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 Publication’s16, Banglabazar, Dhaka-1205

BangladeshPublished By:Hussain Trakikul AzamProminance PublicationsAll Rights reserved by the authors. This book is protected by copyright. Neither this book nor any part may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, microfilming, and recording, or by any information storage, retrieval system or otherwise, without the prior written permission of the author. First Edition: November-2012Price: Tk.-----Network Computer49,Banglabazar, 1100

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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: [email protected]

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. Name of Question & solution Pages 1. Suggestions1. BBA Question & Solution -20042. BBA Question & Solution -20053. BBA Question & Solution -20064. BBA Question & Solution -20075. BBA Question & Solution -20086. BBA Question & Solution -20097. BBA Question & Solution -20108. BBA Question & Solution -20119. BBA Question & Solution -201210. Chapter wise theory 11. Exercise

BBA-1102Chapter wise Theory suggestions

Principles of Accounting1. 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? 2009,20083. 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. 20108. What items affect owner’s equity?2008, 2007 What is owner’s equity? Discuss the elements of owner’s equity.9. Define the terms of assets liabilities and owners equity.200710. Briefly describe four assumptions that underlie the financial accounting structure.201011. State two generally accepted accounting principles that relate to adjusting the accounts.200912. Why is ethics a fundamental business concept?200713.Explain the monetary unit and economic entity assumptions.200714.“The primary purpose of accounting is to produce information that is useful in making investment and credit decisions” Explain.200415.Describe the two main qualitative characteristics of useful financial

information? Explain.2004 16. Discuss the image of accounting.201117. What are the essential characteristics of an event to be a transaction? 201118. Define accounting cycle. Mention the various phases of accounting cycle. 201119. 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? 20113.What is accounting cycle? 2007State the steps of accounting cycle.20104.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? 20076. “Depreciation is the allocation of cost” – Do you agree? Why? 20097. What is the purpose of an adjusted trial balance? How is an adjusted trail balance prepared?20043. The Adjustment Process1.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? 20047. What are the different type of adjusting entries? Explain with examples.2010,2008,20078. Distinguish between cash basis and accrual basis of accounting. 2009,2008,20079. 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? 20082. 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.20105.Is worksheet a part of accounting cycle? Explain the purpose of worksheet.20096. What are the entries an organization needs to prepare for closing its books of accounts at the end of each accounting period? 20097. What are the content and purpose of a post closing trail balance? 20118.What is retain earning statement? Why it is prepare? 20115. Accounting for Merchandising Operations1 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. 2010,20086 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.201010 Describe the different systems to account for merchandise inventory.

201011 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, 200713 What are the main difference between accounting for merchandise

operations and accounting for service oriented organization?20046. Inventories1. What are some of the reasons that may cause management to use gross profit method and retail method of estimating inventory?20092.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? 20094. How would you determine inventory quantities? 2011

7. Accounting Information Systems1.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.20047. “ An Accounting information system applies only to a manual system ’’ Do you agree? Explain. 20118. Internal Control and Cash1. Discuss the principles of internal control used generally by business organization.20102. What is reconciliation of bank accounts? Why reconciliation is required?20103. What is internal control? Briefly explain the principles of effective internal control?2008

B.B.A PART-1 (1ST SEMESTER) EXAMINATION, 20041102 PRINCIPLES OF ACCOUNTING Time—3 hours Full marks—60

[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 Marks1."The primary purpose of accounting is to produce information that is useful in making investment and credit decisions." Explain. 52. (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? 2.53.What is work sheet? Discuss its uses. 5

4.What are the two main qualitative characteristics of useful

financial information? Explain. 55.Describe the two constraints inherent in the presentation of

accounting information. 56.What are the main differences between accounting formerchandising operations and accounting for service orientedorganization? 5

Part BMarks7.The unadjusted trial balance of 31st December, 2004 is given below :—

10 Jaba and Company Unadjusted Trial Balance As at 31st December, 2004

Particulars DebitTaka

CreditTaka

Cash 20,000Accounts Receivable 5,000Prepaid Insurance 3,000Supplies 4,000Equipment 25,000Accounts Payable 10,000Unearned Revenue 6,500Jaba's Capital 19,000Jaba's Drawings 1,500Commission Revenue 30,000Utility Expenses 600Salaries Expenses 6,400

65,500 65,500

Other Information:—Supplies on hand at the end of the period Tk. 2800Prepaid 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.

Marks8. (a) Presented below the component of Nitu Company's

5Income Statement. Determine the missing figures:—

Condition-1 Condition-2 Condition-3Sales 1, 50,000 2, 00,000 ?Cost of goods sold ? 1, 25,000 95,000Gross profit 90,000 ? 80,000Operating Expense ? 46,000Net Income 27,000 31,000 ?

(b) Information relating to Samsu and Co. is presented5

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 CompanyTrial Balance December 31, 2004Particulars Debit Taka Credit

Taka Cash Account receivable Merchandise inventory Office supplies Office equipment Accumulated depreciation – Office Equipment Prepaid rent Notes payable Ronzu’s CapitalRonzu’s drawings Sales Sales discount Purchase Purchase return and allowance Salaries expenses Rent expensesInsurance expenses Freight out Heating and lighting General reserve

20,00050,00015,0009,00060,000

4,000

3,500

15,0001,00,000

18,0009,0004,5002,5003,500

15,000

35,00070,000

1,70,000

12,000

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, owner’s 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 HouseTrial BalanceDecember 31, 2004

Particulars Debit Taka

Credit Taka

CashAccounts receivable Merchandise inventory Supplies Prepaid Insurance Buildings Equipment Accumulated Depreciation – Equipment Accounts payable Panna’s Capital Panna’s Drawings Sales Sales return and allowances Purchases Purchase discount Salaries expense Repair expense Gas and oil expense Miscellaneous expense Freight in

20,00060,0002,50,00070,00022,00080,00078,000

3,000

15,0001,45,000

33,0009,00016,00020,00012,000

8,00047,5005,00,000

2,90,000

14,500

8,60,000 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 Marks11. On May 31, 2004, Prime Enterprise Limited had a cash 10balance 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. 1,276.25Deposits 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 incorrectlyrecorded in the cash book for Tk.658.The bank collected a Tk.3, 000 note receivable for thecompany 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 bankaccount.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 BalanceDecember 31, 2004Accounts items Debit

Taka Credit Taka

Cash Accounts receivable Merchandise inventoryPrepaid insurance Investments Land Preliminary expenses Buildings Accumulated depreciationBuildings equipment Accumulated depreciation – equipment Notes payable Accounts payableTaxes payable Bank loan Tower holdings Ltd. Capital Tower holdings Ltd. Drawings Sales Sales discount

25,40037,60090,0001,6005,0002,76,0004,0001,97,000

83,500

4,600

4,100

84,000

52,40050,00037,50017,00080,0002,60,500

9,93,825

Cost of goods sold Salaries expense Utilities expense Repair expense Gas and oil expense Insurance expense Advertisement expense Interest expense Supplier Traveling expense Interest on investments

7,09,00069,00019,0006,0007,0003,50015,00046,0007,5001,500

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.3,000Utilities 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-BAns. to the question No:7Req: (i) Jaba and CompanyAdjusting entries

Date Explanation Ref. Dr (Tk)Cr (Tk)

Dec.31

Dec 31

Dec 31

Dec 31

Dec 31

Supplies exp. Supplies(4,000-2,800)[To record supplies exp.]

1,200

1,500

5,000

1,600

2,500

1,200

1,500

5,000

1,600

2,500

Insurance exp. Pre Paid insurance[To record insurance exp.]Accounts Receivable Commission Revenue[To record commission Revenue]Salaries exp. Salaries Payable[To record unpaid salaries]Dep. exp.-Equipment Accumulated dep.-Equipment [To record depreciation exp.]

Req: (ii) Jaba and CompanyAdjusted Trial BlanceAs at Dec.31. 2004

SL.No. Accounts Title Ref Dr. (Tk.) Cr (Tk.)

1234567891011121314151617

CashAccounts Receivable(5000+5000)Commission Revenue(30000+5000)Pre Paid insurance(3000-1500)Insurance exp.Supplies(4000-1200)Supplies exp.EquipmentAccounts PayableUnearned RevenueJuba’s CapitalJuba’s DrawingsUtilities exp.Salaries exp.(6400+1600)Salaries PayableDepreciation exp.-EquipmentAccumulated dep.-Equipment

20,00010,000

1,5001,5002,8001,20025,000

1,5006008,000

2,500

3,5000

10,0006,50019,000

1,600

2,500

Req (iii) Jaba and CompanyClosing entries

Date Explanation Ref. Dr (Tk)Cr (Tk)

Dec.31

Dec 31

Dec 31

Dec 31

Income summary Insurance exp. Supplies exp. Utilities exp. Salaries exp Dep. exp.-Equipment[To close all exp.]

13,800

35,000

1,500

21,200

1,5001,2006008,0002,500

35,000

1,500

21,200

Commission Revenue Income summary[To close commission revenue]Juba’s Capital Juba’s Drawings[To close Drawings]Income summary Juba’s capital[To close net income]

Ans. to the quest No: 8 (a)Nitu CompanyCal. Of the Missing figuresIncome StatementExplanation Condition-1 Condition-2 Condidtion-3SalesLess. cost of goods soldGross ProfitOperating exp.Net income

1,50,00060,000

2,00,0001,25,000

1,75,00095,000

90,00063,000

75,00044,000

80,00046,000

8.(b) In the book of Samsu and co. Journal entries

(Periodic system)

Date Explanation Ref.Dr (Tk)

Cr (Tk)

May 2

” 2

” 9

” 12

” 12

” 30

purchase Accounts payable[Purchase merchandise inventory on account]

50,000

5,000

70,000

4,000

46,000

50,000

5,000

70,000

4,000

45,080920

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[Paid to Sajib and Co. Within discount period]Cash Accounts Receivable[Cash received from Lata and Co.]

Journal entries(Perpetual system)


Cr (Tk)

May 2

” 5

” 9

” 12

” 12

” 30

Merchandise Inventory Accounts payable[Purchase merchandise inventory on account]

50,000

5,000

70,000

4,000

46,000

50,000

5,000

70,000

4,000

45,080920

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.]

Ans. to the question No: 9Workings:Net Sales:Sales 1,70,000Less. sales discount 15,000

Net Purchase:Purchase 1,00,000Less. purchase return 12,000

3) Cost of goods sold:

Opening inventory 15,000Add. Net Purchase 88,000

Less. Ending inventory 30,000

4) Dep. Of office equipment = = 6,000

Ronzu Wholesale CompanyIncome StatementFor the year ended 31 Dec. 2004

Explanation Tk. Tk.Net sales(W-1)Less: Cost of goods sold (W-3) Gross ProfitOperating exp:Selling exp.Salaries exp.Rent exp.Freight outBad debts exp.

Administrative exp.Salaries exp. Insurance exp.Heating and LightingDep. exp.-Office equipmentOffice supplies exp.

Net income

1,55,00073,000

82,000

52,700

13,65011,2002,5001,000

5,8504,5003,5006,0004,500

Ronzu Wholesale CompanyOwner’s Equity StatementFor the year ended 31 Dec. 2004

Explanation Tk.Ronzu’s CapitalAdd: Net income

Less: Ronzu’s Drawings

70,000 ____29,300___99,300 ____3,500____95,800============

Ronzu Wholesale CompanyBalance SheetAs at 31 Dec. 2004Explanation Tk. Tk.Assets:Current assets:CashAccounts Receivable (50,000-1000)Office supplies (9,000 – 4,500)Prepaid rent (4,000- 2,200)Ending inventory

Fixed assets:Office equipment 60,000Less. Accumulated Dep.(15,000 + 6,000)

Liabilities and O.ECurrent Liabilities Notes payable Salaries payable Owner’s equityOthers liability General Reserve

20,00049,0004,5001,80030,000

35,0001,50095,800

Ans. to the que. No. 10Workings:AdjustingSupplies exp. 40,000Supplies 40,000(70,000-30,000)(ii) Ending inventory 2,40,000

Income summary 2,40,000Income 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: 10Panna FashionWorksheetDec. 31, 2004

Accounts Titles

Trial Balance Adjustments Adjusted T/BIncome Statement

Balance Sheet

Dr.(Tk)

Cr.(Tk)

Dr.(Tk)

Cr.(Tk)

Dr.(Tk) Cr.(Tk) Dr.(Tk)

Cr.(Tk)

Dr.(Tk)

Cr.(Tk)

Cash 20000 100 20000 20000Accounts receivable

60000 60000 60000

Merch. Inventory

250000

250000

Supplies 70000 40000 30000 30000Prepaid insurance

22000 10000 12000 12000

Buildings 80000 80000 80000Equipment 78000 78000 78000Acc.Dep-equipment

8000 7000 15000 15000

Accounts payable

47500 47500 47500

Pannas Capital

500000

500000 500000

Pannas Drawings

30000 15500 45500 45500

Sales 290000

290000 290000

Sales return & allowance

15000 15000 15000

Purchase 145000

15500 129500 129500

Purchase discount

14500 14500 14500

Salaries exp. 33000 5000 38000 38000Repair exp. 9000 9000 9000Gas & oil exp.

16000 16000 16000

Miscellaneous exp.

20000 20000 20000

Freight in 12000 12000 12000Supplies exp.

40000 40000 40000

Income summary

250000

240000

250000 240000 250000

240000

240000

Ending inventory

240000

240000

Insurance 10000 10000 10000

exp.Dep.exp.-equipment

7000 7000 7000

Salaries payable

5000 5000 5000

Net loss 2000 2000Total 111200

01112000

546500

546500

567500

567500

Ans. To the question no: 12Tower Holdings Ltd.Adjusting entries

Date Explanation Ref.DebitTk.

CreditTk.

2004Dec.31

31

31

31

31

31

31

31

31

Interest Receivable Interest Revenue[To record interest revenue]

175

2,000

1,400

15,000

12,000

2,000

3,000

1,200

1,128

5,000

175

2,000

1,400

15,000

12,000

2,000

3,000

1,200

1,128

Amortization of preliminary exp. Preliminary exp.[To record written off preliminary exp.]Interest exp. Interest payable (6,000 – 4,600)

[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.]

5,000Supplies exp. Supplies (7,500 – 2,500)[To record supplies exp.]

Tower Holdings Ltd.Adjusted trial BalanceDec.31, 2004

SL.No. Accounts title Ref.DebitTk.

CreditTk.

