University of South Asia Lahore Layyah Campus

Financial AccountingCourse Outline BEFORE MID

Capital and Revenue Rectifying the Errors Partnership Accounts Accounting for Bills of Exchange

AFTER MID FINAL ACCOUNT NON TRADING CONCERN CONSIGNMENT ACCOUNT UNCOMPLETE RECORD ACCOUNT (SINGLE ENTRY SYSTEM)

Capital and Revenue Introduction What is Capital and Revenue Expenditure List of Capital and Revenue Expenditure Distinction between Capital and Revenue Expenditure Deferred revenue expenditure with example Differentiate between revenue expenditures and deferred revenue

expenditure What is capital receipts, revenue receipts, capital profit, capital loss,

revenue loss, revenue profit and revenue payment with example. Differentiate between capital receipts and revenue receipts.

Introduction

As we know, in every business transaction either there is an inflow of money or an outflow of money. In order to know the true and fair result and financial condition of a business for a year, the nature of the transaction taking place during the year has to be analysed. Transaction may be divided into two classes according to their character-capital and revenue transactions. Some transactions have Long –term effect, while some others have short-term effect. Transactions having long-term effect are known as “ capital transaction” and those having short-term effect are known as “revenue transactions”

Business Transactions

It contain two types

Short –term

Long-term

Short –term

Revenue Transactions

Revenue receipts ( inflows)

Revenue Expenditure ( out flows)

Long-term

Capital transactions

Capital receipts ( inflows0

Capital expenditure ( outflows)

What is Capital and Revenue Expenditure

Capital expenditure

“An outflow of funds to acquire an asset that will benefit the business more than one accounting period is capital expenditure”

Examples:

Purchase of fixed assets Expenses paid on bringing the asset into its work condition

Revenue Expenditure

“An outflow of funds to meet running expenses of a business that will benefit the business for the current period only are called revenue expenditure”

Examples:

Running expenses like salaries Wages and purchase of raw material .

List of Capital and Revenue Expenditure

List of Capital Expenditure

The following is a list of the usual items of capital expenditure

Cost of good will Cost of freehold land and buildings and the legal charges incurred in this connection Cost of lease Cost of Machineries ,plants tools, fixture etc Cost of trade marks, patents, copy rights, designed, etc Cost of car , lorry etc Cost of installation of lights and fans Cost of any other assets acquired by way of equipment. Erection of cost of plant and machinery, Cost of addition to existing assets Structural improvement and alterations in the existing assets. Expenses for development in case of mines and plantations Expenses for administration incurred during construction and equipment of any industrial

enterprise Expenses incurred in experimenting which finally result in the acquisition of a patent or other

rights.

List of Revenue Expenditure

The following is a list of the usual items of Revenue expenditure

Expenses incurred for the ordinary administration and carrying on the business Expenses for repairs, renewals and replacement of permanent assets Cost of goods for re-sale Cost of raw materials and stores acquired for consumption in course of manufacture Wages paid for manufacture of products for sale. Expenses and obsolescence of assets Depreciation of lease Interest on loans borrowed for business

Loss from sale of fixed assets Fees for renewal of patent rights Up-keep and maintenance of motor car and van Maintenance of fan and lights Book value of assets discarded or totally damaged or destroyed by fire

Distinction between Capital and Revenue Expenditure

S No Revenue Expenditure Capital Expenditure01 Its effect is temporary i.e. the benefit is received within the

current accounting year Its effect is long-term i.e. it is not exhausted within the current accounting year. Its benefit is received for a number of years in future

02 Neither an asset is acquired nor the value of an asset is increased

An asset is acquired or the value of an existing asset is increased

03 It has no physical existence because it is incurred on items which are used by the business .it can not be seen with eyes

Generally it has physical existence except intangible assets

04 It is recurring and regular and it occurs repeatedly It does not occur again and again. It is non-recurring and irregular

05 This expenditure helps to maintain the business. This expenditure improves the position of the business

06 The whole amount of this expenditure is shown in trading P and L a/c or income statement

A portion of this expenditure ( depreciation on assets) is shown in trading and p and L a/c and the balance is shown in the balance sheet on asset side.

