cash to start the agency Tk. 3,00,000. 2. Paid cash for January office rent Tk. 10,000. 5 . Purchased office equipment for cash Tk. 25,000. 1 0. Incurred advertising costs in the Daily Times, on account Tk. 10,000. 14. Purchased office supplies for cash Tk. 5,000, 18. Earned for services rendered Tk. 30,000 (Tk. 20,000 cash received from customers and the balance Tk. 10,000 is billed to customers on account). 20. Withdrew cash for personal use Tk. 6,000. 23. Paid the Daily Times amount due on January 10. 2 5. Purchased additional office supplies on account Tk. 4,000. 31. Paid employees' salaries Tk. 5,000. 31. Received in cash from customers who have previously been billed on January 18. 31. Received cash from a new customer for services rendered Tk. 10,000. 31. Paid telephone, gas and electricity bills Tk. 3,000.
Exercise 7. On January 1, 2003, Khan started his merchandising business'in the name of Khan Traders by investing cash Tk. 45,000 and equipment Tk. 10,000. During the 1st month he completed the following transactions : January 1. Hired a building for office use for Tk. 1,000 per month and paid Tk.2,000. 2. Merchandises Inventory purchased Tk. 30,000, paying Tk. 23,000 in cash and the balance on account.
1 0. Borrowed Tk. 10,000 from the Janata Bank on a note payable. 1 4. Merchandise sales on account Tk. 50,0,00 (cost Tk.. 28,000). 1 5. Paid salaries expense Tk. 1,500 and advertising expense Tk. 1,300. 1 6. Purchased office supplies for cash Tk. 1,000. 18. Merchandise purchased on account Tk. 10,000. 20. Paid Tk. 6,500 in full settlement for merchandise purchased on account on January 2. 25. Received a cash payment of Tk. 48,500 for sales made on account and allowed Tk. 1,500 discount. 28. Paid electricity bill for the month of January, 2003 Tk. 1,000. 31. Paid salaries for the month of January, 2003 Tk. 1,500. 31. Cost of unused supplies Tk. 500. Required : a) Show the effects of the transactions on the elements of the accounting equation. b) Prepare an Income Statement, an Owner's Equity Statement for the month of January, 2003 and a Balance Sheet at January 31, 2003. Exercise 8. The Courier Corporation was founded by Hafiz, on 01 January, 2005 engaged in the following transactions during the 1st month : 2005 January 1.Deposited 1,20,000 in cash in the name of Continental Courier Corporation, in exchange for 12,000 shares of Tk, 10 par value stock of the corporation. 5. Purchased a motorbike on credit Tk. 10,000. 1 0. Purchased delivery supplies for cash Tk. 1,000. 1 8. Received delivery fees in cash Tk. 15,000. 20. Made a payment on the motorbike Tk. 6,000. 21. Paid repair expense Tk. 3,000. 31 . Declared and paid dividends of Tk. 5,000. 31. Paid cash Tk. 5,000 for current month's salaries of staff. 31 . Delivery supplies were used fully. 31. Paid cash Tk. 16,000 for tax. Required : 1. Arrange the following asset, liability and stockholders' equity accounts in the equation showing : Cash, Accounts Receivable, Delivery Supplies, Motorbike, Accounts Payable, Common Stock and Retained Earnings. 2. Show by addition and subtraction the effects of the transactions on the accounting equation. Show new balances after each transaction and identify each stockholders' equity transaction by type.
Exercise 9. Show the effect on accounting equation of the following transactions of X Ltd. in a tabular form. 2005 January 1. Shareholders purchased 10,000 shares of Tk. 100 each paying cash in full. 2. Paid Tk. 15,000 for preliminary expenses. 3. Purchased office supplies for tk. 1,000 on credit. 8. Purchased an office equipment for Tk. 40,000 and issued a note for the same amount. 1 5. Received Tk. 50,000 cash for service rendered. 20. Paid Tk. 500 of the amount owed for office supplies. 22. Billed clients Tk. 20,000 for services rendered during the month. 25. Paid office salaries Tk. 10,000 for cash for the month. 28. Paid rent expense for the month in the amount of. Tk. 12,000. 31. Declared and paid a dividend of Tk. 20,000. 31. Office supplies used during the month worth Tk. 600. Exercise 10. Mr. Arfan passing Bachelor Degree in Medical Science started practice under firm's name "Arfan Medical Service Centre" on January 1, 2003. During the first month, the following transactions occurred : 2003 January 1. Invested : Cash Tk. 15,000; Aimira, table costing Tk. 10,000. . Paid rent for the month of January, 2003 Tk. 1,000. . Purchased medical equipment for cash Tk. 5,000.4. Purchased medical supplies Tk. 1,000 on account 1 0. Service revenue received for cash Tk. 6,000 15. Billed patient Tk. 4,000 for treatment service rendered. 20. Cash Tk. 2,000 borrowed from a bank on a note payable. 25. Received Tk. 3,000 from the patient billed on January, 15. Received a telephone bill for Tk. 500. Paid salaries Tk. 1,000 and electricity bill Tk. 600. 31, Medical supplies on hand Tk. 200. Required : Prepare tabular summary of the transactions showing their effects on accounting equation! Exercise 11.