123456789101112131415161718192021222324252627

CashAccounts ReceivableMerchandise inventoryPrepaid insuranceInvestmentLandPreliminary exp.(4,000 – 2,000)Amortization preliminary exp.BuildingAcc. Dep.-Building (84,000+15,000)Depreciation exp.-BuildingEquipmentDepreciation exp.- EquipmentAcc. Dep.- Equipment (52,400+12,000)Notes PayableAccounts PayableTax PayableBank loanTower Holding Ltd.- CapitalTower Holding Ltd.- DrawingsSalesSales discountCost of goods soldSalaries exp.(69,000+9,000)Salaries Payable

2540037600900001600500027600020002000197000

150008350012000

4600

410070900072000

20200

99000

6440050000375001700080000260500

993825

3000

1200

2829303132333435363738394041

Utilities exp. (19,000+1,200)Utilities PayableRepair exp.Gas & Oil exp.Insurance exp.Advertising exp.Interest exp. (4,600+3,400)Interest PayableSupplies exp.Supplies (7,500 - 5,000)Traveling exp.Interest ReceivableInterest Revenue(175+175)Bad debts exp.Allowance for doubtful a/cDifference in trial balance/Suspense a/c

600070003500150008000

500025001500175

1128

450016,11,303

3400

350

1128

16,11,303

B.B.A PART-I (FIRST SEMESTER) EXAMINATION,2005PRINCIPLE PF ACCOUNTING1102

Time-3 hoursFull 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 (Answer all questions) (i) The document that is prepared to authorize payment for all acquisitions of goods or services by a company is called-a purchase requisitiona purchase ordercredit notea 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 reveals-the financial position of an organization over a period of timethe fair market value of assets and liabilitiesthe financial position of an organization at a specific point of timethe profitability of organization at a point of time(v) Fixed assets are recorded according to which accounting principle?Full disclosureCurrent markets priceHistorical costConservatism(vi) Which of the following transaction will affect one side of the accounting equation?Purchase of inventory in cashPayments of accounts payable

Borrow from a bankAdditional investment by the owners(vii) Accounts that normally have debit balances are-Assets, expenses and revenueAssets, expenses and owner’s equityAssets, expenses and lossesAssets, liabilities and revenues(viii) Adjustments of un-earned service revenue to service revenue-have an assets and revenues account relationshipincrease assets and increase revenuesdecrease liabilities and increase revenuesdecrease liabilities and decrease revenues(ix) Sales discount are recorded-at the time of the salewhen the receivable is collected period to the end of the discount periodwhen the receivable is collected after the discount periodat 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 pointGoods in on consignmentGoods in transit sold FOB destinationGoods 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 system.” Do you agree? Explain.(a) What is basic accounting equation? What are the elements of an 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

2

4

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.700Withdrew 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.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

8

(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 CompanyTrial BalanceJune 30, 2005

Particulars Debit CreditTaka taka

Cash 7,150Accounts receivable 6,000

Prepaid Insurance 3,000Supplies 2,000Office Equipment 15,000Accounts Payable 4,500Unearned Service Revenue 4,000Radison, Capital 21,750Service Revenue 7,900Salaries expenses 4,000Rent expenses 1,000

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 60monthsInvoices 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.Prepared an adjusted trial balance at June 30. 2005.

35

Part-C5. 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:

The deposit for cash sales of October 6 was incorrectly recorded in Lockheed Company’s 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

Check No. Date Amount551 Sep 14 300.00

576 Oct 30 81.36578 Oct 31 1,000.00579 Oct 31 740.00580 Oct 31 261.00

Debit memorandum was also enclosed for the Tk. 10.00 collection fee. No entry had been made on Lockheed Company’s 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 company’s 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 CompanyTrial balanceAugust 31, 2005Particulars Debit Credit

Taka TakaCash 10,800Accounts Receivable 5,600Prepaid Insurance 4,800Store Supplies 2,600Equipment 1,20,000Accounts payable 4,800Notes payable 70,000Capital 60,000Drawing 2,000Service Revenue 19,800Salaries expenses 6,400Utilities expense 1,600Advertising expenses 800

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:-

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 MokarrramBook 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 EnterpriseTrial Balanceas at December 31, 2005

Accounts TitleDebit Amount Credit Amount

8

Taka TakaAccounts Receivable 30,000.00Cash 37,500.00Accounts payable 20,000.00Capital 1,00,000.00Machinery 60,000.00Purchases 50,000.00Sales 90,000.00Rent Expenses5,000.00Advertising Expenses 4,000.00Apprenticeship Premium 6,000.00Merchandise Inventory (Jan.1, 2005) 25,000.00Return 3,000.00 2,000.00Insurance expenses 7,000.00Supplies 6,000.00Allowance for doubtful accounts 400.006% Notes Payable 20,000.00Investments (Long-term) 10,000.00Gain on sale of fixed assets 1,600.00Carriage Inwards 2,500.00

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, Owner’s 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 Description Quantity Unit cost orSelling price

Taka ____June 1 Beginning inventory 50 60

4 Purchase 170 6410 Sales 140 9011 Sales Return 20 9018 Purchase 70 6818 Purchase Return 10 6825 Sales 100 9528 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 CostCompare 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 ValueAccrual-basis Accounting;Revenue recognition principle.

BBA-2005Ans. to the que. No.3(b)Mr. Rahman (Tabular Analaysis)For the month of August 30, 2005

Date

A = L + O.E

RemarksCash

A/c Receivable

Supplies

Office Equipment

Notes payable

A/c Payable

capital

July31August(i)(ii)(iii)(iv)(v)(vi)(vii)(viii)

8,000

+2,800(5400)+6,000(800)(8500)(1100)+4,000

3,000

(2,800)

+9,000

1,000 10,000

+2,000

+4,000

8,400

(5,400)

+1,200

+500

13,600

+15,000

(8,500)(1,100)

(500)

Investment

Earned Rev.

Salaries,Rent,Advt.exp. Withdrawn

Utilities exp on a/c

5,000 9,200 1,000 12,000 4,000 4,700 18,500

Ans. to the que. No. 4 ( b)Req: (a) Radison companyAdjusting Journal Entries

Date Explanation Ref. Debit Credit2005Jun30

” 30

” 30

” 30

” 30

” 30

” 30

Supplies exp.(2000-1100) Supplies[To record supplies expense]

900

300

250

2,500

1,500

250

2,000

900

300

300

2,500

1,500

250

2,000

Utilities exp. Utilities payable[To record utilities expense]Insurance exp. Prepaid Insurance[To record prepaid insurance expired]Unearned Service Revenue Service Revenue[To record Unearned Service Revenue earned]Salaries exp. Salaries payable[To record unpaid salaries expense]Depreciation Exp.-Office equipment Accumulated dep.-Office equipment[To record depreciation exp. on office equipment]Accounts Receivable Service revenue[To record service revenue on account

Radison companyReq: (b) Adjusted Trial BalanceJune 30, 2005

Sc. No. Accounts Title RefDebit(Tk.)

Credit(Tk.)

123456789101112131415161718

CashAccounts ReceivablePre Paid insuranceSuppliesOffice EquipmentAccumulated dep.-Off. Equipment Accounts PayableUtilities payableSalaries payableUnearned Service RevenueRadison’s CapitalService RevenueSalaries exp.Rent Exp.Depreciation exp.-Off. EquipmentInsurance exp.Utilities exp.Supplies exp. Totals

7,1508,0002,7501,10015,000

5,5001,000250250300900

2504,5003001,5001,50021,75012,400

Ans: Adjusted Trial Balance Total 42,200

Ans. to the Que. No. 6(b)Adjusting entriesWorkings:(i) Insurance exp. 400

Prepaid Insurance 400(ii) supplies exp. 600

Supplies 600(2600-2000)

(iii) Dep.exp-Equipment 1,800Accumulated dep-Equipment 1,800

(iv) Interest exp. 1,000Interest payable 1,000

(v) salaries exp. 600Salaries payable 600

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

Ans. to the question No:6 (b)ABC Electric contracting companyWork SheetFor the month ended August 31, 2005

Accounts Titles


Balance Sheet

Dr.(Tk) Cr.(Tk)Dr.(Tk)

Cr.(Tk)

Dr.(Tk)

Cr.(Tk)

Dr.(Tk)

Cr.(Tk)

Dr.(Tk) Cr.(Tk)

Cash 10800 10800 10800A/c Receivable

5600 5600 5600

Prepaid insurance

4800 400 4400 4400

store Supplies 2600 600 2000 2000Equipment 120000 120000 120000Accounts payable

4800 4800 4800

Notes payable 70000 70000 70000Capital 60000 60000 60000Drawings 2000 2000 2000Service Revenue

19800 19800 19800

Salaries exp. 6400 600 7000 7000Utilities exp. 1600 1600 1600

Advertising exp.

800 800 800

Insurance exp. 400 400 400Supplies exp. 600 600 600Dep.exp.Equipment

1800 1800 1800

Acc.dep.Equipment

1800 1800 1800

Interest exp. 1000 1000 1000Interest payable

1000 1000 1000

Salaries payable

600 600 600

Net income 6600 6600Total

Ans. to the question No: 7Students bank house Journal entries(Perpetual inventory system)(Cost per Book )

Date Explanation Ref. Debit CreditJuly 1

” 3

” 6

” 9

” 15

” 17

” 18

Merchandise Inventory Accounts payable [Purchase M.I on account FOB destination]

1,120

1,200

960

70

1,050

1,200

1,080

840

660

150

1,120

1,200

960

70

1,02921

1,200

1,080

840

660

Accounts Receivable Sales[Sold M.I on account]Cost of goods sold Merchandise Inventory [To record cost of goods soldAccounts payable Merchandise Inventory [M.I return to Chowdhury Publishers]Accounts payable Cash Merchandise Inventory[Paid to Accounts Payable less discount]Cash Accounts Receivable[Cash received from Malik &brothers in full]Accounts Receivable Sales[Sold M.I to Mokarram books House]Cost of goods sold Merchandise Inventory 7120

[To record cost of goods sold]Merchandise Inventory Accounts Payable

” 18

” 20

” 24

[Purchase M.I on account]

90

70

960.3029.70

660

150

90

70

990

660

Merchandise Inventory Cash[Paid Freight in cash]Sales return Accounts Receivable

Merchandise Inventory Cost of goods sold CashSales discount Accounts Receivable [Cash received from Mokarram books House]Accounts Payable Cash[Cash paid to accounts payable less discount]

Ans. to the question No. 8Workings:Net Sales:Sales 90,000Less. sales discount 3,000

Net Purchase:Purchase 50,000Less. purchase return 2,000

Add. Carriage inward 2,500

3) Cost of goods sold:

Opening inventory 25,000Add. Net Purchase 50,000


Mr. Chowdhury EnterpriseIncome StatementFor the year ended 31 Dec. 2005Explanation Tk. Tk.Net sales(W-1)Less: Cost of goods sold (W-3) Gross ProfitOperating and Other exp.Rent exp.Advertising exp.Insurance exp. (7,000-3,500)Supplies exp. (6,000-500)Repair exp.Dep. exp.-MachineryNew allowance for doubtful a/c

1500Less. Old allowance for doubtful a/cOther income:Apprenticeship premiumGain on sales of fixed assets

Non operating exp:Interest exp.

Non operating income:Interest Revenue

Net income

87,00040,500

46,000

20,000

5,0004,0003,5005,5002,0005,800

1,100

(6,000)(1,600)

1,200

(500)

Mr. Chowdhury EnterpriseOwner’s Equity StatementFor the year ended 31 Dec. 2005

Explanation Tk.Ronzu’s CapitalAdd: Net income

1,00,00026,500

Mr. Chowdhury EnterpriseBalance SheetAs at 31 Dec, 2005Explanation Tk. Tk.Current assets:Accounts Receivable 30,000 Less. allowance for doubtful a/c

CashSupplies 6,000Less. supplies exp.

Prepaid InsuranceInterest ReceivableEnding inventory

Fixed assets:Machinery 60,000Less. Repair exp.

58,000Less. Depreciation Investment (Long term)

Liabilities and O.ECurrent Liabilities Accounts payable Notes payable Interest payable

28,50037,500

5003,50050035,000

52,20010,000

20,00020,000

Owner’s equity 1,2001,26,500

Ans. to the que.No. 9(b) (1) Keya Inc. (Under LIFO method)

Date ExplanationReceipts Issue / sales BalanceUnits Rate Amount Units Rate Amount Units Rate Amount

2005June 1

Beginning inventory 50 60 3,000 50 60 3000

” 4 Purchase 170 64 1088050170

6064

300010880

” 10 Sales 140 90 126005030

6064

30001920

” 11 Sales Return (20) 90 {1800)5050

6064

30003200

” 18 Purchase 70 68 4760505070

606468

300032004700

” 18 Purchase Return (10) 68 (680)505060

606468

300032004080

” 25 Sales 100 95 95005010

6064

3000640

” 28 Purchase 40 72 2880501040

606472

30006402880

320 20,840 220 20,300 100 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

(iv) Gross Profit Rate =

=

= 29.45 %

2) Keya Inc. (Under FIFO method)


2005June 1

Beginning inventory 50 60 3000 50 60 3000

” 4 Purchase 170 64 1088050170

6064

300010880

” 10 Sales 140 90 12600 80 64 5120” 11 Sales Return (20) 90 {1800) 100 64 6400

” 18 Purchase 70 68 476010070

6468

64004760

” 18 Purchase Return (10) 68 (680)10060

6468

64004080

” 25 Sales 100 95 9500 60 68 4080

” 28 Purchase 40 72 28806040

6872

40802880

320 20,840 220 20,300 100 6,960


= 20,840 – 6,960= 13,880



=

= 31.63 %

3) Keya Inc.(Average method)


2005June1

Beginning inventory

50 60 3000

” 4 Purchase 170 64 10880 220 63.0909 13880” 10 Sales 140 90 12600 80 63.0909 5047” 11 Sales Return (20) 90 {1800) 100 63.0909 6309.09” 18 Purchase 70 68 4760 170 65.112 11069.09” 18 Purchase Return (10) 68 (680) 160 65.112 10418” 25 Sales 100 95 9500 60 65.112 3907” 28 Purchase 40 72 2880 100 67.87 6787

270 20,840 220 20,300 100 6,787


= 20,840 – 6,787= 14,053



=

= 33.43 %

B.B.A PART-I (FIRST SEMESTER) EXAMINATION, 2006[According to the New syllabus]PRINCIPLE PF ACCOUNTING

Code No. 1102Time-3 hoursFull 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 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) Owner’s equity statement (d) Statement of cash-

flows(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 buyer’s place of business (b) buyer pays the freight

(c) seller pays the freight(d) common carrier pays the freight

Part B2.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 machineAdministrative 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) What is Bank Reconciliation Statement?(b) Describe three principles of Accounting Information

Systems.

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 C8. 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 1531 One month’s 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 Purchase merchandise on account Tk. 3,000; terms 2/10, n/30.

7 Paid for merchandise purchased on May 1.10 Purchased merchandise on account, Tk. 5,000; terms

1/10, n/30.11 Returned part of merchandise purchased on may 10, Tk.

20014 Sold merchandise on accounts, Tk. 2,000; terms 2/10,

n/30.25 Paid amount owed on May 10, purchase. 27 Received payment for sold may 14.28 Sold merchandise on account Tk. 4,000, terms 2/10,

n/30, cost of goods sold is Tk. 3,500.

31 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 EnterpriseTrial BalanceDecember 31, 2006

Account titles Debit Tk.

Credit Tk.

Accounts receivable and payable 15,000 13,600Notes receivable and payable 6,000 4,000Furniture 30,000Accumulated depreciation- Furniture 6,000Equipment 60,000Accumulated depreciation- Equipment 12,000Hanif’s Capital 73,000

Hanif’s Drawing 10,000Allowance for doubtful debts 40010% mortgage loan 15,000Cash 20,000Utilities expense 3000Apprenticeship premium 15,000Beginning inventory 20,000Merchandise purchase 75,000Sales 130,000Purchases return and allowance 5,000Sales return and allowance 3,000Delivery expense 2,000Rent expense 4,000General expense 6,000Salaries expense 7,000Selling expense 13,000Total 2,74,000 2,74,000

The following adjustments are to be accounted for: Ending inventory Tk.30, 000. Accrued salaries expense Tk. 1,500Depreciation 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, owner’s 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 Beginning inventories 24 units Tk. 10 per unit.3 Sold 12 units at Tk. 23.50 per unit. 10 Purchase 40 units at Tk. 12 per unit.12 Sold 20 units at Tk. 24 per unit.20 Sold 18 units at Tk. 24 per unit. 25 Purchased 40 units at the rate of 12.50 per

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 BalanceDecember 31, 2006

Accounts Titles Debit Taka

Credit Taka

Land 1,00,000

Buildings 1,60,000

Accumulated depreciation- Buildings 40,000

Office equipment 80,000

Accumulated depreciation – 16,000

office equipment

Cash 1,10,000

Accounts receivable 1,50,000

Insurance expense 6,000

Prepaid advertising 20,000

Notes receivable 14,000

Salaries expense 1,26,000

Traveling expense 110000

Interest income 1,000

Interest expense 3,000

Accounts payable 60,000

Notes payable 75,000

Capital 3,37,000

Service revenues 3,55,000

Supplies 5,000

Total 8,84,000 8,84,000

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: Owner’s equity.