07 It does not appear in the balance sheet It appears in the balance sheet until its benefit is fully exhausted

08 It reduces revenue ( profit) of the business. It does not reduce the revenue of the concern purchase of fixed asset does not affect revenue

Deferred revenue expenditure with example

Deferred revenue expenditure

“An expenditure the impact of which is likely to last for more than one accounting periods are deferred revenue expenditure”

Examples:

Heavy expenditures incurred on advertisement

Differentiate between revenue expenditures and deferred revenue expenditure

S.No Revenue expenditure Deferred revenue expenditure01 They effect only one accounting period They effect more than one accounting

periods 02 They normally consist on small amounts They must be in heavy amounts

What is capital receipts, revenue receipts, capital profit, capital loss, revenue loss, revenue profit and revenue payment with example.

Capital Receipts

“ The receipts which are of non-recurring nature and benefits of which are available for a long period of time are called Capital Receipts “

Examples:

Additional capital introduced by the owner Receipts from sale of fixed assets Receipts on account of capital profit Long term loans.

Revenue Receipts

“All those receipts which are of recurring nature and which are usually of small amount for meeting day today expenses are called revenue receipts “

Examples:

Receipts from sale of goods. Receipts on account of other income

Capital Profit

“ A profit on sale of asset or on the raising capital funds is called capital profit “

Examples:

Profit on sale of fixed assets

Capital Loss

“A Loss which is incurred on sale of asset or through on the raising capital funds is called capital loss“

Examples:

Loss on sale of fixed assets Discount on issue of shares

Revenue Loss

“ A loss which is incurred during the regular activities of business is called revenue loss”

Examples:

Loss on sale of goods

Revenue Profit

“A profit which is earned during ordinary activities of the business is called revenue profit “

Examples:

Revenue Payment

“An amount which is paid on behalf of revenue expenditure is called revenue payment “

Examples:

Payment made for purchase of merchandise Wages paid to factory workers.

Capital Payment

“A amount which is paid on behalf of capital expenditure is called capital payment”

Examples:

Payment made for purchase of machinery

Installation charges paid on machinery

Differentiate between capital receipts and revenue receipts.

S.No Capital Receipts Revenue Receipts01 They represent irregular activities of business They represent regular activities of business 02 The effect more than one accounting periods They effect only current accounting period

QUESTION NO.01

Show by given reason, whether the following items of expenditures are capital or revenue

Cost of air-conditioning the office of the general manage Cost of overhauling and painting a second hand truck newly purchased Cost of the annual taxes paid and the annual insurance premium paid on the truck mentioned

above Wages paid to workers for installation of machinery Cost of re-decorating a cinema hall Cost of acquiring the goodwill of an old firm Cost of heavy advertisement for a new product and removal of works to a new and better site Temporary rooms constructed for storing raw material for the construction of big building.

QUESTION NO.02

State with reasons whether the following should be considered as deferred revenue expenditure or capital expenditure

Preliminary expenses paid in the formation of a company Heavy advertisement expenses paid to introduce a new product in the market Wages paid for the installation of a machinery Carriage paid on the purchase of a machinery Cost of overhauling and painting as second-hand truck newly-purchased Research and experimental expenses to introduce a new product.

Rectifying the Errors Introduction of Rectifying the Errors Types of Errors How rectify these errors Book –keeping errors Trail balance errors

Location of these errors Correcting the errors First method ( correction before balance books) Second method ( double sided errors) Third method ( one sided errors) What is suspense account? Effect of errors on net profit Effect of errors on the final accounts or the financial statement Effect of errors on balance sheet

Introduction of Rectifying the Errors

In financial accounting, every single event occurring in monetary terms is recorded. Sometimes, it just sohappens that some events are either not recorded or it is recorded in the wrong head of account orwrong figure is recorded in the correct head of account.Whatever the reason may be, there is always a chance of error in the books of accounts. These errors inaccounting require rectification. The procedure adopted to rectify errors in financial accounting is called“Rectification of error”.