Mr.Mahbub started Wonderland Park on 1st July 2008. The following events and transactions were occurred during the July. July1. Invested cash Tk 6,00,000 in the business. Purchase Land costing Tk 60,000 cash. 11. Incurred advertising exp. of Tk 4,000 on account. 13. Hired park manager at a salary of Tk 5,000 per month effective from 1st August. 15. Borrowed Tk 30,000 from Islami Bank on a Notes payable. 17. Paid Tk 6,700 in cash for one year insurance policy. 24. Sold 200 coupon books for Tk 25 each. Each book contains 10 coupons that entitle the holder to one admission to the park. 2 8. Paid 50% of the advertising bill that incurred on 11th July. Required : (a)Journalize the July transactions (b)Post to the ledger account (c) Prepare a Trail Balance.
Exercise 12. Mustari started her own consulting firm- Mustari consulting, on May, 2009. The following transactions occurred during the month of May. May 1.Mustari invested Tk. 40,000 cash in the business. 2. Paid Tk. 2,500 for office rent for the month. 3. Purchased Tk. 1,500 supplies on account. 5. Paid Tk. 500 to advertise in the Daily Star.
9. Received Tk. 10,000 cash for service provided. 12.Withdrew Tk. 2,700 for personal use. 15. Performed Tk. 5,000 of service on account. 17. Paid Tk. 3,000 for employees salaries. 20. Paid for supplies purchased on May 3. 23. Received cash payment of Tk. 4,000 for service provided on account on May 15. 26. Borrowed Tk. 10,000 from AB Bank. 29. Purchased office equipment for Tk. 12,000 on account. 30. Paid Tk. 500 for utilities. Required: (i)Prepare a Tabular analysis (ii) Compute net income or loss and (iii) Balance Sheet. Exercise 13. An analysis of the transactions made by Tanjim and co. a certied public accounting firm, for the month of august 2010, is shown below. Each increase and decrease in owners equity is explained. Cash + Accounts +Supplies +Office Equipment =Accounts payable +Owners Equity receivable 1. +15,000 +15,000 investment 2. -2,000 +5,000 +3,000 3. -750 +750 4. +2,600 +2,400 +5,000 Service revenue 5. -2,000 2,000 6. -3,000 -3,000 Drawings 7. -1,000 -1,000 Rent expense 8. +2,000 -2,000
9. 10.
-3000 -3,000 Salaries expense +800 -800 Utilities expense
Req:i)Describe each transaction that occurred for the month. ii) Determine the amount of net income for the month.
Exercise 14. Financial statement information about two different companies is as follows: Azad company Rahim company January 1,2010 Assets (a) 1,50,000 Liabilities 75,000 (d) Owners equity 54,000 1,00,000 December 31,2010 Assets 1,80,000 (e) Liabilities (b) 80,000 Owners equity 1,00,000 1,40,000 Owners equity changes in year Additional investment 10,000 15,000 Drawings 12,000 10,000 Total revenues (c) 5,00,000 Total expenses 3,60,000 (f) Instructions: a)Determine the missing amounts.
Exercise 15. Mr.Mahbub started Wonderland Park on 1st July 2005. The following events and transactions were occurred during the July. 1. Invested cash tk 6,00,000 in the Business. Purchase Land costing tk 60,000 cash. Incurred advertising exp. Of tk 4,000 on account. 13. Hired park manager at a salary of tk 5,000 per month effective from 1st August. 15. Borrowed tk 30,000 from Islami Bank on a Notes payable. 17. Paid tk 6,700 in cash for one year insurance policy. 24. Sold 200 coupon books for Tk 25 each. Each book contains 10 coupons that entitle the holder to one admission to the park. 2 8. Paid 50% of the advertising bill that incurred on 7th July. Required : Journalize the July transaction
Exercise 16.
Mr. Zafar opened The Lion care company on 1st April 2004. The following selected transactions were completed during the month of April. 1. Invested tk 25,000 to the business. 3.Purchased used delivery van for tk 22,500. Paid cash Tk 11,500 and signed a notes payable for the remaining balance. 5. Paid tk 1.250 for office rent for the month.. 9.Performed service for Tk 14,500 on account. 11.Purchase supplies Tk 625 in cash. 12. Depreciation on Delivery van Tk 2,000. 14. Cash received from customers for future service in advance Tk 1,000. 17. Paid Gas and oil exp. 375. 18. Received the cash payment of the services provided on 9th April. 21.Made cash payment of Tk 8,500 of the notes payable. 30. Salaries exp. are due for that month Tk 875 Required: Show the effect of the above transaction on the accounting equation.