Classified balance sheet. Cash and accrual basis of accounting.The accounting equation.Special Journal.Bank reconciliation statement.

BBASolution-2006Ans. to the question No. 5Adjusting entries

Date ExplanationRef.

Dr (Tk)

Cr (Tk)

2006Dec.31

Dec 31

Dec 31

Dec 31

Dec 31

Depreciation exp-Machinery Accumulated dep.-Machinery[To record depreciation exp]

5,000

5,000

5,000

4,0001,000

75,000

5,000

5,000

5,000

5,000

5,000

75,000

5,000

Managers commission Managers commission payable[To record managers commission]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[To record insurance claim and actual loss] Ending inventory / Stock Purchase / cost of goods soldBad debts exp. Allowance for doubtful accounts[To record bed debts exp.]

Part-CAns. to the question no. 8Mr. AliTabular AnalysisFor the month of July, 2006

DateA = L + O.E

RemarksCash

A/c Rec.

BooksSupplies

Pre Paid Rent

Pre Paid insuran

A/c Payable

capital

2006July:1” 3” 4” 10” 11” 15” 16” 17” 31” 31

50,000(9,000)

25,000(1,500)

(1,500)23,000

(4,50

25,000

(23,000)

10,000

2,0009,000

(3,000)3,000

+2,000

+60,000

+25,000(1,500)25,000 (1,500)

(3,000)

Invested

Service Revenue

WithdrawService Rev. on a/cUtilities exp.

Rent exp.Insurance exp.

0) (1,500)

81,500

2,000 10,000 2,000 6,000 3,000 2,000 1,02,500

Ans. to the question no: 9 (b)Top and BrothersJournal entries(Perpetual system)


Cr (Tk)

May 1

” 7

” 10

” 11

” 14

” 25

” 27

Merchandise inventoryAccounts payable

[Purchases merchandise inventory on accounts]

3,000

3,000

5,000

200

2,000

1,800

5,000

2,000

4,000

3,000

2,94060

5,000

200

2,000

1,800

5,000

2,000

Accounts payableCashMerchandise inventory

[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 soldMerchandise 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

” 28

” 31

A/c Receivable[Cash received from a/c receivable less discount]

3,500

3,92080

4,0003,500

4,000

A/c ReceivableSales

Cost of goods soldMerchandise inventory

[Sold merchandise inventory on account and record cost of goods sold]CashSales discount

A/c Receivable[Cash received from A/c receivable less discount]

Journal entries(Periodic inventory system)


Cr (Tk)

May 1

” 7

” 10

” 11

” 14

purchaseAccounts payable

[Purchases merchandise inventory on accounts]

3,000

3,000

5,000

200

2,000

3,000

2,94060

5,000

200

2,000

Accounts payableCashPurchase discount

[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

” 25

” 27

” 28

” 31

Sales[Sold merchandise inventory on a/c and record cost of goods sold]

5,000

2,000

4,000

3,92080

5,000

2,000

4,000

4,000

Accounts payableCash

[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]CashSales discount

Accounts Receivable[Cash received from A/c receivable less discount]

Ans. to the question No.10Workings:Net Sales:Sales 1,30,000Less. sales return 3000

Net Purchase:Purchase 75,000Less. purchase return 5,000

Less. personal withdraw 1500

3) Cost of goods sold:Opening inventory 20,000Add. Net Purchase 68,500


4) Depreciation on Furniture = = 3,0005) Depreciation on Equipment = = 6,0006) New allowance for doubtful a/c = = 900

Hanif EnterpriseIncome StatementFor the year ended 31,Dec. 2006Explanation Tk. Tk.Net sales(W-1)Less: Cost of goods sold (W-3) Gross ProfitOperating and Other exp.Utilities exp.Delivery exp.Rent exp. (4,000-1,000)General exp.Salaries exp. 7,000Add. Due Selling exp.Dep. exp.-Furniture 3,000Dep. exp.-Equipment New allowance for doubtful a/c 900Less. Old allowance for doubtful a/c


Non operating income:App. Premium 15,000Less. advance

Net income

1,27,00058,500

68,500

43,500

3,0002,0003,0006,000

8,50013,000

9,000

500

1,500

(3,000)

Hanif EnterpriseOwner’s Equity StatementFor the year ended 31 Dec. 2006Explanation Tk.Hanif;s CapitalAdd: Net income

Less. Hanif’s Drawings

Less. Personal withdrawn

73,00025,000

88,0001,500

Hanif EnterpriseAs at 31 Dec, 2006Explanation Tk. Tk.Assets:Current assets:Accounts Receivable 15,000Less. allowance for doubtful a/c

Notes ReceivableCashEnding inventoryPrepaid Rent

Fixed assets:Furniture 30,000Less. Acc. Dep.(6000+3000)Equipment 60,000Less. Acc.Dep.(12000+6000)

Liabilities and O.ECurrent LiabilitiesAccounts payable Notes payableMortgage payable

14,1006,00020,00030,0001,000

21,000

13,600

Salaries payableAdvance apprenticeship premiumInterest payableOwner’s equity

4,00015,00020,0001,50012,000

Ans. to the question No:11BRAC Ltd.Store ledger(Under FIFO method)

Date Explanation Receipt / Purchase Issue / sales BalanceUnits Rate Amount Units Rate Amount Units Rate Amount

2006March 1

Beginning inventory

24 10 240 24 10 240

” 3 Sold 12 23.5 282 12 10 120

” 10 Purchase 40 12 4801240

1012

120480

” 12 Sold 20 24 480 32 12 384

” 20 Sold 18 24 432 14 12 168

” 25 Purchase 40 12.5 5001440

1212.5

168500

” 31 Sold 20 24 480 34 12.5 425

Value of Ending inventory 34 Units Tk. 425Cost 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.: 12Workings:Adjusting:Supplies exp. 2,000

Supplies 2000(5,000 – 3,000)

(b) Advance interest 1,000Interest exp. 1,000

© Interest Receivable 2,000Interest income 2,000

(d) Prepaid insurance 1,200Insurance exp. 1,200

(e) Advertising exp. 18,000Prepaid advertising 18,000

(f) Dep. Exp.- Building 4,000Acc. Dep- Building 4,000

(g) Dep. Exp.- Equipment 8,000Acc.Dep.- Equipment 8,000

Shohag Paribahan Pvt. Ltd.Work SheetDec. 31, 2006

Accounts Titles


Balance Sheet


Cr.(Tk)

Dr.(Tk) Cr.(Tk) Dr.(Tk) Cr.(Tk) Dr.(Tk) Cr.(Tk)

Land1,00,000

1,00,000

1,00,000

Building1,60,000

1,60,000

1,60,000

Acc.dep.-Building

40,000 4,000 44,000 44,000

Office equipment

80,000 80,000 80,000

Acc.dep.-Off. Equipment

16,000 8,000 24,000 24,000

Cash1,10,000

1,10,000

1,10,000

A/c receivabl

1,50,000

1,50,000

1,50,000

eInsurance exp.

6,000 1,200 4,800 4,800

Prepaid advertising

20,00018,000

2,000 2,000

Notes receivable

14,000 14,000 14,000

Salaries exp.

1,26,000

1,26,000

1,26,000

Traveling exp.

1,10,000

1,10,000

1,10,000

Interest income

1,000 2,000 3,000 3,000

Interest exp.

3,000 1,000 2,000 2,000

Accounts payable

60,000 60,000 60,000

Notes payable

75,000 75,000 75,000

Capital3,37,000

3,37,000

3,37,000

Service 3,55,00 3,55,00 3,55,00

Revenue 0 0 0Supplies 5,000 2,000 3,000 3,000Supplies exp.

2,000 2,000 2,000

Advance interest

1,000 1,000 1,000

Interest Receivable

2,000 2,000 2,000

Prepaid insurance

1,200 1,200 1,200

Advertising exp.

18,000

18,000 18,000

Dep.exp.-Building

4,000 4,000 4,000

Dep. Exp.- equipment

8,000 8,000 8,000

Net income

83,200 83,200

Total

BBA FIRST YEAR FIRST SEMESTER EXAMINATION,2007PRINCIPLES OF ACCOUNTINGSubject code: 1102Examination code:106Time- 3 hoursFull 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

Marks1. Writte the correct answer of the following questions:---------The term debit indicates--- RightAssetsLeftBoth left and right

Service provided by a public account included----Internal auditing, budgeting and management consultingAuditing, budgeting and management consultingAuditing, budgeting and cost accountingAuditing, taxation and management consulting

Accrued revenue is-----An expenseAn assetA liabilityRevenue

Which of the following is not part of the recording process?Analyzing transactionsPreparing an income statement Entering transactions in a journalPosting transactions

Unearned revenue is ----an expenseAn asseta liabilityRevenueEach of the following is a major type of adjusting entries except--------------earned revenueAccrued expenseaccrued revenuesunearned revenuesCost of goods sold--------------an expenseAn asseta liabilityrevenuecurrent assets are listed--------by importanceby longevityby liquidityby alphabeticallyWhich of the following appears on both a single-step and a multiple- step income statement? Gross profitcost of goods soldincome from operationsmerchandise inventoryIf a customer returns goods for credit an entry is normally made in the ----------sales journalgeneral journalcash receipts journalcash 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 information’s:------

Alpha company

January 1,2006 TakaAssets 2,00,000Liabilities aOwner’s equity 1,00,000December 31,2006

Assets bLiabilities 60000Owner’s equity 2,00,000Owner’s equity changes in year Additional investment 20,000Drawings 10,000Total revenue cTotal expense 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 owner’s equity. ( b. )what items does affect owner’s 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 brother’s corporation, Dhaka:---- April 1 Invested TK.10, 00,000 cash to start the business. 3 paid TK 4,000 cash for office rent. 7 purchase office equipment for TK 25,000cash 9 incurred TK 30,000 of advertising cost in the Bangladesh times: on accountpaid TK 6,000 cash for office suppliesWithdrawn TK 20,000 cash for personal use of the owner.paid the “Bangladesh times” due on advertising on April 9 paid employee salaries TK22,00028. performed services to the clients on account tk. 35.000. 30. Received provided on account April 28.

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 TakaCash 22,500Prepaid advertising 8,000Prepaid rent 12,000Land 50,000Building 60,000Accumulated depreciation building 12,000Equipment 12,000Accumulated depreciation equipment 2000Notes payable 20,000Accounts payable 13,000Capital 80,000Drawings 10,000Services revenues 73,000Salaries expense 20,000Prepaid insurance 2,000Office supplies 1,000Electricity expense 500Office expense 1,500Interest 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 800Prepaid 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 company’s fiscal year:----

Rebeka Fashion CenterTrial BalanceDecember31,2006

Account titles Debit Credit Taka TakaCash 29,000Accounts receivable 33,700Merchandise Inventory 44,700Store supplies 6,200Store Equipment 87,000Accumulated Depreciation store equipment 22,000Delivery equipment 50,000Accumulated depreciation delivery equipment 6,000Notes payable 52,000Accounts payable 50,000Rebeka’s capital 1,10,000Rebaka’s drawing 12,000Sales 7,60,000Sales returns and allowances 8,800Cost of goods sold 1,97,400Salaries expense (administrative) 1,40,000Advertising expense 24,400Utilities expense (administrative) 14,000Repair expense (administrative) 12,100Delivery expense 16,700Rent expense (administrative) 21,000

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 44,400v) 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 800Purchases: 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 EquationBalance SheetAccounting CycleMateriality ConceptFIFODepreciationAccrual Vs. Cash-basis Accounting

BBA-2007Ans. to the question No:4 (b)Part BAlpha CompanyJanuary 1, 2006We know that, Here,

A = L+ O.E A = Assets=) 2,00,000 = L + 1,00,000 L = Liabilities=) L = 1,00,000 O.E = Owner’s

equity

Dec. 31, 2006We know that,

A = L+ O.E=) A = 60,000 + 2,00,000

A= 2,60,000

Owner’s 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 CAns. to the question No: 8Brothers Corporation ,DhakaTabular analysisFor the month of April, 2007

DateA = L + O.E

RemarksCash A/c Rec. Supplies Equipment A/c Payable capital

April 1379141922262830

+10,00,000(4,000)(25,000)

(6,000)(20,000)(30,000)(22,000)

+35,000+35,000(35,000)

+6,000

+25,000+30,000

(30,000)

+10,00,000(4,000)

(30,000)

(20,000)

(22,000)+35,000

InvestmentRent exp.

Advertising exp.

Withdraw

Salaries exp.Service Revenue

9,28,000 Nill 6,000 25,000 Nill 9,59,000

Ans.to the question No:9Mr. FirojReq: (a) Journal entriesDate Explanation Ref. Debit CreditJune 1

” 1

” 2

” 3

” 10

” 20

” 30

” 30

Cash Firoj’s Capital[Cash received by owner]

50,000

2,000

2,000

3,000

5,000

5,000

1,000

50,000

2,000

2,000

3,000

5,000

5,000

1,000

No entry

Office rent exp. Cash[Paid office rent]Architectural supplies Accounts payable[Purchase supplies on account]Accounts Receivable Service Revenue[Service performed on account]Cash Service Revenue[Service performed in cash]Salaries exp. Cash[Paid salaries secretary receptionist]Accounts payable Cash[Paid to Dhaka company]

Req: (b) LedgerFiroj’s Capital

Date Explanation Ref Debit Credit BalanceJune 1 50,000 50,000

Office rent exp. Date Explanation Ref Debit Credit BalanceJune 2 2,000 2,000

Architectural suppliesDate Explanation Ref Debit Credit BalanceJune 3 2,000 2,000

Accounts payableDate Explanation Ref Debit Credit BalanceJune 330 1,000

2,000 2,0001,000

Accounts ReceivableDate Explanation Ref Debit Credit BalanceJune 10 3,000 3,000

Service RevenueDate Explanation Ref Debit Credit BalanceJune 1020

3,0005,000

3,0008,000

CashDate Explanation Ref Debit Credit BalanceJune 12203030

50,000

5,0002,000

5,0001,000

50,00048,00053,00048,00047,000

Salaries exp. Date Explanation Ref Debit Credit BalanceJune 30 5,000 5,000

Req: (c) Mr. FirajTrial BalanceJune 30, 2008Acc ..No.

Accounts TitleRef

Debit Credit

12345678

CashForoj’s CapitalOffice Rent exp.Architectural suppliesAccounts payableAccounts ReceivableService RevenueSalaries exp.

47,000

2,0002,000

3,000

5,000

50,000

1,000

8,000

Ans. to the question No. 10Workings:(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

(vi) Advertising exp. 6,000Prepaid Advertising 6,000

(vii) Dep. exp.-Equipment 1,000Accumulated dep.-Equipment1,000

Dep. exp.-Building 5,000Accumulated dep.-Building 5,000

Ans. to the question No. 10Dimond TradersWork SheetDec.31, 2006

Accounts TitlesTrial Balance Adjustments Adjusted T/B

Income Statement

Balance Sheet

Dr.(Tk) Cr.(Tk) Dr.(Tk)Cr.(Tk)


Cr.(Tk)

Dr.(Tk) Cr.(Tk)

Cash 22,500 22,500 22,500Prepaid Advertising

8,000 6,000 2,000 2,000

Prepaid Rent 12,000 6,000 6,000 6,000Land 50,000 50,000 50,000Building 60,000 60,000 60,000Acc.dep-Building

12,000 5,000 17,000 17,000

Equipment 12,000 12,000 12,000Acc.dep.-Equipment

2,000 1,000 3,000 3,000

Notes payable 20,000 20,000 20,000Accounts payable

13,000 13,000 13,000

Capital 80,000 80,000 80,000Drawing’s 10,000 10,000 10,000

Service Revenue 73,000 2,000 71,00071,000

Salaries exp. 20,000 20,00020,000

Prepaid Insurance

2,000 1,200 800 800

Office Supplies 1,000 1,000 1,000Electricity exp. 500 500 500Office exp. 1,500 1,500 1,500Interest exp. 500 1,500 2,000 2,000Interest payable 1,500 1,500 1,500Office exp. 800 800 800Office exp. payable

800 800 800

Insurance exp. 1,200 1,200 1,200Unearn Service Rev.

