Accounting Fundamentals: in This Chapter

CHAPTER 1
ACCOUNTING FUNDAMENTALS
In this Chapter: AT A GLANCE

Book-keeping and accounting are two different but inter-
AT A GLANCE connected functions which are integral part of business
reporting. Book-keeping is concerned with only recording
SPOTLIGHT financial transactions of the business whereas Accounting is a
broader term that includes summarising, analysing and
Book-keeping and Accounting reporting these transactions in the financial statements.
Business Transactions A business transaction is an economic event, involving a

business entity and other parties, and must be recorded by an
Financial Statements accounting system. One important classification of business
transactions is capital vs revenue transactions which
Financial Reporting differentiate long term impacts from short term impacts of
transactions, respectively.
Double entry Book-keeping Financial statements are the concise reports based on financial
transactions over an accounting period of an entity which
Comprehensive Examples reflect its financial performance and financial position.
Statement of financial position has three elements namely
Objective Based Q&A assets, liabilities and equity. Statement of comprehensive
income is made up from two elements i.e. income and
STICKY NOTES expenses.
The main objective of financial statements is to provide
investors, lenders, creditors and other users with relevant and
reliable information to help them make decisions regarding
the business entity. The preparation and presentation of
financial statements is regulated by Generally Accepted
Accounting Principles which, in Pakistan, are mainly
Companies Act, 2017 and International Financial Reporting
Standards.
Every business transaction has dual aspect and these aspects
are recorded as debit and credit. The double entry book-
keeping makes it possible to process large volume of
transactions and maintains the accounting equation.
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN 1

AT A GLANCE
CHAPTER 1: ACCOUNTING FUNDAMENTALS PRC 4: INTRODUCTION TO ACCOUNTING
1. BOOK-KEEPING AND ACCOUNTING

BOOK-KEEPING
Book-keeping is the process of recording financial transactions in the accounting records (the ‘books’) of an
entity. All transactions are analysed into different types and are then recorded in a series of individual records
called accounts. There is a separate account for each different type of transaction, or that is to say, for each type
of asset, liability, income, expense and owners’ capital.
SPOTLIGHT
Double entry book-keeping is used to record dual aspect of transactions in systems designed to allow the
management of the business to monitor its progress and produce periodic financial statements and
performance reports.
ACCOUNTING
Accounting is the process of recording, classifying, summarising the information of financial nature and
interpreting the results thereof. There are two kinds of accounting: financial accounting and managerial
accounting.
Financial accounting (and reporting) is a term that describes:
 maintaining a system of accounting records for business transactions and other items of financial
STICKY NOTES
nature; and
 reporting the financial position and the financial performance (profit or loss) of an entity in a set of
financial statements to the stakeholders.
Cost and Management Accounting (covered at CAF Level) is the recording and communication of economic
information to management for planning, control and decision making.
Accounting Cycle (or Accounting process)

 Transactions: A business usually has thousands of transactions in an accounting period.
 Books of prime entry: This is the first place where transactions are recorded according to the type of
transactions.
 Ledgers: Transactions (or transactions totals) are entered into the appropriate accounts in ledgers.
 Trial balance: A list of balances can be extracted from the ledgers and this list is called trial balance.
 Financial statements: The figures in trial balance are adjusted for period-end adjustments and
financial statements are prepared.
2 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

PRC 4: INTRODUCTION TO ACCOUNTING CHAPTER 1: ACCOUNTING FUNDAMENTALS
2. BUSINESS TRANSACTIONS
A transaction is an action or activity involving two parties or things that reciprocally affect or influence each
other. A business transaction is an interaction between a business and customer, supplier or any other party
with whom they do business. It is an economic event that must be recorded by the accounting system.
Any transaction that has a monetary impact on the business’ accounts is a financial transaction. A financial
transaction has an effect on the business’ assets and liabilities, etc. A business must record and account for all
financial transactions.
Few examples of financial business transactions are:
 Cash sales of goods or services.
 Credit sales of goods or services.
 Receipt of cash from a customer to whom credit sales was made.
 Cash purchase of raw materials or goods.
 Credit purchase of raw materials or goods.
 Payment of cash to a supplier from whom we had purchased on credit.
 Receipt of loan proceeds.
 Repayment of a loan.
 Payments made to employees.
 Payments made to the government (for example taxes).
 Purchase of non-current assets.
 Drawings (i.e. cash or goods taken by owner from the business)
CLASSIFICATION OF BUSINESS TRANSACTIONS

The business transactions may be classified in following ways:
Simple transactions and Complex transactions

Transactions can be very simple like buying and selling items on cash. Transactions may also be complex
involving long time and various parties, for example, selling an item through agent involving series of
instalment payment including interest.
One-off transactions and Ongoing transactions

Transactions might occur on single occasion, for example, buying land and building for setting up a factory.
Transactions may also occur on regular basis, for example, payment of monthly rent or electricity bill.
Capital transactions and Revenue transactions

Items of a long-term nature, such as property, plant and equipment used to carry out the operating activities of
the business, are ‘capital items’. Items of a short-term nature, particularly items that are used or occur in the
normal cycle of business operations, are ‘revenue items’.
Capital expenditure and Revenue expenditure

Capital expenditure is expenditure made to acquire or improve long term assets that are used by the business.
Revenue expenditure is expenditure on day-to-day operating expenses.
The term ‘capitalisation’ means recognising a cost as an asset or part of the cost of an expenditure as an asset.
So, when an item of cost is ‘capitalised’ it is treated as an asset rather than as an ‘expense.’
Capital receipts and Revenue receipts

Capital receipts are receipts of ‘long term’ nature, such as money from a bank loan, or new money invested by
the business owner (which is called ‘capital’). Revenue income is income arising from the normal operations of
a business from its investments, for example, revenue from sale of goods or interest received.
 Example 01:
Classify the following transactions as either ‘capital’ or ‘revenue’.
Sr. # Transaction Capital /Revenue