Work Sheet & Financial Statement Question 1: The trial balance of Mukta Telecom Corp. at May 31, 2012, follows: MUKTA TELECOM CORPORATION Trial Balance May 31, 2012 Account Titles Tk. Cash 8670 Notes receivable 10340 Interest receivable Supplies 560 Prepaid insurance 1790 Furniture 27410 Accumulated depreciation- Furniture Building 53900 Accumulated depreciation- Building Land 18700 Accounts payable Interest payable Salaries payable Unearned service revenue Notes payable, long-term Capital Withdrawals 3800 Service revenue Interest revenue Depreciation expense- Furniture Depreciation expense- Building Salary expense 2170 Interest expense Utilities expense 1130 Advertising expense 1060
Tk.
1480 34560 14730 8800 18700 34290 16970
Supplies expense Total
1,29,530
1,29,530
Additional data at May 31, 2012 Depreciation furniture, Tk. 480; building, Tk. 460. Accrued salary expense, Tk. 600. Supplies on hand, Tk. 410. Prepaid insurance expired during May, Tk. 390. Accrued interest expense, Tk. 220. Unearned service revenue earned during May, Tk. 4400. Accrued advertising expense, Tk. 60 (credit Accounts Payable). Accrued interest revenue, Tk. 170. Required: Complete work sheet for May adjusting entries by letter. Prepare financial statements; journalize the adjusting and closing entries. Question 2: The trial balance of Naher Top Company at July 31, 2012 follows. NAHER TOP COMPANY Trial Balance July 31, 2012 Account Titles Tk. Tk. Cash 21200 Accounts receivable 37820 Supplies 17660 Prepaid insurance 2300 Equipment 32690 Accumulated depreciation- Equipment 26240 Building 42890 Accumulated depreciation- Building 10500 Land 28300 Accounts payable 22690 Interest payable
Wages payable Unearned service revenue Notes payable, long-term Capital Withdrawals Service revenue Depreciation expense- Equipment Depreciation expense- Building Wages expense Insurance Interest expense Utilities expense Advertising expense Supplies expense Total
10560 22400. 79130 4200 20190 3200 1110 340 1,91,710 1,91,710
Additional data at July 31, 2012 Depreciation equipment, Tk. 630; building, Tk. 370. Accrued wage expense, Tk. 240. Supplies on hand, Tk. 14740. Prepaid insurance expired during July, Tk. 500. Accrued interest expense, Tk. 180. Unearned service revenue earned during, July, Tk. 4970. Accrued advertising expense, Tk. 100 (credit Accounts payable). Accrued service revenue, Tk. 1100. Required : Complete work sheet for July, Key adjusting entries by letter. Prepare Financial Statements. Show adjusting and closing entries. Question 3: The Savikun Ltd. prepared a trial balance on the following partially completed worksheet for the year ended December 31, 2012: Savikun Ltd. Trial balance
December 31, 2012 Account Titles Cash Accounts receivable Allowance for doubtful Accounts Inventory, 1/1/2012 Prepaid rent Equipment Accumulated depreciation Accounts payable Notes payable, due 7/1/2013 Retained earnings Capital Stock (1000 shares) Dividends distributed Sales revenues Purchases Salaries expense Utilities expense Advertising expense Total
Dr. 2500 4000 6800 3600 30000
Cr.
300
12000 3700 5000 10200 8900 1000 45000 22400 7100 3300 4400 85,100
85,100
Additional information: The equipment is being depreciated on a straight-line basis over a 10year life, no residual value. Salaries accrued but not recorded total Tk. 300. On January 1, 2012 the company had paid 2 years rent in advance at Tk. 150 per month. Bad debts are expected to be 1% of total sales. Interest Tk. 250 has accrued on the note payable. The December 31, 2012, inventory is Tk. 8200. The income tax rate is 40% on current income and will be paid in the first quarter of 2013. Required : Complete the worksheet.
Prepare financial statements for 2012. Prepare closing entries in the general journal. Question 4: Following is the Trial Balance and other pertinent information of Houck Ltd. HOUCK LIMITED Trial balance December 31, 2012 Account Titles Dr. Cash 42384 Accounts Receivable 95712 Merchandise Inventory 171120 Sales Supplies on Hand 3216 Prepaid Fire Insurance 2880 Prepaid Rent 34560 Store Equipment 52800 Accumulated Depreciation- Store Equipment Accounts Payable Capital Sales Sales Returns and Allowance 3096 Purchases 300504 Purchase Return and Allowance Transportation-In 4704 Sales Salaries Expense 83040 Advertising Expense 46800 General Office Expense 5928 Office salaries Expense 144480 Legal and Auditing Expense 6000 Telephone Expense 2880 Interest Revenue Interest Expense 360 10,00,464 Additional data as of December 31, 2012:
Cr.
10560 61680 251784 673416 2424
10,00,464
