Journal To Final Account, Power Point

Recognition & Measurement concepts
Constraints
Assumptions
Principles 1. Cost benefit Third level how
1. Economic entity
1. Historical cost 2. Materiality implementation
2. Going concern (related with
2. Revenue recognition 3. Industry practice
3. Monetary unit accounting
3. Matching 4. Conservatism theories and
4. Periodicity
4. Full disclosure practices)
Elements
Qualitative Characteristics 1. Assets
1. Primary qualities 2. Liabilities
A) Relevance 3. Equity
# Predictive value 4. Investment by owners
# Feedback value 5. Distribution to owners
# Timeliness 6. Comprehensive income
B) Reliability 7. Revenues
# Verifiability 8. Expenses 2nd level bridge
# Representational faithfulness 9. Gains between level 1 & 3.
# Neutrality 10. Losses
2. Secondary qualities
a) Comparable
b) Consistency
Objectives:
Provide information
accounting
1. Useful in investment
framework of & credit decisions
2. Useful in assessing
Conceptual future cash flows
3. About enterprise 1st level The
resources, claims to why goals &
recourses & changes in purpose of
them
accounting
• Q. Describe conceptual framework/ different phases / ….
• Conceptual framework : A coherent system of interrelated objectives and fundamentals

that can lead to consistent rules and that prescribes the nature, function and limits of financial
accounting and financial elements.
Constraints
Assumptions Principles 1. Cost benefit
2. Materiality
1. Economic entity 1. Historical cost
3. Industry practice Third level how
2. Going concern 2. Revenue recognition
4. Conservatism
3. Monetary unit 3. Matching implementation (related
4. Periodicity 4. Full disclosure with accounting theories and
practices) [ GAAP
2nd level bridge between

level 1 & 3. [ Quality &
Elements]
1st level The why goals &

purpose of accounting
[ Objectives of Acc Information]
. Conceptual framework of accounting:
Q
• Q.
Q. Why Financial information is needed/ objectives of financial reporting/
why accounting information is needed….
The objective of general purpose financial reporting:

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. Those decisions involve
buying, selling or holding equity and debt instruments and providing or
settling loans and other forms of credit.
This objective of general purpose financial reporting forms the foundation
of the Conceptual Framework.
Objectives of Financial Reporting by Business Enterprises: User
Perspective:
Financial reporting should provide:(1) information useful in investment &
credit decisions (2) information useful in assessing cash flow prospect
(amount, timing & uncertainty), &(3) information about enterprise
resources, claims to those resources, & changes there in.*** ... individuals
who have a reasonable understanding of business & economic activities &
are willing to study the information with reasonable diligence.
Q. Basicterms of accounting:
Business (We): Motive to earn profit.
Transactions: Economic events that affect the finance/ financial position of the
business entity.
Goods: What we deal into. Purchase/ sales & stocks are related with goods.
Capital: Cash/ personal property (what we invest to start the business). Capital
is the money the owner invests in the business when it sets the company up.
Drawing: (Taken out by the owners from business for personal use). Drawing
are funds/money the owner takes out of the business for personal use. Drawing
will never be an expense of the business.
Depreciation: The allocation of the cost of an asset to expense over its useful
life in a rational & systematic manner.
Revenue Recognition Principle: The principle that companies recognize
revenue in the accounting period in which it is earned.
Prepaid expenses: Expenses paid in cash that benefit more than one accounting
period & that are recorded as assets.
. Q. Explain the elements of Accounting/ 2nd phase of conceptual framework ( only
elements not quality of accounting information)
Elements of the financial statements (Financial position)

• Asset: (What we have controlled over / own). Assets are things that are owned by
the business. Such cash, account receivables, inventory, bank, furniture,
equipment etc. They provide future services or economic benefits which results in
cash inflows.
Asset is a resource controlled by the entity as a result of past events and from which
future economic benefits are expected to flow to the entity. Which has probable future
economic benefits. Short term and long term assets.
 Liability:(What we owe / claim of others). Liability is anything that is owed from
the business to someone else. Ex- loan, payable, dues, account payable, note payable
etc. short term and long term liabilities. Liabilities are claims against assets, i,e,
existing debt and obligations. These claims must be paid before ownership claims.
Liability is a present obligation of the entity arising from past events, the settlement of
which is expected to result in an outflow from the entity of resources embodying
economic benefits
• Equity: Interest of owner’s in the business. Equity is the residual interest in the
assets of the entity after deducting all its liabilities.
Q write some features of income & expenses/ distinctions etc.
• Income: The money coming into the business from the product/ service the
business is selling. Owner investing money into the business is not income.
Income is increased in economic benefits during the accounting period in the form
of inflows or enhancements of assets or decreases of liabilities that result in
increases in equity, other than those relating to contributions from equity
participants.
• Expenses :Expenses are the day-to-day running / operating cost of the business.
Ex- cost of sales, rental expenses, salaries, light & heat etc. Expenses don’t create
assets. Expenditure creates assets.
Expenses are decreases in economic benefits during the accounting period in the form
of outflows or depletions of assets or incurrences of liabilities that result in decreases in
equity, other than those relating to distributions to equity participants.
Revenue: Actual sale proceed.
Debtors: They have to pay us(business). Sold goods on credit to them (customers).
Creditors: Purchased (goods) from them (suppliers).
Q. State the CFA or 1st phase or 3rd phase or qualitative characteristics of
accounting information according to 2nd phase or objectives of accounting
information according to 3rd stage of CFA etc..
Definition of Conceptual Framework of Accounting (CFA):

According to FASB (Financial Accounting standard board), A conceptual
framework is a coherent system of interrelated objectives & fundamentals that
can lead consistent standard & prescribes the nature, function & limit of financial
standard.
Q. What is Accounting Theory?
Accounting theory is a set of frameworks, assumptions, and methods that are
used in the application and study of financial reporting principles. The accounting
theory study comprises a review of essential practicalities of accounting practices.
These practices are altered and added to the supervisory framework that
regulates financial reporting and statements.
All accounting theories are assured by the theoretical framework of accounting,
which is provided by a specific entity to outline and establish primary objectives
of financial reporting by both public and private businesses. Furthermore,
accounting theory can also be regarded as the logical reasoning that helps to
assess and guiding practices of accounting.
Con
Not just that, but it also helps develop new methods and
procedures. One essential aspect of this theory is its usefulness.
In the corporate world, all financial statement should have
crucial information that readers can use to make informed and
cautious decisions for businesses.
Objectives of Accounting Theory: Different
objectives fulfilled by the theory of accounting are-
• Evaluation and Explanation of Accounting Principles
• Simplifying Complex Phenomena
• Solving Problems Created by Different Scenarios
• Calculating the Effect of an Event on the Future Beforehand
• Predicting Future Events
• Helping the Investigation, Explanation, and Conclusion of an
Event
Q. Qualitative Characteristics of Accounting Information :
Q. Explain the qualities/ qualitative Characteristics of accounting
information:
• Understandability: # Decision makers must be able to interpret
Accounting information.
• Usefulness: # Accountants must provide information that is used in
making decisions.
• General purpose: # External Financial Statements # Comparability &
consistency : # Materiality, # Conservatism, # Full disclosure # Cost-
benefit
Relevance: # Predictive value, # Feedback value, # Timeliness
Reliability: # Representational faithfulness, # Verifiability, #
Neutrality.
• Primary Qualities: (1) Relevance,
(a) Predictive value, (b) Feedback value & (c) Timeliness.
(2) Reliability : (a) Verifiability, (b) Representational Faithfulness (c)
Neutrality.
• Secondary Qualities:
• (1) Comparability
• (across firms)
• (2) Consistency
• (over time)
• Q. Explain the GAAP (Generally Accepted Accounting Principles) / Recognition &
Measurement Concepts/ Principles of Accounting/ Assumptions/ Constraints of
Accounting
•Assumptions: –Economic Entity, –Going Concern, –Monetary Unit, & –Periodicity

•Principles: –Historical Cost, –Revenue Recognition, –Matching, –Full disclosure.
• •Constraints: –Cost-Benefits, –Materiality, –Industry Practice, –Conservatism
Q . What are the objectives/importance of financial information ?
Objectives of financial information
1. To furnish information useful in making investment & credit decisions:

i. Offer information
ii. Information useful to present & potential investors, creditors & others.
iii. Making rational investment & credit decisions
2. To provide information useful in assessing cash flow prospects:

i. Judge the amount
ii. Timing
iii. Risk of expected cash receipt from dividends or interest
3. To provide information about business resources, claims to those resources & changes
in them:
i. Information about the asset of a company
ii. Information about the liabilities of a company
iii. Information about the owner’s equity of a company
iv. Information about the effect of transactions that change its assets, liabilities & owner’s
equity.
Q. Describe GAAP with examples.
GAAP (Generally Accepted Accounting Principles): The conventions, rules & procedures
necessary to define accepted Accounting practice at a particular time.
1. Money measure: All business transactions are recorded in terms of money. Money is
the only factor common to all business transactions in Bangladesh.
2. Separate Entities: The ideas that a business is separate entity that is distinct from its
owner or owner’s and from every other business.
3. Going concern: It is assume that business has a unlimited life. The assumptions that
a business will continue to operate & that the assets held for use in the business will not be
sold.
4. Objective evidence: The Accounting rule that whatever possible the amounts used in
recording transactions be based on verifiable evidence such as business transactions between
independent parties.
Con
5. Materiality concept: Materiality refers to the relative importance of
an item or event. If the effect on financial statements is unimportant to
financial statement recorders it can be ignored.
6. Cost concept: All assets & liabilities should be recorded at cost.
7. Realization Principles : The Accounting rules which states that –
The inflow of assets associated with a revenue does not have to be
in the form of cash.
Revenue should be recorded as revenue at the time, but not before
it is earned.
The amount of revenue should be measured in terms of the cash
plus cash equivalent amount of other assets received.
8. Full disclosure: The Accounting requirements that financial
statements including the footnotes contain all relevant information
about the operations & financial position of the presented in an
understandable manner.
Q. Explain Accounting Assumptions:
Economic Entity:
The business or economic entity exists separate & distinct from its owners, employees,
suppliers & customers. This assumption defines accounting boundaries, but not legal
boundaries.
Going Concern:
General purpose accounting reports are constructed under the assumption that the
business enterprise will continue in business for the foreseeable future. The current
relevance of the historical cost principle is based on the going-concern assumption.
Monetary Unit:
Economic activity of an entity are measured and reported in the Bangladeshi Taka.
This assumes that the Taka has a reasonably constant value over time in terms of
purchasing power. This assumption ignores inflation.
Periodicity:
Assumes that the economic life of a business can be divided into discrete time periods
and that financial reports from each period are interpretable.
• Historical Cost Principle
• Acquisition cost is the most objective and
• verifiable basis upon which to account for
• assets and liabilities. That is, it is reliable.
5 methods to measure assets & liabilities:
–Historical cost
–Current cost
–Current market value
–Net realizable (settlement) value
–Present (discounted) value
Q. What do you mean by “ Revenue Recognition Principle” / or
• Recognize Revenue when:
(a) realized or realizable &
(b) earned.........................on the date of sale
exceptions:
(a) during production ... if the production process is long
... Ex: long-term construction contract
(b) end of production ... if selling price & amount is certain
...ex: mining of certain minerals
• (c) receipt of cash ... if the amount to be collected is uncertain.
Recognition
• Revenue............when realized or realizable & earned
• Gains ...............when realized or realizable
• Expenses .......... when economic benefits are consumed in revenue
-earning activities or when future economic benefits are reduced
or eliminated
• Losses ..............when future economic benefits are reduced or eliminated

Matching Principle
Expenses are matched to the revenue generated in that accounting period
“let the expenses follow the revenues”
Full Disclosure Principle: All information must be disclosed, in

not , there must be foot notes.
Financial statements should include sufficient information to permit the
knowledgeable reader to make an informed judgment about the financial
condition of the enterprise.
trade-offs:
-sufficient detail to make a difference
-presented in a condensed form for understandability & to avoid
information overload
Constraints:
Cost-Benefit:
The cost of providing the information should not exceed the benefits that can be
derived from the information.
• Materiality:
An item is material if its inclusion or omission would influence or change the
judgment of a reasonable man. Materiality is based on relative size & importance.
• Industry Practice:
The unique nature of some industries and business concerns sometimes (rarely)
requires departure from basic theory.
• Conservatism:
Never overstate assets or income.
Users of Accounting Information
Internal Public Groups
.Managing External
groups .Financing ⫸ Regulatory
.Board of groups. agencies.
directors .Investors.
.Partners .Potential ⫸ Tax authorities.
.Supervisors Investors.
.Creditors. ⫸ Labor Union.
etc.
.Potential
⫸ Economic
Creditors.
Planners
⫸ Employees
⫸ Customers.
⫸ Retirees.
Q. What is Accounting? Write features of Accounting.(define A/C)/ how accounting
is an information system / explain accounting is an information system or
.“Accounting is an information system”– justify your answer, or how or show your
argument or explain the statement with example.
Accounting: The process of maintaining accounts (lists). How lists have been
prepared ? What are we doing right now? The study of accounting is Accountancy.
Accounting is an information system that measure, process & communicates financial
information about an identifiable economic entity to permit users of the system to make
informed judgments & decisions.
• The process of identifying, measuring, recording and communicating economic
events in order to provide information for decision-making purposes.
• In 1970, the AICPA (American Institute of Certified Public Accountants) stated that
the function of accounting is “To provide quantitative information, primarily
financial in nature, about economic that is intended to be useful in making economic
decisions.
Q What r the Functions of accounting ?
.
• i. To manage the recourse held by specific entities.

• ii. To reflect the claims against and the interest in those entities.
• iii. To measure the changes in those resources, claims and interest.
• iv. To assign the changes to specifiable periods of time.
Q. What r the Objectives of Accounting ? Explain the objectives of Acc

i. Change in financial position resulting from the income producing efforts of
an enterprise.
ii. Earning of an enterprise, presented in a manner that emphasizes sources and
trend of earnings.
iii. Economic resources and obligations of an enterprise.
iv. Change in net financial resources which result from the financial and
investment activities of an enterprise.
Q. Explain Accounting Equation (AE) with example or
Q. The elements of Basic Accounting
Accounting Equation:
Also called the balance sheet equation,
Represents the relationship between assets, liabilities & owner’s equity,
Total assets equal total liabilities plus owner’s equity,
Foundation for double-entry book-keeping system
Affected by every business transactions.
Assets(A) = Liabilities(L) + Owners’ equity(OE)

Accounting Equation represents the relationship between the assets,
liabilities, and owner's equity of a person or business. Accounting
equation describes that the total value of assets of a business is always
equal to its liabilities plus owner's equity. Thus the statement which shows
Assets = Liabilities + Owners’ equity
is called AE.
1. Assets (what it owns) /has future economic value.
2. Liabilities (what it owes to other)the claims of third parties
3. Owners’ Equity (the difference between assets and liabilities)/owner’s claims
• Assets ---are a company’s resources-things the company owns. Examples of assets

include cash, accounts receivable, inventory, prepaid insurance, investments, land,
buildings, equipment and goodwill. From the accounting equation, we see that the
amounts of assets must equal the combined amount of liabilities plus owners (or
stockholders) equity. (B/S items)
• Liabilities-- of a company’s obligations-amounts the company owes. Examples of
liabilities include notes or loans payable, accounts payable, salaries and wages
payable, interest payable and income taxes payable (if the company is a regular
corporation). (B/S items).
• Owner’s equity or stockholder equity is the amount left over after liabilities are
deducted from assets (B/S items)
Assets – Liabilities = Owners (or Stockholders’) Equity
Owner’s investment/capita & income/revenue/profit increase the OE, and owner’s

withdraw/expenses/loss decrease OE.
Q. Define/what is/short notes on Assets, Liabilities, Owners’
equity, Expenses, Business transactions, Book keeping, Double
entry system, journal, ledger, trial balance, financial statements,
• Equity: The residual interest in the assets of an entity that
remains after deducting its liabilities. E=A-L. Equity is
anything that is invested in the company by its owner .
Retained Earnings – It is the portion of the income that is
retained in the company to invest in the business.
Q. What is Accounts/types of account /write golden rules of accounting / how
debit & credit can be determined
The basic storage units for data in accounting systems there is a separate
accounts for each asset, liability, component of owners equity, revenue &
expense.
• Accounts:
# Personal accounts (x,y etc). Receiver of benefits A/C Debit & Giver of
benefits A/C Credit
#Property or real accounts (machine, furniture etc) Whats Come – in A/C Dr &
What Goes-out A/C Cr
#Nominal accounts (wages, salaries, discount etc) All Expenses A/C Dr & All
Income A/C Cr.
Double Entry: Dual effect on the ledgers. Debit & Credit. Two word DEAD
(Debit –-Expenses, Assets , Drawing)
& CLIC (Credit– Liabilities, Income, Capita).
Q. What r the Rules for determination of debit &
credit (/Golden rules of accounting):
• Debit:
• -Receiver of benefits
• -What comes in?
• -Expenses & losses
• Credit:
• -Giver of benefits
• -What goes out?
• -Gains & incomes
• Debit indicates: Credit indicates:
• Assets increases -Assets decreases
• Liabilities decreases Liabilities increases
• Proprietorship / OE decreases Proprietorship /OE increases
• -Income decreases Income increases
• Expenses increases -Expenses decreases
• Purchase increases -Purchase decreases
• Drawing increases -Drawing decreases
• Losses increases -Losses decreases
• Sales decreases Sales increases
• Capital decreases Capital increases
• Profit decreases Profit increases
Q. Explain accounting cycle / Process / steps of accounting
Accounting Cycle: The order or sequence in which Accounting procedures are

performed is known as Accounting cycle.
• Recording (in journal)/1st step.
• Classifying (in ledger)/2nd step
• Summarizing (in trial balance)/3rd Step
• Preparing financial statements/4th step
• Interpretation & Analysis (through accounting ratios)/5th step
• Journal: Chronological listing of a business/firm’s transactions

