CA.CS.CMA.MBA: Naveen.

Rohatgi SAMSOE: Management Accounting

CONCEPT IN FINANCIAL ACCOUNTING

1.INTRODUCTION
In any type and size of business enterprise there are numerous transactions taking place every
day. Every businessman is interested in knowing the result of the business after certain equal
intervals. These intervals are generally accounting years (financial years) having twelve
months span starting on 1stApril of the year and ending on 31st March of the next year. Thus,
in order to ascertain the business result, there is a need of maintaining appropriate record of all
the business transactions and at the end of an accounting year, finalizing the recorded
information. This process of regularly recording the business transactions and finalizing the
results at the end of an accounting year is considered to be the core scope of financial
accounting. This scope is further extended to understand the financial position and profitability
of the business through further analysis of financial statements with the help of accounting
tools such as ratio, fund flow and cash flow.

2.MEANING OF FINANCIAL ACCOUNTING

Accounting is an information system which involves identification, measurement and
communication of economic information of an organization to its users who need the same for
different types of decision making. Thus, accounting may be understood as the process of
identifying the transaction, recording the transaction, measuring the results and communicating
the results to users of financial accounting information.
1. Identifying transactions
2. Recording the transactions
3. Measurement of business results
4. Communication of business results
Exhaustively, financial accounting is the process of recording, classifying, summarizing,
analyzing, interpreting and communicating business results.
The definition brings out the following attributes of financial accounting.
a) Events and transactions of financial nature (expressed in monetary term) are recorded
whereas the non-financial events and transactions can not be recorded.
b) It is a total process commencing from recording of transaction and ending with the
communication of summary of entire business efforts.
c) It finally includes interpretation of business results so as to enable all the concerned users to
take appropriate decision beneficial to them.

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3.PRIMARY OBJECTIVES OF FINANCIAL ACCOUNTING

Basically, financial accounting is an objective oriented discipline which focuses on enabling
the decision making by all the concerned users of financial accounting information. Following
are the specific objectives of financial accounting:
 To maintain record of all the accounting transactions in appropriate books.
 To calculate the results of business operations conducted during the specific period.
 To ascertain the financial position of the business as on particular date.
 To analyze in detail the profitability and current financial position of the business.
 To communicate the financial accounting information to various users in proper form

4.NEED FOR FINANCIAL ACCOUNTING Financial accounting statements are needed for
various purposes such as to know the business results, for procurement of loans from banks
and financial institutions, to submit to the government for various purposes and so on. Thus,
the specific needs for financial accounting are discussed as below:
 Financial accounting is needed for understanding profitability of the business.
 Financial accounting records reveal the financial position of the business.
 It helps understand overall efficiency of the business.
 It provides appropriate numerical information to the creditors of the business for
decision making regarding the period and amount of credits to be sanctioned.
 It is required to be submitted to various government departments for payments of taxes
such as income tax, sales tax, excise duty etc.
 It helps management of the business for taking appropriate decision at right time.

5.DISTINGUISHING FINANCIAL ACCOUNTING FROM OTHER BRANCHEHES

OF ACCOUNTING
Financial accounting is one of the branches of accounting discipline. There are other branches
of accounting such as Cost accounting; Management accounting etc. Each of this .branches
performs the specific function appropriate to the purpose of its existence. Hence it is
appropriate distinguish the financial accounting from the other specific branches of accounting
USERS OF FINANCIAL ACCOUNTING INFORMATION
Financial accounting records the transactions regularly and generates the financial statement at
the end of every accounting year. These financial accounting statements are frequently and
regularly used by various users internal as well as external to the organizations. These internal
and external users of financial statements are as under:

 Management
The owners or shareholders elect a group of people to manage day to day affairs of the
company. Since these people are ultimately responsible for the financial performance, they
must periodically review the financial statements.

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 Shareholders
Shareholders are the true owners of the company. They have full right to know the financial
details of an organization. Further, the information provided by the financial accounting
statements helps them take decisions regarding whether to stay invested or withdraw the funds.
They may also decide about the additional investment to be made in the same organization.
Shareholders can compare their company's performance with the other companies'
performance with the help of financial statements.

 Prospective investors
Prospective investors are those investors who are planning to invest in a certain company. They
are always interested to know financial information provided by financial accounting
statement. They take the investment decision based on the information provided by these
statements.