Prepaid fire insurance expired Tk. 2040. Sales supplies consumed Tk. 2196. Prepaid rent expired during the year Tk. 30360. Depreciation expenses on store equipment Tk. 5280. Accrued sales salaries Tk. 2400. Accrued office salaries Tk. 1800. Merchandise Inventory on hand Tk. 210000 Required : An eight column work sheet for the year ended December 31, 2012. A classified Income Statement. A classified Balance Sheet. Question 5: Following is the trial balance of Doom Ltd. December 31, 2012. Account Titles Accounts receivable Capital stock Interest expense Misc. general expense Notes receivable Purchase discount Sales salaries Supplies Sales Tk. 12600 15000 500 12600 2000 2300 8000 600 85000 Account Titles Accounts payable Cash Interest income Notes payable Purchases Purchase return Store furnitures Taxes Tk. 3100 9800 350 6000 82000 1650 3700 600
Additional data: Inventories: Merchandise Tk. 24100; Store supplies Tk. 280. Depreciation of store furniture 10% p.a. Additions to store furniture were made on march 1, 2012 closing Tk. 900. Accrued advertising Tk. 95. Taxes paid in advance Tk. 200. Accrued taxes Tk. 215. Accrued interest on notes payable Tk. 75.
Accrued interest on notes receivable Tk. 105. 5% of the accounts receivable are expected to be uncollectible. Required : An eight column work sheet An Income statement Adjusting entries. Question 6: The following is the Trial Balance of M/S HRC & CO. as on June 30, 2012. Account Titles Tk. Accounts payable 300000 Accounts Receivable 560000 Advertisements 40000 Accumulated Depreciation- Building 165000 Allowance or Doubtful Accounts 11500 Buildings 600000 Capital Stock, Tk. 100 par 1500000 Cash 200000 Dividends Paid 120000 Insurance Expense 12000 Freight in 30000 Interest Expense 22000 Interest Income 5500 Inventory June 30, 2012 540000 Land 580000 Long-term Investments 105000 Mortgage Payable 400000 Notes Payable 125000 Office Expense 134000 Purchases 1154000 Purchase Discount 9500 Retained Earnings, June 30, 2012 117000 Sales 2050000 Sales Discount 45000
Sales Returns Selling Expense Supplies Expense Taxes-payroll & others
28000 412000 35000 66500
Adjustments on June 30 are required as follows: The inventory on hand is Tk. 756000. The allowance for doubtful accounts is to be increased to be increased to balance of Tk. 25000. Buildings are depreciated at the rate of 3% per year. Accrued sellings expenses are Tk. 32000. There are supplies 6500 on hand. Prepaid Insurance relating to 2012-13 and 2013-14 totals Tk. 6000. Accrued interest on long-term investment is Tk. 2000. Accrued Payroll and other taxes are Tk. 7500. Accrued interest on the mortgage is Tk. 4000. Income taxes are to be estimated @ 30%. Required : i. Prepare an eight column Work Sheet. ii. Prepare Multiple-step Income Statement. iii. Prepare Balance Sheet in Report From. iv. Give Adjusting Entries.
Question 7: From the following Trial balance of Nokia Company, prepare income statement for the year ended 31st December 2012 and a Balance Sheet as on that date: Account Titles Purchases Sales Capital 6% loan (1-1-2012) Accounts receivable Accounts payable Inventory (1-1-2012) Wages and Salaries Goods returned Insurance Carriage Land and Buildings Furniture and Fittings Trade Expense Allowance for Bad debts Cash in hand Income Tax Dr. 16000 Cr. 20000 10650 9000 7800 8950 5000 3700 2000 320 280 8600 4300 800 1600 100 50,500 1500
400
50,500
Additional information : Closing inventory Tk. 8500. Of the accounts receivable Tk. 200 are to be written off as bad debt and a allowance for doubtful debt @ 5% is to be created on accounts receivable. A fire occurred in the godown on the 20th December, 2012 and goods valuing Tk. 3000 were damaged. The Insurance Company admitted the claim for Tk. 2000. Insurance unexpired Tk. 50. Depreciation is to be at 5% on furniture and fittings.
Furniture and fitting costing Tk. 400 were purchase on 1st July but not recorded in the Books of Accounts.
Question 8: From the following Trial Balance of Samsung Company Ltd. prepare an income statement for the year ended on 31st December, 2012 and the Balance Sheet as at that date. Trial Balance Account Titles Dr. Cr. Buildings 700000 Furniture and fittings 115000 Purchases and Sales 500000 1234000 Inventory (1-1-2012) 200000 Allowance for Bad debt 10000 10% Loan Account (Taken on 1-7-2012) 40000 Accounts receivable 324000 471000 Accounts payable Salaries 102000 Advertisement 19500 Carriage Outward 6000 Wages 210000 General Expense 105000 Rent 10000 Insurance 4000 Investment (10% bond) 50000 Capital Account 650000 Bank Balance 48500 Drawing Account 31000 24,15,000 24,15,000 Adjustment : Closing Inventory was valued at Tk. 225000, which includes goods worth Tk. 15000 sold but not yet delivered to the purchaser; Credit Sales of Tk. 2000 has not been recorded in the books; Mr. Kalam has drawn out goods worth Tk. 3000 for his personal consumption of which there is no record in the books. Write off Tk. 6000 as bad debt and a allowance for bad debt at 5% on remaining accounts receivable; Rent not yet received amounted to Tk. 12000.