(i) Vehicle A engine is repaired Revenue expenditure
(ii) Vehicle B engine is replaced Capital expenditure
(iii) Loan borrowed from bank for five years Capital receipt
(iv) Interest paid on loan Revenue expenditure
(v) Cash received from customer Revenue receipt
(vi) Cash paid to employees for their wages Revenue expenditure
(vii) Wages paid by a building contractor to his own staff for Capital expenditure
construction of an office room
(viii) The purchase of machinery for use in the business Capital expenditure
(ix) Carriage paid to bring the above-mentioned machinery to Capital expenditure
the factory
(x) Monthly electricity bill paid Revenue expenditure
(xi) The purchase of a soft drinks vending machine for the Capital expenditure
canteen
(xii) The stock of soft drinks purchased for resale, along with Revenue expenditure
above-mentioned vending machine
(xiii) Annual motor vehicle tax paid for existing car Revenue expenditure
(xiv) Annual motor vehicle tax paid for new car Revenue expenditure
(xv) Cost of alteration in office van to increase carrying Capital expenditure
capacity
(xvi) Small but expensive alterations to a manufacturing Capital expenditure
machine which increased the output of that machine by
15%
3. FINANCIAL STATEMENTS
Financial statements are reports of an entity to provide its stakeholders with necessary information for their
decision making needs. The term entity is used to describe any type of organisation for which we do accounting
e.g. a business, a company, a bank, a charity organisation.
The business entity concept

Financial reports are constructed as if the business entity is separate from its owners. In other words, the
business entity and its owners are differentiated.
This concept has legal substance in case of companies i.e. a company by law is a legal person separate from its
owners (the shareholders). However, the concept is also applied to sole traders and partnership in accounting.
 Example 02:
Discuss whether you would consider the following events as business transactions.
(i) A businessman purchased a vehicle for his private use by drawing cash from
business. However, he also uses it for coming to the office.
(ii) ABC & Company has paid the electricity bill of one of its partners. However, the
amount is recoverable from that partner.
(iii) Furniture and fixtures lying in the office were destroyed by fire. Furniture was
owned by one of the partner and it was not in the use of business.
(iv) The proprietor provides a generator to the office. The generator is presently not
working and it would have to be repaired before it can be used. Previously the
generator was lying in the proprietor’s house.
(v) Balance recoverable from an employee was written off after his death.
 ANSWER:
(i) Purchase of a vehicle is not a business transaction. However, the cash withdrawal
is a business transaction.
(ii) Payment on behalf of the partner is recoverable by the business. Hence this is a
business transaction.
(iii) It is not a business transaction as the ownership of furniture does not belong to the
business entity but to one of the partners.
(iv) It is a business transaction and it is required to be recorded as capital invested in
business in the form of generator.
(v) This is a business transaction as the employee was working for the business and
such waiver is a form of benefit to the employee.
Accounting period
Financial statements relate to given period of time, known as the ‘financial year’, ‘accounting period’ or
‘reporting period’.
COMPONENTS OF FINANCIAL STATEMENTS

A complete set of financial statements usually comprises:
 A statement of financial position;
 A statement of comprehensive income;
 A statement of changes in equity (not examinable at this level);
 A statement of cash flows (not examinable at this level); and
 Notes to the financial statements (not examinable at this level).
Statement of financial position

A statement of financial position (also called balance sheet) reports the financial position of an entity as at a
particular date, usually the end of a financial year. The financial position of an entity is shown by its assets,
liabilities and equity (owner’s capital).
Statement of Comprehensive income

This statement provides information about the performance of an entity in a period. It consists of two parts:
 A statement of profit or loss – a list of income and expenses which result in a profit or loss for the
period; and
 a statement of other comprehensive income – a list of other gains and losses that have arisen in the
period (not in syllabus).
ELEMENTS OF FINANCIAL STATEMENTS

The statement of financial position consists of three elements i.e. assets, liabilities and equity. These three
elements form an accounting equation i.e. Assets = Liabilities + Equity
The statement of comprehensive income consists of two elements i.e. income and expenses. The difference of
these two elements determines the profit or loss for an accounting period.
Assets
An asset is defined as:
 a present economic resource
 controlled by the entity
 as a result of past events.
The definition clarifies that the potential economic benefits no longer need to be ‘expected’ to flow to the entity
and they do not need to be certain or even likely. An economic resource is a right that has the potential to
produce economic benefits.
In simple words, an asset is something the business owns or controls and is available or will be available for
use in the business.
The assets are classified into current assets and non-current assets:
 Current assets: assets that provide economic benefits in the short term (usually one year). For
example, cash and trade receivables.
 Non-current assets: assets that have a long useful life and provide future economic benefits for an
entity over a period of several years. For example, buildings and plant & machinery.
Liabilities
A liability is:
 a present obligation of the entity
 to transfer an economic resource
 as a result of past events.
The definition clarifies that a liability is the obligation to transfer an economic resource and not the ultimate
outflow of economic benefits. The outflow also no longer needs to be ‘expected’.
In simple words, a liability is something owed by the business to someone else.
The liabilities are classified into current and non-current, as well:

 Current liabilities: amounts payable by the entity within 12 months. For example, trade payables and
utilities bills payable.
 Non-current liabilities: amounts payable more than 12 months after the reporting date. For example,
long term bank loan.
 Example 03:
Identify the following items as either an asset or a liability.
Sr.# Item Element

(i) Loan to another business Asset
(ii) Bank overdraft Liability
(iii) Fixture and fittings Asset
(iv) Computers Asset
(v) We owe a supplier for inventory bought Liability
(vi) Warehouse we own and control Asset
(vii) Motor vehicles Asset
(viii) Premises Asset
(ix) Accounts receivables Asset
(x) Inventory Asset
(xi) Accounts payable for inventory Liability
(xii) Owing to bank Liability
(xiii) Cash in hand Asset
(xiv) Loan from a friend for business use Liability
(xv) Machinery Asset
 Example 04:
Identify the following items as elements of financial statements and classify them as either
current or non-current.
Sr. # Item Element Classification

(i) Land and buildings Asset Non-current asset
(ii) Receivables (Trade debts) Asset Current asset
(iii) Cash Asset Current asset
(iv) Loan repayable in two years’ time Liability Non-current liability
(v) Payables (Trade creditors) Liability Current liability
(vi) Delivery trucks Asset Non-current asset
Equity (owner’s capital)

Equity is the residual interest in the assets of the entity after deducting all its liabilities.
Equity claims are claims against the entity that do not meet the definition of a liability i.e. the entity has no
obligation to pay or distribute its profits to its shareholders but most of the profitable companies distribute it
as to gain the investor confidence. Equity is often referred as owner’s capital in sole trader businesses.
Income and investing further capital increases the equity while expenses and drawings decrease the equity.
Equity is sometimes referred to as the ‘net assets’ of the business. This is represented by accounting equation
i.e. Equity (net assets) = Assets – Liabilities
 Example 05:
Complete the gaps in following table using accounting equation.
Assets Liabilities Owner’s Capital