Types of Errors

Before going to the rectification process, let’s first see the different kinds of errors that can appear in ourbooks of accounts:Error of OmissionOne of the most common errors is that an event escapes recording. This means that an event occurredbut we did not record it. For example, we discussed about bank charges being deducted by banks withoutour knowledge or our payments made by banks on our standing orders etc. There can be other reasons aswell. Such errors are called ERRORS OF OMISSION.Error of CommissionThen, there is a chance that the event is classified and recorded correctly but within wrong classificationof account. For example, a payment to Mr. A, who is a debtor, is recorded in the account of Mr. B, whois also a debtor. Now the classification is correct but entry is posted in the wrong account. Such errorsare called ERRORS OF COMMISSION.EXAMPLES : examples of such errors are

Posting a wrong amount to the ledger Posting an amount on the wrong side of an account Making a wrong entry in a book of original record Errors in additions and carry-forwards in books of original entry An item for which the double entry is not completed A mistake in taking out balance of ledger accounts

Error of PrincipleThen there are errors in which an entry is recorded in the wrong class of account. For example apurchase of fixed asset, say, a vehicle is recorded in an expense account. These errors are called ERRORSOF PRINCIPLE.it may consist of

Wrong allocation of expenditure as between capital and revenue Inadequate provision for bad and doubtful debts Insufficient depreciation

Error of Original EntryThe errors in which recording is in correct account but the figure is incorrect are called ERRORS OFORIGINAL ENTRY. For example, a receipt of Rs. 50,000 from a debtor is recorded as Rs. 5,000 in hisaccount.Reversal of EntryThen, there are errors in which the entry is reversed by mistake. This means that the account that shouldhave been debited is credited and vice versa. These errors are called REVERSAL OF ENTRY.

Rectifying the ErrorsNow, we will rectify all these types of entries:Error of OmissionThis is the easiest error to rectify. You have to record the entry that was omitted by mistake. It isimportant to note here that the rectifying entry will be posted on the date on which the error wasdiscovered. But we will give a note in the narration of the voucher that the event took place on such date.Example:A purchase of Rs. 5,000 from ABC on April 15 was omitted by mistake.Rectifying Entry on the date of discovery:Debit: Purchase Account 15,000Credit: ABC Account 15,000Narration: Rectification of omission of recording purchase to ABC on April 15.Errors of Commission / Error of PrincipleIn both these cases, the effect given to incorrect account is reversed and effect is given to the correctaccount.Example:Purchase of an asset for Rs. 50,000 is recorded in the expense account.Rectification:Debit: Asset Account 50,000Credit: Relevant Expense Account 50,000Narration: Rectification of purchase of asset incorrectly recorded as expense.Error of Original EntryIf the entry recorded is of lesser amount than the required amount, then an entry of the balance amountis passed. On the other hand, if the entry recorded is of a greater amount than the required amount, areverse entry is passed of the balance amount that cancels the effect of the error.Example1) A receipt of cash Rs. 5,000 from B is recorded as Rs. 5002) A receipt of cash Rs. 5,000 from B is recorded as Rs. 50,000

RectificationIn the first instance, the recorded figure is less by Rs. 4,500. The rectification entry will, therefore, be:Debit: Cash Account 4,500Credit: B Account 4,500In the second instance, the recorded figure exceeds by Rs. 45,000 from the desired figure. Therectification will, therefore, be a reverse entry of Rs. 45,000:Debit: B Account 45,000Credit: Cash Account 45,000Reversal of EntryIf a reverse entry is recorded by mistake, then two entries are required to rectify it, one to reverse theeffect of mistake and the other to record correct entry or we can pass one entry with double amount thatserves the purpose of both the entries.Example:A payment of Rs. 10,000 made to Mr. D is recorded on the receipt side of the cash book and credit isgiven to D’s account.

RectificationWe can correct this mistake by two entries:Debit: Mr. D Account 10,000Credit: Cash Account 10,000This will reverse the effect of mistake:Debit: Mr. D Account 10,000Credit: Cash Account 10,000And this will record the transaction correctly:OrWe can record it through one entry:Debit: Mr. D Account 20,000Credit: Cash Account 20,000Based on our above discussion, we can devise a general procedure for rectification of errors.Take another example, assume that we received cash Rs. of 50,000 from a debtor and instead of Debitingthe Cash Book / Cash Account, we debited the Bank Book whereas the credit was given to the correctaccount.Step 1: Note down the correct entryDebit Cash 50,000Credit Creditors 50,000Step 2: Note down the incorrect entryDebit Bank 50,000Credit Creditors 50,000Step 3: See that Credit affect is correct. In case of Debit, affect has been given to Bank instead of cash.Therefore we will give the due affect to Cash by debiting it and Remove the incorrect affect from bankby crediting it.Debit Cash Account 50,000Credit Bank Account 50,000IllustrationRectify the following errors:1. A cheque issued of Rs. 50,000 to Mr. A (Creditor), but the credit was given to cash account.2. Purchase of goods from Mr. B worth of Rs. 5,500 was recorded at Rs. 4,500.