Accrued interest on investment on 31-12-2012 amounts to Tk. 2500. Furniture and Fittings to be depreciation @ 10%.
Question 9: The accounts balances are taken from the ledger of Kingstar Company Ltd. on December, 31, 2012: Account Titles Merchandise Inventory (1-1-2012) Purchase Purchase return Purchase discount Sales salaries Drawings General expense Supplies Cash Taxes Interest expense Interest Income Furniture Accounts Receivable Notes Receivable Sales Sales return Capital Accounts Payable Notes payable (long-term)
Tk. 50000 770000 16500 23000 80000 26000 100000 6000 98000 6000 5000 3500 37000 31000 20000 852000 2000 150000 126000 60000
The data for year end adjustment on December 31, 2012 are as follows: Merchandise Inventories in hand Tk. 220000 office supplies in hand 2500. Outstanding Advertisement Tk. 10000. Accrued taxes Tk. 2000. Accrued interest on notes payable Tk. 7000. Accrued interest on notes receivable Tk. 8000. 6% of the accounts receivable are expected to be uncollectible. Depreciation of office furniture @ 10% p.a. Additions to office furniture were made on April 2012 costing Tk. 5000. 5% interest to be charged on capital.
Required : An Income statement; Statement of owners equity; Balance sheet as at December 31, 2012.
Question 10: The following is the unadjusted trial balance of Symphony Ltd. as on 30th June, 2012. Account Title Debit (Tk.) Merchandise Inventory (1-7-2011) 70000 Purchases 1650000 Purchase return Sales Sales return 6000 Accounts receivable 400000 Office equipment 46000 Accounts Payable Notes payable Cash in hand 150000 Insurance 8000 Office supplies 14000 Rental expense 6000 Office salaries 32000 Drawings 9000 Advertising expenses 22000 Freight in 22000 Delivery expenses 35000 Capital stock (1-7-2011) 24,70,000 Adjustments on 30th, June 2012 are required as follows: Merchandise Inventory on 30-6-2012 Tk. 285000. Office supplies consumed were Tk. 1000. Un-expired insurance was Tk. 2000. 5% of the accounts receivable are expected to be uncollectible Expenses outstanding on 30-6-2012: Rent 400 Freight in 4000 Advertising 3000 Office salaries 8000 Depreciation on office equipment for the year Tk. 6000.
Credit (Tk.) 25000 1830000
180000 30000
405000 24,70,000
Required : Income statement for 30-6-2012 in classified from. Balance sheet as at 30-6-2012. Question 11: The accounts balance are taken from the ledger of Doom Trading Enterprise on December 31, 2012. Account Title Tk. Capital (1-1-2012) 1500000 Inventory (1-1-2012) 540000 Office Equipment 350000 Furniture 200000 Office Expense 134000 Building 600000 Accounts Receivable 560000 Cash in hand and Bank Balance 200000 Prepaid Insurance 12000 Freight in 30000 Purchases (Merchandise) 1154000 Interest Expense 22000 Accounts Payable 235000 Allowance for Depreciation on Building 100000 Allowance for depreciation on office equipment 65000 Allowance for doubtful accounts 11500 Sales 2000000 General Reserve 150000 Purchase discount 21500 Mortgage Payable 400000 Investment 100000 Interest Income 5500 Rates & Taxes 66500 Supplies expenses 35000 Sales returns 73000 Selling expenses 412000 The following adjustments are available for action:
Merchandise Inventory in hand is Tk. 700000. There are supplies of Tk. 6200 in hand. Accrued interest on mortgage is Tk. 3500. Goods costing Tk. 2500 were taken by the proprietor for personal use no record of it was maintained in the books of accounts. The allowances for doubtful accounts is to be increased to a balance of Tk. 15000. 1 Building and office equipment are depreciated @ 5% & 2 % 2 respectively. Required : a) An income statement b) Balance sheet as on Deember, 31, 2012. Question 12: From the following Ledger Balances of Mr. Sajib as on 31st December, 2012. Prepare Income statement for the year ended 31st December , 2012 and a balance sheet as on sheet as on that date. Account Title Merchandise Inventory (1-1-2012) Purchases Freight in Sales Capital, Mr. Sajib Cash Accounts Receivable Interest Income Allowances for doubtful debts Supplies Rent expenses Salary expenses Office equipment Accounts payable Tk. 450000 700000 25000 1500000 1000000 300000 600000 30000 20000 30000 140000 200000 100000 100000
Gain on sale of fixed assets Stores equipment
30000 135000
Adjusting data : Merchandise inventory on December, 31, 2012 Tk. 350000 Prepaid rent Tk. 20000. Doubtful accounts to be written off against allowance Tk. 10000. Maintain an allowance for doubtful accounts equal to 10% of accounts receivable. Accrued salaries Tk. 40000. Supplies in hand 15000. Goods worth Tk. 5000 taken by the proprietor for personal use was debited to purchases. Stores equipment was charged with an amount of Tk. 10000 which was spent for repairing the delivery van of the stores. Depreciation is to be changed @ 10% per annum. Office equipment includes an item purchased on 1-7-2012 at Tk. 20000. depreciation is to be charged @ 5% per annum.