 Lenders
Banks, financial institutions and other lenders would willingly part with their money only if
they are assured of good performance and long term solvency of the business in hick they are
asked to invest.

 Suppliers (Creditors)
The financial statement facilitates the creditors in ascertaining the capacity of the
Organization, to pay on time, the consideration for the goods or services to be supplied.

 Customers
Legal. Obligation associated with guarantees, warranties and. after sale service contracts
tend to establish long term relationships with customers. The financial statements may e used
by the customers to check the long term viability of the business.
 Employees
Employees have vested interest in the organizations in which they are working. Financial
statements can be used as important source for obtaining information regarding the current
position of the business as well as the future viability of the business organization.

 Government
To calculate correct income tax, sales tax, excise duty, etc. requires the close scrutiny of the
financial statements, especially to detect tax evasion, if any. Government, as guardian of public
interest, must also keep a close watch on various industries which can be done effectively
through the scrutiny of the financial statements.

 Researchers
Academicians, research scholars, and analysts use the financial accounting information for the
purpose of their study and interpretations for further reporting of findings from various
different angles.

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6.ACCOUNTING PRNCIPLES
Accounting Principles is developed over a time from experience and general understanding of
accounting transaction. These accounting principles are judged on basis of general
acceptability. Accounting principles are broadly classified into accounting conventions and
accounting principle
Accounting conventions are the traditional guidelines for preparation of accounting records
and statements. Following are the conventions in accounting
 Consistency means following the same accounting policies consistently without
initiating frequent changes. The comparison of business results of one period with the
other is possible only when the accounting policies once implemented are followed
consistently. For e.g. if the plant and machinery started depreciating at 10% under fixed
installment method, then the same policy should continue for all the subsequent years
so as to enable comparison of profits for various different accounting periods. Again,
consistency does not mean rigidity. If there are certain wrong policies implemented,
then such policies can be changed for correction but the entire consequence of change
and all the affected accounts should be duly reported at all the appropriate places in the
financial statements so as to bring the same to the notice of users of financial accounting
information.
 Materiality As per the American Accounting Association "an item should be regarded
as material, if there is a reason to believe that knowledge of it would influence the
decision of the informed investor". It indicates that the details which will have impact
on the decisions of the users of the financial accounting information should be
considered important and properly reported. Certain insignificant and immaterial
information can be avoided from the financial statement so as to make it more simple
and understandable.

 Disclosure This convention means full disclosure of all the material facts with 'the true
and fair view and as required by all the users of financial accounting information such
as shareholders, creditors, banks, government, etc. Especially, in case of large business
enterprises like Joint Stock Company where there is separation of ownership and
management, the disclosure takes highest importance as the shareholders money is at
stake. However the term full disclosure does not mean disclosure of each and
everything. It simply means providing information of significance to the relevant users.

 Conservatism It refers to the policy of playing safe. As per this convention, all the
probable losses are taken into consideration but not the probable gains. Probable losses
or gains are decided on the basis of previous experience of the concern like there may
be possibility of debt becoming irrecoverable to the tune of 2% of the total outstanding
debtors as on the last date of the year. This gives rise to making provision in advance
for the loss due to bad debts under the heading 'Reserve for doubtful debts'. But such a
provision is not being made for probable profits or gains. Some of the examples of the
conservatism are making provision for doubtful debts and discount on debtors, valuing
the stock at cost or market price whichever is less, creating provision against price
fluctuation of investment, valuing joint life policy at surrender value in stead of paid up
value, etc.

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 Going concern
It is assumed that the business organization will continue its activities for fairly long
period unless and until it enters the state of liquidation. Hence in the books of accounts
depreciation is provided on the fixed assets considering their expected life. For the
various other accounting treatments the assumption of going concern is applicable.

 Dual aspect concept

This is extremely important and everywhere applicable concept of accounting. As per
the dual aspect concept, every transaction has two effects while recording it into the
books of accounts. For e.g. if goods purchased for cash then there are two effects like
goods is coming into the business and cash is going out from the business. This principle
of accounting is observed at the time of recording every transaction in the books of
accounts will show Rs10 lakhs only (as the land is non depreciable)

 Cost concept
Cost concept suggests that the assets should be recorded at cost only. Here cost means
price at the time of purchase of asset. It can't be recorded at realizable value or current
sales price or current market price or any replacement value. For e.g. a piece of land
purchased for Rs. 10 Lakhs and recorded in the books. After say five years, even if the
same land is valued at Rs. 50 Lakhs as per market valuation but the books of account
will show Rs. 10 Lakhs only (as the land is non depreciable asset).