Sr. #
Rs. Rs. Rs.
(i) 60,000 15,000 ?
(ii) 80,000 ? 56,000
(iii) ? 18,000 58,000
(iv) 120,000 27,000 ?
(v) 150,000 ? 97,000
(vi) ? 36,000 95,000
 ANSWER
(i) Owner’s Capital = 60,000 – 15,000 = Rs. 45,000
(ii) Liabilities = 80,000 – 56,000 = Rs. 24,000
(iii) Assets = 18,000 + 58,000 = Rs. 76,000
(iv) Owner’s Capital = 120,000 – 27,000 = Rs. 93,000
(v) Liabilities = 150,000 – 97,000 = Rs. 53,000
(vi) Assets = 36,000 + 95,000 = Rs. 131,000
Income
Income arise from:
 increase in assets or decrease in a liability, resulting in increase in equity
 other than contribution from owners (more capital invested in the business).
Income is usually classified into revenue and other items of income:
 Revenue: it is income arising in the course of the ordinary activities of the entity. For example,
revenue from sale of goods and fee for providing services.
 Other income: income arising other than in the course of ordinary activities. For example, interest
received on bank deposits and gain from disposal of non-current assets.
Expenses
Expenses arise from:
 decrease in assets or increase in liability, resulting in decrease in equity
 other than distributions (drawings or dividends) to owners.

Expenses arise in the normal course of activities, such as the cost of goods sold, salaries, rent and other
operational costs. Expenses also include losses such as the loss on disposal of a non-current asset, and losses
arising from damage caused by fire or flooding.
FORMAT OF FINANCIAL STATEMENTS

Name of Entity
Statement of Comprehensive Income for the year ended 30 June 2021
Rs’000
Revenue 950
Cost of Sales (750)
Gross Profit 200
Other income: Gain on disposal 100
300
Operating expenses
Salaries and wages (140)
Repair and maintenance (60)
Depreciation (20)
Other expenses (10)
(230)
Net profit 70
Name of Entity
Statement of Financial Position as at 30 June 2021
Rs’000
Non-current assets
Land and building 200
Plant and machinery/equipment 100
Furniture and fixture 50
Motor vehicles 50
400
Current assets
Inventories 110
Trade Receivables 40
Cash and bank balances 50
200
600
Capital Rs’000
Balance at beginning 100
Add: additional capital invested 50
Add: net profit 70
Less: drawings (20)
200
Non-current liabilities
Bank loan 100
Loan from friend 100
200
Current liabilities
Trade payables 100
Salaries payables 100
200
600
Relationship between above financial statements

 The statement of financial position shows the equity of a business at a point in time.
 The statement of comprehensive income ends with a figure showing net profit for the period.
 Profit belongs to the owner (or owners) of the business. It is, therefore, added to equity.
ACCOUNTING TERMS
Recognition
This refers to putting an item into the bookkeeping system (performing double entry on it).
Cost
The amount of cash or cash equivalents paid, or the value of the other consideration given to acquire an asset at
the time of its acquisition or construction.
Gross amount
This is presenting an asset, liability, income or expense without deducting any related amount.
Illustration:
Rs. ‘000
Sales 580,000
Trade receivables 63,000
Net amount
This refers to the result of adding a positive and negative number together. The result might be a net asset, net
liability, net income or net expense.
Illustration:
Rs. ‘000
Sales 580,000
Less: Sales return (46,000)
Less: Settlement discount allowed (3,000)
Net sales 531,000
Trade debts 63,000

Less: Allowance for doubtful debts (3,500)
Net trade debts 59,500
4. FINANCIAL REPORTING
The objective of financial reporting is to provide financial information about the reporting entity that is useful
to existing and potential investors, lenders and other creditors in making decisions about providing resources
to the entity.
The information explains the financial position of an entity at the end of a period (usually a year) and the
financial performance of the entity over that period.
RESPONSIBILITY FOR PREPARING FINANCIAL STATEMENTS
Sole trader and partnership businesses

There may be no obligation to prepare financial statements, other than for tax purposes or obtaining loan from
bank, for which the owner/partners are responsible. They might employ a person or persons to maintain the
accounting records and prepare financial statements.
Companies
Companies must prepare financial statements for shareholders and for filing with relevant regulatory bodies. It
is the responsibility of the directors to ensure that this is done. Usually the work is delegated to employees.
REGULATION FOR PREPARING FINANCIAL STATEMENTS
Sole trader and partnership businesses

The financial statements are private and do not have to be disclosed, except to the tax authorities (and possibly
also to a lending bank). These must be prepared according to accepted accounting principles and practices but
need not conform to all the requirements of accounting standards.
Companies
The financial statements of a company are prepared for the shareholders of the company and are usually
subject to audit. Audit is the examination of the financial statements by an independent expert who expresses
an opinion as to whether they are fairly presented (show a true and fair view).
Company law requires that financial statements are filed with a government agency, where they can be
accessed and read by any member of the general public. Listed companies are even required to make their
financial statements available on their websites.
The concepts, principles, conventions, laws, rules and regulations that are used to prepare and present financial
statements are known as Generally Accepted Accounting Principles (GAAPs).
GAAP AND IFRS

The main sources of GAAPs in Pakistani jurisdiction are:
 Companies Act, 2017; and
 International Financial Reporting Standards (IFRSs)
The accountancy profession has developed a large number of regulations and codes of practice that
professional accountants are required to use when preparing financial statements. These regulations are
accounting standards. Many countries and companies whose shares are traded on the world’s stock markets
have adopted IFRSs issued by the International Accounting Standards Board (IASB).
INFORMATIONAL NEEDS OF USERS OF FINANCIAL STATEMENTS