Question 13: The trial balance of Motorola Trading Corporation is as follows: Trial Balance As at 31st December, 2012 Account Titles Debit (Tk.) Credit (Tk.) Capital 450000 Sales 809000 Rent Income 10000 Purchase Returns 13000 Commission Income 2000 Allowances for bad debts 1500 Drawing 36000 Purchases 553000 Sales Returns 19000 Carriage Inward 10000 Office Salaries Expenses 60000 Merchandise Inventory 120000 Rent & Taxes expenses 12000 Accumulated Depreciation- Furniture 2000 Accumulated Depreciation- Buildings 5000 Accounts Payable 124500 Notes Payable 30000 Loan on Mortgage (Payable on 30th June, 2014) 100000 Sales Salaries expenses 22000 Carriage on sales 14000 Advertising expenses 7000 Insurance expenses 18000 Sundry office expenses 2000 Furniture 65000 Accounts Receivable 260000 Cash in hand 9000 Building 200000 Cash at Bank 140000 15,47,000 15,47,000
Adjusting Entries are : Merchandise Inventory on 31st December, 2012 Tk. 180000. Office salaries accrued but not paid Tk. 6000. Rent received but not earned Tk. 2000. Carry forward for prepaid insurance Tk. 4500. Interest on Mortgage loan accrued Tk. 5000. Commission accrued but not received Tk. 1000. Depreciation to be provided:Furniture Tk. 2000 and Building Tk. 5000. Increase allowance for bad debts to Tk. 1190 on accounts receivable. Goods taken by the proprietor for private use Tk. 1000. Required : An income statement in multiple step form. A balance sheet as on December 31, 2012. Question 14: The followings are the ledger balances of Beximco Pharmaceutics Ltd. as on 30th June 2012. Account Titles Accounts Payable Accounts Receivable Advertising Allowance for depreciation on Building Allowance for doubtful Accounts Buildings Capital Stock Cash Dividends Freight in Insurance Interest Expenses Interest Income Inventory, 30th June. 2011 Land Long Term Investment
Tk. 275000 560000 40000 165000 11500 600000 1500000 200000 120000 30000 12000 22000 5500 540000 560000 105000
Mortgage payable 400000 Notes Payable 125000 Office Expenses 134000 Purchase 1154000 Purchase Discount 9500 Retained Earnings, 30.06.2012 122000 Sales 2050000 Sales Returns 28000 Sales Discounts 45000 Selling Expenses 412000 Supplies Expenses 35000 Taxes-Payroll etc. 66500 Adjustments on 30th June, 2012 are required as follows : The Inventory on hand Tk. 728500. The allowance for doubtful Accounts is to be increased to a balance of Tk. 25000. Buildings are depreciated @ Tk. 3% Accrued selling expenses are Tk. 22000. There are supplies of Tk. 6500 on hand. Unexpired insurance for the next two years total Tk. 3500. Accrued Payroll Taxes is Tk. 4000. Income tax is estimated at 30% of the net income before tax. Required : An income statement in multiple step form. A balance sheet as on 30th June, 2012. Question 15: From the following Trial Balance of Mr. Mukta Textile Ltd. prepare an Income statement for the year ended 31st December, an statement of owners equity and a Balance Sheet as on that date: Account Titles Capital Drawings Notes Receivable Debit (Tk.) 10000 9700
Credit (Tk.) 96000
Plant and Equipment Accounts Receivable 6% Loan (1-4-2012) Wages Inventory (1-1-2012) Uncollectible account Carriage on Purchases Sales Carriage on Sales Purchases Cash at Bank Notes Payable
28800 61000 24000 40900 5000 3500 1000 92000 1100 46000 6500 2,13,500 1500 2,13,500
Adjustments : (a) Inventory on 31st December, 2012 was Tk. 25580. included in inventory goods valued at Tk. 1200 which are destroyed by fire, against which an insurance claim to the extended of Tk. 800 is admitted. A note for Tk. 1500 discounted with the Bank was dishonored on maturity but entry was made elsewhere in the books of accounts. Goods worth of Tk. 500 was taken by the proprietor for his personal use. Wages include Tk. 500 incurred for creation of a computer purchased and installed on 1st July, 2012, Purchase price of the computer was Tk. 8800. 1 Depreciation plant and equipment @ 12 % 2 Allowances 5% provision for bad and doubtful debts on Accounts receivable. Question 16: From the following Trial Balance of Mss. Savikun prepare an Income Statement, an statement of owners equity for the year ended 31st December, 2012 and a Balance Sheet as on that date.