3. Cash sale to Mr. C worth of Rs. 10,000 was debited to sale account and credited to cashaccount.4. Repair of vehicle worth of Rs. 5,000 was charged to asset account.5. A cheque of Rs. 15,000 received and deposited in bank from Mr. D, but no entry waspassed.SolutionEntry # 1Correct EntryDebit: Mr. A (Creditor) A/C 50,000Credit: Bank A/C 50,000Incorrect Entry passedDebit: Mr. A (Creditor) A/C 50,000Credit: Cash A/C 50,000Rectifying EntryDebit: Cash A/C 50,000Credit: Bank A/C 50,000Entry # 2Correct EntryDebit: Purchase A/C 5,500Credit: Mr. B’s A/C 5,500Incorrect Entry passedDebit: Purchase A/C 4,500Credit: Mr. B’s A/C 4,500Rectifying EntryDebit: Purchase A/C 1,000Credit: Mr. B’s A/C 1,000Entry # 3Correct EntryDebit: Cash 10,000Credit: Sale A/C 10,000Incorrect Entry passedDebit: Sale A/C 10,000Credit: Cash 10,000Rectifying EntryDebit: Cash 20,000Credit: Sale A/C 20,000Entry # 4Correct EntryDebit: Repair A/C 5,000Credit: Cash A/C 5,000Incorrect Entry passedDebit: Asset (vehicle) A/C 5,000Credit: Cash A/C 5,000Rectifying EntryDebit: Repair A/C 5,000Credit: Asset (vehicle) A/C 5,000Entry # 5Correct Entry

Debit: Bank A/C 15,000Credit: Mr. D’s A/C 15,000Incorrect Entry passedNo entry was passedRectifying EntryDebit: Bank A/C 15,000Credit: Mr. D’s A/C 15,000

How rectify these errors

One way of rectification is that we can simply erase or overwrite the incorrect entry and replace it withthe correct one. But this practice is not allowed in accounting. We have to Rectify / correct the mistakeby recording another entry. The errors which we may find in the books of account may be classified as follows

Book –keeping errors

Book –keeping are those errors which may be made in the original documents. In the original entry books and in the posting from the books of original entry into the ledger. Taking balances of the ledger accounts etc. book keeping errors are of four kinds.

Errors of commission Errors of principle Compensation errors Errors of commission

Compensation errorsThese are errors which cancel themselves out. Thus an error of Rs 200 on the debit side of an account may be compensated by an error of the same amount on the credit side of another account .these errors are very difficult to discover.

Trail balance errorsErrors which are made in the preparation of the trial balance are called trial balance errors. These are.

Omission of balance from the trial balance Transfer of balance to the wrong column of the trial balance The amount of the balance wrongly entered in the trial balance Wrong additions of the trial balance columns

Location of these errors

When the trial balance does not agree, the accountant must try to locate the errors and correct them. There is no set procedure which can be followed for locating errors in every case. The following steps , however, can be suggested for speedy location of errors.

Re-check the totals of the trial balance Re-check that the items appearing in the trial balance are on their correct side. See that the balance of all accounts have been written in the trial balance See that there4 is no mistake in the balance of the various accounts Find out the exact difference in the trial balance look for such accounts as show the same

amount Posting of all amounts corresponding to the difference or half the difference should be checked Errors due to transposition of figures i.e. Rs 60 taken as Rs 78 are also easily made. In the case

the difference in the trial balance is always divisible by 18. If that is so, bear this fact in mind and recheck your work

If the difference is not located , in spite of the fact that all the above tests have been applied then all the accounts have to be checked thoroughly

Correcting the errors

There are three ways of correcting the errors which have been committed a. By striking off the wrong figure and replacing it by the correct oneb. By passing a correcting journal entry which neutralizes the effect of the wrong entry and

same time results in making the correct entry c. By making a further debit or credit entry in the account in which the mistake has been

committed as may be necessary 1. First method (correction before balancing books)

In accounting correction of errors should not be done by erasing entries. In such a case books will not be considered reliable in the court of law. There should be no over-writing of figures. Students sometimes try to convert figure 3 into 8 and figure 9 into 12. This is bad. Whenever any correction is made it should be done by drawing a straight line through the wrong figure and writing the correct figure above it. Every correction must be initialed by the person making the correction. This method of correcting errors may resorted to only in cases when the books has not been added up and the ledger accounts to which has not been balanced.