• Shows debit and credit effects on each specific accounts
• Process of entering data in the journal-journalizing
• A complete entry consists:
• -- date
• --accounts & amount to be debited and credited
• --a brief explanation.
Recording: Recording the transactions in the journals or books of original entry
Si. Date Particulars Ledger Debit Credit

No. folio(LF) (Tk.) (Tk.)
01 1.1.20 Cash A/C Dr 500000

Mr. Z’s Capital A/C Cr 500000
• Classifying: Transferring the entries from the journals to the ledger or “T” account
Date Description J.F Amount Date Description J.F Amount

To TK. To TK.
1.Jerry Dow cap 9000 2.Library books 2500
2200 5.Office equipment 5600
B.F(balancing figure)
SN Date Description Amount Debit/tk Credit/ Balancing
tk amount/tk
Dr Cr
01.12.2019
• Summarizing: Preparing a trial balance from the debit & credit balances
of ledger accounts.
Trial balance
• For 31st, December2019
Sl. No. Particulars Debit (TK) Credit (TK)
1 Cash 5400
2 Accounts payable 3000
•
Preparing Financial Statements: Preparing the trading account, profit &
loss account, the balance sheet also taking into account all adjustments
affecting the period concerned.
• Interpreting & Analysis those Statements: Giving requisite information
to the interested groups by calculating accounting ratios & by interpreting
the performance of the company concerned.
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• Q. Explain types of journal / recording process
• Most Common Types of Journals

• Businesses vary in size, service, and ownership. These businesses use different types of
journals based on their operations. However, journals are broadly classified into general and
special.
• While the small businesses and startups use the general journal, the big ones go for special
journals. Trading, manufacturing, and other industries record their transactions in special
journals as they are recurring in nature. ‘
• The following is the list of most frequent types of special journals used by big companies:
– Sales – the income earned from sales
– Sales Return – the loss of income from sales refunded
– Accounts Receivable – cash owed to the company
– Accounts Payable – cash owed by the company
– Cash Receipts – cash the business has gained
– Purchases – payments by the business
– Equity – owner’s investment
– Payroll – payroll transactions like gross wages, taxes, etc.
• Q.
• Q. Cash book/ types/ important
• It is both a subsidiary book (book of original entry) and principal book. When a cash
book is maintained, transactions of cash are not recorded in the journal. As all the cash
transactions are recorded for the first time in the cash book, it is, therefore, a book of
original entry.
• Cash book is a special type of book that is only concerned with the recording of cash
transactions of an organization. It performs the dual role of both journal and a ledger
for all the cash transactions taking place in a business organization,
• Cash Book is a type of Subsidiary Book because it is a book of original entry.
However, it is treated as a Principal Book because it is a part of the ledger accounts and
its balances are directly transferred to the General Ledger. Cash book is both journal
and ledger as it contains all journal and ledger features and serves purposes of both. A
number of subsidiary books are opened to record all business transactions.
Whereas Cash book is a type of Subsidiary Book in which only payments and receipts
which are carried in Cash are recorded.
• What is the difference between cash book and bank cash book?
• What are the differences between a Cashbook and a Bank book? A cashbook records
the cash and bank transactions of an organization that takes place within a financial
year. A bank book is issued to the account holder by their bank and it keeps a record of
deposits and withdrawals.
• Con
• A cash book in accounting records all cash transactions in detail. This is different from a cash
account, which is an account that appears in a general ledger. A cash account is structured
more like a ledger whereas a cash book is able to operate as both a journal and a ledger.
• Cash Book is maintained by the business or person who owns it and is accessible only to
them, while Passbook is maintained by the bank and is accessible to the account holder.
• In single-entry bookkeeping, the income and expenses for the transactions are recorded in a
cash register, whereas the double-entry system starts with a journal, followed by a ledger, a
trial balance, and finally financial statements.
• The four types of cash books are:

• Single column cash book.
• Double column cash book.
• Triple column cash book.
• Petty cash book.
• What is the difference between cash book and journal?
• Cash book is basically the book of original entry. When cash book is maintained, transactions
of cash are not recorded in the journal and no separate account for cash or bank is required in
the ledger, In this way. It serves the purpose of the journal as well as the ledger.
Q. Petty cash book: It is a book in which we record small expenses such as staff refreshment ,
postages, taxi fare, stationary etc. It is responsible for managing small day-to-day cash
payments.
• Imprest petty cash book. [ mainly it is followed].
• Columnar or Analytical petty cash book.
Three different systems are used to maintain petty cash. These systems are:
• Open systems (or ordinary systems) for petty cash
• Fixed system for petty cash
• Imprest system of petty cash
• Open systems (or ordinary systems) for petty cash: Under this system, the petty cashier is
given a lump sum to meet petty expenses. When the whole amount of petty cash is spent, the
petty cashier submits the account to the chief cashier who again pays a lump sum to the petty
cashier.
• .
• con
• Fixed system for petty cash: Under the fixed system of petty cash, a
fixed amount is given to the petty cashier for a fixed period of time.
• Imprest system of petty cash: This is the most scientific approach to
maintain Petty Cash.
• Under the imprest system, total petty expenses for a specific period
are estimated and the amount is advanced to the petty cashier. This
amount is known as imprest cash.
• The petty cashier spends the imprest cash during the period. At the
end of the period, the petty cashier submits the statements covering
petty expenditures to the chief cashier.
• The amount spent by the petty cashier is reimbursed, thus making
up the balance to the original amount.
• In this way, the petty cashier will begin every period with an amount
equal to imprest cash, and the amount held by the petty cashier will
never exceed this
• Con Simple Petty Cash Book
• A simple petty cash book is just like the main cash book. Cash received by the petty cashier is recorded on the
debit side, and all payments for petty expenses are recorded on the credit side in one column.
• Example of a Simple Petty Cash Book
• Record the following transactions in a simple petty cash book for the month of January 2019.
• Solution
• Con Analytical Petty Cash Book
• An analytical petty cash book is the most effective way to record petty cash payments.
• A separate column is assigned for each petty expense on the credit side. Whenever a petty expense is recorded in the
total payment column, the same amount is recorded in the relevant petty expense column.
• Example of an Analytical Petty Cash Book
• Record the following transactions in an analytical petty cash book for the month of January 2019.
• Solution
• Q.
• Accounting Ratios: AR describe significant relationship
between figures shown on a balance sheet, in a profit & loss
account, in a budgetary control system or in any other part of
accounting organization. AR thus shows the relationship
between accounting data.
• Q. Explain Types of ratios: i) Profitability ratios, ii)
Liquidity ratios, iii)Activity ratios & iv) Long term
solvency or Leverage ratios.
• a). Profitability ratios : Profitability ratio: Profitability
ratios: PR measures the results of business operations or
overall performance & effectiveness of the firm. Some of
the most popular profitability ratios are : 1. Gross profit
ratio, 2. Net profit ratio, 3. Operating ratio, 4, Expense
ratio, 5. Return on shareholders investment or net worth,
6. Return on equity capital
, 7. Return on capital employed ratio, 8. Dividend yield ratio, 9. Dividend payout
ratio, 10. Earning per share ratio, 11. Price earning ratio.
• Gross Profit Ratio = x 100.
• Net Profit Ratio = x 100.
Operating Ratio= x 100. or
• Operating profit Ratio ==
• Expense Ratio = x 100.

• Con
• Return on shareholders investment or net worth ratio = =
== x 100
Return on Equity Capital ratio = x 100
• Return on gross capital employed ratio = x 100.
Gross capital employed = Fixed Assets + Investment + Current Assets.

Net Capital Employed = Fixed Assets + Investment + Working Capital.
Working Capital = Current Assets – Current Liabilities.
Return on net capital employed ratio = x 100.
Dividend Yield ratio = x 100.
Dividend Payout ratio = x 100
• Con
• Earning per share ratio = x 100
• Gross margin=
• Net margin=
• Return on investment=
• Con Liquidity ratio: LR measure the short term solvency of financial
position of a firm . These ratios are calculated to comment upon the short term
paying capacity of a concern or the firm’s ability to meet its current
obligations. Following are the most important liquidity ratios.
• 1. Current ratio & 2. Liquid / Acid test / Quick ratio.
• Liquid ratio is also termed as Liquidity ratio or Acid test ratio or Quick ratio.
It is the ratio of liquid assets to current liabilities. The true liquidity refers to
the ability of a firm to pay its short term obligations as and when they become
due.
Current ratio= x 100
Quick or Acid test or Liquid (for immediate solvency) ratio = x 100.

Absolute liquid ratio = x 100.
Quick ratio= x 100

• Activity ratio: AR are calculated to measure the efficiency with
which the resources of a firm have been employed. These ratios
are also called turnover ratios because they indicate the speed
with which assets are being turned over into sales. The
following are the most important activity ratios:
• 1. Inventory / stock turnover ratio, 2. Debtor / receivable
turnover ratio, 3. Average collection period, 4. Creditors /
payable turnover ratio, 5. Working capital turnover ratio, 6.
Fixed assets turnover ratio and 7. Over and under trading.
• Inventory/ stock turnover Ratio = x 100, or
• Inventory turnover ratio = x 100 or
• Inventory turnover ratio = x 100
• Inventory turnover ratio = x 100

• Con
Accounts Receivable ratio = x 100, or
Debtors / Receivable turnover ratio = x 100 , or
• Debtor turnover= x 100,
• Average collection period = ,
Creditors turnover ratio = ,
Average payment period = ,
Average daily credit purchase = or

Average payment period =
Con
Working capital turnover ratio =
Net working capital = Current assets – Current liabilities.
Fixed assets turnover ratio =
Assets turnover=
• Con
• Long term Solvency or Leverage ratio: Long term solvency or leverage
ratios convey a firm’s ability to meet the interest costs & payment schedules of its long
term obligations. Following are some of the most important long term solvency or
leverage ratios. 1. Debt – to- equity ratio, 2. Proprietary or equity ratio, 3. Ratio of
fixed assets to shareholders funds, 4. Ratio of current assets to shareholders funds, 5.
Interest coverage ratio, 6. Capital gearing ratio, 7. Over and under capitalization.
• Debt-Equity ratio= or
• Proprietary or Equity ratio =
• Fixed assets to Proprietors fund =

• Current assets to Proprietors fund =
•
• Interest coverage ratio=
• Total debt ratio=

• Capital employed= Net worth + Borrowings
• Interest coverage ratio=

• Con General profitability:
1. Gross profit ratio = x 100
2. Operating ratio = x 100,
3. Expense ratio = x 100,
4. Operating profit ratio = x 100,
Overall Profitability:
5. Return on shareholders’ investment or net worth = x 100,
6. Return on equity capital = = x 100,
7. Earning per share (EPS) ratio = = x 100,
8. Return on gross capital employed = = x 100,
9. Return on net capital employed = x 100,
10. Dividend yield ratio = x 100,
11. Dividend payout or payout ratio = x 100,
Con Short term financial position or Test of solvency:
1. Current ratio = = x 100,
2. Quick or acid test or liquid ratio (for immediate solvency) = = x 100,
3. Absolute liquid ratio = = x 100.
Current Assets Movement, Efficiency or Activity ratio : 1. Inventory / Stock turnover ratio =
= x 100,
2. Debtors or receivables turnover ratio = x 100,
3. Average collection period = x 100,
4. Creditors or payables turnover ratio = x 100,
5. Average payment period = = x 100,
6. Working capital turnover ratio = x 100,
Con Analysis of long term solvency:
1. Debt to equity ratio = = x 100,
2. Ratio of long term debt to shareholders fund s ( Debt equity) = x 100,
3. Proprietary equity ratio = x 100,
4. Fixed assets to net worth = x 100,
• Con
con
con
• Con
con
con
• Assets:
a) Current assets
1. Cash in hand, 2. Cash at Bank, 3. Accounts Receivables,
4. Note Receivables, 5. Closing Inventories, 6.Supplies in
hand, 7. Investment (short term), 8. Stationary at
hand, 9. Prepaid expenses, 10.
Outstanding/accrued/earned revenue/ incomes.
b) Fixed Assets
1. Land & Building, 2. Plant & Machinery 3. Furniture’s &
Fixtures, 4. Office Equipment, 5. Motor Vehicles, 6. Leaseholds
etc.
• Liabilities:
a) Current liabilities
1. Accounts payables, 2. Note payables, 3. Loans, 4.
Mortgages, 5. Bank overdraft,
6. Outstanding/unearned revenue expenses.
b) Fixed / Long Term Liabilities
1. Long term loans, 2. Debentures or bonds.
• Owner’s Equity:
1. Capital / Common Stocks, 2. Net profit, 3. Retained
Earnings, 4. Reserves, 5. Any Specific Funds, 6. Drawings.
• Expenses– (I/S items) the money spent, or costs incurred, by a business in
their effort to generate revenues. Expenses represent the cost of doing
business; they are the sum of all the activities that result in (hopefully) a
profit.
a) Office & Administrative
1. Office Staff Salary, 2. Directors Fees, 3, Legal Charges, 4. Printing &
stationary, 5. Postage & Telegram, 6. Accounting Charges, 7. Computer Hire
Expenses, 8. Car Expenses- Office, 9. Office manager salary, 10. Auditor Fees,
11. Professional Fees, 12. Office rents & rates, 13. Depreciation-Office Assets,
14. Office Supplies & Expenses, 15. Donation- Office, 16. Postage, telex &
Telegram.
b) Selling & Distribution Expenses
1. Sales Manager Salary, 2. Marketing Director Fees, 3. Travelling
Expenses – Sales Manager, 4. Delivery Expenses, 5. Packing Expenses , 6.
Cost of sample, 7. Depreciation- Delivery Van, 8. Entertainment Expenses, 9.
Salaries – Salesman, 10.Commission-Salesman, 11. Advertising, 12. Bad debts,
13. Fair Expenses.
• c) Financial Expenses
1. Interest on Loan, 2. Interest on overdraft, 3. Interest on capital.
• Incomes: (I/S items) money received, especially on a regular basis, for work or
through investments. Accounting ---income is the profit a company retains after
paying off all relevant expenses from sales revenue earned. It is synonymous
with net income.
• Operating income = Total Revenue – Direct Costs – Indirect Costs
or
• Operating income = Gross Profit – Operating Expenses – Depreciation
or
• Operating income = Net Earnings + Interest Expense + Taxes
Revenue is the money that a company receives from selling goods or services
throughout the course of business. ... Net income equals the total company revenues
minus total company expenses.
• Non Operative Income-
1. Commission received,
2. Other service revenues,
3. Discount received
• Q. Why engineering students need accounting ?
Accounting for Engineers --As an engineer may apply a combination of maths and
science to solve technical problems. As accountants, may solve financial, tax and
business planning problems. ... However, an accountant may have to manage cash
flow, prepare budgets, obtain finance and do some financial modeling.
There are new inventions coming every year and engineer need to update with all
the information floating around. Now, engineering is a very broad term.
To stay competitive in the job market, engineers and those who want to advance
need a strong, diverse set of skills.
Some of the top skills for engineers include:
• Technology skills, including understanding various analytical and scientific
software
• Mathematics and scientific problem-solving
• Critical thinking
• Effective communication
• Management
• Negotiation
• Decision-making
As senior engineers acquire responsibilities like managing teams,
projects, and budgets. To reach those positions and perform their duties
effectively, they need to have a strong set of business skills.
“Senior engineers and division and department heads all use more
business skills in day-to-day work than engineering skills,” engineers
needed to understand accounting tools, financial reports, and markets to
compete.”
From understanding financial basics to engaging in creative problem-
solving, there are business skills that every engineer needs.
• 1. Effective Communication
Because their work is so technical, it can sometimes be harder for