2,000 2,000 2,000

Rent exp. 6,000 6,000 6,000Advertising exp. 6,000 6,000 6,000Dep.exp.-Equipment

1,000 1,000 1,000

Dep.exp.-Building

5,000 5,000 5,000

Net income 27,00 27,000

0

Total

Ans. to the Que. No: 11Workings:Net Sales:Sales 7,6,0000Less. sales return 8,800

Net Purchase: Nill

3) Cost of goods sold:Opening inventory 44,700Add. Net Purchase Nill


Total cost of goods sold

= 4,97,400 + 300= 4,97,700

Rebeka Fashion CenterIncome StatementFor the year ended 31, Dec. 2006Explanation Tk. Tk.Net sales(W-1)Less: Cost of goods sold (W-3)

Gross ProfitOperating and Other exp.Selling exp.:Advertising exp.

Rent exp.

Dep. exp.-Delivery Equipment

Administration exp.Salaries exp.Utilities exp.Repair exp.Delivery exp.

Rent exp.

Depreciation exp.-Store EquipmentSupplies exp.

Non-operating exp:Interest exp.

Net income

7,51,2004,97,700

2,53,500

2,50,2003,300

24,40012,000

4,000

1,40,00014,00012,10016,700

12,000

8,0003,000

4,000

Rebeka Fashion CenterOwner’s Equity StatementFor the year ended 31,Dec.2006Explanation Tk. Rebek’s CapitalAdd: Net income

Less. Rebek’s Drawings

1,10,0003,300

12,000

Rebeka Fashion CenterBalance SheetAs at Dec. 2006Explanation Tk. Tk.Assets:Current assets:CashAccounts ReceivableStore Supplies (6,200 – 3,000)Ending inventory

Fixed assets:Store equipment 87,000Less. Acc. Dep.(22,000 + 8,000) Delivery equipment 50,000Less. Acc.Dep.(6,000 + 4,000)

Liabilities and O.ECurrent LiabilitiesAccounts payable Interest payableNotes payable

Long term liability:Notes payable

Owner’s equity

29,00033,7003,20044,400

57,000

40,000

50,0004,00027,000

25,000

1,01,300_______

Ans. to the que. No: 12Store ledger(Under FIFO method)

Date ExplanationReceipt / Purchase Issue / sales BalanceUnits Rate Amount Units Rate Amount Units Rate Amount

March .1 Opening inventory 200 4 800 200 4 800

” 10 Purchase 500 4.5 2250200500

44.5

8002250

” 15 Sales200300

44.5

8001300

200 4.5 900

” 20 Purchase 400 4.75 1900200400

4.54.75

9001900

” 25 Sales200200

4.54.75

900950

200 4.75 950

” 30 Purchase 300 5 1500200300

4.755

9501500

Value of Ending inventory Tk. 2,450Cost of goods sold = cost of goods available for sale – value of ending inventory

= 6,450 – 2,450= 4,000

Store ledger(Under LIFO method)


March .1

Opening inventory

200 4 800 200 4 800

” 10 Purchase 500 4.5 2250200500

44.5

8002250

” 15 Sales 500 4.5 2250 200 4 800

” 20 Purchase 400 4.75 1900200400

44.75

8001900

” 25 Sales 400 4.75 1900 200 4 800

” 30 Purchase 300 5 1500200300

45

8001500

Value of Ending inventory Tk. 2,300Cost 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, 2008PRINCIPLES OF ACCOUNTINGSubject Code: 1102 Examination Code: 601 Time—3 hours Full marks—70[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.JPart A Marks 1. (a) What is accounting? 2 (b) Who are the users of accounting? 42. (a) What is the basic accounting equation? 2 (b) What items affect owner's equity? 43. (a) What is worksheet? 2(b) What are the major sections in a classified balance sheet? 44. (a) Distinguish between cash basis and accrual basis. 3 (b) Briefly explain the major types of adjusting entries. 35. (a) What do you mean by worksheet? 2 (b) Why worksheet is prepared? Is it mandatory in accounting? 46.(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 BalanceDecember 31, 2007

Particulars Debit Taka Credit Taka

Cash Office supplies Prepaid rent Buildings Accumulated depreciation- Building Accounts payable Long term note payable Owner’s 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

40,0008,9006,2002,50,000

30,000

45,8602,64013,2004,60011,80032,000

5,500

10,000

25,2505,80024,0001,96,650

1,56,000

40,000

13,000

4,60,700 4,60,700

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.

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.

Date Description Quantity Unit cost or Selling Price

June 14101118182528

Beginning inventoryPurchaseSaleSale returnPurchasePurchase returnSalepurchase

258570103554020

6064909068689572

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:-

Instructions: Calculate the followingsEnding 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. 300019 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 BalanceAugust 31, 2008 Accounts Titles Debit Taka Credit Taka

CashAccounts receivable Prepaid insuranceSupplies Equipment Notes payable Accounts payable Sonia, Capital Sonia, Drawings Consulting FeesSalary expense Utilities expenseAdvertising expense

5,4002,8002,4001,30060,000

1,000

3,200800400

30,0002,40030,000

14,900

77,300 77,300

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 BalanceDecember 31, 2007

Accounts Titles Debit Taka

Accounts Titles Credit Taka

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 expenseUtilities expense Sales salaries expenseMerchandise inventory Property tax expense Sales commission expense Sales return and allowance

20,80050,3002,4001,10,0001,90,0004,12,70010,40012,70028,0009,20032,00011,00012,00076,00075,0004,80015,5006,000

Accumulated dep.- buildingAccumulated dep.- equipRupa, capitalInterest revenue Interest payable Mortage payable Accounts payable Property tax payable Sales Sales commission payable Utilities payable

52,50042,900176,6005,0004,00080,00078,7004,8006,28,0005,3001,000

10,78,800 10,78,800

Additional Data:-

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 owner’s equity. 3. Prepare a classified balance sheet.

BBA-2008Ans. to the question No: 8Req: (i) Mr. Salman ConsultingTabular AnalysisFor the month of January, 2008Date A = L + O.E Remarks

July 1235101214182123253031

Cash A/c Rec. Equipment SuppliesA/cpayable

Notes payable capital

Investment

Rent exp.Service Rev.Withdraw

Adv. exp.Service Rev.

Utilities exp.

Salaries exp.

+20,000(5,000)(1,000

(500)

+7,000

+5,000(3,000)(200)(500)(2,000)

+10,000

(7,000)

+15,000

+300 +300

+500

(500)

+10,000

(3,000)

+20,000

(1,000)+10,000(500)

(500)+5,000

(200)

(2,000)19,800 3,000 15,000 300 300 7,000 30,800

Req: (ii) Mr. Salman ConsultingIncome StatementFor the year ended July 31, 2008Explanations Tk. Tk.Service RevenueLess. Expenses:

Rent exp.Advertising exp.Utilities exp.Salaries exp.

1,0005002002,000

15,000

3,700

Mr. Salman ConsultingBalance SheetAs at July 31, 2008Explanations Tk. Tk.Assets:CashAccounts ReceivableEquipmentSupplies

Liabilities and O.E:Accounts payableNotes payable

O.E:Capital 20,000Add. Net income 11,300

Less. Withdraw

19,8003,00015,000300

3007,000

30,800

Ans. to the que. No: 9 (b)Singer Bangladesh Ltd.Work SheetDec. 31 2007

Accounts TitlesTrial Balance Adjustments Adjusted T/B Income Statement Balance SheetDr.(Tk)

Cr.(Tk)

Dr.(Tk)

Cr.(Tk)

Dr.(Tk) Cr.(Tk) Dr.(Tk) Cr.(Tk) Dr.(Tk) Cr.(Tk)

Cash40,000

40,000 40,000

Office supplies 8,900 4,400 4,500 4,500Prepaid Rent 6,200 5,000 1,200 1,200

Building2,50,000

2,50,000

2,50,000

Acc.dep.-Building25,250

10,000

35,250 35,250

A/c Payable 5,800 5,800 5,800Long term notes payable

24,000

24,000 24,000

Owner’s Capital1,96,650

1,96,650

1,96,650

Drawings of owner

30,000

30,000 30,000

Sales Revenue1,56,000

1,56,000

1,56,000

Wages exp.45,860

8,000 53,860 53,860

Rent exp. 2,640 5,000 7,640 7,640

Insurance exp.13,200

13,200 13,200

Property tax exp. 4,600 4,600 4,600

Utilities exp.11,800

11,800 11,800

Salaries exp.32,000

32,000 32,000

Others Revenue40,000

20,000

60,000 60,000

A/c Receivable 5,50020,000

25,500 25,500

Unearned Revenue

13,000

13,000 13,000

Advertising exp.10,000

10,000 10,000

Office supplies exp.

4,400 4,400 4,400

Dep. exp.-Building

10,000

10,000 10,000

Wages payable 8,000 8,000 8,000Interest exp. 1,680 1,680 1,680

Interest payable 1,680 1,680 1,680Net income 36,280 36,280

Total4,60,700

4,60,700

Working Notes:Adjustments:(i) Office supplies exp. 4,400

Office supplies 4,400(8,900 – 4,500)

(ii) Rent exp. 5,000Prepaid Rent 5,000

(iii) Dep. exp. – Building 10,000Acc. Dep.- Building 10,000

(iv) Wages exp. 8,000Wages payable 8,000

(v) Accounts Receivable 20,000Service Revenue 20,000

(vi) Interest exp. 1,680Interest payable 1,680

Ans. to the que.No. 10(a) LIFO Method City Ltd. Periodic inventory system For the month of June 30, 2008


June .1 Opening inventory 25 60 1500 25 60 1500

” 4 Purchase 85 64 54402585

6064

15005440

” 10 Sales 70 90 63002515

6064

1500960

” 11 Sales return (10) 90 (900)2525

6064

15001600

” 18 Purchase 35 68 2380252535

606468

150016002380

” 18 Purchase return (5) 68 (340)252530

606468

150016002040

” 25 Sales 40 95 38002515

6064

1500960

” 28 Purchase 20 72 1440 2515

6064

1500960

20 72 1440

(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


=

= 29.130 %

(a) (2) FIFO Method (i) City Ltd. Ending InventoryFor the month of June 30, 2008


June .1 Opening inventory 25 60 1500 25 60 1500

” 4 Purchase 85 64 54402585

6064

15005440

” 10 Sales 70 90 6300 40 64 2560” 11 Sales return (10) 90 (900) 50 64 3200

” 18 Purchase 35 68 23805035

6468

32002380

” 18 Purchase return (5) 68 (340)5030

6468

32002040

” 25 Sales 40 95 38001030

6468

6402040

” 28 Purchase 20 72 1440103020

646872

64020401440

(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


=

= 31.522 %

Ans. to the Que.No.11In the Books of Consult SohanaJournal entries

Date Explanation RefDr (Tk)

Cr (Tk)

Jan 1

” 10

” 15

” 19

” 22

” 25

” 28

” 29

” 30

” 31

” 31

Cash Shohana’s Capital[Cash invested by owner in his business]

10,000

800

3,000

1,500

700

2,000

500

400

1,000

1,000

200

10,000

800

3,000

1,500

700

2,000

500

400

1,000

1,000

200

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]Sohana’s withdraw Cash[Withdraw by sohana in his personal use]

Req: (ii) In the Books of counsult SohanaLedgerCash accountDate Explanation Ref Debit Credit Balance2008January 110192228303131

10,000

1,500700

1,000

800

5001,000

200

10,0009,20010,70011,40010,9009,90010,90010,700

Sohan’s CapitalDate Explanation Ref Debit Credit BalanceJanuary 1 10,000 10,000

Rent exp.Date Explanation Ref Debit Credit BalanceJanuary 10 800 800

Office equipmentDate Explanation Ref Debit Credit BalanceJanuary15 3,000 3,000

Accounts payableDate Explanation Ref Debit Credit BalanceJanuary 1530 1,000

3,000 3,0002,000

Service revenueDate Explanation Ref Debit Credit BalanceJanuary 19 1,500 1,500

Notes payableDate Explanation Ref Debit Credit BalanceJanuary 22 700 700

Accounts receivableDate Explanation Ref Debit Credit BalanceJanuary 2531

2,0001,000

2,0001,000

Consulting revenueDate Explanation Ref Debit Credit BalanceJanuary 25 2,000 2,000

Salaries exp.Date Explanation Ref Debit Credit BalanceJanuary 28 500 500

Sohan’s withdrawDate Explanation Ref Debit Credit BalanceJanuary 31 200 200

Req: (iii) In the Books of consult SohanTrial BalanceJanuary 31, 2008

Acc ..No. Accounts Title Ref Debit Credit

1234567891011

CashSohan’s CapitalRent exp.Office equipmentAccounts payableService RevenueNotes PayableAccounts ReceivableConsulting RevenueSalaries exp.Sohan’s withdraw

10,700

8003,000

1,000

500200

10,000

2,0001,500700

2,000

Req:(a) Ans. to the Que.No: 12In the Books of Consult Sonia’s Ltd.Adjusting entriesFor the month of August 31, 2008

Date Explanation Ref Dr (Tk) Cr (Tk)31

31

Insurance exp. Prepaid Insurance[To record insurance exp.]

150

1,000

150

1,000Supplies exp. Supplies (1300 – 300)

31

31

31

31

[To record supplies exp.]900

500

1,000

1,000

900

500

1,000

1,000

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]

Req: (b) In the Books of Consult Sonia’s Ltd.Adjusted Trial BalanceAugust 31, 2008

SL.No. Accounts Title Ref Debit Credit

1234567891011121314151617181920

CashAccounts Receivable (2,800 +1,000)Consulting fees (14,900 + 1,000)Prepaid insurance (2,400 – 150)Insurance exp.Supplies (1,300 – 1,000)Supplies exp.EquipmentNotes payableAccounts payableSonia CapitalSonia DrawingsSalaries exp.Salaries payableUtilities exp.Advertising exp.Depreciation exp.- EquipmentAccumulated dep.-EquipmentInterest exp.Interest payable

5,4003,800

2,2501503001,00060,000

1,000200

800400900

500

15,900

30,0002,40030,000

1,000

900

500

Ans. to the Que.No: 13Rupa Trading and Co.Income StatementFor the year ended 31, Dec. 2007

Explanation Tk. Tk.Net sales(W-1)Less: Cost of goods sold (W-3) Gross ProfitOperating exp.Selling exp.:Depreciation exp.-EquipmentInsurance exp. Utilities exp. Sales salaries exp.Sales commission exp.

Administration exp.Depreciation exp.-BuildingProperty tax exp.Insurance exp. Office salaries exp.Utilities exp.

Non-operating exp:Interest exp.

Non- operating income:Interest Revenue

Net income

6,22,0004,12,700

2,09,300

1,78,600

12,7005,5207,20076,00015,500

10,4004,800

3,68032,0004,800

11,000

(5,000)

Rupa Trading and Co.Owner’s Equity Statement For the year ended 31, Dec. 2007

Rupa’s CapitalAdd: Net income

Less. Rupa’s Drawings

1,76,60030,7002,07,30028,000

Rupa Trading and Co.Balance SheetAs at Dec. 2006Explanation Tk. Tk.Assets:Current assets:CashAccounts ReceivablePrepaid insuranceMerchandise Inventory

Fixed assets:Equipment 1,10,000Less. Accumulated Dep. Building 1,90,000Less. Accumulated Dep.