Financial statements are drafted to provide information that should be useful to most users but will not
necessarily satisfy all of their needs.
Investors
They need information to assess whether to buy, hold or sell investment in the business. Financial statements
also give some indication of the ability of a company to pay dividends to its shareholders out of profits.
Lenders
Financial statements can help lenders to assess the continuing ability of the borrower to pay interest, and its
ability to repay the loan principal at maturity.
Suppliers
They can use the financial statements to assess how much credit they might safely allow to the entity.
Government
They might use this information for the purpose of business regulation or deciding taxation policies.
The public
In some cases, members of the general public might have an interest in the financial statements of a company.
The IASB Framework comments: ‘For example, entities may make a substantial contribution to the local
economy in many ways including the number of people they employ and their patronage of local suppliers.’
Employees
Employees need information about the financial stability and profitability of their employer. An assessment of
profitability can help employees to reach a view on the ability of the employer to pay higher wages, or provide
more job opportunities in the future.
Customers
Customers might be interested in the financial strength of an entity, especially if they rely on that entity for the
long-term supply of key goods or services.
Managers
Management should have access to all the financial information they need, and in much more detail than
financial statements provide. However, management is responsible for producing the financial statements and
might be interested in the information they contain.
5. DOUBLE ENTRY BOOK-KEEPING

Every transaction that affects assets, liabilities, capital, income or expenses must have an offsetting effect to
maintain the accounting equation. Every transaction must be recorded (entered) in two places. The process of
doing this is called double entry book-keeping.
RULES OF DEBIT AND CREDIT

Each business transaction has two aspects which are named as debit and credit by norm in accounting. By
convention, the terms ‘debit’ and ‘credit’ are shortened to ‘Dr’ and ‘Cr’ respectively. Total debit entries and total
credit entries must always be equal, this maintains the accounting equation.
An account is a record of an individual type of asset, liability, income, expense or equity. For example, a record
of amounts owed by an individual customer (an asset) or a record of utility bills (an expense).
Account type Increase Decrease
Assets, Expenses and Drawings Debit Credit
Liabilities, Income and Capital Credit Debit
 Example 06:
Identify the accounts to be debited and credited for the following transactions:
(i) Bought motor vehicle for cash.

(ii) Paid creditor, Nawabshah Traders, by cash.
(iii) Repaid Bank loan by cheque.
(iv) Sold Motor vehicle for cash.
(v) Paid office rent by cheque.
(vi) A debtor, Multan Traders, pays us by cash.
(vii) Paid electricity bill for the month by cash.
(viii) Proprietor puts a further amount into the business by cheque.
(ix) A loan in cash is received from Sahiwal Bank.
(x) Paid a creditor, Peshawar Enterprise, by cash.
(xi) Bought office machinery on credit from Lahore Limited
(xii) The proprietor paid a creditor, Layyah Enterprises, from his private funds.
(xiii) A debtor, Islamabad Limited, paid us in cash.
(xiv) Repaid part of loan from Quetta Bank by cheque.
(xv) Returned some of office machinery to Lahore Limited.
(xvi) A debtor, Karachi Port, pays us by cheque.
(xvii) Interest on bank deposit received in bank account.
(xviii) Bought goods on credit from Arslan Traders
(xix) Returned good to supplier Amjad Enterprises
(xx) Sold goods to Habib Mall on credit
(xxi) Customer Rizwan Stores returned goods to us
(xxii) Owner took cash for his personal use
 ANSWER:
Sr. # Account Element Effect Debit /
Credit
(i) Motor vehicle Asset Increase Debit
Cash Asset Decrease Credit
(ii) Nawabshah Traders: payables Liability Decrease Debit
(iii) Bank Loan Liability Decrease Debit
Bank Asset Decrease Credit
(iv) Cash Asset Increase Debit
Motor vehicle Asset Decrease Credit
(v) Office rent expense Expense Increase Debit
(vi) Cash Asset Increase Debit
Multan Traders: receivables Asset Decrease Credit
(vii) Electricity expenses Expense Increase Debit
(viii) Bank Asset Increase Debit
Capital Equity Increase Credit
(ix) Cash Asset Increase Debit
Loan from Sahiwal Bank Liability Increase Credit
(x) Peshawar Enterprises: payables Liability Decrease Debit
(xi) Office machinery Asset Increase Debit
Payable to Lahore Limited Liability Increase Credit
(xii) Layyah Enterprises: payables Liability Decrease Debit
(xiii) Cash Asset Increase Debit
Islamabad Limited: receivables Asset Decrease Credit
(xiv) Loan from Quetta Bank Liability Decrease Debit
(xv) Payable to Lahore Limited Liability Decrease Debit
Office machinery Asset Decrease Credit
(xvi) Bank Asset Increase Debit
Karachi Port: receivables Asset Decrease Credit
(xvii) Bank Asset Increase Debit
Interest income (other income) Income Increase Credit
(xviii Purchases Expense Increase Debit
) Arslan Traders: payables Liability Increase Credit
(xix) Amjad Enterprises: payables Liability Decrease Debit
Purchases return Expense Decrease Credit
(xx) Habib Mall: receivables Asset Increase Debit
Sales Income Increase Credit
(xxi) Sales return Income Decrease Debit
Rizwan Stores: receivables Asset Decrease Credit
(xxii) Drawings Equity Decrease Debit
 Example 07:
In respect of each of the following, give example of a transaction which would result in:
(i) Decrease in a liability and increase in another liability

(ii) Increase in an asset and decrease in another asset
(iii) Decrease in an asset and decrease in a liability
(iv) Decrease in capital and decrease in asset
 ANSWER:
(i) Payment of creditors by using bank overdraft / loan.

(ii) Purchase of a machine against cash.
(iii) Payment of creditors through bank balance.
(iv) Cash withdrawal by owner of the business.
6. COMPREHENSIVE EXAMPLES
 Example 08:
(i) We pay a creditor in cash.

(ii) Bought fixtures paying by cheque.
(iii) Bought goods on credit.
(iv) The proprietor introduces further cash into the business.
(v) A bank lends us in cash.
(vi) A debtor pays us by cheque.
(vii) We return goods costing to a supplier whose bill we had not paid.
(viii) Bought additional shop fixtures paying by cheque.
(ix) Bought a van on credit.
(x) Repaid by cash a loan owed to Bank.
 ANSWER:
Sr. # Account Element Effect Debit / Credit

(i) Trade creditors (payables) Liability Decrease Debit
(ii) Fixtures Asset Increase Debit
(iii) Purchases Expense Increase Debit
Trade creditors (payables) Liability Increase Credit
(iv) Cash Asset Increase Debit
(v) Cash Asset Increase Debit
Bank Loan Liability Increase Credit
(vi) Bank Asset Increase Debit
Trade debtors (receivables) Asset Decrease Credit
(vii) Trade creditors (payables) Liability Decrease Debit
Purchase return Expense Decrease Credit
(viii) Fixtures Asset Increase Debit
(ix) Van Asset Increase Debit
Payable for Van Liability Increase Credit
(x) Bank Loan Liability Decrease Debit
 Example 09:
(i) Bought goods paying by cheque.

