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Advanced Financial Accounting

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Advance Financial Accounting (FIN-611)
VU
LESSON # 3
CONVERSION OF SINGLE ENTRY IN DOUBLE ENTRY ACCOUNTING SYSTEM
1.
Accounting for Medium scale business entities
Businesses grow by the time and so the transactions also keep on becoming complex. In this
situation the system of knowing Net profit through the Statement of Profit or Loss does not
suffice the requirements of the management nor the government agencies put the level of
reliance on such statement any more.
Medium scale business entities have this much resources that they can afford a semi qualified
or a reasonably good qualified accountant to look after accounting issues of the entity. But such
accountants are kept under the supervision and guidance of the accounting consultants who are
qualified accountant. These consultants provide directions to the accountant to maintain certain
books of accounts and to extract summaries at the end of the accounting period. With the help
of these summaries the consultants (qualified accountants) prepare detailed Income Statement
and Balance Sheet for the medium scale entity.
Such Income Statement and Balance Sheet is exactly the same had there been a systematic
double entry accounting system prevailing in practice.
1.1
Accounting Records
Accountants of these entities are directed to maintain following set of information, which
although does not constitute a complete accounting system but can work:
a)
Cash Book
i. Cash Account
ii. Bank Account
b)
Debtors (Accounts Receivables) Ledger
c)
Creditors (Accounts Payables) Ledger
d)
Statement of Affairs (Opening)
e)
Year-end adjustments
i. Closing stock
ii. Depreciation of fixed assets
iii. Provision for doubtful debts
iv. Accruals and prepayments
v. Disposal of Assets
1.2
Preparation of Financial Statements
Now let's see how Income Statement and Balance Sheet can be prepared with the help of a set
of incomplete records. For this we will analyze the contents of Income Statement and Balance
Sheet item by item in the following pages.
Name of the Organization
Income Statement
For the year ended December 31 20x7
Source of Information
Rs.
Sales
Cash Sales
Cash Book receipts side
Credit Sales
Debtors account Dr side
Cost of Goods Sold
Opening Stock
Statement of Affairs
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Advance Financial Accounting (FIN-611)
VU
Purchases
Cash Purchases
Cash Book payment side
Credit Purchases
Creditors account Cr side
Closing Stock
Year-end Adjustments
Gross Profit
Operating Expenses
Cash based expenses
Cash Book payment side
Adjusted with:
Accrued Expenses
S O A-opening/Year-end Adjustments
Prepaid Expenses
S O A-opening/Year-end Adjustments
Expenses against receivables
Bad Debts/Discounts
Debtors account Cr side
Provision for doubtful debts
S O A-opening/Year-end Adjustments
Expenses against fixed assets
Depreciation
Year-end Adjustments
Loss on disposal
S O A-opening/Cash Book receipts
Profit from operations
Other Income
Cash based income
Cash Book receipts side
Adjusted with:
Accrued incomes
S O A-opening/Year-end Adjustments
Unearned incomes
S O A-opening/Year-end Adjustments
Incomes against payables
Discounts
Creditors accounts Dr side
Incomes against fixed assets
Gain on disposal
S O A-opening/Cash Book receipts
Net profit
Result
Name of the Organization
Balance Sheet
As on December 31 20x7
Source of Information
Rs.
Assets
Fixed Assets
S O A-opening
Addition
Cash Book payment side
Disposal
Year-end Adjustments
Depreciation
Year-end Adjustments
Investments
S O A-opening
Addition
Cash Book payment side
Disposal
Year-end Adjustments
Current Assets
Stocks
Year-end Adjustments
Debtors
Debtors Account
Prepaid expenses
Year-end Adjustments
Accrue incomes
Year-end Adjustments
Bank
Cash Book (Bank Account)
Cash
Cash Book (Cash Account)
Total
Result
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Advance Financial Accounting (FIN-611)
VU
Owner's Equity
Opening balance
S O A-opening
Fresh capital
Cash Book receipts side
Net profit
Income Statement
Drawings
Cash Book payment side
Liabilities
Loans
Further loan taken
Cash Book receipts side
Repayment of loan
Cash Book payment side
Current liabilities
Creditors
Creditors Account
Accrued expenses
Year-end Adjustments
Unearned incomes
Year-end Adjustments
Bank overdraft
Cash Book
Total
Result
Cash Book
Payment
Amount
Receipts
Amount
Rs.
Rs.
Opening balance
xxx
All payments either
xxx
relating to capital or
All
receipts
either
xxx
revenue payments
relating  to  capital  or
xxx
revenue receipts
Closing balance
xxx
xxx
Debtors Account
Decrease in Debtors
Amount
Increase in Debtors
Amount
Rs.
Rs.
Opening balance
xxx
Cash received from debtors
Xxx
Discount allowed
xxx
Bad debts
Credit sales
xxx
xxx
Sales return
xxx
Closing balance
xxx
xxx
xxx
Creditors Account
Decrease in Creditors
Amount
Increase in Creditors
Amount
Rs.
Rs.
Cash paid to creditors
xxx
Opening balance
xxx
Discount received
xxx
Credit purchase
xxx
Purchase return
xxx
Closing balance
xxx
xxx
xxx
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Advance Financial Accounting (FIN-611)
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Statement of Affairs as on opening date
Opening Assets
xxx
Opening Liabilities
(xxx)
Owner's Equity
xxx
Practice Questions
Q.1
From the following given information you are required to prepare Income Statement and
Balance Sheet for the year 2007.