2. Second method (double sided errors)

The second method of passing a correcting journal entry to rectify an error is more frequently used because it avoids the necessity of cancelling figures and the mistakes which are discovered after a long time can be rectified without correcting several other wrong entries. This method of rectification of errors can be applied only to mistakes which are double sided. Double sided error is one which exists simultaneously in two accounts. If the error is double sided. The following three points may be kept in mind while correcting it.

I. What should have been the correct entry?II. Compare it with the entry actually made.

III. How the correct position can be restored.?

3. Third method ( one sided errors)

The third method of making a further debit or credit entry in the account in which the mistake has been committed is applicable only to one sided errors. One sided error is one which affects only one aspect of the transaction or which exists only in one ledger account. If an error is one sided it can be rectified by making a journal entry debiting or crediting the ledger account which is wrong with suspense account which may be opened for the purpose if it does not already appear in the books. For example , suppose the sales book has been added Rs. 50 too short. This is one sided error . it affect only sales account in the ledger. When the sales book has been added Rs.50 too short. it means that the entries in the sales book are correct and therefore , correct amounts have been posted to the debit of individual customers in the ledger. The sales account has been credited with Rs.50 too short. Therefore to rectify this mistake the following entry should be made. Debit the suspense account and credit the sales account with Rs.50. it may also be corrected by making an adjusted credit entry in the sales account.

Suspense Account

THE WORD SUSPENS MEANS UNCERTAINTY . A suspense account , therefore is an account in which are entered transaction which cannot be placed to their proper accounts for want of sufficient information. Suspense money was received from a person but the cashier forgot to note down the name of the person who paid it. The amount received will be entered in the cash book To Suspense account. Thus suspense account will be opened in the ledger and it I credited with the amount received. When the name of the person is known an entry will be passed to transfer the amount from the suspense account to the account of the person who paid it .

Further sometimes a trail balance may not agree, under such circumstances, the difference may be placed to a suspense account and the trail balance thus made to tally. If credits exceed the debits, the suspense account would appear among debit balance and vice versa. When the mistakes are discovered subsequently, they are rectified through the suspenseaccount. as soon as all the mistakes are discovered the suspense account is automatically closed.

Effect of errors on net profit

In order to calculate the effect of errors on net profit it is essential to understand that only those accounts which are taken to trading or profit and loss account affect profits. For example purchase account, sales account, salaries account, wages account, rent commission , depreciation, stock account etc. affect the net profit because they are shown either in trading account or profit and loss account. If any of these accounts is debited in the rectification entry. It reduces the profit and if any of these

accounts is credit the it increase profit. Accounts which are shown in the balance sheet do not affect net profit.

Effect of errors on the final accounts or the financial statement

It has already been discussed that best efforts should be made to locate and rectify the errors before preparation of final accounts for the years. But in certain cases when an accountant fails to locate and rectify the errors, and he is in a hurry to prepare the final account of the business for filling the returns to income tax department for income tax or sales tax purposes, he prepares the final accounts by placing the difference in the trial balance to suspense account. in the nest accounting period. The errors are located and rectified and profit of the previous year is adjusted.

Effect of errors on balance sheet

if the error is committed in assets account , liabilities account or capital it will have its impact on the cash balance sheet only, because all these items are shown in the balance sheet and the balance sheet is prepared after the profit and loss account has been prepared. So if there is any error in cash account furniture account, machinery account debtor’s account, bank account etc. it will affect only the balance sheet.

Q.No 1:

Rectify the following errors

Paid wages for the construction of office debited to wages account Res. 3,000. Paid cartage for the newly purchased furniture Res 30, posted to cartage account Paid Rs. 400 for the purchase of a table posted to purchase account Paid Rs 300, for the installation of machinery debited to wages account Purchased machinery for Rs. 20,000 was passed through the invoice book Sold old furniture for Rs.500, passed through the day book .

