Basic Acc Part2

7/30/2019 Basic Acc Part2

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Prepared by:- CA Priyanka Satarkar


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TYPES OF ACCOUNTS

PERSONAL ACCOUNTS

NOMINAL ACCOUNTS

REAL ACCOUNTS


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Personal AccountsThere are many people with whom the business deals. Some are

suppliers & some are the buyers. The suppliers are called creditors

wheareas the buyers or customers are called as Debtors.

RULE OF ACCOUNTING OF PERSONAL ACCOUNTS.

DEBIT the Receiver and CREDIT the Giver.


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Nominal AccountsThese keep the records of Expenses and Incomes, of Profits and

Losses.

RULE OF ACCOUNTING OF NOMINAL ACCOUNTS.

DEBIT all Expenses and Losses and CREDIT all

Incomes and Profits.


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REAL ACCOUNTSThese keep the record of Real things that the business owns & of

the Real things that the business has to Pay.

RULE OF ACCOUNTING OF REAL ACCOUNTS.

DEBIT all Assets and CREDIT all Liabilities.


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DOUBLE ENTRY BOOKKEEPING It is very important that we remember that ANY

TRANSACTION IN A BUSINESS HAS TWO PARTIES or

TWO THINGS.

EXAMPLES:-

1. Aishwarya Rai gets an amount of Rs 1 Crore for the purpose of

acting in a film. She is paid by cheque. The entry in her bookswould be:-

Bank Account Dr 1,00,00,000

To Fees receivedfor acting Cr 1,00,00,000

(THIS IS AN EXAMPLE OF A

NOMINAL ACCOUNT SHOWING

INCOME)


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DOUBLE ENTRY BOOKKEEPINGEXAMPLES:-

2. Shahrukh Khan buys a new Santro Car and pays the amount by

Cheque. He uses this car for the purpose of his profession as an

actor. The entry in his books would be:-

Car A/c Dr 25,00,000

To Bank A/c Cr 25,00,000

(THIS IS AN EXAMPLE OF AREAL ACCOUNT WHEREIN

AN ASSET IS PURCHASED)


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DOUBLE ENTRY BOOKKEEPINGEXAMPLES:-

3. Sunny Deol gives a loan of Rs 20 crores by cheque to his

brother Bobby Deol for the production of a film. The entry in

his books would be:-

Bobby Deol A/c Dr 20,00,00,000

To Bank A/c Cr 20,00,00,000

(THIS IS AN EXAMPLE OF PERSONAL ACCOUNT

SHOWING A PERSON BEING INVOLVED IN THETRANSACTION)


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ACCOUNTING CYCLE

BEGINS WITH A TRANSACTION

PREPARE A SOURCE DOCUMENT

IDENTIFY THE TRANSACTIONS

THAT GET AFFECTED

MAKE THE ENTRY IN THE JOURNAL

WHICH IS THE BASIC BOOK OF

ACCOUNTS


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ACCOUNTING CYCLE (..contd)

THEN ENTER IN THE LEDGER

MAKE CLOSING ENTRIES OR

ADJUSTING ENTRIES

PREPARE TRIAL BALANCE

PREPARE THE TRADING & PROFIT &

LOSS A/c and BALANCE SHEET


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SOURCE DOCUMENTThe source document is the original record of a transaction.

During an audit, source documents are used as evidence that a

particular business transaction occurred.

Examples of source documents include:

Cash receipts

Customer invoices

Supplier invoices

Purchase orders

Time cards

Deposit slips


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SOURCE DOCUMENT

At a minimum, each source document should include the date,

the amount, and a

description of the transaction. When practical, beyond these

minimum

requirements source documents should contain the name and

address of the other

party of the transaction.

ENTRIES IN JOURNAL


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ENTRIES IN JOURNAL

Mike Peddler opens a bicycle repair shop. He leases shop

space, purchases an initial inventory of bike parts, and begins

operations. Here are the general journal entries for the firstmonth:

Date Account Names & Explanation Debit Credit

9/1 Cash 7500Capital 7500

Owner contributes 7500 in cash

to capitalize the business.

ENTRIES IN JOURNAL


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ENTRIES IN JOURNAL


9/8 Bike Parts 2500Accounts Payable 2500

Purchased 2500 in bike parts

on account, payable in 30 days.

9/15 Rent Expenses 1000

Cash 1000

Paid first month's shop rent of 1000.

ENTRIES IN JOURNAL


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ENTRIES IN JOURNAL


9/17 Cash 400

Accounts Receivable 700

Bike repair receipts 1100

Repaired bikes for 1100; collected 400

cash; billed customers for the balance.