Liabilities and O.E:Current Liabilities:Interest payableMortgage payableAccounts payableProperty tax payableSales commission payableUtilities payable

Long term liability:Mortgage payable

Owner’s equity

20,80050,3002,40075,000

67,100

1,37,500

4,00060,00078,7004,8005,3001,000

20,0001,79,300

Working: Net sales: Sales 6,28,000Less. Sales return 6,000

Note: Merchandise inventory treated as current assets.

BBA FIRST YEAR, FIRST SEMESTER EXAMINATION, 2009PRINCIPLES OF ACCOUNTINGSubject Code: 1102 Examination Code: 601Time—3 hours Full marks—70[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 4uses of financial accounting information are made by (i) Shareholders; (ii) Creditors?2. (a) Is worksheet a part of accounting cycle? Explain the 3purpose of worksheet.(b) What are the entries an organization needs to prepare for 3closing its books of accounts at the end of each accounting period?3. (a) Distinguish between cash basis and accrual basis of 3accounting.(b) State two generally accepted accounting principles that 3relate to adjusting the accounts.4. (a) Why the merchandise inventory account is usually 3required 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 3management to use gross profit method and retail method ofestimating inventory?(b) Discuss the importance of inventory valuation. 3"Depreciation is the allocation of cost"—Do you agree? Why? 6What are the methods of issuing materials? When and why 6we will use LIFO or FIFO method?

Part B8. Mr. Sanaf started his own consulting firm, Sanaf Consulting, on May 1, 2008. The trial balance at May 31, 2008 is as follows :— .Sanaf ConsultingTrial BalanceMay 31,2008Account Titles Debit (Tk.) Credit (Tk.)Cash 6,500Accounts Receivable 4,000Prepaid Insurance 3,600Supplies 1,500Office Furniture 12,000Accounts Payable 3,500Unearned Service Revenue 3,000Sanaf Capital 19,100Service Revenue 6,000Salaries Expense 3,000Rent Expense 1,000Total : 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

Unit cost or Selling price

June 01 Beginning inventory 50 1005 Purchase 100 1208 Sales 80 2310 Sales return 10 ?15 Purchase 30 1616 Purchase return 05 920 Sales 75 2330 Purchase 10 18

Required :Using the data above calculate the (i) cost of goods sold, (ii) 10ending 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 Company’s chart of accounts includes the following selected accounts :—101 Cash 401 Sales112 Accounts Receivable 414 Sales discount120 Merchandise Inventory 505 Cost of Goods sold301 J. Lewis, CapitalOn 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. 1,600Required:-

(a) Journalize the transactions above in a cash receiptsJournal.Prepare Accounts Receivable Control Account and its Subsidiary ledger accounts.

11. Raffi Traders started his own delivery service. The following 10 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. Raffipaid Tk. 3000 in cash and signed a note payablefor 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 servicesprovided 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 notepayable;11.Paid Tk. 250 for utilities;12.Paid for the gasoline purchased on account onJune 17.13.Paid Tk. 500 for employees salaries.Required : You are required to show the effects of the above transactions on accounting equation.

12. Auhon opened a business on September 2009. During thefirst 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 Septembertransactions;Prepare a trial balance at September 30, 2009.

13. The Trial balance of Navana Ltd. for the year ending Dec. 1031, 2008 is shown below:—Navana Ltd. Trial BalanceDec. 31, 2008Accounts TitleDebit (Tk.) Credit (Tk.)Cash 30,000Accounts receivables 55,200Merchandise Inventory 60,000Prepaid Insurance 3,600Equipment 70,000Land 14,000Accumulated depreciation-Equipment 20,000Accounts payable 62,400, Sales revenue 4, 82,000Sales returns and allowances 9,200Capital 1, 00,600Sales discount 7,800

Purchase 3, 44,000Freight in 10,000Purchase returns and allowance 2,400Purchase discounts 4,000Salaries expenses 41,400Interest' 14,000Utilities 12,200Total: 6, 71,400 6, 71,400 Other information: (1) Merchandise inventory on hand at Dec. 31, 2008 isTk. 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- 2009Ans. to the Que. No: 8

1) Supplies exp. 700Supplies 700

2) Dep. exp.-Furniture 100Accumulated dep.-Furniture 100

3) Travel exp. 300Travel payable 300

4) Insurance exp. 150Pre paid insurance 150

5) Unearn Service Revenue 2,500Service Revenue 2,500

6) Salaries exp. 150Salaries payable 150

7) Accounts Receivable 1,500Service Revenue 1,500

Sanaf ConsultingWork SheetFor the month of May.31, 2008

ExplanationTrial Balance adjustments Adjusted T/B

Income statement

Balance sheet

Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.Cash 6,500 6,500 6,500A/C Receivable 4,000 1,500 5,500 5,500Prepaid Insurance 3,600 150 3,450 3,450Supplies 1,500 700 800 800

Office Furniture12,000

12,000

12,000

A/c Payable 3,500 3,500 3,500Unearn Ser. Rev. 3,000 2,500 500 500

Sanaf Capital19,100

19,100

19,100

Service Revenue 6,000 4,00010,000

10,000

Salaries exp. 3,000 150 3,150 3,150Rent exp. 1,000 1,000 1,000Supplies exp. 700 700 700Dep.exp.-Furniture

100 100 100

Acc.dep.- 100 100 100

FurnitureTravel exp. 300 300 300Travel payable 300 300 300Insurance exp. 150 150 150Salaries payable 150 150 150Net income 4,600 4,600

Total 600,31

Ans. to the que no: 9 (a)Indeal corporationStore ledger(Under FIFO method)For the month of June 30, 2009


2009June 1

Beginning inventory 50 10 500 50 10 500

” 5 Purchase 100 12 1,20050100

1012

5001,200

” 08 Sales 80 23 1840 70 12 840” 10 Sales return (10) 23 (230) 80 12 960

” 15 Purchase 30 16 4808030

1216

960480

” 16 Purchase return (5) 16 (80)8025

1216

960400

” 20 Sales 75 23 1725525

1216

60400

” 30 Purchase 10 18 18052510

121618

60400180

135 2,280 145 3,335 40 640

Cost of goods sold:Cost of goods available for sale = 2,280Less: 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

Date ExplanationReceipt / Purchase Issue / sales Balance

Units Rate Amount Units Rate Amount Units Rate Amount

June 1 Beginning inventory 50 10 500 50 10 500

” 5 Purchase 100 12 1,200 150 11.333 1700

” 08 Sales 80 23 1840 70 11.333 793

” 10 Sales return (10) 23 (230) 80 11.333 906.64

” 15 Purchase 30 16 480 110 12.609 1387

” 16 Purchase return (5) 16 (80) 105 12.609 1324

” 20 Sales 75 23 1725 30 12.609 378

” 30 purchase 10 18 180 40 13.95 558

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

(iv) Gross Profit rate =

=

= 48.36 %

Ans. to the Que No: 10Lewis Company Cash Receipt Journal

Date

Accounts credited

Ref

Cash

Dr

Sales Discounts

Cr

Accounts Receivable Cr

Sales

Cr

Others Accounts Cr

Cost of good sold Dr Merchandise Inventory Cr

Jun 13679111520

J.Lews,CapMaquo Co.Farley Co.

Block&SonsMerchi.

301

120

10,0001,2741,8626,1353,4303204,8001,600

2638

70

1,3001,900

3500

1,600

6,135

4,800

10,000

320

1,090

3,200

Inv

Green Bros.

Foot (101)134

(414) (112) (401) (505)

Cross foot

Lewis CompanyGeneral journalAccounts ReceivableDate Explanation Ref Debit Credit BalanceJune 130

BalanceCR1 8,300

8,3000

Accounts ReceivableSubsidiary LedgerBernard & SonsDate Explanation Ref Debit Credit BalanceJune 19

BalanceCR1 3,500

3,5000

Farley Co.Date Explanation Ref Debit Credit BalanceJune 16

BalanceCR1 1,900

1,9000

Grinnell Bros.Date Explanation Ref Debit Credit BalanceJune 120

BalanceCR1 1,600

16000

Maquoketa Co.Date Explanation Ref Debit Credit BalanceJune 13

BalanceCR1 1,300

1,3000

Ans. to the que. No: 11Raffi TradersFor the month of JuneTabular AnalysisDate A = L + O.E Remarks

12345678910111213

CashDelivery Van

A/c Receivable

SuppliesNotes payable

A/c payable

Capital

Investment

Rent exp.Ser. Rev.Withdraw

Gasoline exp.Ser. Rev. Utilities exp. Salaries exp.

+20,000(3,000)(800)

(300)

+750

+1,500(500)(250)(100)(500)

+10,000

5,400

(750)+350

7,000

(500)

+350

+100

(100)

+20,000

(800)+5,400(300)

(100)+1,500

(250)

(500)

16,800 10,000 4,650 350 6,500 350 24,950

Ans. to the que.No: 12Req: (a) AuhonJournal entries

Date Explanation RefDr (Tk)

Cr (Tk)

2009Sep.1

2

3

4

10

20

30

Cash Auhon’s Capital[Cash invested by owner in his business]

20,000

1,000

25,000

1,200

200

700

6,200

20,000

1,000

10,00015,000

1,200

200

700

6,200

Rent exp. Cash[Paid to rent]Washer and dryer Cash Notes payable[Purchase Washer and dryer in cash and on notes payable]Prepaid insurance Cash[Paid one year account policy]Advertising exp. Accounts Payable[Receive advertising bill from daily news]withdraw Cash[Withdraw by owner for his personal use]Cash Laundry Service Revenue[Cash received from laundry Service]

Req: (b) LedgerCashDate Explanation Ref Debit Credit Balance2009Sep. 12

20,0001,000

20,00019,000

342030 6200

10,0001,200700

9,0007,8007,10013,300

Authon CapitalDate Explanation Ref Debit Credit BalanceSep. 1 20,000 20,000

Rent exp.Date Explanation Ref Debit Credit BalanceSep. 2 1,000 1,000

Washer and dryerDate Explanation Ref Debit Credit BalanceSep. 3 2,500 2,500

Notes payableDate Explanation Ref Debit Credit BalanceSep. 3 15,000 15,000

Prepaid insuranceDate Explanation Ref Debit Credit BalanceSep. 4 1,200 1,200

Advertising exp.Date Explanation Ref Debit Credit BalanceSep. 10 200 200

Accounts PayableDate Explanation Ref Debit Credit BalanceSep. 10 200 200

WithdrawDate Explanation Ref Debit Credit BalanceSep. 20 700 700

Laundry Service RevenueDate Explanation Ref Debit Credit BalanceSep. 30 6,200 6,200

Req: I AuhonTrial BalanceFor the month of Sep.30, 2009

Acc ..No. Accounts Title Ref Debit Credit

12345678910

CashRent exp.Washer and dryerNotes payableAuthon CapitalPrepaid insuranceAdvertising exp.Accounts PayableWithdrawLaundry Service Revenue

13,3001,00025,000

1,200200

700

15,00020,000

200

6,200

Ans. To the question No.13Workings:Net Sales:Sales 4,82,000Less. Sales return 9,200

Less. Sales discount 7,800

Net Purchase:Purchase 3,44,000Less. Purchase return 2,400

Less. Purchase discount 4,000

Add. Freight in 10,000

Cost of goods sold:Opening inventory 60,000Add. Net Purchase 3,47,600


Navana Ltd.Income StatementFor the year ended 31,Dec. 2008Explanation Tk. Tk.Net sales(W-1)Less: Cost of goods sold (W-2) Gross ProfitOperating and Other exp.Insurance exp.Salaries exp. 41,000Less. Prepaid Utilities esp.Depreciation exp.-Equipment


Net income

4,65,0003,27,600

1,37,400

72,600

2,000

37,40012,2007,000

14,000

Navana Ltd.Owner’s Equity StatementFor the year ended 31, Dec. 2008Explanation Tk.Capital 1,00,600

Add: Net income 64,800

Req: (b) Navana Ltd.Balance SheetAs at 31, Dec 2008Explanation Tk. Tk.Assets:Current assets:CashA/c ReceivablePrepaid insurance (3600 – 2000)Ending inventoryPrepaid salaries

Fixed assets:Equipment 70,000Less. Acc.Dep.-Equipment(20000 + 7000)

Land

Liabilities and O.ECurrent LiabilitiesAccounts payableOwner’s equity

30,00055,2001,60080,0004,000

43,00014,000

62,4001,65,400

BBA FIRST YEAR FIRST SEMESTER EXAMINATION, 2010PRINCIPLE OF ACCOUNTING (1102)Time- 3hoursFull 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 OneMarks- (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. 32. (a) Explain in short the accounting cycle. 3(b) What is a closing entry? Discuss in brief the closing process of temporary accounts. 33. (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. 34. (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? 26. Briefly describe four assumptions that underline the financial accounting structure. 67. (a) What is Accounting Information System? 3(b) Discuss the nature and advantages and advantages of subsidiary ledger.

3Marks- 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,. 6,000Paid 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. 4Post 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 ServicesTrial BalanceOctober 31,2010

Dr.(Tk) Cr.(Tk.)Cash 48,800Accounts receivable 35,200Office Supplies 20,000Repair equipment 1,50,000Prepaid Insurance 18,000Accounts payable 34,000Unearned service revenue 14,000Salaries Payable 5,000Owner’s capital 1,86,000Repair service revenue 75,000Salaries expense 31,000Rent expense 5,000Utilities expense 6,000

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 EnterpriseAdjusted Trial BalanceSeptember 30, 2010

Dr.(Tk) Cr(Tk.)Cash 54,000Accounts receivable 28,000Supplies 10,000Prepaid insurance 22,000Equipment 6,00,000Accumulated depreciation – Equipment 9,000Notes payable 4,00,000Accounts Payable 24,000Interest payable 5,000Owner’s capital 3,00,000Owner’s drawings 10,000Service revenue 49,000Salaries expense 32,000Utilities expense 8,000Advertising expense 4,000Insurance expense 2,000Supplies expense 3,000Depreciation expense 9,000

Interest expense 5,000

Required :Marks 5Prepare a classified balance sheet assuming that Tk. 350,000of notes payable is long-term.Prepare an income statement of Marine Enterprise for

2September 2010.Journalize the closing entries. 311. Ready-Set-Go distributes suitcases to retail stores and

10extends credit terms of 1/10, n/30 to all of its customers. At the end of July, R-S-G’s 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 Marksfollowing selected accounts :—112 Accounts Receivable 401 Sales120 Merchandise Inventory 412 Sales Return and Allowance126 Supplies 505 Cost of Goods Sold157 Equipment 610 Advertising Expense201 Accounts PayableIn 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 statement’from 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-2010Ans. To the que.No: 8Req: (a) M/S Harun TradersJournal entriesDate Explanation Ref Dr (Tk) Cr (Tk)

.2010Aug.1

” 2.

” 10.

” 15.

” 18.

” 23.

” 27.

” 31.