Q.No.2:

Give journal entries to rectify these errors

The sales book has been under –cast by Rs .400 A cheque drawn for wages for Rs.1020 was wrongly posted to wages A/c as Rs. 1002 Furniture purchased for Rs.1040 has been debited to purchase A/c as Rs.1640 Rs 550 received from Rahim debited to his account Discount received Rs 100 was posted to the wrong side of Discount A/c

BEFORE MID

FINAL ACCOUNTS

Account which are finally prepared to show the profit and loss and financial position of a business are called Final Account

TRADING ACCOUNT

The account which is prepared to determine the gross profit or loss for a particular period is called Trading account

PROFIT AND LOSS A/C

The account which is prepared to determine the net profit or loss for a particular period is called profit and loss account

GROSS PROFIT

If direct income is more than the direct expenses the difference represents gross profit

NET PROFIT

If gross profit and indirect incomes are greater than indirect expenses, the difference represent net profit .

CURRENT OR LIQUID ASSETS

Assets which represent cash or which can be easily converted into cash after some time are called current assets

For example: cash at bank , debtors

FIXED ASSETS

Assets which are purchased for permanent use in the business are called fixed assets

For example: Building etc

CURRENT LIABILITES

A Debts which are payable after a short period of time normal within one year are called current liability

For example: creditors

LONG TERM LIABILITIES

The Debts which are payable after a long period of time is called long term liabilities.

For example: Bank Loan

INTERNAL LIABILITES

The capital of business is called internal liabilities of business

EXTERNAL LIABILITES

Debts which are payable to outsiders are called external liabilities

DEBT

The amount due from debtor is called debt

BAD DEBT

The amount which cannot be recovered from debtors called bad debt

DOUBTFUL DEBTS

The recovery of which is uncertain are called doubtful debt

PROVISION

A liability of uncertain timing or amount is called provision

NORMAL LOSS

A loss which is unavoidable represents normal loss

For example: leakage wastage, uncontrollable

ABNORMAL LOSS

A loss which can be avoided through precautionary measures is called abnormal loss, is called abnormal loss

For example: Controllable, loss by fire and loss by accident

TREATMENT OF BADT DEBTS

OLD BAD DEBTS: given in trail balance

FURTHER/NEW BAD DABTS: Not given trial balance but given in adjustment

NEW PROVISION: A provision which is allowed after preparing trial balance is called new provision

Assets

DefinitionAsset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity (IASB Framework).

ExplanationIn simple words, asset is something which a business owns or controls to benefit from its use in some way. It may be something which directly generates revenue for the entity (e.g. a machine, inventory) or it may be something which supports the primary operations of the organization (e.g. office building).

ClassificationAssets may be classified into Current and Non-Current. The distinction is made on the basis of time period in which the economic benefits from the asset will flow to the entity.

Current Assets are ones that an entity expects to use within one-year time from the reporting date.

Non Current Assets are those whose benefits are expected to last more than one year from the reporting date.

Types and ExamplesFollowing are the most common types of Assets and their Classification along with the economic benefits derived from those assets.

Asset Classification Economic BenefitMachine Non-current Used for the production of goods for sale to customer.Office Building Non-current Provides space to employees for administering company affairs.

Vehicle Non-current Used in the transportation of company products and also for commuting.

Inventory Current Cash is generated from the sale of inventory.Cash Current Cash!Receivables Current Will eventually result in inflow of cash.

Q No# 1 the following is the trial balance of a trader on 31st december 1991

Opening stockAdvertising Wages Factory rent Carriage inward Return inward Salaries O/E Office rent Plant Purchase B/R Cash Furniture Debtors General Expences Drawing Insurance

30,000700015001000500550330070010,00013500015003500200090008003000200209550

Capital Bad debts resence (old)Discount (cr) Bill Payable Sales Return outwards Creditors

40,00050080042001591003504600

______209550

You are required to prepare trading and profit and loss account / income statement and balance sheet the following adjustment

Closing stock was valued at, 42000 Salaries outstanding 300, and wages outstanding 500 Unexpired insurance 50 Depriciate plant by 10% and furniture by 15% Write off 1000 as bad debts and creat reserve for doubt full debts (NPBD) at 5% and for discount

on debts at 2%.