others in the organization to understand engineers’ true impact. Knowing
how to translate technical topics into more simplified terms and properly
articulate and support their ideas across the organization is critical to
success.
2. Management Essentials
Understanding what motivates colleagues and knowing
how to exercise influence, effectively implement strategies, and develop learning
initiatives that can help the organization innovate are skills that can take an
engineer’s career to the next level.
3. Creativity
An engineer’s day-to-day solving complex problems. Understanding the
social/global needs & wants they try to innovate new and new customized
products/services.
4. Financial Accounting
Accounting knowledge can help engineers measure the impact of their work in
terms of revenue, but also control the cost of particular projects and better
understand the organization’s overall budget.
5.The Ability to Spot Opportunities and Validate Ideas
As technology is continuously disrupting industries so in today’s
increasingly complex global business environment engineers will have to play a
pivotal role in problem solving through taking/facing new challenges.
6. Negotiation
Engineers very often need to work in a team to achieve business goals.
Understanding and negotiating with each other helps to realize the common
goals of stakeholders ,build trust among decision makers and successfully
motivate others to secure maximum value for the organization.
7. Ethics
Engineers have to build products and services that can have a direct impact on
society. It’s important to approach each problem with integrity and, ultimately,
do what’s right for the business.
By acquiring essential business skills, engineers can better equip

themselves to meet changing workforce demands and gain a competitive
edge.
In case of engineering, there are mainly six functions which are of prime
importance.
• Research: This is one of the primary things you need to do for you to invent
something new. Using different experimentation techniques, applying inductive
reasoning and employing mathematical concepts into your research would yield you
greater benefits.
• Development: Once the engineer researches and gathers information that can
be useful, it’s time to apply those ideas in development of a product or a new idea that
can help the company/society/as well as country.
• Design: In designing a product or any structure like building or bridge, the
engineer designs each and every part of the structure or the product. It is first done on
paper and then a prototype /image/paradigm is being built.
• Construction: An engineer constructs the building or the structure by following
the design crafted by him or by his colleague.
• Operation: Engineers who handle machines, equipment, take care of the overall
operation of these machines. He takes care of the procedures and supervises the
personnel to see whether every part of the machine or equipment is working properly.
• Management functions: Along with taking care of the above functions, an
engineer needs to take care of planning, organizing, controlling and leading. But they
are not given to perform any management functions before they get some experience.
• Q. What is double entry system? Double-entry book keeping
Double-entry bookkeeping, in accounting, is a system of book keeping where every entry to an

account requires a corresponding and opposite entry to a different account. The double-entry has
two equal and corresponding sides known as debit and credit. The left-hand side is debit and right-
hand side is credit.
• Q. Distinguish between double entry and single entry system.
S.N./Points Single entry Double entry
Duality Not based on duality Based on duality

User Sole proprietors &partnership Large corporations
Costs involved Cheap Costly

Accounts maintained Simple personal accounts Personal, property and nominal accounts
Detection of errors Difficult to detect errors Easy to detect errors
Preparation of trial balance Not useful Useful
Profit and loss account Not useful Useful
Single entry, double entry, business entity, then sole proprietorship, partnership and joint
venture concept may come across.
Q. sole proprietorship as–
A business enterprise exclusively owned, managed and controlled by a single person with all
authority, responsibility and risk.
Characteristics of Sole Proprietorship: i. Single Ownership ii. No sharing of Profit and Loss iii.
One-man’s Capital iv. One-man Control v. Unlimited Liability vi. Less legal formalities
i. Single Ownership: A single individual always owns sole proprietorship form of business
organization.. Consequently, he alone bears all the risk of the business.
ii. No sharing of Profit and Loss : If there is any loss it is also to be borne by the sole proprietor
alone. Nobody else shares the profit and loss of the business with the sole proprietor.
iii. One man’s Capital : He provides it either from his personal resources or by borrowing
from friends, relatives, banks or other financial institutions.
iv. One-man Control: The owner or proprietor alone takes all the decisions to run the
business. Of course, he is free to consult any body as per his liking.
v. Unlimited Liability: The liability of the sole proprietor is unlimited. This implies that, in
case of loss the business assets along with the personal properties of the proprietor shall be used
to pay the business liabilities.
vi. Less Legal Formalities: It also does not require to be registered.
Q. Advantages of Sole Proprietorship
i. Easy to Form and Wind up: A sole proprietorship form of business is

very easy to form. With a very small amount of capital you can start the
business.. Just like formation it is also very easy to wind up the business.
It is your sole discretion to form or wind up the business at any time.
ii. ii. Direct Motivation: The profits earned belong to the sole proprietor
alone and he bears the risk of losses as well. Thus, there is a direct link
between effort and reward. This provides strong motivation for the sole
proprietor to work hard.
iii. iii. Quick Decision and Prompt Action: In a sole proprietorship
business the sole proprietor alone is responsible for all decisions.. But he
is free to take any decision on his own..
• iv. Better Control: In sole proprietorship business the proprietor has full
control over each and every activity of the business. He is the planner as
well as the organizer, who co-ordinates every activity in an efficient
manner.
• v. Maintenance of Business Secrets:. It refers for keeping the future
plans, technical competencies, business strategies, etc,. secret from
outsiders or competitors. In the case of sole proprietorship business, the
proprietor is in a very good position to keep his plans to himself since
management and control are in his hands.
• vi. Close Personal Relation: The sole proprietor is always in a position to
maintain good personal contact with the customers and employees. Also,
it helps in maintaining close and friendly relations with the employees
and thus, business runs smoothly.
• vii. Flexibility in Operation: A sole proprietor can expand or curtail his
business according to the requirement.
• viii. Encourages Self-employment: Sole proprietorship form of business
organization leads to creation of employment opportunities for people..
Thus, it helps in reducing poverty and unemployment in the country
Q. Limitations of Sole Proprietorship:
i. Limited Capital: ii. Unlimited Liability iii. Lack of Continuity: iv.

Limited Size v. Lack of Managerial Expertise
Lets sum up
Advantages: • Easy to form and wind up • Direct Motivation • Quick
Decision and Prompt Action • Better Control • Maintenance of Business
Secrets • Close Personal Relation • Flexibility in Operations
Limitations: • Limited Capital • Unlimited Liability • Lack of Continuity •

Limited Size • Lack of Managerial Expertise
Q. Partnership and features of it.
A partnership is a business structure wherein two or more persons (in general business it
does not exceeding 20, but in banking it will not more than 10), coming together as partners,
decide to share profits or losses in an agreed proportion, carrying an unlimited liability.
Features of Partnership:
✓ More Persons having an unlimited liability except for minor.
✓ Profit and loss in an agreed proportion.
✓ Oral or written agreement.
✓ Lawful Business.
✓ Absolute trust and belief in each other.
✓ Restriction on transfer of share without the consent of the other partners.
✓ Responsible for other partner’s deeds.
Q. Advantages of Partnership:
✓ There will be combined capital, talents, skills, opinions.
✓ The ability of funds rising becomes easier.
✓ Borrowing capacity will increase.
✓ All the partners with different skills will work efficiently in their own way. So, this will
result in higher profits and greater sustainability and productivity.
✓ Everyone shares control and management.
✓ The distribution of the risks lead will be lower.
• Q. Disadvantages of Partnership:
• ✓ Since the partnership is not a separate legal entity, liabilities are unlimited for the
• partners except minors.
• ✓ The differences in the opinion and thoughts of one or more partners.
• ✓ If the other partner has committed a mistake, the other partners will also have to face
its
• consequences.
• ✓ In partnership, the ideas, thoughts, secrets, are confidential. So, it will create problems
• when the information is disclosed.
• Q. Rights of Partner in Partnership:

• 1. Right to manage business
• 2. Right to express views and ideas
• 3. Right to inspect books account
• 4. Right to share profit
• 5. Right to be indemnified/compensation
• 6. Right to use property
• 7. Right to join the ownership
• 8. Right to get retirement
• 9. Right to bind other partners
• 10. Right to dissolve the business
Q. Explain features / characteristics of a company/ company is a separate Leal person do you believe it
not explain
Company: A registered association which is an artificial legal person, having an independent legal,
entity with a perpetual succession, a common seal for its signatures, a common capital comprised of
transferable shares and carrying limited liability.
• Features of a Company:
• 1. Separate Legal Identity – A company is a separate legal identity, different from its members
• or shareholders.
• 2. Limited liability of members – The liabilities upon the company’s shareholders is limited only
• to the unpaid amount on the shares bought by them. Thus for a fully paid-up shares, a
• member cannot be asked to contribute more, even if the company goes for liquidation.
• 3. Perpetual Existence – A Company has a perpetual existence, irrespective of its shareholders
• coming and leaving the company till the point of its wound up.
• 4. Common Seal – A company has its common seal which acts as the signature of the company.
• 5. Transferable Shares – Shares of a company are transferable in nature. And the transfer of its
• shares from one person to another does not affect it at all.
• 6. Separate ownership of the property – Since the company has its own separate legal identity,
• it can own and dispose property under its own name. Moreover, the property owned by
• a company cannot be the property of its shareholders.
• 7. Capacity to sue or being sued – Since the company has its own separate legal identity, it can
• enter into contracts and has capacity to sue or being sued.
• Q. Advantages of a company include that:
✓ Liability for shareholders is limited
✓ It's easy to transfer ownership by selling shares to another party
•
✓ Shareholders (often family members) can be employed by the company

•
✓ Taxation rates can be more favorable

•
✓ It has access to a wider capital and skills base.

•
•
✓ Expensive to establish, maintain and wind up

• Disadvantages of a company include that:
✓ The reporting requirements can be complex

•
✓ if directors fail to meet their legal obligations, they may be held personally liable
•
•
for the
• ✓ Profits distributed to shareholders are taxable.

• company's debts
The difference between Private Limited Company and Public Limited

Company:
• Q. The difference between Private Limited Company and Public Limited Company:
S.N. Point of Difference Private Company Public Company
Members Minimum – 02 Minimum – 07

Maximum – 50 Maximum –
Unlimited
Minimum number 02 03
of Directors
Mode of raising Private Arrangement Private Arrangement
capital Public Subscription
Nature of shares Not Transferable, unless Completely
otherwise mentioned in Transferable
Articles
Suffix with the Private Limited Public Limited or
Company’s name Limited
Q. What is Business Transaction?/Characteristics of Business Transactions
Economic events that affect the financial position of the business entity.
A business transaction must have the following characteristics:
• 1.It must be for a sum certain in money (i.e., of a financial value)
• 2. It must be supported by a source document (e.g. sales invoice, official receipt,

disbursement voucher, remittance advice, etc.)
• 3.It must have a two-fold effect in the elements of accounting

• A business transaction can either be an exchange transaction (involves physical
exchange of values such as sale, purchase, payment, etc.) or a non-exchange
transaction (does not involve physical exchange (e.g. loss from flood, fire loss,
internal production, depreciation, etc.)
• Q. Whatis financial accounting/cost accounting/
management accounting? Compare and contrast among
them, write some features/characteristics of them, ….
• Financial Accounting: Financial information that is disseminated to

external parties such as investors & creditors and based on GAAP.
• Management Accounting: Financial and nonfinancial information that helps
managers make decisions, and is flexible in nature.
Management accounting also called a field of accounting that provides economic
& financial information for managers & other internal users.
• Cost Accounting:
Cost accounting analysis the transactions in an objective manner, for the purpose
of planning, control and decision making.
Cost accounting is the identification, accumulation, assignment and analysis of
production and activity cost data to provide information for external reporting,
internal planning and control of ongoing operations and special decisions
Financial Accounting Serial No. Managerial Accounting
External users: Stockholders, Primary users of Internal Users: Officers, head of the
Creditors, regulators department, managers, supervisors.
reports
statements Issued quarterly & annually Classified financial Types& Internal reports Issued as frequently as
needed
frequency of
reports
General purpose information for all users Purpose of Special purpose information for a particular
user for a specific decision.
reports
Pertains to business as a whole & is highly aggregated. Limited Contents of Pertains to sub-units of the business & may
to double entry accounting system & cost data. be very detailed.
Reporting standard is generally accepted accounting principle. reports May extend beyond double entry accounting
system to any type of relevant data,
Reporting standard is relevance to the
decision to be made.
Annual independent audit by certified public accountant. Verification No independent audits.

Process
Q. Financial Accounting vs. Managerial Accounting
Managerial Accounting
Financial Accounting Managerial Accounting
Points
Purpose of To communicate the To help management make

information company’s financial position better decisions to fulfill the
to external users (i.e. company’s overall strategic
investors, banks, regulators, goals
government)
Primary users External users Internal (management)
Focus and Past oriented Future oriented

emphasis
Time span Annual or quarterly financial Varies from hourly to years
reports depending on of information
company
• Q.
• 1. Cash brought in by proprietor as capital TK. 30000
Journal Entry:
Cash Account Debit 30, 000
Proprietor’s capital Account Credit 30,000
• (As brought capital).
2. Goods purchased on credit from Madan Lal TK. 5,000
Purchase account debit 5000
AP (Madan Lal) account credit 5000
• (As purchased on credit).
3. Furniture purchased for cash TK. 10000
•
Furniture Account Debit 10,000
Cash Account Credit 10,000
• (as furniture on cash).
4. Goods sold on credit to Dev Raj TK. 1600
•
AR (Dev Raj) Account Debit 1600
Sale Account Credit 1600
• (As sold on credit)
5. Goods purchased for cash TK. 4500
Cash account credit 4500
• (As purchased on cash).
• Con
• 6. Goods sold for cash TK. 2100
Cash account debit 2100
Sale account credit 2100
• (As sold on cash).
•
7. Rent paid for shop to landlord TK. 3000
Rent Expense Account Debit 3000
Cash Account Credit 3000
•
8. Commission received in cash TK. 2000
Cash Account Debit 2000
Commission Received/ Service Revenue/ Revenue Account Credit 2000
9. Cash deposited into bank TK. 5000

Bank Account Debit 5000
•
10. Cash withdrawn from bank for office use TK. 2000
Bank Account Credit 2000
11. Cash drawn by proprietor from business (Bank) for personal use TK.. 3000
Drawing Account Debit 3000

Bank/ Cash Account Credit 3000
12. Goods given as charity TK.. 1000

Charity Account Debit 1000
Purchase Account Credit 1000
• 13. Bad Debts written off TK.. 500
Bad Debt Account Debit 500
Debtor Account Credit 500
•
14. Bad debts recovered in cash TK.. 300
Bad Debts Recovered Account Credit 300
•
15. Carriage paid on machinery ( expenses on purchase of asset ) TK.. 1000
Machinery Account Debit 1000
•
16. Depreciation on fixed assets TK.. 500
Depreciation Expense--- property Account Debit 500
Accumulated Depreciation----- Property Account Credit 500
17. Carriage paid on the behalf of buyer TK.. 1000

Debtor account Debit 1000
18. Goods given as free samples TK.. 1500

Advertising Account Debit 1500
• con19. Interest allowed on capital TK. 600
Interest on capital Account Debit 600
Capital Account Credit 600
20. Interest charged on drawings TK. 500

Interest on drawing account Credit 500
21. Bank charges or interest charged by bank TK. 200

Bank charge (Expense) Account Debit 200
Bank account Credit 200
•
22. Goods lost by fire TK. 800
Loss by Fire Account Debit 800
•
23. Goods insured and a claim is admitted by insurance company in full or in part.
Insurance company Account Debit XXXX
Loss by Fire Account Credit XXXX
•
24. Loan taken TK. 1,00,000
Cash Account Debit 1, 00,000
Lender’s loan Account Credit 1,00,000
25. Interest paid on loan. TK. 1000

Interest on loan Account Debit 1000
Con 26. Interest on loan due but not paid in cash. TK. 500
Interest on loan Account Debit 500
Loan or/ AP /Creditor / Interest payable Account 500
27. Investment purchased TK. 50,000
Investment Account Debit 50000
28. Cash stolen from office. TK. 6000

Loss by Theft Account Debit 6000
29. Cash paid to a creditor in full settlement ( When cash discount is received) Amount due to Madan Lal TK. 5000 paid him
TK. 4950 in full settlement.
AP (Madan Lal) Account Debit 5000
Discount Received Account Credit 50
30. Cash received from a debtor in full settlement (When cash discount is allowed). Amount receivable from Dev Raj TK. 1600,
received from him TK. 1570.
Discount Allowed Account Debit 30
AR (Dev Raj) Account Credit 1600

Con Ans: Journal entries
S Particulars LF Debit Credit
N TK. TK.
1. Cash brought in by proprietor as capital TK. 30000. 30, 000 30,000
Cash Account Debit
Proprietor’s capital Account Credit
(As brought capital).
2. Goods purchased on credit from Madan Lal TK. 5,000

AP (Madan Lal) account credit
(As purchased on credit). 5000
3. Furniture purchased for cash TK. 10000

Furniture Account Debit
Cash Account Credit 10,000
(As furniture on cash). 10,000
4. Goods sold on credit to Dev Raj TK. 1600

AR (Dev Raj) Account Debit
Sale Account Credit 1600
(As sold on credit) 1600
Con Journal entries
SN Particulars LF Dr. TK. Cr. TK.