Cash Mr. Harun’s Capital[Cash invested by owner in his business]

1,50,000

50,000

3,500

9,000

5,000

6,000

1,500

2,0005,000

1,50,000

20,00030,000

3,500

9,000

5,000

6,000

1,500

7,000

Delivery Van Cash Notes payable[Purchased delivery van by cash and signing a note]Supplies Cash[Purchase supplies in cash]Accounts Receivable Service Revenue[Service provided on account]Cash Accounts Receivable[Cash received from accounts receivable]Cash Service Revenue[Service provided in cash]Trade license fees Cash[Paid license fees in cash]Utilities exp.Salaries exp. Cash[Paid utilities and salaries exp. in cash]

Ledger

Req(b) CashDate Accounts Title Ref. Dr (Tk) Cr (Tk) Balance

2010Aug1” 2” 10” 18” 23” 27” 31

1,50,000

5,0006,000

20,0003,500

1,5007,000

1,50,0001,30,0001,26,0001,31,5001,37,5001,36,0001,29,000

Delivery VanDate Accounts Title Ref. Dr (Tk) Cr (Tk) BalanceAug 2

50,000 50,000

Notes PayableDate Accounts Title Ref. Dr (Tk) Cr (Tk) BalanceAug 2

30,000 30,000

SuppliesDate Accounts Title Ref. Dr (Tk) Cr (Tk) BalanceAug 10 3,500 3,500

Accounts ReceivableDate Accounts Title Ref. Dr (Tk) Cr (Tk) BalanceAug 1518

9,0005,000

9,0004,000

Mr. Harun CapitalDate Accounts Title Ref. Dr (Tk) Cr (Tk) BalanceAug 1

1,50,000 1,50,000

Service Revenue

Date Accounts Title Ref. Dr (Tk) Cr (Tk) BalanceAug 1523

9,0006,000

9,00015,000

Trade license feesDate Accounts Title Ref. Dr (Tk) Cr (Tk) BalanceAug 27 1,500 1,500

Utilities exp. Date Accounts Title Ref. Dr (Tk) Cr (Tk) BalanceAug 31 2,000 2,000

Salaries exp. Date Accounts Title Ref. Dr (Tk) Cr (Tk) BalanceAug 31 5,000 5,000

Ans. to the que. No: 9Req: (a) Razib Repairing ServicesDate Explanation Ref

.Dr (Tk)

Cr (Tk)

2010Oct.31

” 31

” 31

” 31

” 31

Insurance exp. Prepaid Insurance[To record prepaid insurance expired]

12,000

14,000

11,667

9,000

3,000

12,000

14,000

11,667

9,000

3,000

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.

Insurance exp.Oct. Bal. 18,000 31. 12000 Oct 31 12,000

31.Bal c/d 6000

Salaries payable[To record unpaid salaries]

Req: (b) Prepaid insurance

Supplies Supplies exp.Oct.31. 20,000 31. 14000 Oct.31. 14000

31. Bal. 6,000

Dep.exp.-Equipment Acc.Dep.-EquipmentOct.31. 11,667 Oct. 11,667

Unearned Service Revenue Service RevenueOct.31. 9,000 Oct.31. 14,000 Oct.31.Bal 84,000 Oct.31.Bal 75,00031.Bal. 5000 31. 9000

Salaries exp. Salaries PayableOct.31.Bal 31,000 31. Bal 34,000 31. Bal 8,000 Bal.

5,00031, 3,000 31. 3,000

Cash Repair equipmentOct.31.Bal 48,000 Oct.31. 19,000

A/c Payable A/c Receivable Oct.31. Bal. 34,000 Oct.31.Bal. 35,200

Owners Capital Rent exp. Oct.31.Bal 1,86,000 Oct.31.Bal. 5,000

Utilities exp. Oct.31.Bal. 6,000

Req: (c)Razib Repairing ServicesAdjusted Trial BalanceOct.31,2010Date Accounts Title Ref. Dr (Tk) Cr (Tk)1.2.3.4.5.6.7.8.9.10.11.12.13.14.15.16.17.

Prepaid InsuranceInsurance exp.SuppliesSupplies exp.Dep.exp.-EquipmentAcc.dep.-EquipmentUnearn Service RevenueService RevenueA/c ReceivableSalaries exp.Salaries payableCashRepair equipmentA/c payableCapitalRent exp.Utilities exp.

6,00012,0006,00014,00011,667

35,20034,000

48,8001,50,000

5,0006,0003,28,667==========

11,6675,00084,000

8,000

34,0001,86,000

3,28,667==========

Ans. to the que. No: 10Req:(a) Marine EnterpriseBalance SheetSep.30,2010Explanation Tk. Tk.Current assets:CashAccounts ReceivableSuppliesPrepaid Insurance

Fixed assets:Equipment 6,00,000Less-Accumulated depreciation

Liability: & O.ECurrent liability:Notes payableAccounts payableInterest payable

Long term liability:Notes payable

O.E

54,00028,00010,00022,000

5,91,000

50,00024,0005,000

3,50,000

2,76,000

Marine EnterpriseReq. (b) Income statementFor the year ended Sep 30,2010Explanation Tk. Tk. 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

32,0008,0004,0002,0003,0009,000

5,000___________

49,000

63,00014,000==========

Marine EnterpriseOwner’s Equity StatementFor the year ended Sep 30, 2010Explanation Tk.

Owners Capital Less: Net loss Less: Withdrawn

3,00,000 14,000___2,86,000 10,000___2,76,000==========

Marine EnterpriseReq: (c) Closing entriesDate Explanation Ref. Dr. Tk. Cr. Tk.2010Sep.30

” 30

” 30

” 30

Service Revenue Income Summary[To close service revenue]

49,000

63,000

14,000

10,000

49,000

32,0008,0004,0002,0003,0009,0005,000

14,000

10,000

Income Summary Salaries exp. Utilities exp. Advertising exp. Insurance exp. Supplies exp. Dep. exp.[To close all expenses]Capital Income Summary[To close Net loss]Capital Drawings[To close drawings]

Ans. to the que. No: 11Journal entries(Perpetual Inventory System)

DateExplanation Ref

.Debit Credi

tJuly1

3

Merchandise inventory Accounts payable[To record goods purchased on account from Trunk Manufacturer]

1,500

2,200

1,200

1,500

2,200Accounts receivable Sales[to record goods sold on account to Satchel World]

Cost of goods sold

9

12

17

18

20

21

22

Merchandise inventory[To record cost of goods sold]

1,500

2,17822

1,650

900

1,800

300

1,633.516.5

2,475

1,200

301470

2,200

1,650

900

1,700100

300

1,650

2,475

Accounts payable Merchandise inventory Cash[To record paid the creditor less discount]CashSales 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]CashSales discount Accounts Receivable[To record cash receivable from A/c receivable at discount]Accounts Receivable Sales[To record goods sold on account to

30

31

Fly-By-Night]Cost of goods sold Merchandise inventory[To record cost of goods sold]

1,350

1,400

220

120

1,350

1,400

220

120

Accounts Payable Cash[To record paid the creditor without 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: 12Req: (a) Dutch Company Purchase Journal

Date Accounts Credited Ref.Other AccountsDr.

MerchandiseInventoryDr.A/c Payable Cr.

May2388151616182528

Van Houk companyRuden FreightTulip companyZeider companySandvoort supplyVan Houk companyTulip companyRuden companyAmster advertisingSandvoort supply

900

900250

9,5003608,0008,7009004,5007,200500900250

Dutch CompanySales JournalDate Accounts Debited Ref. Other Accounts Merchandise

Dr.InventoryDr.A/c Payable Cr.

May5552323

Ellie companyCornelis Bros.Jan companyCornelis Bros.Jan company

1,9802,7001,5002,4003,100

1,2871,7559751,5602,015

Dutch CompanyGeneral Journal EntriesDate Explanation Ref. Debit CreditMay10

17

20

26

Accounts Payable-Zeider company Merchandise inventory[To record purchase returns and allowances]

500

100

300

200

500

100

300

200

Accounts Payable-Sandvoort Supply Supplies[To record supplies returns and allowances]Accounts Payable-Van Houk company Merchandise inventory[To record purchase returns and allowance]Sales return and allowances Accounts Receivable-Jan company[To record sales returns and allowances]

BBA FIRST YEAR FIRST SEMESTER EXAMINATION, 2011Subject Code: 1102 (Principles of Accounting)Time—3 hours Full marks—70[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.JPart A—Short QuestionsMarks—6x5=30Marks1. (a) What is accounting? Discuss the image of accounting. 3(b) What are the golden rules of double entry system? 32. (a) What are the essential characteristics of an event to be a 3transaction?(b) Define accounting cycle. Mention the various phases of 3Accounting 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 3entries".(b) What do you mean by "Adjustment entries"? 35. (a) What are the content and purpose of a post-closing trial 3balance?(b) Distinguish between a reversing entry and an adjusting 3entry. Are reversing entries required?6. (a) Accounting is ingrained in our society and it is vital to our 3economic system. Do you agree? Explain.(b) What is retain earning statement? Why it is prepare? 37. (a) "An accounting information system applies only to a 3manual system." Do you agree? Explain.(b) How would you determine inventory quantities? 3

Part B—Broad Questions Marks - 10x4=40Marks 108. James Barger opened law office on July 1st . On July 31st the 10 thebalance 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, payingTk. 400 in cash and the balance is due in September.Paid salaries Tk. 2,500 rent for August Tk. 900 andAdvertising expense Tk. 350.(f) Withdrew Tk. 550 in cash for persona! use.(g) Received Tk. 2,000 from Standard Chartered Bank—money 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: — Marks 10Trial BalanceAs at 31st December, 2010

Debt Balance Taka Credit Balance Taka

Drawing 3,600 Capital 45,000

Purchase 55,300 Purchases Returns 1,300Sales Returns 1,900 Sales 80,900Merchandise Inventory 12,000 Rent Income 1,000Carriage In 1,000 Commission Income 200Office Salaries Expense 6,000 Allowance for bad debts 150Rent and Taxes Expense 1,200 Allowance for depreciationSales Salaries Expense 2,200 Furniture Tk. 200Carriage on Sales 1,400 Building Tk. 500 700

Advertising Expense 700 Accounts payable 12,450

Insurance Expense 1,800 Notes payable 3,000Sundry Office Expense 200 Loan on Mortgage 10,000Furniture 6,500 (Payable on 30th June,Accounts Receivable 26,000 2003)

Cash in hand 900Cash at Bank 14,000Building 20,000

1,54,700 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 AccountsReceivable.Goods taken by the proprietor for private use Tk. 100.Required:Prepare a ten column worksheet.

Marks 1010. Maria Gonzalez opened a veterinary business in Nashville, Tennesse, on August 1. On August 31, the balance sheet showedcash 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 incash 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 andadvertising expense Tk. 300.Incurred utilities expenses for month on account Tk. 170.Received Tk. 10,000 from capital Bank-money borrowed ona 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 4Company during July of the current year:—

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 6Perpetual 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 3 Purchase 110 units 31

6 Sales 160 units 50

8 Sales Return 20 units 50

10 Purchase 85 units 34

11 Purchase Return 25 units 34

15 Sales 60 units 55

17 Purchase 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 10Ideal Company

Trial BalanceDecember 31,2010Account titles Amount

(Tk.)

Accounts payableAccounts receivableBuildingAccumulated depreciation—buildingAllowance for doubtful accountsCapital stockCashDividendsPurchasesInsurance expenseInterest expenseInterest revenueInventory January 1, 2010LandLong term investmentMortgage payableOffice expensesRetained earnings January 1, 2010SalesSales ReturnSelling expensesSupplies expensesPayroll taxes

46,00077,20082,00029,8001,3802,00,00024,00014,0001,40,9401,4402,64066084,80069,60022,60063,00016,48014,0402,56,0008,76054,2404,2007,980

MarksAdjustments 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 abalance 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 beforeincome tax.Out of mortgage payable Tk. 10,600 payable in 2010.Required:a)Prepare an income statement for the year ended December31, 2010. b.)A balance sheet on December 31, 2010.

13. Write the following short notes: — 2.5x4=10Projected Financial Statement;Break-even analysis;Accounting Equation;Liquidity and profitability ratios.

BBA- 2011Ans. to the que. no: 8James BargerTabular Analysis:- For the month of July

DateA = L + O.E

RemarksCash

A/c Receivable

Supplies EquipmentNotes Payable

A/c Payable

Capital

123456789

4,000+1,400(2,700)+3,000(400)(3,750)(550)+2,000

1,500(1,400)

+4,500

500 5,000

+1,000

+2,000

4,200

(2,700)

+600

+250

6,800

+7,500

(3,750)(550)

(250)

Investment

Earned Revenue

Salaries,Rent,Advt.Withdrawn

Utilities exp. an a/c

3,000 4,600 500 6,000 2,000 2,350 9,75014,100=========

14,100=========

Ans. to the que. No: 9Jan and SonsWork sheetFor the year ended 31 Dec. 2010

Accounts TitlesTrial Balance Adjustments Adjusted T/B

Income Statement

Balance Sheet

Dr.(Tk)

Cr.(Tk)

Dr.(Tk)

Cr.(Tk)

Dr.(Tk)

Cr.(Tk)Dr.(Tk)

Cr.(Tk)

Dr.(Tk)

Cr.(Tk)

Drawing 3600 100 3700 3700Purchases 55300 100 55,200 55,200Sales Return 1900 1900 1900Merchandise Inventory

1200018,000

12000 18,00018,000

Carriage in 1000 1000 1000Office salary exp.

6000 600 6600 6600

Rent & Taxes exp.

1200 1200 1200

Sales Salaries exp.

2200 2200 2200

Carriage on sales

1400 1400 1400

Advertising exp.

700 700 700

Insurance exp. 1800 450 1350 1350Sundry office exp.

200 200 200

Furniture 6500 6500 6500A/c Receivable 26000 26000 26000Cash in hand 900 900 900Cash at Bank 14000 14000 14000Building 20000 20000 20000Capital 45000 45000 45000Purchase Return

1300 1300 1300

Sales 80900 80900 80900Rent income 1000 1000 1000Commission income

200 200 200

Allowance for bad debts

150 1040 1190 1190

Allowance for dep: Furniture

200 200 400 400

Allowance for dep: Building

500 500 1000 1000

A/c Payable 12450 12450 12450Notes payable 3000 3000 3000Loan of 10000 10000 10000

MortgageIncome summary

12,000

18,000

12,000 18,000 12,000 18,000

Pre-Paid insurance

450 450 450

Interest exp. 500 500 500Interest payable 500 500 500Salaries payable

600 600 600

Dep.exp.Furniture

200 200 200

Dep.exp.Building

500 500 500

Bed debts exp. 1040 1040 1040Net income 15410 15410Total

Ans. to the que. no: 10Maria GonzalezFor the month of Sep.Tabular Analysis

Date

A = L + O.ERemarks

CashA/c Rec.

Supplies

Equipment

N/PA/c Payable

Capital

112345678

9,000(2,900)+1,300(800)+2,500(1,000)(2,900)

+10,000

1,700

(1,300)

+5,500

600 6,000

+2,100

+10,000

3,600(2,900)

+1,300

+170

13,700

+8,000(1,000)(2,900) (170)

Investment

Earned Rev.

WithdrawSalaries, Rent,& Advertising Exp.Utilities exp.

15,200 5,900 600 8,100 10,000 2,170 17,630

Ans. to the que. No:11 (a)Shahin companyJournal entries

Date

Explanation Ref.

Dr (Tk) Cr (Tk)

2

5

7

8

14

15

Merchandise inventory A/c Payable

30,000

1,500

3,000

14,000

10,000

27,000

13,860140

30,000

1,500

3,000

14,000

10,000

27,000

14,000

Merchandise inventory CashA/c Payable Merchandise inventoryA/c Receivable SalesCost of goods sold Merchandise inventoryA/c Payable CashCashSales discount A/c Receivable

11. (b) Nishan Ltd.Store ledger

(Under LIFO method)


2011Dec.31

Ending inventory 150 27 4,050 150 27 4,050

June:31 Purchase 110 31 3,410150110

2731

4,0503,410

” 6 Sales 160 50 8,000 100 27 2,700” 8 Sales Return (20) 50 (1,000) 120 27 3,240

” 10 Purchase 85 34 2,89012085

2734

3,2402,890

” 11 Purchase Return (25) 34 (850)12060

2734

3,2402,040

” 15 Sales 60 55 3,300 120 27 3,240

” 17 Purchase 110 38 4,180120110

2738

3,2404,180

280===

13,680=====

200===

10,300=====

230===

7,420=====

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 profit rate =

=

= 39.22 %12.