Balance Sheet

AssetsCurrent assets Cash in hand, cash at bank, A/Receiveable, note Receivable debtors, closing stock Prepaid expenceUnexpired insurance intrest on commission Stationary in hand Accured expence Non current assetsInvestment Fixed assets Tangible assets

Liabilities Current liabilities Account P/A Bill P/A, note P/A, bank overdraft , creditor unpaid salery etc unearned commission outstanding Differred Liabilities Short term loan Long term liabilities Debentures Bank loan, loan on mortgageInternal liabilities

Furniture, fixture, building, plant, machinary, landIntangible assets Good will, patents, copy right, trade mark, equipment, loose tools Contra assetsAccomulated depriciation Wasting asset or Fictious assets Forest Mine

Capital owner equity Capital Intrest on capital Profit/loss/net income/ loss Drawing

Type of assetsThere are two types of assets Real assets Ficticious /wasting assets

Real assetsFixed assets Current assets Tangible assets Current assets noncurrent asset Intagible assets liquid assets floating assets Quick Assets Circulating assetsFicticious/ wasting assets Ficticious assets Assets which cannot be used and have no market value Example: preliminary expences discount on uses of shares Wasting assets Assets whose value gradually decreased due to use and final exhausts completely forest etc.

Types of liabilitiesInternal liabilities External liabilities Internal liabilities Capital or owner equity External liabilities Fixed or long term liabilities Current liabilities Short term liabilities Liquid liabilities Quick liabilities Deffered liabilities

NTCIncome and Expenditure

Income Receipts Expenditure (Payment)

Entrance fee Subcription Locker rent

Special subcription annual dinner Donation , intrest on G,S

Legacies Intrest on investment

Proceeds of lectures and entertainment Intrest on deposit

Advertisement in magzine Sale of magzine Intrest received Sundry income Life membe fee

Misc…revenue, receipts Intrest, teniss fee billared Profit on entertainment Misc.. income/receipts Receipts from patients Member admission fee

Grant rent, sale of newspaper Sale of old sports material

Rent, Stationary wages Repair reannual

Interest Office expence

Commission Printing to exp

Postage interest Wages to guardner

Ground to rent Telegram

Magzine exp Secratery honarirum

Sports and games charity Advertisement

Tournament exp Misc revenue payment

Sundary exp Telephone teniss

Entertainment Electricity charges

Store insurance Food, general exp Up keep ground

Trading profit and loss account

Direct material used Opening balance

Purchase -purchase return

-outward Net purchase

Direct Expence Wages

Carriage inward Cartage

Fright inward Transport inward

Import duty Custom duty Excise duty

Store supply Oil and gas Gross profit

Other Exp Sales salary and commission

Advertisement exp Delivery exp

Baddebt

Sales - Sales return

- Or - Return inward

Net sale Closing balance

Gross profit Other income Intrest received Discount received Rent received

Depriciation Carriage out

Discount allowed Rent and rates

Interest (Dr) Repair telephone Electricity charges Misceleneous exp

Net profit

Interest (cr)Interest on investment Interest on security

Q No # 1The following is the receipts and payment Account of a club for the year ended 31-12-2005RECEIPTS AND PAYMENT ACCOUNT

Receipts Rs Payments RsBalance Subscription 20042005Donation Entrance Fee (to be capitalized)

5,000

2,00010,0002,00020,000

Sports equipments Salaries & wages Office Expenses Electric Charges Telephone Charges Balance c/d

7,0003,0004006006008,40020,000

In 2004 subscription for 2005 was received Rs 1,000 Outstanding subscription Rs 1,500 Outstanding salaries & wages Rs 1,000 Description to be charged @ 20% on sports equipments.

Prepare from the above particulars the income & Expenditure Account of the club

Q No # 2

From the following Receipts & payment Account of Nice Club during the year 2004 and further particulars given below prepare an income and Expenditure Account of the Club for the year ended 31st December, 2004 and also a Balance sheet as on that date.RECEPTS AND PAYMENTS ACCOUNT For the year ended at 31st December, 2004 Dr Cr

Receipts Rs Payments Rs Subscription Donation Admission Fees Sale of old newspapers

5,20030010060

Salaries Rent Printing and Stationery Postage

1,400 1,300 100 80

5,660

News papers Furniture Balance c/d Cash 150 Bank 1,560 ______

70 1,000

1,7105,660

Subscription includes Rs 250 collected in advance for the year 2005. A sum of Rs 400 is due by members on account of subscription on 31.12.2004.the following expenses are outstanding on 31.12.2004--- salaries Rs. 300 and rent Rs. 200.