5. Goods purchased for cash TK. 4500
Cash account credit 4500
(As purchased on cash).
6. Goods sold for cash TK. 2100
Cash account debit 2100
2100
Sale account credit
(As sold on cash).
7. Rent paid for shop to landlord TK. 3000
Rent Expense Account Debit 3000
8. Commission received in cash TK. 2000 2000

Commission Received / Service Revenue
/ Revenue Account Credit
(As Commission received )
Con
9. Cash deposited into bank TK. 5000

Bank Account Debit 5000
Cash Account Credit
(As deposited into bank ). 5000
Cash withdrawn from bank for office use TK. 2000

10 Cash Account Debit 2000
Bank Account Credit
(As withdrawn for office).
2000
Cash drawn by proprietor from business (Bank) for personal use TK..
11. 3000
3000
Drawing Account Debit
Bank/ Cash Account Credit
(As withdrawn for personal use). 3000
1000
12. Goods given as charity TK.. 1000
Charity Account Debit
Purchase Account Credit
(As goods given as charity). 1000
con
13. Bad Debts written off TK.. 500 500
Bad Debt Account Debit Debtor Account 500
Credit
( As bad debt written off).
14. Bad debts recovered in cash TK.. 300

Bad Debts Recovered Account Credit
( As bad debt received in cash). 300
Carriage paid on machinery ( expenses on

15. purchase of asset ) TK.. 1000
Machinery Account Debit 1000
( As carriage of exp for machine).
16. Depreciation on fixed assets TK.. 500 500
Depreciation Expense--property Account Debit 500
Accumulated Depreciation--Property Account Cr
( As depreciation ).
Con
17. Carriage paid on the behalf of buyer TK.. 1000

Debtor account Debit 1000
( As paid on behalf of buyer)
18. Goods given as free samples TK.. 1500

Advertising Account Debit 1500
(As given as free sample).
19. Interest allowed on capital TK. 600

Interest on capital Account Debit 600
(As interest on capital).
20 Interest charged on drawings TK. 500

Interest on drawing account Credit 500
(As interest on drawing).
21.
Bank charges or interest charged by bank TK. 200 200
Bank charge (Expense) Account Debit 200
Bank account Credit
(As charged by bank).

Loss by Fire Account Debit 800
(As lost by fire)..
Con
Loss by Fire Account Debit
Purchase Account Credit
(As lost by fire)..
Goods insured and a claim is admitted by insurance company in

full or in part. 1, 00,000
23. Insurance company Account Debit XXXX 1, 00,000
Loss by Fire Account Credit XXXX
Loan taken TK. 1,00,000

Cash Account Debit 1000 1000
24. Lender’s loan Account Credit
(As loan taken).
Interest paid on loan. TK. 1000

Interest on loan Account Debit
25 (As interest paid on loan). 500
Interest on loan due but not paid in cash. TK. 500

Loan or/ AP /Creditor / Interest payable Account Credit
26. (As due).
Con
26. Interest on loan due but not paid in cash. TK. 500
Loan or/ AP /Creditor / Interest payable Account 5,000
Credit 5,000
(As due).
27.
Investment purchased TK. 50,000
Investment Account Debit
Cash stolen from office. TK.Credit
Cash Account 6000
(As investment purchased).
Loss by Theft Account Debit 6000
Journal
Sept. 1 Hamid invested Tk.20,00,000 cash in the business.
2 The company paid Tk.1,00,000 cash for store rent for September.
3 Purchased washers and dryers for Tk.25,00,000, paying Tk.10,00,000 in cash and
signing a Tk.15,00,000, 6-month, 12% note payable.
4 Paid Tk.1,20,000 for a one-year accident insurance policy.
5. Sep-10 Received a bill from the Daily News for advertising the opening of the Cleaners
Tk.20,000.
6. sep-20 Withdrew Tk.70,000 cash for personal use.
7. sep-30 Determined that cash receipts for laundry services for the month were Tk.6,20,000.
Date Account Titles & Explanation L.F Debit Credit

2017
Sept. 1 Cash Tk. 20,00,000
Hamid, Capital Tk. 20,00,000
(Owner’s investment of cash in business)
2 Rent Expense 100000

Cash
(Paid September rent)
Con
3 Equipment 2500,000
Cash 10,00,000
Notes Payable 1500,000
(Purchased laundry equipment for cash and 6-month, 12% note payable)
4. Prepaid Insurance 120,000
Cash
(Paid one-year insurance policy)
5. Sep- 10 Advertising Expense 20,000

Accounts Payable
(Received bill from Daily News for advertising)
6. Sep- 20 Hamid, Drawings 70,000
Cash
(Withdrew cash for personal use)
7. Sep- 30 Cash 620,000
Service Revenue 620,000
(Received cash for services provided)
• Con
Q: Mr Robert commenced business on 1st January, 2011 with a capital of $100,000 in cash.
On the same date he opened the bank account in ADCB and deposited $20,000. During the
month of January 2011 the following transactions took place:
Jan 1 Bought goods for cash 70,000

2 Sold goods to Steve Co. (Credit) 38,000
15 Sold goods for cash 9,000
21 Steve Co. paid by cheque 35,000
22 Stationery bill paid by cheque 2,000
22 Telephone bill by cash 500
31 Paid rent by cash 2,000
Paid salaries by cash 3,000
Withdrew cash personal use 5,000
Required:
Record journal entries for the transactions and post them to ledgers.
Ans: 1. Jan 1 Dr Cash on hand 80,000
Dr Bank 20,000
Cr Capital 100,000
(As started business with cash TK. 80,000 on hand and at Bank TK. 20,000 )
Note that in most accounting questions you won't have to account for "Cash on hand" and
"Bank" in separate accounts. in this question they specifically talk about opening the bank
account with $20,000 of the $100,000, which indicates they kept cash on hand in addition to the
bank account, which needs to be accounted for.
Con OR Cash / Bank account Debit 100,000
(As started business)
2. Jan- :. Dr. Purchases/Inventory 70,000
Cr Cash on hand 70,000
(As purchased)
Note that it's "Purchases" for a periodic system of inventory and "Inventory" if
it's the perpetual system
3.. Dr Debtors 38,000
Cr Sales 38,000
(As sold)
4. Jan-15. Dr Cash on hand 9,000
Cr Sales 9,000
(As sold on cash)
5. Jan-21. Dr Bank 35,000
Cr Debtors 35,000
(As )
Con
22. Dr Stationery expense 2,000
Cr Bank 2,000
(As )
22. Dr Telephone expense 500
Cr Cash on hand 500
(As )
31. Dr Rent expense 2,000
(As )
31. Dr Salaries 3,000
(As
31. Dr Drawings 5,000

(As )
• Con
Con
The following are the journal entries recorded earlier for Printing Plus.
1: On January 3, 2019, issues $20,000 shares of common stock for cash.
2.On January 5, 2019, purchases equipment on account for $3,500, payment due within the month.
3: On January 9, 2019, receives $4,000 cash in advance from a customer for services not yet rendered.
3. Continues
4: On January 10, 2019, provides $5,500 in services to a customer who asks to be billed for the services.
5: On January 12, 2019, pays a $300 utility bill with cash.

6. Transaction 6: On January 14, 2019, distributed $100 cash in dividends to stockholders.
7. On January 17, 2019, receives $2,800 cash from a customer for services rendered.
8. On January 18, 2019, paid in full, with cash, for the equipment purchase on January 5.
9. On January 20, 2019, paid $3,600 cash in salaries expense to employees.
10. On January 23, 2019, received cash payment in full from the customer on the January 10 transaction.
11. On January 27, 2019, provides $1,200 in services to a customer who asks to be billed for the services.
12. On January 30, 2019, purchases supplies on account for $500, payment due within three months.
T-Accounts Summary: Once all journal entries have been posted to T-accounts, we can check to make sure the
accounting equation remains balanced.
Journal: You have the following transactions the last few days of April.
Apr. 25 You stop by your uncle’s gas station to refill both gas cans for your company,
Watson’s Landscaping. Your uncle adds the total of $28 to your account.
Apr. 26 You record another week’s revenue for the lawns mowed over the past week. You
earned $1,200. You received cash equal to 75% of your revenue.
Apr. 27 You pay your local newspaper $35 to run an advertisement in this week’s paper.
Ans
Apr. 29 You make a $25 payment on account.
Con 1.
2.
3.
1. Company A was incorporated on January 1, 20X0 with an initial capital of 5,000 shares of
common stock having $20 par value. During the first month of its operations, the company
engaged in the following transactions:
Date Transaction
Jan 2 An amount of $36,000 was paid as advance rent for three months.
Paid $60,000 cash on the purchase of equipment costing $80,000. The remaining amount was recognized as a one
Jan 3
year note payable with an interest rate of 9%.
Jan 4 Purchased office supplies costing $17,600 on account.

Jan 13 Provided services to its customers and received $28,500 in cash.
Jan 13 Paid the accounts payable on the office supplies purchased on January 4.
Jan 14 Paid wages to its employees for the first two weeks of January, aggregating $19,100.
Jan 18 Provided $54,100 worth of services to its customers. They paid $32,900 and promised to pay the remaining amount.
Jan 23 Received $15,300 from customers for the services provided on January 18.
Jan 25 Received $4,000 as an advance payment from customers.
Jan 26 Purchased office supplies costing $5,200 on account.
Jan 28 Paid wages to its employees for the third and fourth week of January: $19,100.
Jan 31 Paid $5,000 as dividends.
Jan 31 Received an electricity bill of $2,470.
Jan 31 Received a telephone bill of $1,494.
Jan 31 Miscellaneous expenses paid during the month totaled $3,470
Date Account Debit Credit
Ans: Jan 1 Cash

Common Stock
100,000
100,000
Jan 2 Prepaid Rent 36,000
Cash 36,000
Jan 3 Equipment 80,000
Cash 60,000
Notes Payable 20,000
Jan 4 Office Supplies 17,600
Accounts Payable 17,600
Jan 13 Cash 28,500
Jan 13 Accounts Payable 17,600
Cash 17,600
Jan 14 Wages Expense 19,100
Cash 19,100
Jan 18 Cash 32,900
Accounts Receivable 21,200
Jan 23 Cash 15,300
Accounts Receivable 15,300
Jan 25 Cash 4,000
Unearned Revenue 4,000
Jan 26 Office Supplies 5,200
Accounts Payable 5,200
Jan 28 Wages Expense 19,100
Cash 19,100
Jan 31 Dividends 5,000
Cash 5,000
Jan 31 Electricity Expense 2,470
Utilities Payable 2,470
Jan 31 Telephone Expense 1,494
Utilities Payable 1,494
Jan 31 Miscellaneous Expense 3,470
Cash 3,470
The Journal entry to record outstanding expenses is
Date Particulars Amount (Dr.) Amount (Cr.)
Expense A/c Dr.
To Outstanding Expense A/c
(Being recording the expense for the current year

outstanding)
• The Journal entry to record prepaid expenses is:
Prepaid Expense A/c Dr.
To Expense A/c
(Being prepaid expense recorded)

• The Journal entry to record accrued incomes is:
D
Accrued Income A/c r
.
To Income A/c
(Being recording of accrued incomes)
• The Journal entry to record income received in advance is:
D
Income A/c r
.
To Income Received in Advance A/c
(Being income received in advance recorded)

• Q. Q1. Tabular analysis:
• 1. Eric opened a law office on July 01, year 01. On 31st July, the balance sheet
showed cash Tk. 5300; A/R Tk. 1400; Supplies Tk. 900; Equipment Tk. 5000; A/P Tk.
4500; and owner’s capital Tk. 8100. During Sugust, the following transactions
occurred.
• 1. Collected Tk. 1100 of A/R.
• 2.Paid Tk. 2500 to A/P.
• 3. Recognized revenue of Tk. 7000 of which Tk. 3900 is collected in cash & the
balance is due in September.
• 4. Purchased additional equipment for Tk. 2600 paying Tk. 800 in cash & the
balance on account.
• 5. Paid salaries Tk. 2150; rent for August Tk. 1100 & advertising expenses Tk. 200.
• 6. Withdrew Tk. 1250 in cash for personal use.
• 7. Received Tk. 2500 from Sonali Bank –money borrowed on a note payable.
• 8. Incurred utility expenses for month on accoiunt Tk. 310.
• Requirements: a) Prepare a tabular analysis of the August transactions beginning
with July 31 balances.
• b) Prepare an Income Statement for August, an owner’s equity
statement for August & a balance sheet at August 31.
• Journal entries
• Con Best format for Summary of transactions Ans:
• Ericks (Law Office)
• Income statement
• For the month ended August 31, Year-1
Ericks (Owner Equity Statement)

• For the month August 31, Year-1.
• Con
• Erick
• Balance Sheet
• As on August 31, Year-1
Basis of Financial Accounting Cost Accounting
comparison
1. Objective Determination of profit or loss Mainly, communication of financial
and financial position information to management for
planning, controlling and evaluating
resources.
2.For whom For owners & external users Predominantly for internal users
prepared
3.Limitations Direct regulations Indirect regulations
4.Basis of Historical Cost Any form of monetary and physical
valuation units
5.When Periodically mostly at the end As and when needed by the
Prepared of accounting period. management.
6.Perspective Entire Organization Department, division, unit or any
fraction of the entire organization.
7.Time period Current Both current & future
Examples of Business Transactions
• Investment of cash or other assets by the owners
• Withdrawal of cash or other assets by the owners, and distribution of dividends
• Borrowing of cash from other entities for business use
• Payment of borrowings
• Sale of goods or services (either for cash or on credit/account)
• Collection of receivables from customers and other entities
• Acquisition of assets or services (either for cash or on credit/account)
• Payment of payables to suppliers or other entities
• Consumption or expiration of assets (such as use of office supplies and expiration
of insurance, expiration of rent, depreciation of equipment, etc.)
• Q. Financial Accounting vs Cost Accounting
S. N. Financial Accounting Cost Accounting
Records and summarizes cost information and

Records financial data of the organization. So it records data. This includes information about labour,
1
all relevant monetary data materials and various overheads of the
manufacturing process.
Financial accounting only deals in historical costs (only Cost accounting uses both historical and pre-
2
actual costs and figures) determined costs (standard costs, estimates etc.)
Information provided by cost accounting is only