(ii) The owner puts further cash into the business.
(iii) Sold goods on cash.
(iv) Sold goods on credit.
(v) A debtor returns to us some goods. We agree to make an allowance for them.
(vi) Bought goods on credit.
(vii) The owner takes out cash for his personal use.
(viii) We pay a creditor by cheque.
 ANSWER:
Sr. # Account Element Effect Debit / Credit

(i) Purchases Expense Increase Debit
(ii) Cash Asset Increase Debit
(iii) Cash Asset Increase Debit
(iv) Trade debtors (receivables) Asset Increase Debit
(v) Sales return Income Decrease Debit
Trade debtors (receivables) Asset Decrease Credit
(vi) Purchases Expense Increase Debit
Trade creditors (payables) Liability Increase Credit
(vii) Drawings Equity Decrease Debit
(viii) Trade creditors (payables) Liability Decrease Debit
 Example 10:
Identify the accounts to be debited and credited along with amounts for the following
transactions:
(i) Started business with Rs. 75,000 cash and Rs. 900,000 in the bank.
(ii) Received a loan of Rs. 200,000 from KLM Bank by cheque.
(iii) Bought a computer for cash Rs. 30,000.
(iv) Bought display equipment on credit from Clear Count Ltd Rs. 42,000.
(v) Took Rs. 20,000 out of the bank and put it in the cash till.
(vi) Repaid part of KLM Bank loan by cheque Rs. 50,000.
(vii) Paid amount owing to Clear Count Ltd Rs. 42,000 by cheque.
(viii) Repaid part of KLM Bank loan by cash Rs. 25,000.
(ix) Bought a printer on credit from Image Traders for Rs. 20,000.
(x) Bought goods on credit from ABC for Rs. 10,000
(xi) Sold goods on credit to XYZ for Rs. 12,000
(xii) Owner took cash from bank of Rs. 7,000 for his personal use.
 ANSWER:
Sr. # Account Rs. Element Effect Debit / Credit

(i) Cash 75,000 Asset Increase Debit
Bank 900,000 Asset Increase Debit
Capital 975,000 Equity Increase Credit
(ii) Bank 200,000 Asset Increase Debit
Bank Loan 200,000 Liability Increase Credit
(iii) Computer 30,000 Asset Increase Debit
Cash 30,000 Asset Decrease Credit
(iv) Display Equipment 42,000 Asset Increase Debit
Payable to Clear Count 42,000 Liability Increase Credit
(v) Cash (in hand) 20,000 Asset Increase Debit
(Cash at) Bank 20,000 Asset Decrease Credit
(vi) Bank Loan 50,000 Liability Decrease Debit
Bank 50,000 Asset Decrease Credit
(vii) Payable to Clear Count 42,000 Liability Decrease Debit
(viii) Bank Loan 25,000 Liability Decrease Debit
Cash 25,000 Asset Decrease Credit
(ix) Printer 20,000 Asset Increase Debit
Image Traders 20,000 Liability Increase Credit
(x) Purchases 10,000 Expense Increase Debit
Trade payables 10,000 Liability Increase Credit
(xi) Trade receivables 12,000 Asset Increase Debit
Sales 12,000 Income Increase Credit
(xii) Drawings 7,000 Equity Decrease Debit
7. OBJECTIVE BASED Q&A

01. Which of the following statements are true?
1. Accounting can be described as the recording and summarizing of transactions
2. Financial accounting describes the production of a statement of financial position and

Statement of Profit or Loss for internal use
(a) 1 only
(b) 2 only
(c) 1 and 2 both
(d) Neither 1 nor 2
02. The terms accounting and book keeping are classified as
(a) Same
(b) Different
(c) Opposite
(d) None of these
03. The main aim of financial accounting is to:
(a) Record all transactions in the books of account.
(b) Provide management with detailed analyses of costs.
(c) Present the financial results of an organization by mean of financial statements.
(d) Calculate profit.
04. Which of the following is least likely to be expected from a book-keeping and accounting system?
(a) Systematic recording of transactions
(b) Ascertaining profit or loss
(c) Ascertainment of financial position
(d) Solving tax disputes with tax authorities
05. A business has incurred following costs for the year ended 31 December 2018:
Rs. million
Extension in building 1.5
Repairs to building 0.5
Overhaul to machinery that increased production capacity 1.2
What is the amount of capital expenditure incurred during the year?
Rs. ___________
Rs. million
What is the amount of revenue expenditure incurred during the year?
Rs. ___________
07. A business has incurred following information for the year ended 31 December 2018:
Rs. million
Cost of building – Opening 15.5
Cost of machinery – Opening 10.2
Extension in building – during the year 1.5
Repairs to building – during the year 0.5
What is the cost of building after incorporating the above costs?
Rs. ___________
08. A business has incurred following information for the year ended 31 December 2018:
Rs. million
Cost of building – Opening 15.5
Cost of machinery – Opening 10.2
Extension in building – during the year 1.5
Repairs to building – during the year 0.5

What is the cost of machinery after incorporating the above costs?
Rs. __________
Rs. million
Profit for the year before incorporating the above adjustments is Rs. 5.6 million.
What will be the profit for year after charging the above repairs?
Rs. ___________
10. Which of the following is not a business transaction?
(a) Incurring interest on a business loan
(b) Hiring a new employee
(c) Purchasing office supplies
(d) Receiving fees for services
11. Expenditures which provide benefits in future period are called:
(a) Revenue expenditure
(b) Outstanding expenditure
(c) Current expenditure
(d) Capital expenditure
12. Which one is a capital transaction?
(a) Purchase of goods
(b) Payment of wages

(c) Sale of goods
(d) Purchase of machinery
13. The capital of a business would change as a result of:
(a) A supplier being paid by cheque
(b) Non-current assets being purchased on cash
(c) Non-current assets being purchased on credit
(d) Wages being paid in cash
14. Cash invested in the business by the owner is called
(a) Current asset
(b) Non-current asset
(c) Liabilities
(d) Capital
15. Cash or goods taken away by the proprietor is called
(a) Drawings
(b) Sales
(c) Charity
(d) Expense
16. Which of the following is an element of the statement of financial position?
(a) Income
(b) Expense
(c) Gains
(d) Liabilities
17. Which from the following is not a current asset?
(a) Equipment
(b) Inventory
(c) Cash
(d) Trade receivables
18. Which from the following is not a non-current asset?
(a) Intangibles
(b) Property
(c) Inventory
(d) Equipment
19. The IASB’s Conceptual Framework for Financial Reporting defines an asset as:
(a) A resource controlled by an entity which is capable of generating independent cash flows.
(b)
A present economic resource controlled by the entity as a result of past events.
(c) A resource owned/controlled by an entity as a result of past events, from which future
economic benefits are expected.
(d) A resource capable of generating income for the entity.
20. The basic accounting equation is given by the formula:

Equity + Long term liabilities = ________________ + Current assets – Current liabilities.
21. Economic resources controlled by a business are called its ________.
22. According to the ________ concept, the business is regarded as separate from the personal affairs of its
owners.
23. A business has capital of Rs.10,000.