9/18 Repair Expenses 275

Bike Parts 275

275 in bike parts were used.

ENTRIES IN JOURNAL


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ENTRIES IN JOURNAL


9/25 Cash 425Accounts Receivable 425

Collected 425 from customer accounts.

9/28 Accounts Payable 500

Cash 500

Paid 500 to suppliers for parts

purchased earlier in the month.


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Ledger Accounts

Date Particulars Rs Date Particulars Rs17th

Sept

To Cash 700 17th

Sept

By Bike

Repairs

1100

ACCOUNTS RECEIVABLE A/c


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Ledger Accounts

Date Particulars Rs Date Particulars Rs1st

Sept

By Cash 7500

CAPITAL ACCOUNT


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TRIAL BALANCE

Particulars Debit

(Rs)

Credi

t(Rs)Cash 6825

Accounts

Receivable

275

Inventory Parts 2225

Accounts

Payable

2000

Capital 7500

Revenue 1100

Expenses 1275

TOTAL 10600 10600


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Trading & Profit & Loss A/c

for the year ended 31stMarch..

Particulars Rs Particulars Rs

To Expenses 1275

1275

By Revenues

By Loss c/f toCapital A/c

1100

175

1275

B l Sh t


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Balance Sheet

for the year ended 31stMarch..

LIABILITIES Rs ASSETS Rs

Capital A/c

Less: Loss for year

Long Term Liabilities

Current Liabilities

Accounts Payable

7500

(175)

7325

----

2000

9325

FIXED ASSETS

CURRENT

ASSETS

Inventory Parts

Accounts

Receivable

Cash

--------

2225

275

6825

9325


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Importance of F inancial

Statements

IMPORTANCE TO OWNERS/ SHAREHOLDERS

IMPORTANCE TO MANAGERS

IMPORTANCE TO CUSTOMERS

IMPORTANCE TO SUPPLIERS

IMPORTANCE TO LENDERS OR FINANCERS

IMPORTANCE TO GENERAL PUBLIC


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RATIO ANALYSIS


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Classification of ratios

ACCOUNTINGRATIOS

TRADITIONALCLASSIFICATION

FUNCTIONAL

CLASSIFICATION

1. PROFIT AND LOSS

RATIOS

2. BALANCE SHEET

RATIOS

3. COMPOSITE RATIOS

1. PROFITABILITY

RATIOS

2. TURNOVER

RATIOS

3. SOLVENCY RATIOS


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Profitability Ratios

1. ROI = Operating profit / Capital Employed2. EPS = Net profit after tax and preference dividend

Number of Equity shares

3. P/ E ratio = Market price per equity share/ EPS

4. GP Ratio = (Gross Profit/ Net Sales) x 100

5. NP Ratio = ( Net Profit / Net Sales ) x 100

6. Interest Coverage ratio = Income before interest and

tax / Interest7 Debt- Service coverage ratio =EBIT/ Interest

+Principle


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Turnover Ratio

1. Fixed Assets Turnover Ratio = Net Sales

Net Fixed Assets

2. Debtors Turnover Ratio = Credit Sales

Average Accounts

Receivable

3. Creditors Turnover Ratio = Credit PurchasesAverage Accounts Payable

4. Inventory Turnover Ratio = Cost of Goods Sold

Average Inventory


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Solvency/ Liquidity Ratios

1. Current Ratio = Current Assets/ Current

Liabilities

2. Liquid Ratio = Liquid assets/ Current

Liabilities

3. Debt Equity Ratio = Debt/ Equity


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Problems

1. The operating profit of A Ltd after charginginterest on debentures and tax is a sum of Rs

10000. The amount of interest charged is Rs

2000 and tax provision made of Rs 4000.Calculate the interest coverage ratio

2. Calculate the Gross profit ratio from the

following figures.

Sales Rs 1,00,000; Purchases Rs 60,000;

Sales Returns Rs 10,000; Purchase Returns

Rs 15,000; Opening stock Rs 20,000 and

Closin stock Rs 5 000


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Problems

3. Calculate the EPS from the following data: Netprofit before Tax Rs 1,00.000; Taxation is @ 50%of Net Profit. 10% Preference Share Capital of Rs

10 each is Rs 1,00,000. Equity Share Capital Rs 10shares Rs 1,00,000

4. Credit sales for the year Rs 12,000, Bills receivableRs 1000, Debtors Rs 1000. Calculate Debtors TOand debt collection period.

5. Current Assets are Rs 2,00,000. Current Liabilitiesare Rs 150,000 and Stock Rs 50,000 calculate theCurrent Ratio and Liquid Ratio


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Basic Acc Part2

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