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ECO-02

April, 2016 (For January 2016 Session)

(Prepared by our Students)

Q:-1 Define Accounting. Explain the accounting concepts which guide the accountant at the

recording stage.

ANS- Accounting is an art of recording, classifying, and summarising, in a significant manner.

Accounting is defined as the as the art of recording, categorizing, and then summarizing in a

noteworthy manner in terms of transactions, money and events which are of financial character, and

understanding the results thereof. Accountancy is regarded both as a science and as an art. Accounting

is the art of recording, classifying and summarizing the financial transaction in a systematic manner

and interpreting the results to achieve predetermined objectives. Accounting refers to the systematic

recording of business transactions and preparation of statements relating to assets, liabilities and

functioning results of a business. Accounting has to follow certain fundamental rules that form the

basic accounting concepts and principles.

CostConcept :

Transactions are recorded in the books of account at the amounts actually involved. No arbitrary

values, put on transactions, are considered. Thus, if a plot of land in Guwahati is purchased for Rs.10,

000 though it is in word Rs.1, 00,000 will be recorded in the books. However, in some cases estimated

values are taken into consideration, e.g. depreciation, etc.

Q: 2.(b)Explain the separate set of books method for maintaining joint venture accounts.

When separate set of books are maintained, the joint venture transactions are recorded as a

Separate accounting entity on the basis of double entry principles. Under this method the

Following accounts are opened:

Joint Bank Account

Joint Venture Account

Personal accounts of each co-venture

Bank Account is a real account like the ordinary Rank Account. All the co-venturespay or deposit

their contribution in this account, The Joint Venture Account is like aprofit and loss account

which shows all the expenses and incomes of the joint venture.The personal accounts of the co-

venture’s simply show their contributions in the form of goods, cash or expenses and the amounts

received by them.

Let us now see the various journal entries which are normally recorded under this method.

(1) When co-venture’s contribute their share of capital:

Joint bankA/c Dr.

To Co-ventures’ Personal Also

(2) When co-venture contributed in the form of goods:

Joint Venture A/c

To Co-venture’s Personal A/c

(3) When purchases are made for joint venture:

a) If on cash:

Joint Venture A/c dr.

To Joint Bank A/c

b) If on credir:

Joint Venture A/c Dr.

To Creditor's Personal A/c

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Note that when goods are purchased for the joint venture business, you will debit the

joint

Venture Account not the Purchases Account,

(4) When expenses are incurred on account of joint venture:

a) If paid out of Joint Bank Account

Joint Venture A/c Dr

To Bank A/c

Q: 3 What is meant by single entry system? Distinguish it from Double Entry System. Explain

the two methods of ascertaining profit when accounting records are incomplete.

The single entry system of accounting is usually followed by small traders and theprofessionals who

cannot afford to employ qualified persons for the accounting work. Single Entry System actually

refers to incomplete recol.ds or the defective Double Entry System. Under this system, for certain

transactions both the aspects are recorded while for othersonly one aspect is recorded. Some

transactions may simply be ignored, they are not recorded at all.

:- there are two methods which can be used for ascertaining the profits.

1. Net Worth Method:

Under this method profits are computed by comparing the net worth or capital at thebeginning of the

accounting period with the net worth or capital at the end of theaccounting period. This method does

not involve the preparation of Trading and Profitand Loss Account. It is considered most suitable

when the information available is toolimited.

2. Conversion Method:

Under single Entry System the Debtors' Ledger and Creditors' Ledger are usuallymaintained along

with the Cash Book. Thus, though the records are incomplete, theyprovide sufficient information for

preparation of the Trading and Profit & Loss

Account. Hence the Conversion Method is employed for ascertaining the profits which

involve the preparation of proper final accounts after working out the missing figures.

Full Conversion Method

The full conversion method involves conversion of records maintained onsingle, entry system into

complete double entry records. You know most of the firms whichkeep records on single entry system

usually maintain a Cash Book along with the personalaccounts of the customers and suppliers. So, in

order to convert them into double entryrecords, you must also open all the concerned real and nominal

accounts in the ledger andmake proper postings therein. This involves a series of steps as follows:

Prepare the Statement of Affairs at the beginning and open all those real and personalaccounts

which do not appear in the ledger maintained under single entry system. Thismay involve the

opening of all real accounts (other than cash and bank) and thepersonal accounts such as

Capital, Drawings, Loan, Outstanding Expenses,Outstanding, Incomes, Prepaid Expenses,

etc. It can be done by passing an openingjournal entry.

From the Cash Book, complete costing into all real and personal accounts openedabove.

Go through the debit side of the Cash Book and open all the incomes' accounts in theledger

and make postings therein.

Go through the credit side of the Cash Bank and open all expenses' accounts in the *ledger

and make postings therein.

5 Make complete analysis of the customer’s accounts and complete double entry inaccounts

like Sales, Sales Returns, Bad Debts, Bills Receivable, etc.

Abridged Conversion Method

You will agree that the conversion of records maintained on single entry system intodouble entry

records is an arduous task involving a lot of time, labour and expense. Hence, a short cut method

known as 'Abridged Conversion Method' has been devised which helpsus to prepare the Trading and

Profit & Loss Account and the Balance Sheet without theopening of any additional accounts in the

ledger. Under this method we simply prepare asummary of all Cash transactions for the entire

accounting period. This is known as .'Receipt and Payments Account'.

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Q:- 4 (a) Income and Expenditure Account & Receipts and Payments Account.

Ans-

Income and Expenditure Receipt and Payment Account

The Income and Expenditure Account shows

those items whichare of revenue nature and

records only such amounts which relates to the

currentyear.

The Receipts and Payments Account is the

summary of Cash Book.

Income and expenditure accounts are prepared to

show the net result of the operation during the

period to derive surplus or deficit.

It commences with the opening Lash and bank

balances, shows all receipts and payments made

during the year, and ends with the closing cash

and bank balances.

In income and expenditure account all

expenditure of revenue nature are recorded on

debit side and all income of revenue nature are

recorded on credit side.

While recording the receipts and payments in this

account, no distinction is made between capital

and revenue items as both are to be included.

All expenses and income of revenue nature are

recorded on accrual basis in income and

expenditure.

The amount received or paid relates to the current

year the preceding years or the following years, it

is fully recorded in the Receipts and Payments

Account.

Income and expenditure is required to balance

sheet.

Receipt and payment expenditure is not required

to balance sheet.

Q: 4(b)Straight line method and diminishing balance method of depreciation.

ANS-

Straight line method Diminishing balance method

Depreciation is calculated onn the original cost. Depreciation is calculaed on the written down

value.

Depriciation installment is the same every year. Depreciation insatalment goes on reducing every

year.

The balance is the assets account will reduce to

zero at the expiry of the working life of the

assets.

The balance in the assets acccount will never

reduce to zero.

The combined cost on account of depreciation

and repairs is low during the initial years and

high during later year.

The combined cost on amount of depriciation

and repairs is more or less equal thoughout.

It is suitable for assets which is get depriciation

more on account of the expiry of time.

It is suitable for aasets which require heavy

repairs in later years of their working life.

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