Account Titles Inventory (1-1-2012) Plant and equipment Sales Purchases Returns Freight and duty Carriage inward Salary and wages Capital Discount Bad debts/Uncollectible accounts Accounts receivable Accounts payable Loan @ 7% (1-1-2012) Interest on loan Printing and advertising Furniture Investment Income from Investment General expenses Insurance premium Traveling expenses Postage and telegram Electricity Rent & taxes Notes receivable Drawings Cash in hand Cash at bank
Debit 58000 45000 236100 9500 1600 14300 9890 1320 1000 34800 1200 4910 9500 6000
Credit 291200 7500
129000 800 24900 25000
300 1400 1200 2560 420 600 2400 9500 6000 1500 20000 4,78,700
4,78,700
Adjustments : A cheque for Tk. 500 received from a debtor was returned by the Bank being dishonored on presentation. The Bank charged Tk. 2 as expenses
incurred on it. No record was made in the Cash Book. It is further known that the debtor is not in a position to pay more then Tk. 250 against the amount due from him. 1 Create an allowances for bad debts @ 2 % on Accounts receivable. 2 Depreciate Plant and Equipment @ 10% and Furniture @ 20%. Accounts receivable include Tk. 6000 due from Mr. Raju whereas Accounts payable include Tk. 3000 due to him. The proprietor took goods worth Tk. 1200 for personal use. On the way to deposit money in the Bank, the miscreant snatched away Tk. 8000 from the cashier on 31-12-2012. Closing Inventory was valued at Tk. 77500 including stock of stationary Tk. 500. 17. Following is the trial balance of Bostorn and Co. as on 31st December,2001. Bostron and Co. Trial Balance December31, 2005 Accounts Titles Debit Tk. Capital Merchandise sale Merchandise Purchase 90,000 Sales return and allowance 5,000 Purchase return and allowance Investments 30,000 Cash on hand 35,000 Notes receivable 15,000 Accounts receivable 30,000 Accounts payable Notes payable Merchandise inventory(1.1.2005) 18,000 Wages 8,000
Credit Tk. 1,35,000 1,50,000 3,200
20,000 10,000
Land Plant-Equipment Accumulated depreciation-Equipment Patents rights 8% Loan on Mortgage Merchandise sent on consignment Drawings-Bostron Advertising expense Freight expenses Interest expenses Salaries expenses
2,000 40,000 50,000 10,000 10,000 30,000 2,000 8,000 5,000 3,000 1,200 10,000 3,60,200
3,60,200
The following adjustments are to be made on December 31,2001. The Merchandise inventory Tk. 3,500. Goods worth Tk. 300 had been destroyed by. Goods worth Tk. 300 were taken by the owner and no record of it was maintained in the books of accounts. Interest on capital is to be provided for at 10% per annum. Accrual expenses for salaries Tk. 500 and advertising Tk. 700 Required: Prepared 10 column work Sheet Income statement & work sheet Journalize the adjusting entries. 18. The following trial balance and adjustments for the year ending 31st December ,2002 have been extracted from the book of Rahim and Co. Rahim and Co. Trial Balance December 31,2002 Accounts titles Debit Credit Tk. Tk. Cash 20,000 Accounts receivable 40,000 Inventory(1.1.2002) 1,000
Office supplies expense Prepaid insurance Store Equipment Office Equipment Notes receivable Accumulated dp.-(Store Equipment) Accumulated dep.-(Office Equipment) Capital-Rahim Sales Accounts payable Merchandise purchase Sales discount Purchase discount Purchase return and allowance Sales return and allowance Sales salaries Delivery expense Rent expense Freight in Office salaries expense Miscellaneous expense Interest expense land
4,100 2,000 100 20,000 15,000 6,000 6,000 4,500 1,08,500 1,00,000 30,000 1,000 3,000
60,000 2,000 5,000 8,000 3,000 2,000 1,000 3,000 500 400 50,000 2,53,000
2,53,000
Adjustments: The inventory on hand 31st December,2002 Tk. 50,000. Office supplies on hand Tk. 500 & store supplied on hand Tk. 400. Insurance expenses Tk. 500 and accrued sales salaries Tk. 300. Accrued office salaries Tk. 200. Charge depreciation 10% on office equipment & stores equipment. Provide 10% provision for Bad and doubtful debts on accounts receivable. 19. M/s Robin Son Co.
Trial Balance 30th June,2002 Accounts titles Capital Sales Purchase Sales return Purchase return Accounts payable Notes payable Accounts receivable Office Equipment Cash in hand Merchandise inventory(1.7.2001) Insurance Office supplies Rental expenses Office salaries Drawing Advertising expenses Delivery expenses Freight in Total
Debit Tk. 1,65000 600
Credit Tk. 40,500 1,83,000 2,500 18,000 3,000
40,000 4,600 15,000 7,000 800 1,400 600 3,200 900 2,200 3,500 2,200 2,47,000
2,47,000
The following additional data available for action: expense outstanding on 30.6.2002 Office salaries Tk. 800 Advertising 300 Freight in 400 Rent 40 Office supplies consumed were Tk. 1,000 Un-expired insurance was Tk. 200 Depreciation on office Equipment for the year Tk. 600 Merchandise inventory on 30.6.2002, Tk. 28,500
Requirement: A ten column work Sheet. Income statement for 2001-02 in classified reprrt from. Balance sheet as at 30th June 2002.