The users of the information provided by financial
3 meant for people within the firm like
accounting are both internal and external users
management, employees etc.
Financial accounting is mandatory for all firms. Every
Cost accounting is only done by manufacturing
4 organization has to keep some record of its financial
firms. And in most cases, it is not mandatory.
transactions
Other than recording data it also provides a
The emphasis here is on recording the transactions/data
5 system of cost control of labour, material,
and presenting it in the given format.
overhead costs
Financial accounts deal with the business in its entirety.
Costing will enable us to get the profit or loss for
6 So it provides us with profit or loss for the whole
individual products, process, job etc.
concern
7
In financial accounting, there is no aspect of forecasting. In Cost accounting, forecasting is possible using
It is simply a record of the financial position of the firm some of the budgeting techniques
8
Financial accounting is strictly a positive science. There Cost accounting is both a positive and normative
is rigidity in the process due to legal requirements science.
Transactions Assets = Liabilities + Capital
C+E+F+AR AP+NP R+I—Exp--D
1. Cash investment of owner + Cash = N/A + + as Owner's Capital

2. Borrowed cash from bank + Cash = + Payable + N/A
+ Equipment
3. Purchased equipment for cash = N/A + N/A
- Cash
4. Paid business licenses - Cash = N/A + - as Expenses

5. Paid water and electricity used - Cash = N/A + - as Expenses
6. Purchased tables, 50% cash and 50% on + Furniture

= + Payable (50%) + N/A
account - Cash (50%)
7. Received cash for services rendered + Cash = N/A + + as Revenue
8. Rendered services on account + Receivable = N/A + + as Revenue
+ Cash
9. Collected customer accounts = N/A + N/A
- Receivable
10. Owner withdrew cash from the

- Cash = N/A + - as Drawings
business
Following are the accounting transactions relating to Mr. P's business. Use the
accounting equation to show their effect on
Accounting equation:
1. Commenced business with a Capital of 50,000
2 Bought Machinery for cash 10,000
3. Purchased goods for cash 15,000
4. Purchased goods from A on credit 5,000
5. Sold goods for cash 10,000
6. Paid to A 2,000
7. Sold goods to B on credit 3,000
8. Paid into Bank 6,000
9. Paid to A by cheque 1,000
10. Received from B a cheque for 2,000
• Adjusting Entries: Adjusting entries are journal entries which are made
at the end of an accounting period to ensure that : (a) Revenue are
recognized in the period in which they are earned, (b) Expenses are
recorded in the period in which they are incurred so that – Balance sheet &
Income statement accounts have correct balances.
 Types of Adjusting Entries:

A. Prepayment – i) Prepaid expenses & ii) Unearned revenue
B. Accruals / Deferrals ---- i) Accrued Revenues & ii) accrued Expenses
C. Estimates ------ depreciation, Bad debts, Income tax etc.
.
co
Perpetual Inventory System: An inventory system
under which a concern keeps detailed records of the
cost of each inventory purchase & sale, & the records
continuously show the inventory that should be on
hand.
Periodic Inventory System: 1. Merchandise inventory
& cost of goods sold are not updated continuously. 2.
Purchases are recorded in purchases account & each
sale transaction is recorded via a single journal entry.
3. Cost of goods sold account does not exist during
the accounting period. It is determined at the end of
accounting period via a closing g entry n
• Journal entries
1.Mr. Karim started business with Tk.200000
2, Bought office furniture from B on credit for Tk.12000
3. Bought office equipment of Tk. 100000
• Bought goods worth Tk.10000 for cash from Mr. X
• Sold goods to Y worth Tk.12500 for cash
• Bought goods from & on credit for Tk.10500
• Sold goods on credit to Mr. Ali for Tk.2555
• Paid Mr.X Tk.12000 on account
• Received from Mr. Ali Tk.4500 on account
• Received interest from Mr. Y Tk.1250
• Paid salaries Tk.8750
• Paid Tk.5000 into Bank from office cash
• Paid office rent Tk.2500
• Bought office stationery on credit from Alam & Co. Tk.750
• Paid for office stationery Tk.1500
• Received interest on investment Tk.2000
• Paid electric charges Tk.550
Si. Date Particulars Debit (Tk.) Credit (Tk.)
No.
01 Cash A/C Dr 200000

Mr.Karim’s Capital Cr 200000
(As investment/started business)
02 Office furniture A/C Dr 12000
B’s/AP Cr 12000
(As buy furniture on credit)
03 Office equipment A/C Dr 10000
Cash Cr 10000
04 Purchase A/C Dr 10500
Cash Cr 10500
05 Cash A/C Dr 12500
Sales Cr 12500
06 Purchase A/C Dr 10500
B’s A/C /Account payable Cr 10500
07 Mr. Ali’s A/C /Account receivable A/C Dr 2555
Sales Cr 2555
08 Mr. X’s/ Account payable A/C Dr 12000
Cash Cr 12000
09 Cash A/C Dr 4500
Mr. Ali’s A/C /Account receivable Cr 4500
10 Cash A/C Dr 1250
Interest received Cr 1250
11 Salaries Expenses A/C Dr 8750
Cash Cr 8750
12 Bank A/C Dr 5000
Cash Cr 5000
13 Office rent expense A/C Dr 2500
Cash Cr 2500
14 Stationery A/C Dr 750
Alam & Co./ AP Cr 750
15 Stationery A/C Dr 1500
Cash Cr 1500
16 Cash A/C Dr 2000
Interest on investment Cr 2000
17 Electric charge expenses A/C Dr 550
Cash Cr 550
Ledger: (B/d = brought down , opening balance and C/d = carried down or carry
forward, closing balance)
• cash Account
• Dr Cr
Date Particulars J. Amount Date Particulars J. Amount

Or F (Taka) F (TK.)
S.N
1.1,2022 Opening balance b/d 3. Office equipment 1,00,000

Capital 2,00,000 4. Purchases 10,500
Sales 8. Account payable (Mr. X) 12,000
5. Account receivable 12,500 Salary expenses
9. (Ali’s A/C) 11. Bank 8,750
Inst received 4,500 12. Office rent 5,000
Inst on investment 13. Stationery 2,500
10. 1,250 15. Electricity charges
16. 17. Closing Balance c/d 1,500
2000 31.1.22 (balancing figure) 550
Total 79,450
--------------- Total
2,20,250 2,20,250
Opening balance b/d ======== =======
Feb 1, 22
79,450
• Ledger
• Capital Account
• Dr Cr
Date Particulars J. Amount (Taka) Date Particulars J. Amount
Or F F (TK.)
S.N
Closing Balance c/d 1.1.22 Opening balance b/d 2,00,000
(balancing figure) 2,00,000
31.1,22 Total -------------
Total --------------- 2,00,000
2,00,000 =======
==========
Office furniture Account

Dr Cr
Or F F (TK.)
S.N
1.1.22 Opening balance b/d 1.1.22 Closing Balance c/d 12,000
Account payable (B’s (balancing figure)
2 A/c) 12,000 -------------
Total Total 12,000
--------------- =======
12,000
==========
• Ledger
• Account payable Account
• Dr Cr
Or F F (TK.)
S.N
8. Cash(X’s A/c) 1.1.22 Opening balance b/d
12,,000 2. Office furniture (B’s A/c) 12,000
Last date Closing Balance c/d 10,500 6. Purchase (B’s A/C) 10,500
(balancing figure) --------------- Total -------------
Total 22,500 2,2,500
========== =======
Q. From the following information pass the necessary journal entries
relating to the items of expenses and incomes. Also, show their treatment in
the Trading and Profit and Loss A/c and the Balance Sheet.
1.Interest on loan expenses TK.150000. The interest of TK.50000 is
outstanding.
2.Wages expense TK.72000. Out of this wages of TK.12000 pertains to
the next accounting year.
3.The commission received TK.15000. Amount of commission earned
but not received is TK.5000.
4.Rent received TK.50000. Rent of TK.10000 is received in advance.
Ans: Journal Entries

1. Interest on Loan A/c Dr. 50000
To Outstanding Interest on Loan A/c 50000
(Being recording the interest on a loan for the current year outstanding)
Con
2. Prepaid Wages A/c Dr. 12000
To Wages A/c 12000
(Being prepaid wages recorded)
3. Accrued Commission A/c Dr. 5000
To Commission A/c 5000
(Being recording of accrued commission)
4. Rent A/c Dr. 10000

To Rent Received in Advance A/c
10000
(Being rent received in advance recorded)
Trading and Profit and Loss A/c (extract)
For the year ending….
Particulars Amount (Dr.) Particular Amount (Cr.)

To Opening Stock A/c By Sales A/c
To Purchases A/c By Closing Stock A/c
To Wages A/c 72000

Less: Prepaid wages (12000) 60000
To Gross Profit c/d
xxx xxx
To Interest on Loan A/c 150000 By Gross Profit b/d
Add: Outstanding interest on a loan 50000 200000 By

Commission A/c 15000
Add: Accrued commission
5000 20000
By Rent A/c 50000
Less: Rent received in advance
(10000)
To Net Profit
xxx
xxx
• Balance Sheet
• As at …
Liabilities Amount Assets Amount
Capital Fixed Assets:
Add: Net Profit Land and Building
Less: Drawings Plant and Machinery
Long-term liabilities: Furniture and Fixtures
Bank Loan Current Assets:
Current Liabilities: Stock
Outstanding Interest on Loan 50000 Debtors
Rent received in advance 10000 Prepaid Wages 12000
Accrued Commission 5000
xxx xxx
Q. What Are Financial Statements?
F/S- a. I/S : Present revenues & Expenses & resulting net income or net
loss.
-- b. Owner’s Equity Statement : Summarizes the changes in owner’s
Equity.
--- c. Balance sheet : Reflects the Financial Position of a company
--- d. Cash Flow statement : Summarizes information about the cash
inflows & outflows.
Financial statements are written records that convey the business activities and
the financial performance of a company. Financial statements are often audited
by government agencies, accountants, firms, etc. to ensure accuracy and for
tax, financing, or investing purposes. Financial statements include:
@Balance sheet @ Income statement @Cash flow statement.
• conFinancial Statements are useful for the following
reasons:
• To determine the ability of a business to generate cash, and
the sources and uses of that cash.
• To determine whether a business has the capability to pay
back its debts.
• To track financial results on a trend line to spot any looming
profitability issues.
• To derive financial ratios from the statements that can
indicate the condition of the business.
• To investigate the details of certain business transactions, as
outlined in the disclosures that accompany the statements.
• To use as the basis for an annual report, which is distributed
to a company’s investors and the investment community.
• Income Statement :The income statement presents the revenues,
expenses, and profits/losses generated during the reporting period.
This is usually considered the most important of the financial
statements, since it presents the operating results of an entity.
• Balance Sheet :The balance sheet presents the assets, liabilities, and
equity of the entity as of the reporting date. Thus, the information
presented is as of a specific point in time. The report format is
structured so that the total of all assets equals the total of all liabilities
and equity (known as the accounting equation). This is typically
considered the second most important financial statement, since it
provides information about the liquidity and capitalization of an
organization.
• Con
• Statement of Cash Flows : The statement of cash flows presents
the cash inflows and outflows that occurred during the reporting
period. This can provide a useful comparison to the income
statement, especially when the amount of profit or loss reported
does not reflect the cash flows experienced by the business. This
statement may be presented when issuing financial statements to
outside parties.
• Statement of Retained Earnings :The
statement of retained earnings presents changes in equity during
the reporting period. The report format varies, but can include
the sale or repurchase of shares, dividend payments, and changes
caused by reported profits or losses. This is the least used of the
financial statements, and is commonly only included in the
audited financial statement package.
• When the financial statements are issued internally, the
management team usually only sees the income statement and
balance sheet, since these documents are relatively easy to
prepare.
• Q.
• Special Journals
• Look at the following transactions of Fooz Ball Town:
• July 5 Sold $5,000 of merchandise inventory, terms 1/15, n 30, FOB Destination with a cost of
goods sold of $3,000 to Robby Red.
• July 6 Paid shipping cost of $200 on merchandise sold on July 5.
• July 10 Sold $1,500 of merchandise inventory for cash, FOB Shipping Point, with a cost of
goods sold of $1,000.
• July 12 Purchased $10,000 of merchandise inventory, terms 2/15, n 45, FOB Destination from
Gus Grass.
• July 15 Received payment from Robby Red from July 5 sale less the discount.
• July 16 Returned $2,500 of merchandise damaged in shipment from July 12 purchase.
• July 20 Paid the utility bill for $300.
• July 25 Paid for the July 15 purchase less the return and discount.
• July 30 Sold $7,000 of merchandise inventory, terms 1/15, n 30, FOB Shipping point with cost
of goods sold $5,000 to Bobby Blue.
• You can see how these journal entries (using the perpetual inventory method) would
be recorded in the general ledger as by clicking fooz ball town to save space.
• Note: The entries would be slightly different under the periodic inventory method as cost of
goods sold and merchandise inventory are not updated until the end of the period instead of
with each sale or purchase.
• The list of entries for these 9 transactions is long…can you imagine what it would look like
when a company has hundreds of transactions a day? It will be overwhelming so there needs to
be a better way. Special journals are a quicker and more efficient way to enter transactions.
Remember, we have 5 special journals:
• Q.
• 5 special journals:
• a sales journal to record ALL CREDIT SALES
• a purchases journal to record ALL CREDIT PURCHASES
• a cash receipts journal to record ALL CASH RECEIPTS
• a cash disbursements journal to record ALL CASH PAYMENTS; and
• a general journal to record adjusting and closing entries and any other entries that do not fit in one of the
special journals.
• Now we will classify Fooz Ball Town’s transactions into the proper special journals:
Date Transaction Summary Special Journal

July 5 Sold to Robby Red on credit. Sales Journal
July 6 Paid shipping cost. Cash Disbursements Journal
July 10 Sold inventory for cash. Cash Receipts Journal
July 12 Purchased inventory on credit. Purchases Journal
July 15 Received payment from Robby Red. Cash Receipts Journal
Returned damaged merchandise to
July 16 General Journal
supplier .
July 20 Paid utility bill. Cash Disbursements Journal
July 25 Paid for July 15 purchase. Cash Disbursements Journal
July 30 Sold to Bobby Blue on credit. Sales Journal
• Q.
• The July 10 sales is not recorded in the sales journal — why not? It was a cash sale and not on credit. The
discussion continues by looking at each special journal in detail.
• Sales Journal
• The sales journal is used to record all sales on credit. This means the customer has not paid but we will
receive payment in the future. The video shows an example of a sales journal under the periodic inventory
method:
• Under the perpetual inventory system, the Sales Journal would have another column to show Debit to Cost of
Goods Sold and a Credit to Inventory. For Fooz Ball Town, we identified the following transactions for the
sales journal:
• July 5 Sold $5,000 of merchandise inventory, terms 1/15, n 30, FOB Destination with a cost of goods sold of
$3,000 to Robby Red.
• July 30 Sold $7,000 of merchandise inventory, terms 1/15, n 30, FOB Shipping point with cost of goods sold
$5,000 to Bobby Blue.
• These entries would be recorded in the sales journal (instead of general journal entries) as:
Sales Journal
DR Accounts Receivable DR Cost of goods sold

Date Customer
CR Sales CR Inventory
July 5 Robby Red $5,000 $3,000
July 30 Bobby Blue 7,000 5,000
TOTALS $12,000 $8,000