Working Notes:Net Sales:Sales 2,56,000

Less: Sales return __8,760_2,47,240

=========Net purchasePurchase Cost of goods sold:Opening inventory = 84,800 Add: Net purchase = _1,40,940_

2,25,740Less: Ending inventory = __90,720

Ideal companyIncome StatementFor the year ended 31 Dec. 2010

Explanation Tk. Tk.Net salesLess: Cost of goods sold (W-3) Gross ProfitOperating and other exp:Insurance exp. 1,440Less: 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

Non operating exp.

2,47,2401,35,020

1,12,220

72016,48058,0803,4207,9801,6204,100

Interest exp.Non operating income: Interest Revenue

Net income before taxLess: Income tax 30 %Net income after tax

2,640

(660)94,38017,8405,35212,488========

Ideal companyRetained earning StatementFor the year ended 31 Dec. 2010

Explanation Tk.Balance b / dAdd: Net income

Less: Dividend

14,040 _12,488_26,528

Ideal companyBalance SheetAs at 31 Dec. 2010

Explanation Tk. Tk.Assets: Current assets:A/c Receivable 77,200Less: Allowance for doubtful a/c CashEnding inventorySupplies on handPrepaid insurance

Fixed assets:Building 82,000Less: Accumulated dep.(29,800 + 4,100)

LandLong term investment

Share capital & liabilities:Capital stockCurrent liability:A/c PayableMortgage payableSelling exp. payableTax payableLong term liability:Mortgage payableRetained earning Balance

74,20024,00090,720780720

48,10069,60022,600

2,00,000

46,00010,6003,8405,352

52,40012,528

3,30,720

3,30,720

Chapter OneIntroduction Study Objectives—after 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? 2007Briefly describe four assumptions that underlie the financial accounting structure. 2010Describe the accounting Conventions /Constraints / Principles.What is the basic Accounting Equation? 2007, 2008 Discuss the elements of accounting equation. 2010Define Business transaction.Features of Transactions.Describe the Financial statement.Explain the monetary unit and economic entity assumptions? 2007Discuss the ethical issues of accounting.Importance and necessity of Accounting.Define Owners Equity. What items affect owner’s equity? 2007, 2008Discuss the Images of Accounting 2011What is GAAP?(2007) Discuss various important principles.Define the terms of assets liabilities and owners equity. 2007Chapter-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 money’s 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 an accounting system.

1. It is the summarizing phase of an accounting system.

2. It is one of the functions of accounting.

2. It is the basis for business language.

3. Persons responsible for bookkeeping are called bookkeepers.

3. Persons responsible for accounting are called accountings.

4. It does not require any special professional knowledge.

4. It is requires special professional knowledge.

5. Bookkeeper is not an independent personnel.

5. Accountant is independent personnel.

6. Primary source of information of the financial statement is the bookkeeping record.

6. Financial statements are prepared in accordance with accounting rules and regulation.

7. Complete picture of the business cannot be found from the bookkeeping

7. Complete picture of the business can be found from the accounting records.

records.8. It does not help in

complying with legal formalities.

8. Legal formalities can be complied with the help of accounting.

9. It does not provide any ready information to take managerial decision.

9. It provides ready information to take managerial decision.

10. It is merely a recording process, thus have no branch.

10. 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 entity’s 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 +Owner’s equity.

Elements of Accounting EquationAn 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 economicbenefits 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, owner’s 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 owner’s equity is to connect the income statement and balance sheet. The statement of owner’s equity explains the changes that occurred in the owner’s capital balance sheet.3. Balance Sheet:Balance sheet shows the financial position of a business organization. It lists the company’s assets, liabilities and owner’s 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 AssumptionThe 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 accountant’s 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 sheet3.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 owner’s equity? 2007, 2008Answer: 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. 2011Answer: 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 theworld, "GAAP are those principles that guide accounting practice".According to Eric Kohler, "GAAP are the general rules followed byaccountants."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 accountantsand 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 TwoRecording ProcessStudy Objectives—after studying the chapter, you should be able to:1. Define Accounting Cycle. 2007,20112. State the steps of accounting cycle. 2010, 20113. Define Journal.4.Objects and Advantages of JournalWhat is LedgerDefine eventsWhat are the Differences between events and transaction?Describe the steps in the Recording ProcessWhat do you mean by Debit and Credit?

What is a Trial Balance? 2007Describe the characteristics of Trial BalanceWhat are the objects of Trial Balance?Describe the limitations of Trial Balance 2007What are the advantages of Trail Balance?Define double entry system. Write down the debit / Credit rules.

Question 1.Define Accounting Cycle. 2007,2011Answer: 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.

1. Identification of Transaction

10. Reversing Entries 2. Journalizing

9. Post-closingTrial Balance

3. Posting toLedger Accounts

8. Closing Entries 4. Preparation ofTrial Balance

7. Preparation ofFinancial Statement 5. Adjusting Entries

6. AdjustingTrial Balance

Work Sheet (Optional)

Question 2. State the steps of accounting cycle. 2010,2011Answer: 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.

Question 3. Define JournalAnswer: 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 everyday life is an event.

1. Every events that changes the financial position of the business, is a transaction.

2. All events are not transactions.

2. All transactions are events.

3. The scope of event is wide.

3 The scope of transactions are narrow.

4. Dual aspect is not needed for an event.

4. Dual aspect is needed for a transaction.

5. The earnings of profit is not the objectives of all events.

5. The earning of profit is the main objectives of the business transaction.

Question 8. Describe the steps in the Recording ProcessAnswer: 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? 2007Answer: 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 = CreditDebit 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, owner’s equity or owner’s capital, revenues, expense, drawings. They are-Assets: For assets, increases in assets must be recorded in Debit side and the normal balance of Assets are Debit.

Debit Credit Normal Balance

Increase Decrease 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.


Decrease Increase Credit

Owner’s equity of capital: Increases in capital must be recorded in credit side and Decreases in capital must be recorded in Debit side and it’s normal balance is Credit.



Revenues: Increases in revenues must be recorded in Credit side and decreases in revenues must be recorded in Debit side and it’s normal balance is Credit.



Expense: Increases in expenses in expenses must be recorded in Debit side and decreases in expense normal balance is 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.



Chapter ThreeAdjustment ProcessStudy Objectives—after studying the chapter, you should be able to:1. Define adjusting entries2. Distinguish between cash basis accounting and accrual basis of accounting. 2007,2008,20093. Why does the accrual basis financial statement provide more useful information than that of cash basis financial statement? 20044.Explain the accrual basis of accounting5.Explain the time period assumption6. Explain why adjusting entries are needed7.Identify the major types of adjusting entries8.Prepare adjusting entries for deferrals (prepayments) 9.Prepare adjusting entries for accruals10.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, 2008,2009There 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 comparedRecognition Cash basis Accrual basisRevenues are recognized

When cash is received When goods or services are delivered and cash is realizable at a future date

Expenses are recognized

When cash is paid When expenses are incurred and cash is payable at a future date

Example: Cash basis of accounting Accrual basis of accounting1.purchase is made by paying cash tk. 2,0002.cash received for sales made tk.3,500

1.purchese is made on account for tk. 2,000 to paid within next 30 days.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. That’s 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 basis—an 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 basis—an 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 company’s financial statements are recorded in the periods in which the events occur.Define the matching principle.Matching principle—the 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 principle—at 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 RevenuesAll Matched ExpensesRecognized Revenues

- Matched Expenses

= Accurate net income for the period

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 periods—less than one year.Fiscal year—an 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 year—an 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. Accruals—Expenses 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.Deferrals—Expenses 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 Concept—financial 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 Expenses—expenses paid in cash and recorded as assets (or expenses as shown in the chapter appendix—alternative treatment of prepaid expenses) before they are used or consumed. Depreciation of plant assets falls into this category.Unearned Revenues—cash received and recorded as liabilities (or revenues as shown in the chapter appendix—alternative treatment of unearned revenues) before revenue is earned.Accruals:Accrued Revenues—revenues earned but not yet received in cash or recorded.Accrued Expenses—expenses incurred but not yet paid in cash or recorded.

II. Accounting for Accrued Expenses—ADJUSTING 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 occur—accrued 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 2015Dec. 29 30 31 Jan. 1 2Monday 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 1Date Account Title P.R. Debit Credit2014 Adjusting EntriesDec. 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 owner’s 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 emphasized—Cash 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(a) 90 days from May 8:

Begin with last day of month that the note was dated May 31Subtract the date of the note May -8

Days in the first month May 23Add the total days in the following month June 30 84 daysAdd the total days in the following month July 31Days needed in the next month for a total of 90 days Aug 6 Due Date of Note

Total days of note 90

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 Nov. 30Subtract the date of the note Nov. - 1

Days in November Nov. 29Add the total days in December Dec. 31Total days from the date of the note to end of period 60Calculate 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 = $280Make the adjusting entry:General Journal Page 1Date Account Title P.R. Debit Credit20-- Adjusting EntriesDec. 31 Interest Expense 280.00

Interest Payable 280.00

Post to the General Ledger:

Assets =Liabilities

+Owner's Equity

+ Rev. -Expenses

Cash Interest Payable Interest Expense

Dec.31 Adj. 280

Dec. 31 Adj. 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 owner’s 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 expenses—the 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 period—debit Rent Expense and credit Rent Payable.To accrue taxes that are owed but unpaid at the end of the accounting period—debit Taxes Expense and credit Taxes Payable.To accrue utilities that are owed but unpaid at the end of the accounting period—debit 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 principle—a 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 revenue—revenue earned but not yet received.Steps to prepare the adjusting entry:Calculate the amount of rent earned. Prepare the adjusting entry—an adjusting entry for accrued revenues results in an increase (debit) to an asset account and an increase (credit) to a revenue:General Journal Page 1Date Account Title P.R. Debit Credit20-- Adjusting EntriesDec. 31 Rent Receivable 1,200.00

Rent Income 1,200.00Post 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:

Assets =Liabilities + Owner's

Equity+ Revenues -

Expenses

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 concept—accrued revenue is the mirror image of accrued expenses. A rent accrual can be shown as follows:From the Lessor perspective, the entry would be:Debit—Rent Receivable 1,200

Credit—Rent Income 1,200From the Lessee perspective, the entry would be:Debit—Rent Expense 1,200

Credit—Rent Payable 1,200Affect 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 owner’s 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 company’s interest expense is another company’s interest income. To accrue interest income:Calculate interest earned from the date of the note until the end of the accounting period—P x R x T.Record the adjusting entry:Debit—Interest Receivable

Credit—Interest IncomeAny 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:Debit—Accounts Receivable

Credit—Fees Earned

IV. Summary of Accruals:

Accruals ALWAYS Add—the “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 expense—advance 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 owner’s 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 + Owner’s Equity

+ Revenues - Expenses

Adver. Supplies

Adver. Supplies Exp.

2,500 1,500 USED 1,5001,000Note 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 depreciation—an 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 business’s 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 asset’s 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 depreciation—a 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 account—an 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 owner’s 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 + Owner’s Equity + Revenues - ExpensesOffice Supplies Office Supplies Exp.125 45 USED 45150275230Prepaid Insur. Insurance Expense240 20 USED (EXPIRED) 20220Office Equip.3,000Acc.Dep-Off Eq USED (ALLOCATED) Depr.Exp.-Off. Eq.

50 50Office Furn.2,000Acc.Dep-Off Furn

USED (ALLOCATED) Depr.Exp.-Off.Furn.

30 30Every 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 asset—the difference between an asset’s 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 owner’s 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 auditor’s 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 owner’s 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 owner’s 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 owner’s 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 auditor’s 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 owner’s 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 account—unearned 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 entries—entries 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 FourCompletion of accounting cycle (Work sheet)Study Objectives—after studying the chapter, you should be able to:Define Work sheet 2004Describe the Types of work sheetWhat are the objective & Preparation of a work sheet?Show Structure of work sheetDefine closing entries?Define reversing entry with exampleDefine Post closing Trial Balance

Question 1. Define Work sheet. 2004Answer. 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.) That’s why the general purpose work sheet is commonly known as ten-column work sheet. The following are the five steps:1.Trial balance2. Adjustments3. 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 sheetXY CompanyWork shetFor the year ended -----

Trail balance Adjustments Adjusted Trial balance

Income Statement

Balance sheet

Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.

2. Eight column work sheetXY CompanyWork shetFor the year ended -----

Trail balance Adjustments Income Statement

Balance sheet

Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.

3.Twelve column work sheetXY CompanyWork shetFor the year ended -----

Trail balance

Adjustments

Adjusted Trial balance

Income Statement

Retained earning statement

Balance sheet

Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. 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 ***

Owner’s EquityOr; Retained Earning Statement *** ***

4) The loss of income summary is closed by passing the following entry: Debit Credit

Tk. Tk.Owner’s EquityOr; 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. Tk.Capital ***

Drawings ***

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 CreditTk. Tk.

31.12.2005 Salary expense 3,000 Salary payable 3,000

Reversing entry:Debit CreditTk. Tk.

01.01.2006 Salary payable 3,000 Salary expense 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 FiveAccounting for Merchandising operationStudy Objectives—after studying the chapter, you should be able to:1.Differences between a service enterprise and a merchandiser 20042.Periodic versus perpetual inventory system3.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. 2004Answer: 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 business.

(1) Business pattern: it is a product oriented business.

(2) Basic revenue: service revenue is the basic revenue of service enterprise.

(2) Basic revenue: sales revenue of the basic 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 of businesses.

(4) Scope: it has comparatively wide scope of businesses.

(5) Cost of goods sold: it does not deal with cost of goods sold.

(5) Cost of goods sold: it deals with cost of goods sold.

(6) Limitation: it provides limited services within a limited area.

(6) Limitation: it has no limitation to sell merchandises.

(7) Example: schools, colleges, universities, medical, clinic, repair workshop, chartered accountants firm, law concern, transportation concern, transportation concern etc

(7) Example: stores, stalls, shops, companies, incorporations, industries, etc

Question 2. Periodic versus perpetual inventory system.

Periodic versus perpetual inventory system are as followsPeriodic inventory system Perpetual inventory system1. Actual physical court of goods at a specific period of time.

Continuous physical count of 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.

physical inventory on hand during the period.

3. Generally large organization maintains this system.

Generally small organization maintains this system.

4. Comparatively less expansible and less affordable.

For continuous recording it is more expansible and more affordable.

5. Sometimes it hampers the normal activities of business.

Normal activities of the organization don’t hamper for it.

6. It doesn’t accelerate the overall performance of the organization.

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 SixInventories Study Objectives—after studying the chapter, you should be able to:1. What are the methods of issuing materials? 20092. 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 ? 2009The 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 sevenAccounting Information SystemStudy Objectives- after studying the chapter, you should be able to:Define accounting information 2008,2010Define subsidiary ledger 2008,2010Describe the features of subsidiary ledgersDescribe the advantages of subsidiary ledgers 2008,2010Define Special journal

What are the Purposes of using special journals?