 Money measurement concept

In accounting everything is recorded in terms of money. Events or transactions which
cannot be expressed in monetary value are not recorded in the books of accounts eve if
they are significant for the business. For e.g. the efficiency of management of the
business is very important factor for the success of any business but as the efficiency
can not be measured in terms of money so it cannot be recorded in the books of accounts
 Accrual concept
Accrual concept refers to the system or method whereby revenue and expenses are
identified with the specific period of time, generally an accounting year. It indicates
that the transactions of a particular period are recorded in the books of accounts eve if
they aren't paid or received in cash. For e.g. if Mr. X is employed with EXL Ltd. an
salary for the last month of year say March 2008 is not paid till the year end. The same
salary will be recorded in the books as outstanding salary on accrual basis thou not paid
in cash.

 Periodicity concept
Though the assumption of going concern holds that the business is a continuous activity
there is a need to calculate the business results after every particular period call
accounting intervals. As per the concept of periodicity, the accounting interval is period
of twelve months for which the business results are measured though the business
continues to operate. This helps organizations understand the profitability and financial
position of the business regularly and enables it to take appropriate actions for
correcting the deviations if any.

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 Matching Concept
This concept is based on periodicity concept. Generally, profit making is one of the
very important objectives of the business organisations which keep them busy with their
business activities. Hence, as per the matching concept, there is periodic matching of
cost and revenue to find out the profit and profitability of the concern. While matching
the revenue and expenses, the concept of accrual plays important-role as all the
expenses and revenue for the specified period is taken into consideration while
ascertaining profit.
 Realization concept
According to this concept the profit should be accounted for only when it is actually
realized. Revenue is recognised only when the sale takes place or services are rendered.
Sale is considered to be made when the property in the goods is passed to the buyer and
he is liable to pay

 Verified evidence concept

According to this concept all accounting transactions should be evidenced and supported
by objective documents. Such supporting documents provide the basis for making
accounting entries and for making verification by the auditor later on.

 Entity concept
In accounting, a business or an organization and its owners are treated as two separately
identifiable parties. This is called the entity concept. The business stands apart from
other organizations as a separate economic unit. It is necessary to record the business's
transactions separately, to distinguish them from the owners' personal transactions. This
helps to give a correct determination of the true financial condition of the business. This
concept can be extended to accounting separately for the various divisions of a business
in order to ascertain the financial results for each division.

"The entity view holds the business 'enterprise to be an institution in its own right
separate and distinct from the parties who furnish the funds.

7.STEP S IN ACCOUNTING CYCLE

Accounting cycle is a process which involves following steps.
Step1 Journalizing. Under this step the transactions are identified and recorded journal book
by providing two effects as per double entry book keeping system. Journal" is the book of
prime entry.
Step 2- Posting: It is the second step in accounting cycle. Under this step the transactions
recorded in journal are posted to respective ledger accounts opened specifically for the purpose.
Step 3- Balancing: Under this step separately prepared ledger accounts are totaled and
balanced for understanding the position of individual ledger account. A ledger account may
not have any balance or may either have debit balance or credit balance.
Step 4- Trial Balance: After balancing all ledger accounts a trial balance is prepared which is
generally defined as list of debit and credit balances of ledger accounts. Trial balance should
always tally.

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Step 5- Preparation of financial statements: This is the final step in the accounting cycle.
Under this step profit and loss account is prepared to understand the profitability whereas
balance sheet is prepared to know the financial position of the business.
While preparing financial statements there are certain adjustments taken into consideration
such as providing for annual depreciation on fixed assets. This step of accounting cycle is
covered under the separate chapter of final account.
8.DOUBLE ENTRY BOOK KEEPING SYSTEM- is the most scientific system of
maintaining the accounts of business. It is the complete and accurate system of accounting
which records both the aspects of every business transaction. In other words double entry book
keeping system denotes that every transaction has two fold effect termed as debit effect and
credit effect. Double entry book keeping system is superior to other systems of maintaining
accounting records such as single entry, cash system etc. It provides appropriate classification
of various items of accounts involved in different transactions and thereby helps to maintain
the record of personal as well as impersonal accounts. Due to double effect of every transaction
it ensures arithmetical accuracy and enables detection and correction of errors.