• Q
• Cash Receipts Journal
• The cash receipts journal is used to record all receipts of cash for any reason. Anytime money comes into the
company, the cash receipts journal should be used.
• The cash receipts journal, under the perpetual inventory would, would also contain a column to Debit cost of
goods sold and Credit inventory used for any cash sales. For Fooz Ball Town, we identified two transactions for
the cash receipts journal:
• July 10 Sold $1,500 of merchandise inventory for cash, FOB Shipping Point, with a cost of goods sold of
$1,000.
• July 15 Received payment from Robby Red from $5,000 sale less the 1% discount.
• The cash receipts journal for these transactions would be:
Cash Receipts Journal
DR Cost of goods
DR Sales CR Accounts
Sold
Date Account DR Cash CR Sales
Discounts Receivable CR Inventory
July 10 Checking 1,500 1,500 1,000
July 15 Checking 4,950 50 5,000
TOTALS 6,450 50 5,000 1,500 1,000
• At the end of the period, the TOTALS only would be recorded in posted directly into the accounts listed with no
journal entry necessary.
• Q.
• Purchase Journal
• The purchases journal is used to record all purchases on credit. This means purchases we have not paid
for but will pay for in the future. There was one transaction identified for the purchase journal for Fooz
Ball Town:
• July 12 Purchased $10,000 of merchandise inventory, terms 2/15, n 45, FOB Destination from Gus Grass.
• This would be record in a purchases journal (under the perpetual inventory system as):
Purchases Journal
DR Merchandise Inventory
Date Vendor
CR Accounts Payable
July 12 Gus Grass 10,000
TOTALS 10,000
• The purchase from Gus Grass would be recorded in the accounts payable subsidiary ledger and the total
would be recorded at the end on the period by posting directly to merchandise inventory and accounts
payable.
• Q. Cash Disbursement Journal
• The cash disbursement journal is used to record all payments of cash regardless of the reason. Anytime
cash leaves the company, it should be recorded in the cash disbursement journal. We identified these
transaction from Fooz Ball Town for the cash disbursement journal:
• July 6 Paid shipping cost of $200 on merchandise sold on July 5.
• July 20 Paid the utility bill for $300.
• July 25 Paid for the July 15 purchase from Gus Grass of $10,000 less the 2% discount and $2,500 return.
• These entries would be recorded into a cash disbursement journal (under the perpetual inventory
method) as:
Cash Disbursement Journalt
CR Mdse
Date Check # Account DR Accts Payable DR Other CR Cash
Inventory
Merchandise
July 6 200 200
Inventory
July 20 Utilities Expense $300 $300
July 25 Gus Grass 7,500 150 7,350
TOTALS $7,500 $300 $150 $7,650

• Con
• At the end of the period, we would post the totals of $7,650 credit to cash, the $7,500 debit to accounts
payable, and the $150 credit to merchandise inventory. The DR (debit) Other column would be handled a
little differently as you need to look to the account column to find out where these individual amounts
should be posted. In this case, we would post a $200 debit to merchandise inventory and a $300 debit to
utility expense. Under the periodic inventory method, the July 6 shipping costs would go to a
Transportation In account and the July 25 discount would go to Purchases Discounts.
• General Journal
When using special journals, the general journal is used to record all adjusting entries, closing entries and
anything else that doesn’t fit into the other special journals. An example of this would be any returns or
allowances coming from either the sales or purchase side. For Fooz Ball Town, there is one transaction for the
general journal:
• July 16 Returned $2,500 of merchandise damaged in shipment from July 12 purchase.
• This journal entry is recorded, under the perpetual inventory method as:
Date Account Debit Credit
July 16 Accounts Payable 2,500
Merchandise Inventory 2,500
• This entry would then be posted to the accounts payable and merchandise inventory accounts both for
$2,500. Under the periodic inventory method, the credit would be to Purchase Returns and Allowances.
Q. ABC Inc. shows the following balances in its ledger:
Particulars Amount
Opening Stock of Inventory $5,000
Closing Stock of Inventory $2,000
Purchases $4,000
Sales $10,000
Direct Expenses $1,000
Indirect Expenses $3,500
Other Income $4,000
Assets:
Fixed Assets $17,500
Other Assets $5,000
Liabilities:
Loan $3,500
Other Liabilities $2,500
Capital $10,000
Reserve $4,000
Prepare the final accounts based on the given data.
Summary Comparison
Income Statement Balance Sheet Cash Flow

Time Period of time A point in time Period of time
Purpose Profitability Financial position Cash movements
Measures Revenue, expenses, Assets, liabilities, Increases and
profitability shareholders' equity decreases in cash
Starting Point Revenue Cash balance Net income
Ending Point Net income Retained earnings Cash balance
Gross Profit = Revenues – Cost of Goods Sold. Operating Income = Gross Profit – Operating
Expenses.
Amortization Expenses: These are also called depreciation expenses, and account for any long-
term assets over the life span of their use (such as cars or expensive technology)
Net Purchases (NP)= Purchases (P) + Freight in /Transport in /Carriage in (Pfi) --- Purchases Return (Pr)
--- Purchases Discount (Pd).
Net purchases = Purchases + Transportation in + Import duty ( if any) -- Purchase Return – Purchase
discount
NP = P+Pti + Imd – Pr --Pd
NP= P—Pr –Pd + Pfi
Net Purchases + freight in = Cost of Goods Purchases.
Net Sales (NS) = Sales (S) ---Sales Rerurn (Sr)--- Sales Discount (Sd)
NS = S---Sr ---Sd
Net Sales ---Cost of Goods Sold (COGS) = Gross Profit (GP)
Gross profit (GP) ---- Operating Expenses (Selling + Admin) = Income from Operations
Cost of Goods Sold:
Inventory, Jan 01 36,000Tk.
Purchases (P) 325,000
Less: Purchase Return 10,400
Purchase discount 6,800
17,200
Net Purchase 3,07,800
Add: Freight in 12,200
Cost of goods purchase / Net Purchase 3,20,000
Cost of goods available for sale 3,56,000
Less: Inventory, Dec. 31 40,000
Cost of goods sold 3,16,000
 Net Sales= Sales – Sales Return– Sales Discount
 Cost of goods purchases = purchases – purchase return—purchase discount +
freight in
 Cost of goods sold = Beginning inventory (BI) + Cost of goods purchased ---
Ending Inventory (EI)
COGS = BI+NP– EI
Gross profit = Net sales (NS) --- Cost of goods sold (COGS)
• Net Income / Operating Income = Gross profit (GP) – Operating Expenses
(OE)
• Operating Expenses (OE)= Selling Expenses (SE) + Administrative Exp (AdE)
• Selling Expenses (SE)= Sales Salaries Exp + Sales Commission Exp +
Depreciation of delivery Equipment + Bad debts + Other Selling Expenses
• Administrative Exp (AdE) = Office Salaries Exp + Dep of Assets used in Office
+ Prpperty Tax Exp + Utility Exp + Insurance Exp + Other Admin Exp
• Net Income before Tax (NIBT) = Operating Income (OI) + Non-Operating
Revenue (NOR) --- Non-Operating Exp (NOE)
• Non-Operating Revenue = Other Revenues & Gains [ i,e interest revenue on
investment, dividend, rental revenue, gain on sale of fixed assets etc].
• Net Income after Tax = NIBT --- Income Tax Exp
Question: The following trial balance has been taken out from the books of XYZ as on 31st December 2009.
Particulars Dr. Cr.
Plant and Machinery 100,000

Opening stock 60,000
Purchases 160,000
Building 170,000
Carriage inward 3,400
Carriage outward 5,000
Wages 32,000
Sundry debtors 100,000
Salaries 24,000
Furniture 36,000
Trade expense 12,000
Discount on sales 1,900
Advertisement 5,000
Bad debts 1,800
Drawings 10,000
Bills receivable 50,000
Insurance 4,400
Bank balances 20,000
Sales 480,000
Interest received 2,000
Sundry creditors 40,000
Bank loan 100,000
Discount on purchases 2,000
Capital 171,500
795,500 795,500
Closing stock is valued at INR 90,000. Prepare the trading and profit and loss account of the business for the year ended 31.12.2009
and a balance sheet as at that date.
Ans: XYZ
Trading and Profit and Loss Account
For the year ended 31st, December 2009
Particulars Amt Amt Particulars Amt Amt
Opening stock 60,000 Sales 480,000
Purchases 160,000 Less discount 1,900 478,100
Less discount 2,000 158,000
Closing stock 90,000
Carriage inward 3,400
Wages 32,000
Gross profit (transferred to
314,700
P&L)
568,100 568,000
Gross profit (transferred

Carriage outward 5,000 314,700
to P&L)
Salaries 24,000 Interest received 2,000
Trade expenses 12,000
Advertisement 5,000
Bad debts 1,800
Insurance 4,400
Net profit (transferred to
264,500
capital)
316,700 316,700
Q. Income Statement Example
Q. Prepare Adjustment Entries, Adjusted Trial Balance and three Informal Financial Statements excluding cash
flow statement.
• Balance sheet
• As on 31st December2021
• Adjustments
• Inventory on 31st, December 2015 was valued at Rs. 68,000.
• Depreciation Machinery by 10 % and Amortization of Patents by 20 %.
• Unexpired Insurance at the end financial year was Rs. 2,000.
• Wages includes Rs. 7,000 paid as advance to employees (Prepaid Wages Debit).
Ans: Adjustment Entries
Adjusted Trial Balance
Financial Statements (Informal)
continues
• continues
Ans:Con
SL Trial Balance Adjustments Adjusted Trial Balance Income Statement Balance Sheet
Accounts titles
No. Dr Cr Dr Cr Dr Cr Expenses Revenue Asset Equities
1 Sundry debtors 145,000 145,000 145,000
2 Drawings 52,450 52,450 52,450
3 Insurance expenses 6,000 2,000 4,000 4,000
4 General expenses 30,000 30,000 30,000
5 Salaries 150,000 150,000 150,000
6 Patents 75,000 75,000 75,000
7 Machinery 200,000 200,000 200,000
8 Leasehold land 100,000 100,000 100,000
9 Building 300,000 300,000 300,000
10 Opening inventory 58,600 68,000 126,600 126,600
11 Carriage on purchases 20,400 20,400 20,400
12 Carriage on sales 32,000 32,000 32,000
13 Fuel and power 47,300 47,300 47,300
14 Wages 104,800 7,000 97,800 97,800
15 Return inward 6,800 6,800 6,800
16 Cash at bank 29,500 29,500 29,500
17 Cash at hand 5,400 5,400 5,400
18 Purchases 406,750 68,000 338,750 338,750
19 Sundry creditors 63,000 63,000 63,000
20 Opening capital 710,000 710,000 710,000
21 Purchase return 5,000 5,000 5,000
22 Sales 988,800 988,800 988,800
23 Commiission 3,200 3,200 3,200
24 Dep. Exp. _Machinery 20,000 20,000 20,000
25 Amor. Exp._ Patents 15,000 15,000 15,000
26 Acc. Dep._ Machinery 20,000 20,000 20,000
27 Acc.Dep._ Patents 15,000 15,000 15,000
28 Unexpired insurance 2,000 2,000 2,000
29 Prepaid wages 7,000 7,000 7,000
30 Net profit transfer to O.E 234,950 234,950
31 Total 1,770,000 1,770,000 112,000 112,000 1,805,000 1,805,000 997,000 997,000 1,042,950 1,042,950
Con excel format Work Sheet
For the period ended December 31st, 2015
SL Trial Balance Adjustments Adjusted Trial Balance Income Statement Balance Sheet
Accounts titles
No. Dr Cr Dr Cr Dr Cr Expenses Revenue Asset Equities
1 Sundry debtors 145,000 145,000 145,000
2 Drawings 52,450 52,450 52,450
3 Insurance expenses 6,000 2,000 4,000 4,000
4 General expenses 30,000 30,000 30,000
5 Salaries 150,000 150,000 150,000
6 Patents 75,000 75,000 75,000
7 Machinery 200,000 200,000 200,000
8 Leasehold land 100,000 100,000 100,000
9 Building 300,000 300,000 300,000
10 Opening inventory 58,600 68,000 126,600 126,600
11 Carriage on purchases 20,400 20,400 20,400
12 Carriage on sales 32,000 32,000 32,000
13 Fuel and power 47,300 47,300 47,300
14 Wages 104,800 7,000 97,800 97,800
15 Return inward 6,800 6,800 6,800
16 Cash at bank 29,500 29,500 29,500
17 Cash at hand 5,400 5,400 5,400
18 Purchases 406,750 68,000 338,750 338,750
19 Sundry creditors 63,000 63,000 63,000
20 Opening capital 710,000 710,000 710,000
21 Purchase return 5,000 5,000 5,000
22 Sales 988,800 988,800 988,800
23 Commiission 3,200 3,200 3,200
24 Dep. Exp. _Machinery 20,000 20,000 20,000
25 Amor. Exp._ Patents 15,000 15,000 15,000
26 Acc. Dep._ Machinery 20,000 20,000 20,000
27 Acc.Dep._ Patents 15,000 15,000 15,000
28 Unexpired insurance 2,000 2,000 2,000
29 Prepaid wages 7,000 7,000 7,000
30 Net profit transfer to O.E 234,950 234,950
31 Total 1,770,000 1,770,000 112,000 112,000 1,805,000 1,805,000 997,000 997,000 1,042,950 1,042,950
• Preparation of Balance Sheet – Horizontal and Vertical Style:
The following trial balance is prepared after preparation of income statement for F. Green as at 31
March 2015.
Required: Prepare balance sheet for F. Green as at 31 March 2015 in both horizontal and vertical
style.
Working: In the absence of information about the date of repayment of a liability, then it may be
assumed that loan is a non-current liability and a trade payable is a current liability.
• Con Balance Sheet (Horizontal Style)
As at 31 March 2015
As mentioned earlier that vertical style of balance sheet is in fact another way of expressing
accounting equation, i.e.,
This relationship is shown in the following balance sheet:
Balance Sheet (Vertical Style)

As at 31 March 2015
• Continues
Q. Preparation of Income Statement and Balance Sheet:
The following balances are taken from the books of George Anderson at the end of his first year trading on 31
December 2014.
The following additional information is available:
• Inventory at 31 December 2014 was valued at $4500.
Required: (a) Prepare income statement for the year ended 31 December 2014.(b) Prepare a balance sheet as at
31 December 2014.
• Ans: a) Income Statement
For the year ended 31 December 2014
Continues
b) Balance Sheet as at 31 December 2014
Q. Worksheet format
Following data extracted from the books of Mahnoor Malik.
Adjustments : 1. Stock at 31st, December was valued at Rs. 320. 2. General Expenses of Rs. 300 paid for two years,
first year had expired. 3. A Debt of Rs. 100 is to be written off as bad by direct method. 4. Unpaid Salaries
during the 2008 was Rs. 140. Requirements 1. Pass Adjusted Entries 2. Pass Closing Entries 3. Prepare
Worksheet
Ans:
Continues
Q. Following data extracted from the books of Abdul Fattakh Ltd.
Adjustments : 1. Inventory on 31st, December 2015 was valued at Rs. 68,000. 2. Depreciation Machinery by
10 % and Amortization of Patents by 20 %. 3. Unexpired Insurance at the end financial year was Rs. 2,000.
4. Advance Wages paid to of Rs. 7,000. Requirements 1. Pass Adjusted Entries 2. Pass Closing Entries
3. Prepare Work Sheet
Ans:
Continues (again)
continues
Q. Trading Account : Prepare Trading Account for the year ending 31 st March 2018 for
Precious Ltd. 1. Opening stock Rs. 170,000 2. Purchases return Rs. 10,000 3. Sales Rs. 250,000
4.Wages Rs. 50,000 5. Sales return Rs. 20,000 6. Purchases Rs. 100,000 7. Carriage inward
Rs. 20,000 8.Closing stock Rs. 160,000
Ans:
Q. Profit and Loss Account : Prepare Profit and Loss Account, from the following
balances of Precious Ltd. for the year ending 31.03.2018:
1. Office rent Rs. 30,000 2. Salaries Rs. 80,000 3. Printing expenses Rs. 2,000
4. Stationeries Rs. 3,000 5.Tax, Insurance Rs. 4,000 6.Discount allowed
Rs. 6,000 7. Advertisement Rs. 36,000 8. Travelling expenses Rs. 26,000
9. Gross Profit Rs. 250,000 10.Discount received Rs. 4,000
Ans:
Q. Trading and Profit and Loss Account; Balance Sheet
From the following trial balance of Abdul Rehman Khan & Brothers, prepare trading and profit and loss account for the
year ending on 31st March, 2017 and balance sheet as on the date:
Continues Ans:
• con
Q. Let us look at another example of preparation of final accounts of a sole proprietor. Mr. Munir Ahmed
runs a general store. His Trial Balance as on 30 th September, 2018 was as follows:
Con
Additional Information: (a) Closing stock as on 30th September, 2018 was 86,000.
(b) Provision for doubtful debts is to be maintained at 7% on debtors.
(c) Purchases include purchases of furniture worth Rs. 45,000.
(d) Insurance paid on Feb 1st for full year and outstanding wages of Rs. 7,000.
You are required to prepare the Trading Account and the Profit and Loss Account for the year
ended 30th September, 2018 and also a Balance Sheet as on the same date.
Ans:
Note 1: Insurance expense Rs. 24,000 i.e. 24,000/12 = 2,000 per month.
• This accounting year contains eight month (Feb to September) = 2,000 * 8 = 16,000
• So insurance expense is in this accounting year is Rs. 16,000 and Rs. 8,000 Prepaid insurance.
• Note 2: Provision for doubtful debts = Bad Debts (T.B) + New Provision (Adj.) – Old Provision (T.B)
• Provision for doubtful debts = 19,500 + [265,000 *7%] – 15,000
• Provision for doubtful debts = 23,050
continues
con
• Question of financial statements:
• Q. 1. At the end of its first month of operations, Waston answering services has the following unadjusted trial balance:
Waston answering services
August 31st, 2012
Trial balance
Sl. No. Particulars Debit (TK) Credit (TK)
1 5400
Cash
2 2800
Accounts receivables
3 2400
Prepaid insurances
4 1300
supplies
5 60000
equipment
6 40000
note payable
7 2400
Account payable
8 30000
Capital
9 1000
Drawing
10 4900
Service revenue
11 3200
Salary expenses
12 800
Utilities expenses
13 400
Advertising expenses
Total 77300 77300
• Others data:/adjusting/adjustments
1.Insurances expires @ TK.200 per month
2. TK. 1000 of supplies are on hand at august 31 st
3. Monthly depreciation on the equipment is TK. 900
4. Interest due to TK.500 on the notes payable has accrued during August.
Requirements: Prepare income statement & balance sheet, /complete the final account.
Solution.
Income statement
For August 31.2012
Dr Cr
Particulars/ expenses Tk Particulars/income Tk