Book Principles of Accounting

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Book Principles of Accounting

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For Professional BBA Students ( Principles of Finance) of all universities and Colleges.

Mohammad Salim Hossain

Prominance Publications 16, Banglabazar, Dhaka-1205

Bangladesh Published By: Hussain Trakikul Azam Prominance Publications

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Preface to First Edition

Mohammad Salim Hossain E-mail: salimmist@yahoo.com Mobile: 01711-385824

Detailed Syllabus First Year / First Semester 1102 PRINCIPLES OF ACCOUNTING

Req: (i) Adjusting entries Date Explanation

Req (iii) Closing entries Date Dec.3 1 Explanation

Condition-2 2,00,000 1,25,000 75,000 44,000 31,000

Condidtion-3 1,75,000 95,000 80,000 46,000 34,000

8.(b) (Periodic system) Date May 2 2 9

46,000 45,080 920

4) Dep. Of office equipment = ( 60,000 10% ) = 6,000

Tk. 1,55,000 73,000

Tk. 70,000 ____29,300__ _ 99,300 ____3,500__ __ 95,800 ============

20,000 49,000 4,500 1,800 30,000

39,000 1,44,300 35,000 1,500 95,800

Others liability General Reserve

30000 12000 80000 78000 15000 47500 500000

30000 12000 80000 78000 15000 47500 50000 0

38000 9000 16000 20000

40000 25000 0 24000 0 10000 24000 0

12000 40000 250000 240000 10000

exp. Dep.exp.equipment Salaries payable Net loss Total

7000 5000 111200 0 111200 0

7000 5000 2000 54650 0 54650 0 2000 56750 0 56750 0

Debit Tk. 175 2,000

Credit Tk. 175 2,000

2,000 3,000 1,200 1,128

2,000 3,000 1,200 1,128

B.B.A PART-I (FIRST SEMESTER) EXAMINATION,2005 PRINCIPLE PF ACCOUNTING 1102

Date ____ June

Quantity Unit cost or Selling price Taka

Office Equipme nt 10,000

= L + O.E Notes A/c payabl Payabl e e 8,400 (5,400)

+15,00 0 (8,500) (1,100)

Earned Rev. Salaries,Rent,Advt.ex p. Withdrawn Utilities exp on a/c

Credit 900 300 300 2,500 1,500 250 2,000

Ans: Adjusted Trial Balance Total 42,200

[N.B.-Assume work sheet prepare as one month]

800 400 600 1800 1800 1000 1000 600

400 600 1800

1000 600 6600

Credit 1,120 1,200 960 70 1,029 21 1,200

1,080 840 660

150 150 90 90 70 70 960.3 0 29.70 990

48,000 Add. Carriage inward

Opening inventory Add. Net Purchase Less. Ending inventory

25,000 50,000 75,500 35,000 40,500

Tk. 87,000 40,500

Tk. 1,00,000 26,500 1,26,500

Tk. 30,000 28,500 37,500 500 3,500 500 35,000

60,000 1,67,700 58,000 5,800 52,200 10,000

1,67,700 20,000 20,000 1,200 1,26,500

3) (Average method) Date Explanation

May 1 n/30. 7 10 1/10, n/30. 11 200 14 n/30. 25 27 28 n/30, 31

Pre Paid Rent 9,000

Pre Paid insuran

= L + O.E A/c Payable

81,50 2,000 0 1,04,500

3,000 2,940 60 5,000 5,000 200 200 2,000 2,000

Tk. 70,000 __29,300 _ 99,300 3,500 95,800 ============