9. CAPITAL AND REVENUE

Capital expenditures represent major investments of capital that a company makes to maintain
or, more often, to expand its business and generate additional profits. Capital expenses are for
the acquisition of long-term assets, such as facilities or manufacturing equipment. Because
such assets provide income-generating value for a company for a period of years, companies
are not allowed to deduct the full cost of the asset in the year the expense is incurred; they must
recover the cost through year-by-year depreciation over the useful life of the asset. Companies
often use debt financing or equity financing to cover the substantial costs involved in acquiring
major assets for expanding their business.

Revenue expenses are shorter-term expenses required to meet the ongoing operational costs of
running a business, and thus are essentially the same as operating expenses. Unlike capital
expenditures, revenue expenses can be fully tax-deducted in the same year the expenses occur.
In relation to the major asset purchases that qualify as capital expenditures, revenue
expenditures include the ordinary repair and maintenance costs that are necessary to keep the
asset in working order without substantially improving or extending the useful life of the asset.
Revenue expenses related to existing assets include repairs and regular maintenance as well as
repainting and renewal expenses. Revenue expenditures can be considered to be recurring
expenses in contrast to the one-off nature of most capital expenditures.

The purpose of capital expenditures is commonly to expand a company's ability to generate

earnings, whereas revenue expenditures are more commonly for the purpose of maintaining a
company's ability to operate. Capital expenditures appear as an asset on a company's balance
sheet; revenue expenses are listed with liabilities.

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10.CERTAIN AND ITS EXPLNATION TERMINOLOGIES:

A) Business Transaction:
Any dealing of a business that involves buying and selling of goods and services in
exchange of value may be called as business transaction. Every transaction should
affect the financial position of the business and it should be measured in terms of
money.
1) Cash Transaction:
Financial benefit is exchanged for cash only. payment of Receipt of cash or cheque is
involved at the time of transaction only.
e.g.: i) Paid Salary ₹ 5,000/- (ii) Purchase of machinery on cash for ₹ 40,000/-
2) Credit Transaction:
In a business transaction where payment or receipt of money is postponed to a future
date, it is called as a credit transaction. It does not involve receipt or payment of cash
on the spot. The financial benefit is exchanged for cash receivables payable in future.
e.g: 1) Purchased goods worth ₹ 10,000/- from Sunita on credit
2) Sold furniture to Minakshi on Credit ₹ 20,000/-
B) Profit or Loss
1)Profit: Excess of income over the expenses during the accounting year is called a profit.
e.g.: If goods are sold for ₹ 1,00,000/- and all expenses during the period amounted to ₹
60,000/- then the profit is ₹ 40,000/-
2)Loss: Excess of expenses over the income is called loss.
e.g.: If good are sold for ₹ 1,00,000/- and all expenses during the period amount to ₹ 1,20,000/-
then the loss will be ₹ 20,000/-
3) Difference between Profit and Income
Point Profit Income
Meaning Amount received over and above the Any revenue receipt is called as an income.
cost is called as profit.
Equation Profit = Selling price – Cost Price No Such equation is required for income.
Example Goods costing ₹ 5,000/- sold for ₹ A portion of the office is Subletted for ₹
7,000/- in the said transaction ₹ 1,000/- per month. ₹ 12,000/- will be an
2,000/- is profit. income for the year on account of rent
received.

C)Assets. Liabilities, Net Worth:

1)Assets:
Property of any kind owned by a businessman is called an asset. Ship of the Asset must be with
business unit. Example:- Land, Building, Plant, Machinery, Furniture, Motor car etc.
Types of Assets:

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a) Fixed Assets: The asset which give benefit to the business for a long time. This asset
are purchased for a long use of the business and not for the sale purpose.
e.g. Building, Machinery, furniture etc.
b) Current Assets: Assets Which remain in the business for only a short time and can be
converted into cash very easily are called as current assets.
e.g. Debtors, Bills Receivable etc.
2)Liabilities: Total Amount payable by the business to others is known as liability. it is a debt
or amount due from the business to others for the benefit received by the business unit.
e.g. Loan taken, Creditors, Bank Overdraft etc.
Types of Liabilities
a) Fixed Liabilities: One of the major source of funds in the business is fixed liabilities.
It may be in the form of secured loans like debentures, bonds, loan from banks, loan
from Financial Institutions, etc.
b) Current Liabilities: Short term liabilities payable within a year are called current
liabilities. They constitute short term sources of finance. Current liabilities arise in the
regular current operations of the business. These liabilities are not normally secured.
e.g. Creditors, Bills Payable etc.
3) Net worth or Owners Equity or Capital:
The amount of fund provided by the proprietor in the business is called as" Capital" as
well as the excess of assets over liabilities of the business is known as " Capital" or " Net
Worth". According to business entity concept business and its owners have separate entities.
4) Contingent Liabilities:
A Liabilities which may arise in future depends on happening of certain event is called
as contingent liability. As it is not confirmed or perfect liability. It does not affect the financial
position of the business and therefore, it is not shown on the liabilities side of the balance sheet.
But it is shown by way of food note to Balance Sheet simply as information.
e.g. A worker makes a claim for compensation of 10,000/- against the business and the
decision is pending in the court. It may be future liability for business on happening of an event
i.e. "Court Order".
D)-Capital and Drawings:
Capital: The total amount invested into the business by the owner is called Capital. In
accounting sense excess assets over the liabilities is called as capital. The equation for this is:-
Capital = Assets – Liabilities
Capital is a liability of the business as this amount is payable by the business unit to the owner
of the business.
Drawings: If the owner withdraws any money or goods or assets from the business for his
personal use, it is called as a drawings.
e.g. A proprietor pays college fees of his son, takes his family for a tour and paid the petrol
charges from business.

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E) Debtors and Creditors:

a) Debtors: - a person who has to pay to the business for getting goods and services on
credit is known as debtor. A debtor is a person who owes money to the business.
b) Creditor: A person to whom we owe money for the goods or services is known as
creditor. In other words a creditor is a person to whom business owes money.
e.g. Mr. "A" sold goods of 5000/- on credit to Mr. 'B'. In the transaction Mr 'B' is the
debtor of Mr. 'A' and Mr. 'A' is the creditor of Mr. 'B' .
F) Cash Discount and Trade Discount:
Discount is basically a concession or allowance given by the seller to the buyer.
1) Cash Discount: It is the amount deducted from the amount due at the time of receipt.
It is the concession encouraging for prompt payment. It is given Idea on the spot
payment or payment within a specific period. Cash Discount is calculated after
deducting trade discount, since it is loss to the seller end gain to the buyer, is always
recorded in the books of accounts.
2) Trade Discount: It is the amount deducted by the seller from the list price of goods at
the time of sale. It helps a retailer to sell the goods and printed price and yet make the
profit. Therefore, it is not required to be recorded in the books of accounts.
G) Solvent and Insolvent:
1) Solvent: If a person's assets are more than liabilities, or equal to his liabilities, he is
called as a solvent person. Search person is financially sound and is in a position to pay
of all his debts.
e.g. A person's total assets have been calculated to 50,00,000 and his total debts were
30,00,000. Since his position is sound he is able to pay off his debts therefore he is
called Solvent.
2) Insolvent: A person who is not in a position to pay off his total debts from his total
asset is called as an insolvent person. Such persons liabilities are more than assets.
e.g. A person's total assets or property have been calculated to 20,00,000 and his total
debts were 50,00,000 and if he is not in a position to get any amount from any sources
and if the court is so satisfied then he will be declared as an insolvent person.

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F) Classification of accounts
Chart showing classification of an Account
Classification of Account

Personal Accounts Impersonal Accounts

Artificial Personal A/c Representative Personal A/c

Natural Personal A/c
a) Amit’s Account
b) Anil’s Account
c) Harshal’s Account
d) Sushil’s Account
a) Pune Municipal Crop. A/c
b) Mumbai Chemical Ltd. A/c
c) Kulkarni & Co’s. A/c
d) Ranade’s Sports Club A/c
a) Outstanding Expenses A/c
b) Income Received in Advance
c) Prepaid Expenses A/c
d) Income due but not received
i.e. Outstanding Income A/c

Real Accounts Nominal Accounts

Tangible Accounts Intangible Accounts Expenses & Losses Income & Gains

a) Cash A/c a) Goodwill A/c Rent A/c, Salary A/c Discount

Received A/c
b) Building A/c b) Patent A/c Wages A/c,Purchase A/c Commission
Received A/c
c) Furniture A/c c) Trade Mark A/c
Each type of accounts is explained below with examples:
1. Personal Accounts: Personal Accounts include the account of persons and group of
persons with whom the business deals. These accounts can be classified into three
categories –
a) Natural Person’s Account: The term natural personal account means an account
related to individual human-beings. E.g. Ram’s Account, Sonali’s Account etc.
b) Artificial Person’s Account: These accounts include accounts of organisation,
associations, institutions which are recognised as an artificial person by law in business
dealing. E.g. Sports club account, Insurance company account, Bank of India’s account,
etc.
c) Representative Personal Accounts: These accounts represent a certain person or
group of persons in business dealings. Accounts relating to outstanding and prepaid
items are called representative personal accounts.