Which of the following asset and liability figures could appear in this business’s statement of financial
position?
Assets (Rs.) Liabilities (Rs.)
(a) 6,000 16,000
(b) 6,000 4,000
(c) 10,000 10,000
(d) 14,000 4,000
24. Which of the following is incorrect?

Assets (Rs.) Liabilities (Rs.) Capital (Rs.)
(a) 7,850 1,250 6,600
(b) 8,200 2,800 5,400
(c) 9,550 1,150 8,200
(d) 6,540 1,120 5,420
25. The correct form of accounting equation is

(a) Assets + Liabilities = Equity
(b) Assets – Liabilities = Equity
(c) Assets – Trade payables= Equity
(d) Assets + Receivable = Equity
26. Which of the following is not true:

(a) Revenue – Expenses = profit
(b) Revenue – Profit = Expenses
(c) Sales + Gross Profit = Revenue
(d) Revenue = Profit + Expenses
27. Expenses paid by a business decrease:

(a) Cash
(b) Capital
(c) Cash and capital
(d) Capital and Accounts payable
28. If during the accounting period the assets increased by Rs.7 million, and the owner's equity decreased
by Rs.3 million, then the liabilities must have;
(a) Increased by Rs.10 million
(b) Increased by Rs.4 million

(c) Decreased by Rs.4 million
(d) Decreases by Rs.10 million
29. At 31 October 2016 Zahid’s trial balance included the following balances:
Rs.
Machinery 12,890
Inventory 5,754
Trade payables 7,830
Bank overdraft 1,675
Cash at bank 150
What is the value of Zahid's current assets at 31 October 2016?
(a) Rs. 17,649
(b) Rs. 17,499
(c) Rs. 15,974
(d) Rs. 13,734
30. A business has provided following information in the trial balance;

Rs.
Machinery 150,000
Equipment 120,220
Trade payables 40,220
Bank overdraft 18,997
Cash at bank 32,112
What is the amount of non – current assets to be shown in the financial position?
(a) Rs. 337,482
(b) Rs. 270,220
(c) Rs. 356,479
(d) Rs. 318,485
(a) To compare the business with its competitors in order to decide whether to seek employment
with one of those competitors.
(b) To assess the effect of the business on the local economy, community and environment.
(c) To assess whether the business will continue into the foreseeable future.
(d) To assess the profitability of the business in order to decide whether to invest in it.
32. Which of the following user groups require the most detailed financial information from financial
statements?
(a) The management
(b) Investors and potential investors
(c) Government agencies
(d) Employees
33. Which of the following explains why lenders are interested in financial statements of a business?
(a) Lenders need information about financial stability of business
(b) Lenders need information about profitability of business
(c) Lenders want to assess the entity’s capacity to pay interest and repay loan on time
(d) All of the above
34. Who is responsible to prepare financial statements in a company?

(a) Shareholders
(b) Managers
(c) Directors
(d) All of the above
35. Who is responsible to prepare financial statements of a partnership?

(a) Partner (for public disclosure)
(b) There may be no obligation to prepare financial statements of a partnership (other than for
tax purpose)
(c) Manager
(d) Accountant
36. Which one of the following not an external user of financial statements?
(a) Lender
(b) Investor
(c) Customer
(d) Management
37. Which one of the following not an internal user of financial statements?
(a) Employees
(b) Management
(c) Supplier
(d) Executive Director
38. The main source(s) of Generally Accepted Accounting Principles (GAAP) is/are:
(a) Company Law
(b) International Finance Reporting Standards (IFRSs)
(c) Tax law
(d) Sales Tax Act
39. An entity (with 31 December year-end) has bought the machine for Rs. 1,000,000 with the down
payment of Rs. 200,000and remaining payment Rs. 800,000 would be made after a month. The
transaction happened on 15 December 2011.
What would be the effect on the of transaction?
(a) Machine increased by Rs.800,000 and liabilities decreased by Rs.800,000
(b) Machine decreased by Rs.800,000 and liabilities increased by Rs.800,000
(c) Machine increased by Rs.1,000,000 and liabilities increased by Rs.800,000 while cash is
decreased by Rs.200,000
(d) Machine increased by Rs.800,000 and liabilities increased by Rs.800,000 while cash is
decreased by Rs.200,000
40. Purchase of machinery for cash

(a) Increases total assets
(b) Decreases total assets
(c) Increases assets and liabilities
(d) Keeps total assets unchanged
41. The investment of cash into the business results in a/an

(a) Increase in cash and a decrease in capital
(b) Increase in cash and an increase in capital
(c) Decrease in cash and an increase in capital
(d) Increase in fees earned and an increase in capital
42. Services rendered for cash will result in a/an

(a) Increase in cash and a decrease in capital
(b) Increase in cash and an increase in fees earned
(c) Decrease in cash and an increase in fees earned
(d) Increase in fees earned and an decrease in capital
43. One of the local fast-food outlets hired a first-year accounting student to oversee the cash-collection
procedures.
When the firm pays the student his weekly wage, the transaction will
(a) Increase an asset, increase a liability
(b) Decrease an asset, decrease a liability

(c) Increase an asset, increase owner's equity
(d) Decrease an asset, decrease owner's equity
44. QK Company records the transaction as a debit to Consultant Expense for Rs. 500,000 and an
equivalent credit to Accounts Payable.
What would be impact on elements of financial statements?
(a) Increase a liability, increase owner’s equity
(c) Increase a liability, decrease owner's equity
45. Which of the following will cause owner's equity to increase?