Question: 1.Define accounting information. 2008,2010Answer: 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 company’s external parties (such as investors, creditors) and internal parties (principally management).Question: 2. Define subsidiary ledger. 2008,2010Answer: 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. 2008,2010Answer: 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 EightInternal Control & CashStudy Objectives- after studying the chapter, you should be able to:1.Define Internal Control2.Identify the Principles of internal control. 20063. 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. 2006The 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 work-system 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. 2006A bank reconciliation statement is certain type of statement explaining any differences between the bank’s record of cash and the Company’s record of cash periodically. In other word’s 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 List of Expenses List of Liabilities List of RevenueCurrent AssetsCashTemporary Investment (Marketable Securities)Accounts ReceivableNotes ReceivableAccrued Interest ReceivableMerchandise InventoryOffice SuppliesStore suppliesPrepaid InsurancePrepaid RentPrepaid Advertising Fixed AssetsLandBuildingStore BuildingOffice Building

Purchases Sales return and allowance Sales discount Transportation inSelling expensesSales salaries expensesDelivery salaries expensesRent expensesAdvertising expenseTransaction out expenseGas oil and sundry expenseStore supplies expenseRepair supplies expenseDelivery expenseSales promotion expenseHeat, light &

Current LiabilitiesAccounts PayableNotes PayableAccrued salariesAccrued RentOther accrued expenses Short term loanIncome tax payableAccumulated depreciation-office equipment Accumulated depreciation-office Building Owner’s equityCapitalDrawingsCommon stock

SalesPurchases returns and allowance Purchases discountsRepair Revenue Service RevenueAccounting Fees earnedPlumbing RevenueCommission earnedRent RevenueInterest earned Rent earnedBad debts recoveredDividend earnedGain on sales of assetsMiscellaneous RevenueSales discounts not takenOthers Revenues

Equipment MachineryStore Furniture & FixturesDelivery equipmentTrucksOffice equipmentIntangible AssetsPatentsTrade MarksGoodwillCopyrights Franchises Lease Rights

Power expenseInsurance expenseInterest expense Loss on sales of assetsTax expenseDepreciation expense-Store BuildingDepreciation expense-Store FurnitureDepreciation expense-Delivery equipmentDepreciation expense-TrucksDepreciation expense-Store equipmentMiscellaneous selling expensePayroll expensePostage expenseUtilities expenseTelephone expenseRepair expenseSecurity expenseCleaning expenseBad debts expenseBank service charge expenseCollection fee expenseAmortization expense-GoodwillAmortization expense-Patents

Preferred stock

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 month’s rent expired out of advance payment of rent.

Req: a) Prepare Journal entries b) Tabular Analysis c)Income statement, Owner’s 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 forservices 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 bycompleting 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 onJanuary 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 equationcash, accounts receivable, prepaid rent, supplies, tools, truck, accounts payable andAbid - 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: 2003January 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 thefollowing account titles, 'cash, accounts receivable, supplies, tools, motorvehicles, accounts payable and Hoque's capital.Show the effects of the above transactions over the accounting equation in atabular summary.Prepare four financial statements : Income statement, Owner's equity, BalanceSheet 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 onJanuary 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 : 2005January 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 theequation 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 accountingequation. Show new balances after each transaction and identify eachstockholders' 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 cashin 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 forthe 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 : 2003January 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 account1 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 owner’s equity is explained.

Cash + Accounts +Supplies +Office Equipment =Accounts payable +Owner’s Equity receivable1. +15,000

+15,000 investment2. -2,000 +5,000

+3,0003. -750 +7504. +2,600 +2,400

+5,000 Service revenue5. -2,000 -2,0006. -3,000

-3,000 Drawings7. -1,000

-1,000 Rent expense 8. +2,000 -2,000

9. -3000-3,000 Salaries expense

10. +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 companyJanuary 1,2010Assets (a) 1,50,000Liabilities 75,000 (d)Owner’s equity 54,000 1,00,000December 31,2010Assets 1,80,000 (e)Liabilities (b) 80,000Owner’s equity 1,00,000 1,40,000Owner’s equity changes in year Additional investment 10,000 15,000Drawings 12,000 10,000Total revenues (c) 5,00,000Total 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 875Required: 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 CORPORATIONTrial BalanceMay 31, 2012

Account Titles Tk. Tk.CashNotes receivableInterest receivableSuppliesPrepaid insuranceFurnitureAccumulated depreciation- FurnitureBuildingAccumulated depreciation- BuildingLandAccounts payableInterest payableSalaries payableUnearned service revenueNotes payable, long-termCapitalWithdrawalsService revenueInterest revenueDepreciation expense- FurnitureDepreciation expense- BuildingSalary expenseInterest expenseUtilities expenseAdvertising expense

867010340

560179027410

53900

18700

3800

2170

11301060

1480

34560

14730

88001870034290

16970

Supplies expenseTotal

Additional data at May 31, 2012Depreciation 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 COMPANYTrial BalanceJuly 31, 2012

Account Titles Tk. Tk.CashAccounts receivableSuppliesPrepaid insuranceEquipmentAccumulated depreciation- EquipmentBuildingAccumulated depreciation- BuildingLandAccounts payableInterest payable

212003782017660230032690

42890

28300

26240

10500

22690

Wages payableUnearned service revenueNotes payable, long-termCapitalWithdrawalsService revenueDepreciation expense- EquipmentDepreciation expense- BuildingWages expenseInsuranceInterest expenseUtilities expenseAdvertising expenseSupplies expenseTotal

4200

3200

1110340

1056022400.79130

20190

Additional data at July 31, 2012Depreciation 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, 2012Account Titles Dr. Cr.CashAccounts receivableAllowance for doubtfulAccountsInventory, 1/1/2012Prepaid rentEquipmentAccumulated depreciationAccounts payableNotes payable, due 7/1/2013Retained earningsCapital Stock (1000 shares)Dividends distributedSales revenuesPurchasesSalaries expenseUtilities expenseAdvertising expenseTotal

25004000

6800360030000

1000

22400710033004400

300

1200037005000102008900

45000

Additional information:The equipment is being depreciated on a straight-line basis over a 10-year life, no residual value.Salaries accrued but not recorded total Tk. 300.On January 1, 2012 the company had paid 2 year’s 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 LIMITEDTrial balanceDecember 31, 2012

Account Titles Dr. Cr.CashAccounts ReceivableMerchandise InventorySales Supplies on HandPrepaid Fire InsurancePrepaid RentStore EquipmentAccumulated Depreciation- Store EquipmentAccounts PayableCapitalSalesSales Returns and AllowancePurchasesPurchase Return and AllowanceTransportation-InSales Salaries ExpenseAdvertising ExpenseGeneral Office ExpenseOffice salaries ExpenseLegal and Auditing ExpenseTelephone ExpenseInterest RevenueInterest Expense

4238495712171120321628803456052800

3096300504

47048304046800592814448060002880

360

1056061680251784673416

2424

Additional data as of December 31, 2012:

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 Tk. Account Titles Tk.Accounts receivableCapital stockInterest expenseMisc. general expenseNotes receivablePurchase discountSales salariesSuppliesSales

12600150005001260020002300800060085000

Accounts payableCashInterest incomeNotes payablePurchasesPurchase returnStore furniture’sTaxes

3100980035060008200016503700600

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 sheetAn Income statementAdjusting entries.

Question 6: The following is the Trial Balance of M/S HRC & CO. as on June 30, 2012.

Account Titles Tk.Accounts payableAccounts ReceivableAdvertisementsAccumulated Depreciation- BuildingAllowance or Doubtful AccountsBuildingsCapital Stock, Tk. 100 parCashDividends PaidInsurance ExpenseFreight inInterest ExpenseInterest IncomeInventory June 30, 2012LandLong-term InvestmentsMortgage PayableNotes PayableOffice ExpensePurchasesPurchase DiscountRetained Earnings, June 30, 2012SalesSales Discount

30000056000040000165000115006000001500000200000120000120003000022000550054000058000010500040000012500013400011540009500117000205000045000

Sales ReturnsSelling ExpenseSupplies ExpenseTaxes-payroll & others

280004120003500066500

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 selling’s 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 Dr. Cr.PurchasesSalesCapital6% loan (1-1-2012)Accounts receivableAccounts payableInventory (1-1-2012)Wages and SalariesGoods returnedInsuranceCarriageLand and BuildingsFurniture and FittingsTrade ExpenseAllowance for Bad debtsCash in handIncome Tax

16000

7800

50003700200032028086004300800

1600100

20000106509000

8950

1500

400

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.BuildingsFurniture and fittingsPurchases and SalesInventory (1-1-2012)Allowance for Bad debt10% Loan Account (Taken on 1-7-2012)Accounts receivableAccounts payableSalariesAdvertisementCarriage OutwardWagesGeneral ExpenseRentInsuranceInvestment (10% bond)Capital AccountBank BalanceDrawing Account

700000115000500000200000

324000

102000195006000210000105000

400050000

4850031000

1234000

1000040000471000

10000

650000

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 Tk.Merchandise Inventory (1-1-2012)PurchasePurchase returnPurchase discountSales salariesDrawingsGeneral expenseSuppliesCashTaxesInterest expenseInterest IncomeFurnitureAccounts ReceivableNotes ReceivableSalesSales returnCapitalAccounts PayableNotes payable (long-term)

5000077000016500230008000026000100000600098000600050003500370003100020000852000200015000012600060000

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.) Credit (Tk.)Merchandise Inventory (1-7-2011)PurchasesPurchase returnSalesSales returnAccounts receivableOffice equipmentAccounts PayableNotes payableCash in handInsuranceOffice suppliesRental expenseOffice salariesDrawingsAdvertising expensesFreight inDelivery expensesCapital stock (1-7-2011)

700001650000

600040000046000

1500008000140006000320009000220002200035000

250001830000

18000030000

405000

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 uncollectibleExpenses outstanding on 30-6-2012:Rent 400Freight in 4000Advertising 3000Office salaries 8000Depreciation on office equipment for the year Tk. 6000.

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)Inventory (1-1-2012)Office EquipmentFurnitureOffice ExpenseBuildingAccounts ReceivableCash in hand and Bank BalancePrepaid InsuranceFreight inPurchases (Merchandise)Interest ExpenseAccounts PayableAllowance for Depreciation on BuildingAllowance for depreciation on office equipmentAllowance for doubtful accountsSalesGeneral ReservePurchase discountMortgage PayableInvestmentInterest IncomeRates & TaxesSupplies expensesSales returnsSelling expenses

1500000540000350000200000134000600000560000200000120003000011540002200023500010000065000115002000000150000215004000001000005500665003500073000412000

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.

Building and office equipment are depreciated @ 5% &

respectively.

Required :a) An income statementb) 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 Tk.Merchandise Inventory (1-1-2012)PurchasesFreight inSalesCapital, Mr. SajibCashAccounts ReceivableInterest IncomeAllowances for doubtful debtsSuppliesRent expensesSalary expensesOffice equipmentAccounts payable

4500007000002500015000001000000300000600000300002000030000140000200000100000100000

Gain on sale of fixed assetsStores equipment

30000135000

Adjusting data :Merchandise inventory on December, 31, 2012 Tk. 350000Prepaid 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 BalanceAs at 31st December, 2012

Account Titles Debit (Tk.) Credit (Tk.)CapitalSalesRent IncomePurchase ReturnsCommission IncomeAllowances for bad debtsDrawingPurchasesSales ReturnsCarriage InwardOffice Salaries ExpensesMerchandise InventoryRent & Taxes expensesAccumulated Depreciation- FurnitureAccumulated Depreciation- BuildingsAccounts PayableNotes PayableLoan on Mortgage (Payable on 30th June, 2014)Sales Salaries expensesCarriage on salesAdvertising expensesInsurance expensesSundry office expensesFurnitureAccounts ReceivableCash in handBuildingCash at Bank

3600055300019000100006000012000012000

22000140007000180002000650002600009000200000140000

450000809000100001300020001500

2000500012450030000100000

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 Tk.Accounts PayableAccounts ReceivableAdvertisingAllowance for depreciation on BuildingAllowance for doubtful AccountsBuildingsCapital StockCashDividendsFreight inInsuranceInterest ExpensesInterest IncomeInventory, 30th June. 2011LandLong Term Investment

275000560000400001650001150060000015000002000001200003000012000220005500540000560000105000

Mortgage payableNotes PayableOffice ExpensesPurchasePurchase DiscountRetained Earnings, 30.06.2012SalesSales ReturnsSales DiscountsSelling ExpensesSupplies ExpensesTaxes-Payroll etc.

40000012500013400011540009500122000205000028000450004120003500066500

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 owner’s equity and a Balance Sheet as on that date:

Account Titles Debit (Tk.) Credit (Tk.)CapitalDrawingsNotes Receivable

100009700

96000

Plant and EquipmentAccounts Receivable6% Loan (1-4-2012)WagesInventory (1-1-2012)Uncollectible accountCarriage on PurchasesSalesCarriage on SalesPurchasesCash at BankNotes Payable

2880061000

40900500035001000

1100460006500

24000

92000

1500

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.

Depreciation plant and equipment @

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 owner’s equity for the year ended 31st December, 2012 and a Balance Sheet as on that date.

Account Titles Debit Credit

Inventory (1-1-2012)Plant and equipmentSalesPurchasesReturnsFreight and dutyCarriage inwardSalary and wagesCapitalDiscountBad debts/Uncollectible accountsAccounts receivableAccounts payableLoan @ 7% (1-1-2012)Interest on loanPrinting and advertisingFurnitureInvestmentIncome from InvestmentGeneral expensesInsurance premiumTraveling expensesPostage and telegramElectricityRent & taxesNotes receivableDrawingsCash in handCash at bank

5800045000

23610095001600143009890

1320100034800

1200491095006000

140012002560420600240095006000150020000

291200

7500

129000800

2490025000

300

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.

Create an allowances for bad debts @ on Accounts receivable.

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 BalanceDecember31, 2005

Accounts Titles DebitTk.

CreditTk.

CapitalMerchandise saleMerchandise PurchaseSales return and allowancePurchase return and allowanceInvestmentsCash on handNotes receivableAccounts receivableAccounts payableNotes payableMerchandise inventory(1.1.2005)WagesLand

90,0005,000

30,00035,00015,00030,000

18,0008,000

1,35,0001,50,000

3,200

20,00010,000

2,000

Plant-EquipmentAccumulated depreciation-EquipmentPatents rights8% Loan on MortgageMerchandise sent on consignmentDrawings-BostronAdvertising expenseFreight expensesInterest expensesSalaries expenses

40,00050,000

10,000

2,0008,0005,0003,0001,20010,000

10,000

30,000

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. 700Required:Prepared 10 column work SheetIncome statement & work sheetJournalize 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 BalanceDecember 31,2002Accounts titles Debit

Tk.CreditTk.

CashAccounts receivableInventory(1.1.2002)Office supplies expense

20,00040,0001,0004,100

Prepaid insuranceStore EquipmentOffice EquipmentNotes receivableAccumulated dp.-(Store Equipment)Accumulated dep.-(Office Equipment)Capital-RahimSalesAccounts payableMerchandise purchaseSales discountPurchase discountPurchase return and allowanceSales return and allowanceSales salariesDelivery expenseRent expenseFreight inOffice salaries expenseMiscellaneous expenseInterest expenseland

2,00010020,00015,0006,000

60,0002,000

5,0008,0003,0002,0001,0003,00050040050,000

6,0004,5001,08,5001,00,00030,000

1,0003,000

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,2002Accounts titles Debit

Tk.CreditTk.

CapitalSalesPurchaseSales returnPurchase returnAccounts payableNotes payableAccounts receivableOffice EquipmentCash in handMerchandise inventory(1.7.2001)InsuranceOffice suppliesRental expensesOffice salariesDrawingAdvertising expensesDelivery expensesFreight inTotal

1,65000600

40,0004,60015,0007,0008001,4006003,2009002,2003,5002,200

40,5001,83,000

2,50018,0003,000

The following additional data available for action:expense outstanding on 30.6.2002Office salaries Tk. 800Advertising 300Freight in 400Rent 40Office supplies consumed were Tk. 1,000Un-expired insurance was Tk. 200Depreciation on office Equipment for the year Tk. 600Merchandise 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

Documents

typical student

oe

shohag paribahan

debts repaying

electricity

economic benefits

merchandise

probable future