Non- Trading Concerns Q No #1 Define Non trading organization? A legal and accounting entity that is operated for the benefit of the society as a whole rather than for the benefit of a sole proprietor or group of partner or share holders.In other words, its main purpose is to serve its members rather than earning profit.Q No# 2 Give any three characteristics of non-trading concern?

Non-profit making They provide services to their members.Their sources of income is subscription donations etc

Q No# 3 Difference between trading and non-trading concerns? Trading Non-trading It’s main purpose is to profit It’s main purpose is to serve it’s member

The source of income of these Conerces is the sale ofgoods & services The main source of such institution’s income is

subscription

Q No# 4 What is Receipts & Payments account?

A summary of the cash book is called receipts and payments account. This is the primary report prepared by treasurers of non-trading concerns to present the result of years cash position.

Q No# 5 Give any three characteristics of receipts and payments account?

No distinction is made between capital and revenue items.

It usually stars with the opening balance of cash.

It is a duplicate of cash book is concise form.

Q No# 6 Define Income & Expenditures account?

The account through which surplus or deficit of a particular period is determine of non-trading concerns is called in and expenditure account.

Q No # 7 Give any three characteristics of income & expenditure account?

It is revenue account prepared at the end of financial period.

Both cash & noncash items are recorded in it.

All capital expenditure are excluded.

Q No# 8 Name major statements which are prepared by non-trading concerns?

Receipts & payments account.

Income & expenditure account.

Balance sheet.

Q No# 10 What is meant by Legacy?

The amount or property received as per the will of deceased person by non-trading concerns is called legacy.

Q No# 11 What is the accounting of legacy?

Normally, legacy is treated as capital item, however, its some part may be considered as income according to instruction.

Q No# !12 What do you know about honorarium?

The amount paid to the person who is not the employee of non-trading organization and such payment is made as gift against some services rendered by him to such institution is called honorarium.

Q No# 13 What is the accounting treatment of honorarium?

Honorarium is expenditure so it is written on the debit side of income & expenditure account

Q No# 14 Define capital fund?

The difference between receipts and payment Account and incomes and expenditure account.

Q No# 15 Difference between receipts and payment A/c and income & expenditure A/c?

Receipts & Payment A/c Income & Expenditure A/c

it included both capital and revenue items It includes revenue items only

It does not consider non cash item it considers both non-cash and cah items

It normally beings with opening balance of cash it does not commence with any previous balance

Q No# 16 Define Subscription?

The contribution made by the members annually to non-trading concerns is called subscription.

Q No# 17 What do you know about donation?

Amount received in the shape of gifts to non-trading concerns is called donation.

Q No# 18 what do you mean by Special Subscription?

A subscription collected by non-trading concerns from the member who participate in a particular activity is called Special subscription.

Q No# 19 what is accounting treatment of sale of news paper periodicals, magazines?

It is written on the income side of incomes and expenditures account.

Q No# 20 What is the treatment of sale of sports material?

It is written on the income side of incomes and expenditure account.

Q No# 21 Define life membership fee?

A subscription paid in lump sum by any member of non-trading concern for all period of membership is known as life membership fee.

Q No# 22 Define Entrance fee?

A fee received by Non-trading concerns from new member as a result of his/her admission is called entrance fee or admission fee.

Q No # 23 What is the accounting treatment of admission fee or Entrance fee?

If amount is large, so it is treated as liability, if amount is small, it is treated as income.

Q No# 24 What is the accounting treatment of General fund /Capital fund/ Accumulated fund?

It is treated as liability in the balance sheet

Q No# 25 What is the accounting treatment of deficit in the non-trading concerns accounts?

It is treated as liability in the balance sheet.

Q No# 26 what do you mean by deficit in Non-trading concerns?

If the expenditure of non-trading concerns exceeds the incomes of these institutions such difference is called deficit.

Q No what do you mean by surplus in Non-trading concerns?

If the income of non-trading concerns exceeds the expenditure of these institution, such difference is called surplus

Q No# 27 What is accounting treatment, of surplus in non-trading concern accounts?

It is directly added to capital fund in the balance sheet.