(a) Revenue
(b) Expense
(c) Drawings
(d) Asset’s depreciation
46. The owner contributes his personal car to the business

(a) Increase an asset, increase a liability
(c) Increase an asset, increase owner's equity
47. The company purchases a significant amount of office supplies on credit

(a) Decrease an asset, decrease a liability
(b) Increase an asset, increase owner's equity
(c) Decrease an asset, decrease owner's equity
(d) Increase an asset, increase a liability
48. What double entry would be made to record the purchase of an item of machinery on credit?
(a) Debit machinery, credit cash
(b) Debit machinery, credit accounts payables
(c) Debit purchases, credit trade payables
(d) Debit trade payables, credit machinery
49. What transaction is presented by the entries: debit bank, credit Receivables?
(a) Sale of goods for cash
(b) Purchase of goods for cash
(c) Receipt of cheque from receivables

(d) Payment of cheque to payables
50. A debit entry usually represents increase in:

(a) Assets and Income
(b) Liabilities and Income
(c) Assets and Expenses
(d) Liabilities and Expenses
51. The double entry to record the withdrawal of cash from a business bank account by the owner is?
(a) Debit: drawings Credit: bank
(b) Debit: drawings Credit: capital
(c) Debit: liability Credit cash
(d) Debit: capital Credit: drawings
52. A business sells Rs. 100,000 worth of goods to a customer, the customer pays Rs. 50,000 in cash
immediately and will pay the remaining Rs. 50,000 in 30 days’ time.
What is the double entry to record the purchase in the customer’s accounting records?
(a) Dr. cash Rs. 50,000; Cr. payables Rs. 50,000; Cr. purchases Rs. 50,000
(b) Dr. payables Rs. 50,000; Dr. cash Rs. 50,000 ;Cr. purchases Rs. 100,000
(c) Dr. purchases Rs. 100,000; Cr. payables Rs. 50,000; Cr. cash Rs. 50,000
(d) Debit purchases Rs. 100,000; credit cash Rs. 100,000
53. Mariam has the following transactions:

(i) Receipt of cash from Nauman in respect of an invoice for goods sold three weeks ago
(ii) Receipt of cash from Amjad for cash sales
What are the entries required to record the above transactions?
(a) Dr Cash; Cr Sales
(b) Dr Cash; Cr Sales; Cr Trade Receivables
(c) Dr Sales; Cr Cash
(d) Dr Trade Receivables; Dr Sales; Cr Cash
54. A business has purchased machinery on credit. Which of the accounts mentioned below are affected
by the transactions?
(a) Trade payables
(b) Purchases
(c) Machinery
(d) Capital
55. Payment of insurance through the bank involves entries in which of the two accounts
(a) Insurance account (Debit) and petty cash account (Credit)
(b) Insurance account (Debit) and bank account (Credit)
(c) Insurance account (Debit) and rent account (Credit)
(d) Insurance account (Debit) and capital account (Credit)
56. X Ltd. purchases a vehicle for Rs. 1.5 million for business use, paying by cheque, what is the double
entry:
(a) Purchases account (debit) and bank account (credit)
(b) Vehicle account (debit) and bank account (credit)
(c) Vehicle account (credit) and bank account (debit)
(d) Debit vehicle account (debit) and petty cash account (credit)
57. The double entry for return of goods purchased from Khan Limited on account is:
(a) Cash (debit) and purchases (credit)
(b) Accounts payable (debit) and purchases (credit)
(c) Accounts payable (debit) and purchases return (credit)
(d) None of the above
58. The double entry for payment of a telephone bill is;

(a) Telephone expense (debit) and cash (credit)
(b) Office equipment (debit) and cash (credit)
(c) Office supplies (debit) and cash (credit)
(d) Cash (debit) and utilities (credit)
59. Khalid is a dealer in electronic goods (refrigerator, washing machine, air conditioners, televisions,
etc.). He purchased two air conditioners and installed in his showroom. In the books of Khalid, the cost
two air conditioners will be debited to
(a) Drawing account
(b) Capital Account
(c) Fixed assets (non-current assets)
(d) Purchases account
60. An asset was purchased for Rs. 1,000,000 with the down payment of Rs. 200,000 and bills accepted for
Rs. 800,000/-.
What would be the effect on the total asset and total liabilities in the statement of financial position?
(a) Assets increased by Rs.800,000 and liabilities decreased by Rs.800,000
(b) Assets decreased by Rs.800,000 and liabilities increased by Rs.800,000

(c) Assets increased by Rs.1,000,000 and liabilities increased by Rs.800,000
(d) Assets increased by Rs.800,000 and liabilities increased by Rs.800,000
ANSWERS
01. (a) Financial statements are not only for internal use.
02. (b) Book-keeping is only recording transaction, accounting is wider term

which includes summarising, analysing and reporting financial
statements.
03. (c) (a) is book-keeping task

(b) is concerned with management accounting
(d) is part of the process but not main aim of financial accounting
04. (d) Solving tax disputes is not expected from a book-keeper or accountant.
Usually this service is performed by tax consultants.
05. Rs. 2.7 million = Rs. 1.5+1.2 = Rs. 2.7
06. Rs. 0.5 million Repairs to building
07. Rs. 17 million = Rs. 15.5 + 1.5 = 17
08. Rs. 11.4 million = Rs. 10.2 +1.2 = Rs. 11.4 million
09. Rs. 5.1 million Profit = Rs. 5.6 – 0.5 = Rs. 5.1
10. (b) Hiring an employee has no financial impact. Salary being paid or becoming
due is a business transaction.
11. (d) Capital expenditures provide benefits in long term future.
12. (d) Machinery is asset to be used for long term.
13. (d) Expense decreases the equity. All other transaction have same effect on
asset and liabilities.
14. (d) Claims of outsiders on business are liabilities and claim of owner is
capital.
15. (a) Drawings.
16. (d) Income, expense and gains are recognised in statement of comprehensive
income.
17. (a) Equipment is non-current asset.
18. (c) Inventory is current asset as it is usually sold in short term.
19. (b) All other definitions include some part of the correct answer but are
incomplete.
20. Non-current assets Non-current assets

21. Assets Asset is present economic resource controlled by an entity as a result of

past events.
22. Business Entity A business and its owner are differentiated in accounting.
23. (d) Capital = Assets – liabilities