To Salary expense 3200 By service revenue 4900
Utility expense 800
Advertising expense 400
Insurance expense(1) {2400-2200} 200
Supplies expense(2) {1300-1000} 300 Net loss ( balancing figure)
Depreciation ex-equipt(3) 900 transferred to capital/Balance
Interest Expense(4) 500 c/d (carried down)
1400
Total 6300 Total 6300
• Balance sheet
• As on 31st August, 2012
Assets TK Liabilities + Owner’s Equity Tk
Asset: Liabilities:
Current Assets 5400 Current Liabilities 2400
Cash 2800 Account Payable 500
Account receivable 2200 Interest Payable 40000
Prepaid insurance Note Payable
Supplies 1000 Long-term Liabilities
Long-term assets:
Equipment 60000 Owner’s equity:
(-) depreciation 900 59100 Capital 30000
(-)Net Loss (1400) 27600
(-)Drawing (1000)
Total 70500 Total 70500

• Adjusting entries
Credit(T
S.N particulars Debit (TK)
K)
Insurance Expense A/c Dr 200
1 Prepaid insurance A/C Cr 200
( As insurance expires )
Supplies expense A/c Dr 300
2 Supplies A/C Cr 300
( As supplies expensed)
Depreciation ex- equipment A/c Dr 900
3 Accumulated Dep- Equipment A/C Cr 900
( As depreciation expensed)
Interest expense A/c Dr 500
4 Interest payable A/C Cr 500
( As interest-due )
• Closing entries
Debit
S.N particulars Credit(TK)
(TK)
Service revenue A/c Dr 4900
1 Income summary A/C Cr 4900
( To close revenue account)
6300
Income summary A/c Dr
Salary A/C Cr
3200
Depreciation A/C Cr
900
Utility Expenses A/C Cr
800
Interest Expense A/C Cr
2 500
Advertising Expense A/C Cr
400
Supplies Expense A/C Cr
300
Insurance Expense A/C Cr
200
(To close expenses)
Capital (Net loss) A/c Dr

1400
Income summary A/C Cr
3 1400
( To close net loss to capital)
Capital A/c Dr 1000
4 Drawing A/C Cr 1000
( To close drawing to capital )
• 2. Question: Prepare Financial Statements and give the Adjusting entries and Closing entries from the following Trial
Balance and adjustments.
Trial balance
Serial Particulars Debit Credit (Tk.)

No. (Tk.)
1. Cash 8750
2 Account Receivable 6000
3 Supplies 2000
4 Prepaid insurance 2400
5 Office equipments 15000
6 Account Payable 4500
7 Unearned service revenue 4000
8 Capital 21750
9 Salaries 4000
10 Rent 1000
11 Service revenue 13400
12 Drawing 4500
Total 38150 43650
Adjustments:
1. Supplies on hand are Tk. 1300. 2. Utility bill for Tk. 150 to be paid next month.
3. The insurance policy is for a year. 4. Tk. 2500 of unearned service revenue has been earned at the end of the month.
5. Salary accrued Tk. 1500. 6. Bill Tk. 3000 for service performed.
7. Monthly depreciation office equipment is Tk. 250
Solution:
Adjusting entries:
Serial Particulars Debit (Tk.) Credit

No. (Tk.)
1 Supplies expense A/C 700
Supplies A/C 700
(As expired/expense)
2 Utility expense A/C 150
Utility payable A/C 150
(As due)
3 Insurance expense A/C 200
Prepaid insurance A/C 200
(As expense/expired)
4 Unearned service revenue A/C 2500
Service revenue A/C 2500
(As earned)
5 Salaries expense A/C 1500
Salaries payable A/C 1500
(As due/accrued)
6 AR/Accrued service revenue A/C 3000
Service revenue A/C 3000
(As due)
7 Depreciation expense -- equipment A/C 250
Accumulated depreciation --equipment A/C 250
((As depreciation)
Closing entries
Serial Particulars Debit (Tk.) Credit (Tk.)
No.
1. Service revenue A/C 13400
Income summary A/C 13400
2 Income summary A/C 7800
Insurance expense A/C 200
Supplies expense A/C 700
Salaries expense A/C 5500
Rent expense A/C 1000
Depreciation expense A/C 250
Utility expense A/C 100
3 Income summary A/C 5600
Capital 5600
Income statement
For the year ended 31st December, 2012
Particulars
Dr Tk. Particulars Cr Tk.
Insurance expense 200 Service revenue 13400
Supplies expense 700
Salaries expense 5500
Rent expense 1000 (13400+2500+3000)
Depreciation expense 250 18900
Utility expense 150
Total expense 7650
Net profit-transferred to
capital(balancing figure/ c/d) 11250
Total 13400 13400
Owner’s Equity statement: 31850-4500=28500
(Capital + Net income)- Drawing = (21750 + 11250)-4500 = 28500
Balance sheet
For the year ended 31st Dec, 2012
Assets Tk. Liabilities & Owner’s Equity Tk.

Current assets: Current liabilities:
Cash 8750 Account payable 4500
Accounts receivable 6000 Unearned service revenue 1500
Prepaid insurance 2200 (4000-2500)
Supplies on hand 1300 Salaries payable 1500
Accrued service revenue 3000 Rent payable 150
Total current assets 21250 Total current liabilities 7650
Equipment: Long term liabilities:
Equipment minus depreciation Capital
(15000-250) 14750 28500
Total assets 35000
Total 35000 Total Liabilities & Equity 35000

• Q..3. Financial statement . The following is the Trial balance of XYZ as on Dec, 31st 2012:
Si. Particulars Debit Credit

No (TK.) (TK.)
.
1 Drawings 5000
2 Furniture & Fittings 3000
3 Business Premises 30,000
4 Stock on 1st January 2012/opening inventory 22,000
5 Debtors/AR 18,600
6 Purchases 110000
7 Sales return 2000
8 Discount 1600
9 Taxes & Insurances 2000
10 General Expenses 4000
11 Salaries 9000
12 Commission 2200
13 Carriage-/transport-in 1800
14 Bad debts 800
15 Capital 40,000
16 Bank overdraft 4600
17 Creditors/AP 13,800
18 Rent 1000
19 sales 150000
20 Discount 2000
21 Provision for doubtful debts 600
Total TK. TK.
2,12000 2,12000
• Other data: 1. Stock in hand 31 st December, 2012 was estimated at tk. 20000.
2. Carriage included tk. 22 spent on furniture bought. 3. General expenses include purchases of stationary tk. 200 of which
stationary worth tk. 50 remained unused at the end of year. 4. Rent tk. 300 is still due. 5. Salaries tk.800
are also still due. 6. Write off bad debts tk.600. 7. Depreciate business premises by tk. 500 &furniture &
fittings by tk. 303. 8. Make a provision of 5% on debtors for bad debts & doubtful debts and
9. Provide provision of 2% for discounts at bad & doubtful debts.
10. Allow interest on capital at 5%. 11. Carry forward tk.700 for unexpired insurance.
• 12. The manager is entitled to a commission of 10% on profit after charging his commission.
• Requirements: Prepare trading account, profit & loss account and Balance Sheet as at that data.
Solution: Trading Account , For the year ended 31st December, 2012
Dr=133778 Cr
Particulars Taka Particulars Taka
To (1)opening Stock 22000 By (2)Sales 150000

To (2)Purchase 110000 (-)Sales return (2000) 148000
To Carriage 1800 By(1) Closing Stocks 20000
(-)Carriage for furniture (22) 1778
Gross profit(Balancing 34222
figure)/transferred to P/L,I/S
168000 Total 168000
Total
Profit & Loss Account For the year ended 31st Dec.2012
Dr =23695 13827 Cr=37522
To(1) Salaries 9000 By Gross Profit B/d(T/A) 34222

(+)Due (800) 9800 By Rent received 1000
(+)Due 300 1300
To (2)General Exp 4000
(-)Purchase stationary (200) 3800 By discount received 2000
To Stationary 200 150

(-)Unused (50) 2200
To commission
To Tax & insurance 2000 1300
(-)Prepaid (700)
To Provision for bad & doubtful debts:
New (adjus - 6) 600
(+)Old ( T/B) 800
(+)5% provision 900 1700
(-)Old provision (600)

To discount 1600
(+)provision for discount 342 1942
To Depreciation:
Business premise 500 803
Furniture & fittings 303
2000
To interest on capital
To commission payable to managers 1257
(13827*10)/110
To Net profit transferred to
capital(Balancing figure) 12570
Total
37522 Total 37522
Calculation of provision for bad debts: Debtors 18600 (-)New bad debts (600)
Equals(=) 18000 @5%=900 (New provision for bad debts) . New provision for discount (18000-
900)=17100 @ 2% = 342 taka. (13827*10=138270/110=1257.)
Balance Sheet As on 31 st December, 2012
Assets Taka Liabilitie s+ owners Equity Taka
Debtors 18600 Bank over draft 4600

(-)New bad debts (600) Creditors 13800
= 18000 Salaries due 800
(-)provision for bad debts Commission due 1257
(900) 2057
= 16758 Capital:
17100 Opening 40000
(-)provision for discount 20000 (+)Interest on capital 2000
(342) 50 (+)Net profit 12570
300 (-)Drawing (5000) 49570
Stock in trade/closing inventory
Stationary in hand
Rent(receivable)due 29500
Business premises
30000 2719
(-) Depreciation
(500)
700
Furniture 3000 70027 Total 70027
(+)Carriage 22
(-)Depreciation ( 303)
Prepaid insurance
Total
Q. A Ltd. was registered with an authorized capital of Rs. 6, 00,000 in equity shares of Rs. 10 each. The
following is its Trial Balance on 31 March 2008.
• Prepare Profit & Loss Account, Profit & Loss Appropriation A/c and Balance Sheet in proper form after making the
following adjustments:
• (i) Depreciate plant and machinery by 15%, (j) Write off Rs.500 from preliminary expenses
• (k) Provide for 6 months interest on debentures
Con: (l) Leave bad and doubtful debts provision at 5% on sundry debtors (m) Provide for income tax at 50%
(n) Stock on 31.3.2008 was Rs. 95,000.
Ans:
Continue
Q. Using the balances extracted from the books of John Enterprises (run by Mr.
John), prepare the final accounts (i.e., manufacturing trading and profit and loss
account) for the year ended 31 March 2020. Also, prepare a balance sheet as on
31 March 2020.
• Con
Stock on 31 March 2020 is as follows:
Raw materials 35,600
Work-in-pr0gress 17,400
Finished goods 96,500
Packing materials 1,250
The following liabilities are to be provided:
(a) Factory power 5,620

(b) Rent and rates 3,860
(c) Lighting and heating 1,600
(d) General expenses:
Factory 250
Office 400
(e) Insurance prepaid 1,700
Provide depreciation @ 10% on plant and 5% on furniture. Increase bad debts provision by $1,000.
Five-sixths of rent and rates, lighting and heating, and insurance are to be allocated to the factory and one-sixth
to the office.
Ans:
In the Books of John Enterprises
Manufacturing, Trading and Profit and Loss Account
For the year ended 31 March 2020
Continue
• Q. Problems # 1:
From the following particulars taken out from the books of Abdul Hanan & Co. You are required to prepare
Trading and Profit & Loss Account and Balance Sheet as at December 31 st, 2019
S.N Particulars Debit(Tk.) Credit(Tk)

1. Sundry Debtors 52,000
2. Accounts Payable 22,000
3. Cash in hand 2,392
4. Furniture 3,500
5. Motor car 22,000
6. Purchases 1,45,000
7. Sales 2,92,000
8. Sales return 2,600
9. Salary 8,420
10. Opening stock 11,400
11. Motor car expenses 3,600
12. Equipment 2,508
13. Insurance premium (paid on 01.10.21) 2,400
14. Cash at bank 6,200

15. Machinery 24,000
16. Wages 23,600
17. General expenses 2,680
18. Carriage inward 2,040
19. Carriage outward 1,630
20. Transportation in 6,430
21. Owner equity 20,000
22. Drawing 8,000
23. Rent & Taxes 3,600
Total 3,34,000 3,34,000
Continue: Adjustments: (a) Closing stock TK. 35,000. (b) Provision for doubtful debts
at 5% of sundry debtors.
(c) Depreciate furniture and machinery by 10%. (d) Commission of TK. 3,600 has
been earned but not received till the closing of accounts.
Requirement: You are required to prepare Trading and Profit & Loss Account and
Balance Sheet as at December 31st, 2019.
.
Continue: Prepaid insurance is 600 not 1800 in 1st problem i e., 2400/12 = 200 * 3months prepaid
= 600 , 1800 is not prepaid
Q. Problems # 2:
• From the following trial balance of Faris Ali Qureshi & Bros. and additional information, prepare Trading
and Profit & Loss account and Balance sheet for the year ended June 30 th, 2019
S.N Particulars Debit(Tk.) Credit(Tk)
1. Capital 1,00,000
2. Furniture 20,000
3. Purchases 1,50,000
4. Debtors 2,00,000
5. Interest Earned 4,000
6. Salaries 30,000
7. Sales 3,21,000
8. Purchases Return 5,000
9. Wages 20,000
10. Rent 15,000
11. Sales return 10,000
12. Transportation out 7,000
13. Creditors 1,20,000
14. Provision for bad debts 6,000
15. Printing & stationery 8,000
16. Insurance expense 12,000
17. Opening stock 50,000
18. Office expenses 12,000
19. Bank overdraft 2,000
20. Drawing 24,000
Total 5,58,000 5,58,000