Cash Book
Receipts
Amount
Payment
Amount
Rs.
Rs.
Opening balance b/f
1,500 Salaries and wages
2,000
Cash sales
12,000 Rent and rates
800
Received from Debtors
25,000 Electricity bill
500
Loan from brother
10,000 Drawings
15,000
Paid to creditors
24,000
Closing balance c/f
6,200
48,500
48,500
Debtors Account
Amount
Amount
Rs.
Rs.
Opening balance b/f
8,000 Cash
received
from
25,000
debtors
200
Credit sales
22,000 Discount allowed
300
Bad debts
4,500
30,000 Closing balance c/f
30,000
Creditors Account
Amount
Amount
Rs.
Rs.
Cash paid to creditors
24,000 Opening balance
5,500
Discount received
400 Credit purchase
25,000
Closing balance c/f
6,100
30,500
30,500
Statement of Affairs as on opening date
Rupees
Opening Assets
Furniture
20,000
Stocks
6,000
Debtors
8,000
Cash
1,500
35,500
Opening Liabilities
Creditors
5,500
Owner's Equity
30,000
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Advance Financial Accounting (FIN-611)
VU
Year end adjustments
Closing stock Rs. 3,200; rent prepaid Rs. 200; salaries owing Rs. 500; and furniture is to be
depreciated @ 10%.
Q.2
Following is a summary of Kashif's bank account for the ended 31 December 2007:
Rs.
Rs.
Balance 1.1 207
405
Payments to creditors for goods
29,487
Receipts from debtors
37,936
Rent
1,650
Balance 31.12.2007
602
Rates
890
Sundry expenses
375
Drawings
6,541
38,943
38,943
All of the business takings have been paid into the bank with the exception of Rs. 9,630. Out of
this, Kashif has paid wages of Rs. 5,472, drawings of Rs. 1,164 and purchase of goods Rs.
2,994. The following additional information is available:
31.12.2006  31.12.2007
Rs.
Rs.
Stock
13,682
15,144
Creditors for goods
5,624
7,389
Debtors for goods
9,031
8,624
Rates prepaid
210
225
Rent owing
150
-
Fixtures at valuation
2,500
2,250
You are to draw up profit and loss account for the year ended 31 December 2007 and balance
sheet as on that date. Show all of your workings.
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Table of Contents:
  1. ACCOUNTING FOR INCOMPLETE RECORDS
  2. PRACTICING ACCOUNTING FOR INCOMPLETE RECORDS
  3. CONVERSION OF SINGLE ENTRY IN DOUBLE ENTRY ACCOUNTING SYSTEM
  4. SINGLE ENTRY CALCULATION OF MISSING INFORMATION
  5. SINGLE ENTRY CALCULATION OF MARKUP AND MARGIN
  6. ACCOUNTING SYSTEM IN NON-PROFIT ORGANIZATIONS
  7. NON-PROFIT ORGANIZATIONS
  8. PREPARATION OF FINANCIAL STATEMENTS OF NON-PROFIT ORGANIZATIONS FROM INCOMPLETE RECORDS
  9. DEPARTMENTAL ACCOUNTS 1
  10. DEPARTMENTAL ACCOUNTS 2
  11. BRANCH ACCOUNTING SYSTEMS
  12. BRANCH ACCOUNTING
  13. BRANCH ACCOUNTING - STOCK AND DEBTOR SYSTEM
  14. STOCK AND DEBTORS SYSTEM
  15. INDEPENDENT BRANCH
  16. BRANCH ACCOUNTING 1
  17. BRANCH ACCOUNTING 2
  18. ESSENTIALS OF PARTNERSHIP
  19. Partnership Accounts Changes in partnership firm
  20. COMPANY ACCOUNTS 1
  21. COMPANY ACCOUNTS 2
  22. Problems Solving
  23. COMPANY ACCOUNTS
  24. RETURNS ON FINANCIAL SOURCES
  25. IASBíS FRAMEWORK
  26. ELEMENTS OF FINANCIAL STATEMENTS
  27. EVENTS AFTER THE BALANCE SHEET DATE
  28. PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS
  29. ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS 1
  30. ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS 2
  31. BORROWING COST
  32. EXCESS OF THE CARRYING AMOUNT OF THE QUALIFYING ASSET OVER RECOVERABLE AMOUNT
  33. EARNINGS PER SHARE
  34. Earnings per Share
  35. DILUTED EARNINGS PER SHARE
  36. GROUP ACCOUNTS
  37. Pre-acquisition Reserves
  38. GROUP ACCOUNTS: Minority Interest
  39. GROUP ACCOUNTS: Inter Company Trading (P to S)
  40. GROUP ACCOUNTS: Fair Value Adjustments
  41. GROUP ACCOUNTS: Pre-acquistion Profits, Dividends
  42. GROUP ACCOUNTS: Profit & Loss
  43. GROUP ACCOUNTS: Minority Interest, Inter Co.
  44. GROUP ACCOUNTS: Inter Co. Trading (when there is unrealized profit)
  45. Comprehensive Workings in Group Accounts Consolidated Balance Sheet