10,000 = 14,000 – 4,000
24. (c) Rs. 9,550 – 1,150 = 8,400
25. (b) Equity = Assets – Liabilities
26. (c) Sales + Gross profit ≠ Revenue
27. (c) Cash and Capital both would decrease.
28. (a) Rs. 7 million + Rs. 3 million = Rs. 10 million
29. (a) 5,754 + 11,745 + 150 = Rs. 17,649
30. (b) 150,000 + 120,220 = Rs. 270,220
31. (a) & (c) The public and environmental groups are interested in (b).
The investors are interested in (d).
32. (b) The management also has access to even more detailed information from
internal sources. Government agencies and employees are interested in
selective relevant information and not detailed one.
33. (c) Interested in loan repayments and ability to pay interest.
34. (c) The directors
35. (b) The public disclosure of partnership accounts is not required.
36. (d) Management is internal user.
37. (c) Supplier is external user.
38. (a) & (b) Company Law and IFRSs
39. (c) Machine increased by Rs. 1,000,000 - Debit

Cash decreased by Rs. 200,000 - Credit
Liabilities increased by Rs. 800,000 - Credit
40. (d) Unchanged, one asset increased and another decreased by same amount.
41. (b) Increase in cash and an increase in capital
42. (b) Increase in cash and an increase in income

43. (d) Decrease in an asset (Cash)

Decrease in equity (due to wages expense)
44. (c) Increase in liability (Accounts payable)

Decrease in equity (due to consultant expense)
45. (a) Revenue (income) increases the equity.
46. (c) Increase an asset (Car)

Increase in equity (capital)
47. (d) Increase in asset (office supplies)

Increase in liability (payable)
48. (b) Machinery (asset increased) debit

Accounts payable (liability increased) credit
49. (c) Receipt of cheque from receivables
50. (c) Increase in asset and expenses is debit.
51. (a) Drawings Debit (Decrease in equity / increase in drawings)

Bank Credit (Decrease in asset)
52. (c) Purchases (Increase in expense) Debit Rs. 100,000

Cash (Decrease in asset) Credit Rs. 50,000
Payables (Increase in liability) Rs. 50,000
53. (b) Debit Cash (asset increased)

Credit Sales (income increased)
Credit Trade receivable (asset decreased)
54. (c) Machinery and payable for machinery. Trade payables are related to
purchases of inventory only.
55. (b) Insurance (expense increased) Debit

Bank (asset decreased) Credit
56. (b) Vehicle (asset increased) Debit

Bank (asset decreased) Credit
57. (c) Account payable (liability decreased) Debit

Purchase return (expense decreased) Credit
58. (a) Telephone charges (expense increased) Debit

Cash (asset decreased) Credit
59. (c) Non-current assets as used in showroom for long term use. Inventory is
for resale.
60. (d) Assets increased 1,000,000 – 200,000 = 800,000

Liabilities increased 800,000
AT A GLANCE
STICKY NOTES
Book-keeping is recording double entry on business transactions and accounting is

summarising and classifying these transactions to produce financial statements.
SPOTLIGHT
Classifcation of Business Transactions
Simple vs Complex
One-off vs Ongoing
Capital (long term) vs Revenue (Short term)
Financial Statements
Statement of financial position (asset, liability and equity)
STICKY NOTES
Statement of comprehensive income (income and expenses)
Elements of Financial Statements

Asset: a present economic resource controlled by the entity as a result of past events.
Liability: a present obligation to transfer an economic resource as a result of past
events.
Equity: the residual interst in the assets of an entity after deducting all of its liabilities.
Equity = Assets – Liabilities
Income: increases in assets or decreases in liabilities, that result in increases in equity,
other than those relating to contributions from owners.
Expenses: decreases in assets or increases in liabilities, that result in decreases in
equity, other than those relating to distributions to owners.
The preparation of financial statement is regulated by GAAPs which mainly consist of

Companies Act, 2017 and IFRSs.
External users: Investors, Lenders, suppliers, Customers, Government and Public
Internal users: Management and employees
Increase in assets, expenses and drawings  Debit

Increase in liability, equity and income  Credit
The rule  Total debits = Total credits

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CHAPTER 1

In this Chapter: AT A GLANCE

Business Transactions A business transaction is an economic event, involving a

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN 1

1. BOOK-KEEPING AND ACCOUNTING

Accounting Cycle (or Accounting process)

2 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

CLASSIFICATION OF BUSINESS TRANSACTIONS

Simple transactions and Complex transactions

One-off transactions and Ongoing transactions

Capital transactions and Revenue transactions

Capital expenditure and Revenue expenditure

Capital receipts and Revenue receipts

Sr. # Transaction Capital /Revenue

The business entity concept

COMPONENTS OF FINANCIAL STATEMENTS

 Notes to the financial statements (not examinable at this level).

Statement of financial position

Statement of Comprehensive income

ELEMENTS OF FINANCIAL STATEMENTS

The liabilities are classified into current and non-current, as well:

Sr.# Item Element

Sr. # Item Element Classification

Equity (owner’s capital)

Assets Liabilities Owner’s Capital

 other than distributions (drawings or dividends) to owners.

FORMAT OF FINANCIAL STATEMENTS

Relationship between above financial statements

Trade debts 63,000

RESPONSIBILITY FOR PREPARING FINANCIAL STATEMENTS

Sole trader and partnership businesses

REGULATION FOR PREPARING FINANCIAL STATEMENTS

Sole trader and partnership businesses

GAAP AND IFRS

INFORMATIONAL NEEDS OF USERS OF FINANCIAL STATEMENTS

5. DOUBLE ENTRY BOOK-KEEPING

RULES OF DEBIT AND CREDIT

(i) Bought motor vehicle for cash.

(i) Decrease in a liability and increase in another liability

(i) Payment of creditors by using bank overdraft / loan.

(i) We pay a creditor in cash.

Sr. # Account Element Effect Debit / Credit

(i) Bought goods paying by cheque.

Sr. # Account Element Effect Debit / Credit

Sr. # Account Rs. Element Effect Debit / Credit

7. OBJECTIVE BASED Q&A

1. Accounting can be described as the recording and summarizing of transactions

2. Financial accounting describes the production of a statement of financial position and

(c) 1 and 2 both

(d) Neither 1 nor 2

02. The terms accounting and book keeping are classified as

(d) None of these

03. The main aim of financial accounting is to:

(a) Record all transactions in the books of account.

(b) Provide management with detailed analyses of costs.

(c) Present the financial results of an organization by mean of financial statements.

(d) Calculate profit.

What is the amount of capital expenditure incurred during the year?