Continu Additional Information
1. Depreciation furniture by 10% by written down method (WDM). 2. A provision for
doubtful debts is to be created to the extent of 5% on sundry debtors. 3. Salaries for the
month of June, 2019 amounting to Rs. 3,000 were unpaid which must be provided for.
However, salaries included Rs. 2,000 paid in advance. Office expenses outstanding Rs.
8,000.
4. Insurance amounting to Rs. 2,000 is prepaid. 5. Stock use for private purpose Rs.
6,000 and closing stock Rs. 60,000.
Co
Q. Problems # 3:
• The following Trial Balance of Amna Mushtaq Ahmed & Brothers on June 30 th, 2020, Prepare
Profit and Loss Account and Balance Sheet.
Co Adjustments:
• Stock at the end of year Rs. 5,200 and Three months Excise duties is due, but not paid Rs. 30.
• 5 percent depreciation to be written-off on furniture and write-off further bad debts Rs. 70.
• The provision for bad debts to be Rs. 300 and provision for discount on debtor @ 2 % to be
made.
• During the year machinery was purchased for Rs. 2,000, but was debited to Purchase account.
• Co
Q. Problems # 4:
• The following are the balances taken from the books of Muhammad Zain Ammar
Safdar & Co. on May 31st, 2020. You are required to prepare Trading and Profit and
Profit and Loss Account / Income Statement for the year ended May 31 st, 2020 and
Balance Sheet as on that date.
Adjustments: 1. Depreciation furniture and machinery at 10% p.a. 2.
Insurance is paid in advance to the extent of Rs. 200. 3 Reserve for
discount is no longer required and is to be written back. 4. Closing stock
is valued at Rs. 100,000. 5. Interest on bank loan is outstanding .
con
Q . Problems # 5:
The following Trial Balance of Hashim & Ibrahim Enterprises as on December 31 st, 2019, Prepare Financial
Statement in horizontal style.
• Hashim and Ibrahim share profit and loss equally, other information is given below:
• Stock at the December 31st, 2019 was Raw material Rs. 4,000 and Finished goods
Rs. 12,000.
• Outstanding expenses: Salaries Rs. 1,500; Carriage Rs. 2,100.
• Insurance paid for 15 months upto March 2020.
• Write-off Bad debts of Rs. 400 and Provision for bad debts @ 5 % of debtors.
• Goods withdrawn by Hashim for personal use Rs. 2,000.
con
Q What is cost? Classify costs
Cost: Investments/expenditure made for purchasing
assets/property.
Accountants define cost as a resource sacrificed or forgone to
achieve specific objectives. It is usually measured as the monetary that
must be paid to acquire goods and services.
Classification of cost: Costs can be classified from different point of
views.
1. From the view point of cost tracing and cost allocation:
a.) Direct cost. b.) Indirect cost.
2. From the view point of cost behavior patterns:
a. )Variable cost. b) Fixed cost.
3. From the view point of relevant range:
a) Semi variable cost. b)Semi fixed cost.
4. From the view point of others:
a.) Historical cost. b) Opportunity cost. c) Out of pocket cost.
d) National cost. e) Sunk cost.
• Direct cost:
Direct cost of a cost object is related to the particular cost object & can be traced
to it in an economically feasible way, example- Direct material cost.
• Indirect cost:
Indirect cost of a cost object are related to the particular cost object but cannot
be traced to it in an economically feasible way. Example- lighting of
administrative building.
• Fixed cost:
Cost that remains unchanged in total for a given period deposit with changes in
the related level of total activity or volume.
• Period cost:
All cost in the income statement other than cost of goods sold.
• Product cost:
Sum of the costs assigned to a product for a specific purpose.
• Variable cost: Cost that change in the total proportion to changes in the
related level of total activity or volume.
• Semi Variable Cost:
Costs that have both variable & fixed cost components.
FC: Fixed costs are those that remain the same regardless of sales volume or production.
Rent, insurance, supervisory salary and real estate taxes are usually examples of fixed cost.
• Fixed cost remains the same whether the business produces nothing or is working at full
capacity
• Fixed cost per unit is variable, when production increase it decrease and vice versa.
VC: Variable costs are those which change as sales volume or production changes.
They are expressed usually as a percent of sold units like 8% of sales. Inventory, raw
materials and direct production labor, for example, are usually variable costs.
• Variable Cost = Variable Cost per Unit x Sold Units
• Variable cost per unit is fixed
Con
Total Cost: By adding fixed and variable cost we derive total cost
• Total Cost = Fixed Cost + Variable Cost
Q. Distinguishbetween costs and expenses/Compare and contrast between cost and
expenses/Write some features of them/ how can you distinguish costs from
expenses ?
Costs points Expenses
Investments/expenditure made for 1.Meaning Regular expenses required for
purchasing assets/property. maintaining the assets/property.
Is a balance sheet item. 2.Place in Is an income statement item
financial
statement
It does not directly affect profit margins 3.Impact on It directly affects profit margins of the
of the company. profit company.
margins
Purchase/addition of an asset. Motive Payment necessary to generate revenue
from these purchases/assets.
It does impact capital structure if the 4.Impact on There is no impact on a company’s
asset is non-current. capital capital structure.
structure
If current asset impact liquidity ratio. 5.Impact on There is no impact on liquidity ratio.
liquidity
ratio
Fixed asset, prepaid rent, inventory etc. 6.Examples Raw material, depreciation, labor cost
etc.
Q. How can you measure the performance of a company/What Is the Best
Measure of a Company's Financial Health/How can any one justify the financial
conditions of a company ?
To accurately evaluate the financial health and long-term sustainability of a
company, a number of financial metrics must be considered. Four main areas of
financial health that should be examined are liquidity, solvency, profitability, and
operating efficiency. However, of the four, likely the best measurement of a
company's health is the level of its profitability.
1.Liquidity
Liquidity is the amount of cash and easily-convertible-to-cash assets a company
owns to manage its short-term debt obligations. Before a company can prosper in
the long term, it must first be able to survive in the short term. The two most
common metrics used to measure liquidity are the current ratio and the quick
ratio. Of these two, the quick ratio, also sometimes referred to as the acid test, is
the more precise measure.
• Current ratio = Current assets / Current liabilities
• Quick ratio = (Current assets – Inventories) / Current liabilities
Con
Important point is A company's bottom line profit margin is the best single
indicator of its financial health and long-term viability.
• A ratio under 1 indicates that the company’s debts due in a year or less
are greater than its assets (cash or other short-term assets expected to
be converted to cash within a year or less.)
• On the other hand, in theory, the higher the current ratio, the more
capable a company is of paying its obligations because it has a larger
proportion of short-term asset value relative to the value of its short-
term liabilities.
• 2. Profitability : These ratios convey how well a
company can generate profits from its operations.
Profit margin, return on assets, return on equity,
return on capital employed, and gross margin ratios
are all examples of profitability ratios.
Profit Margin = Net Income/Revenue
3.Solvency/ (Leverage Ratio)/(Coverage Ratio)
• Also called financial leverage ratios, solvency ratios compare a company's
debt levels with its assets, equity, and earnings, to evaluate the likelihood
of a company staying afloat over the long haul, by paying off its long-term
debt as well as the interest on its debt. Examples of solvency ratios include:
debt-equity ratios, debt-assets ratios, and interest coverage ratios.
Debt-to-Equity (D/E):
Debt to equity = Total debt / Total equity
Debt-to-Assets:
Debt to assets = Total debt / Total assets
Interest Coverage Ratio
Interest coverage ratio = Operating income (or EBIT) / Interest expense
• 4. Operating Efficiency/(Activity Ratio)/(Valuation Ratio)
A company's operating efficiency is key to its financial success. Its operating margin
is the best indicator of its operating efficiency. This metric indicates not only a
company's basic operational profit margin after deducting the variable costs of
producing and marketing the company's products or services, but it also provides an
indication of how well the company's management controls costs.
Price to Earnings = Market Value Per Share/ Earnings Per Share (EPS)
No single metric can identify the overall financial and operational health of a company.
Liquidity will tell you about a firm's ability to ride out short-term rough patches and
solvency tells you about how readily it can cover longer-term debt and obligations.
Efficiency and profitability say something about its ability to convert inputs into cash
flows and net income. All of these factors together, however, are necessary to get a
complete and holistic view of a company's stability.
• Q. What Is Capital?
Capital can be held through financial assets or raised from debt or equity financing. Businesses
will typically focus on three types of business capital: working capital, equity capital, and debt
capital. In general, business capital is a core part of running a business and financing capital
intensive assets.
Capital assets can include cash, cash equivalents, and marketable securities as well as
manufacturing equipment, production facilities, and storage facilities.
capital structure equals debt obligations plus total shareholders' equity:
Capital Structure=DO+TSE
Where: DO=debt obligations, TSE=total shareholders’ equity
Types of Capital
1.Debt Capital. 2. Equity Capital , 3. Working Capital
Debt Capital: Sources of capital can include friends, family, financial institutions, online lenders,
credit card companies, insurance companies, and federal loan programs.:
Equity Capital: Public equity capital raises occur when a company lists on a public market
exchange and receives equity capital from shareholders. Private equity usually comes from select
investors or owners.
3. Working Capital
Working capital includes a company’s most liquid capital assets available for fulfilling
daily obligations. It is calculated on a regular basis through the following two
assessments:
Current Assets – Current Liabilities
Accounts Receivable + Inventory – Accounts Payable
Working capital measures a company's short-term liquidity—more specifically, its
ability to cover its debts, accounts payable, and other obligations that are due within
one year.
4. Trading Capital
Trading capital refers to the amount of money allotted to buy and sell various
securities. These methods attempt to make the best use of capital by determining the
ideal percentage of funds to invest with each trade.
Q. How to Calculate Return on Investment (ROI)
ROI can be calculated using two different methods.
• First method:
ROI =
• Second method:
ROI =
Important: A positive ROI means that net returns are positive because total returns
are greater than any associated costs; a negative ROI indicates that net returns are
negative: total costs are greater than returns.
Q. What are the Techniques /tools of investment decisions
POINT OF Net Present Value Internal Rate of

DIFFERE (NPV) Return (IRR) Payback (PB) Profitability Index Accounting Rate of
NCE Return
The time within The present value of
The present value of The rate at which the which we will future cash inflow,
all future cash flows, present value of future recover the as the number of
MEANIN less present value of cash flows equals the initial cash times of cash Percentage return
G the cash outflow cash outflow outflow. outflow on the cash invested.
We express NPV in IRR is expressed in the We express PB We express ARR in

EXPRESS the form of currency form of percentage in the form of a PI is expressed in the form of a
ED AS returns. returns. time period. the form of a ratio. percentage.
Payback focuses
NPV focuses on IRR focuses on on determining PI focuses on
determining whether determining what is the time period determining how
the investment is the breakeven rate at within which the many times of the Focused on
generating surplus which the present value initial initial investment determining the
returns than the of the future cash flows investment can are we going to get percentage returns
FOCUS expected returns. becomes zero. be recovered. back. from an investment
ARR does not have

NPV requires the use IRR doesn’t have this the difficulty of
of a discount rate difficulty since it Payback also PI uses a discount ascertaining an
DISCOUN which can be ‘calculates’ the rate of does not use rate to discount the appropriate
T RATE difficult to ascertain. return. discount rates. future cash flows. discount rate.
PB method also
CALCULA ignores the The PI method ARR does not
TION OF NPV calculates the IRR ignores the present value of calculates the calculate the present
PRESENT present value of present value of future future cash present value of value of future cash
VALUE future cash flows. cash flows. flows. future cash flows. flows
The formula :
1 .NPV=
Where:
• Rt =Net cash inflow at time t
• i= Discount rate
• t= Time of cash flow
2.PBP=
or
B
Payback Period = A +
C
• A is the last period number with a negative cumulative cash flow;

B is the absolute value (i.e. value without negative sign) of cumulative net cash flow at the end of the
period A; and
• C is the total cash inflow during the period following period A
• Cumulative net cash flow is the sum of inflows to date, minus the initial outflow.
3 .IRR:
Ct

T
 Co
= 1  IRR t
t 1
• 0=NPV
• IRR=NPV=
• Where:
• Ct= Net cash inflow during the period t
• C0= Total initial investment costs
• IRR= The internal rate of return
• t= The number of time periods
• r=discount rate
• Profitability and Safety indicator
• ROI (Return On Investment):Profit ÷ Investment amount
• Equity to Total Assets: Equity capital ÷ Total capital
• Current ratio: Current assets ÷ Current liabilities
• Economical Efficiency Analysis
• ROI method (Return On Investment method)
• PBP method (Pay Back Period method)
• NPV method (Net Present Value method)
• IRR method (Internal Rate of Return method)
• Con
• Break-even Point Analysis
Break-even point analysis is a method of analysis which
is used to determine the break-even point, when operating
profit is zero and there is no profit or loss. This data is
useful for profit planning and other planning.
(1) Profit planning (2) Direct cost accounting (Fixed
cost and Variable cost)
Fixed cost And Variable cost
• Fixed cost Ratio: Fixed cost ÷ Sales
• Variable cost Ratio: Variable cost ÷ Sales
• Marginal profit = Sales − Variable cost
(Operating profit + Fixed cost => Operating profit = Marginal profit − Fixed cost)
Marginal profit ratio :Marginal profit ÷ Sales
Or {1- (Variable cost ÷ Sales)}
Marginal profit (Contribution margin)
Marginal profit = Sales − Variable cost
Or Operating profit + Fixed cost
Marginal profit ratio = Marginal profit ÷ Sales
• Break-even point sales:
Depreciation
Allocations the assets value over the commercially effective life of Assets.
• The Price of plant is Tk. 100000, It an be used for five years Depreciation
for per year Tk. 20000
• Straight-line method:
• Depreciation cost =(Acquisition cost – Salvage value)÷Number of years of
useful life
Inventory valuation:(Other topic)
a. First-in first-out method
b. Last in first out method
c. Periodic and Perpetual average method
d. Moving average method
e. Final acquisition cost method (Final purchase cost method)
• Income/ Revenue- Cost/ Expenses
Income statement equality:
a) If there is a profit:
Income = Cost + Profit or
b) If there is a loss: Cost = Income +-- Loss
For product sales
• Cost of sales: Beginning of period goods inventory+ Current period
amount of goods purchased − End of period goods inventory
For manufacturing
Manufacturing cost:
Current period material cost + Current period labor cost + Current period
expenses
Product manufacturing cost:
• Beginning of period work in progress inventory+ Current period
manufacturing cost− End of period work in progress inventory
Cost of sales:
• Beginning of period product inventory+ Current period product
manufacturing cost − End of period product inventory

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Recognition & Measurement concepts

• Conceptual framework : A coherent system of interrelated objectives and fundamentals

2nd level bridge between

1st level The why goals &

The objective of general purpose financial reporting:

Elements of the financial statements (Financial position)

Definition of Conceptual Framework of Accounting (CFA):

•Assumptions: –Economic Entity, –Going Concern, –Monetary Unit, & –Periodicity

1. To furnish information useful in making investment & credit decisions:

2. To provide information useful in assessing cash flow prospects:

• Losses ..............when future economic benefits are reduced or eliminated

Full Disclosure Principle: All information must be disclosed, in

• i. To manage the recourse held by specific entities.

Q. What r the Objectives of Accounting ? Explain the objectives of Acc

Assets(A) = Liabilities(L) + Owners’ equity(OE)

2. Liabilities (what it owes to other)the claims of third parties

3. Owners’ Equity (the difference between assets and liabilities)/owner’s claims

• Assets ---are a company’s resources-things the company owns. Examples of assets

Owner’s investment/capita & income/revenue/profit increase the OE, and owner’s

Accounting Cycle: The order or sequence in which Accounting procedures are

• Journal: Chronological listing of a business/firm’s transactions

Si. Date Particulars Ledger Debit Credit

01 1.1.20 Cash A/C Dr 500000

Date Description J.F Amount Date Description J.F Amount

2 Accounts payable 3000

• Most Common Types of Journals

• The four types of cash books are:

• Gross Profit Ratio = x 100.

• Net Profit Ratio = x 100.

Operating Ratio= x 100. or

• Operating profit Ratio ==

• Expense Ratio = x 100.

• Return on gross capital employed ratio = x 100.

Gross capital employed = Fixed Assets + Investment + Current Assets.

Quick or Acid test or Liquid (for immediate solvency) ratio = x 100.

Quick ratio= x 100

• Inventory/ stock turnover Ratio = x 100, or

• Inventory turnover ratio = x 100 or

• Inventory turnover ratio = x 100

• Inventory turnover ratio = x 100

Average daily credit purchase = or

• Fixed assets to Proprietors fund =

• Total debt ratio=

• Interest coverage ratio=

Because their work is so technical, it can sometimes be harder for

By acquiring essential business skills, engineers can better equip

Double-entry bookkeeping, in accounting, is a system of book keeping where every entry to an

S.N./Points Single entry Double entry

Duality Not based on duality Based on duality

Costs involved Cheap Costly

i. Easy to Form and Wind up: A sole proprietorship form of business is

i. Limited Capital: ii. Unlimited Liability iii. Lack of Continuity: iv.

Limitations: • Limited Capital • Unlimited Liability • Lack of Continuity •

• Q. Rights of Partner in Partnership:

✓ Shareholders (often family members) can be employed by the company

✓ Taxation rates can be more favorable

✓ It has access to a wider capital and skills base.

✓ Expensive to establish, maintain and wind up

✓ The reporting requirements can be complex