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We have not salaries to staff for the last month. Now staff will become creditors of
the business because they have provided services. But the return of services is not paid. The
salary of these staff will be shown collectively in an account. It will be a personal Account as
it represents all the staff e.g. outstanding salary A/c, prepaid insurance A/c, outstanding rent
A/c, income received in advance A/c etc.
2. Real Accounts:
The account which denotes any things, articles or commodities which is visible and
tangible is called real account. This account indicates the value of various assets held by the
business e.g. Land and Building, Machinery, Furniture, etc.
This account is subdivided into two parts:
a) Tangible Real Accounts: Tangible real accounts are those which relate to such things
which can be seen touched, felt and measured and have existence e.g. cash account,
furniture account, Copyright account, etc.
b) Intangible Real Account: This account represents such things which can not be seen,
touched but they can be measured in terms of money e.g. Goodwill account, Patent
account, Trademark account, Copyright account, etc.

3.Nominal Accounts: The account of expenses and losses and incomes and gains are called
nominal accounts. These account exist in name only but they don’t represent any tangible thing
e.g. Printing and Stationery account, Rates and Taxes account, they
G.Meaning of Debit and Credit
Debit: Debit indicates benefits received by that account and it is recorded to the left-hand side
of account which is called as debit side. Recording a transaction on debit side applying the
rules is termed as ‘debiting’ an account.
Credit: Credit indicates benefit given by the account and is recorded to the right hand side of
an account which is called as credit side. Recording a transaction on the credit side after
applying the rules is termed as “crediting and account”.

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Rules of Debit and Credit

1. Personal Accounts

Debit the receiver

Credit the giver
2. Real Accounts

Debit what comes in

Credit what goes out
3. Nominal Accounts

Debit all expenses and losses

Credit all income and gains.

(a) Classify the following Accounting into Accounts into Personal, Real and Nominal
Accounts.
1) Printing and Stationary 2) Bill Payable A/c 3) Motor Car A/c 4) Capital A/c.
5) Goods destroyed by fire A/c. 6) Life Insurance Corporation A/c.
7) Machinery A/c 8) Pune Municipal Corporation A/c. 9) Goodwill A/c.
10) Repairs and Maintenance A/c. 11) Stationery A/c.12) Computer A/c.
Solution:
Personal Account Real Account Nominal Account
2) Bill Payable A/c 3) Motor Car A/c 1) Printing and Stationery A/c.
4) Capital A/c. 7) Machinery A/c. 5) Goods destroyed by fire A/c.
6) Life Insurance 9) Good will A/c. 10) Repairs and Maintenance A/c.
Corporation A/c 12) Computers A/c. 11) Stationery A/c.
8) Pune Municipal
Corporation A/c

(b) Classify the following accounts under Personal, Real and Nominal Accounts.
1) Cash Account 2) Unpaid salary Account
3) Capital Account 4) Fixture Account.
5) Bank Account 6) Octroi Account
7) Prepaid insurance Account 8) Land and Building Account

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9) Loan Account 10) Salary Account.

11) Goods Stolen by theft Account 12) Copyright Accounts
Solution:
Personal Account Real Account Nominal Account
2) Unpaid salary A/c 1) Cash A/c 6) Ovtroi A/c
3) Capital A/c 4) Fixture A/c 10) Salary A/c
5) Bank A/c. 8) Land and Building A/c 11) Goods Stolen by theft A/c.
7) Prepaid Insurance A/c. 12) Copyright A/c
9) Loan A/c

(c) Classify the following accounts into Assets, Liability, Income and Expenditure.
1) Prepaid salary Account 2. Rent Account
3) Unexpired Insurance Account 4. Secured Loan Account
5) Outstanding Wages Account 6) Bad Debts Account
7) Patents Account 8) Interest on Investment Account
9) Commission Received Account 10) Leasehold Premises Account
11) Wages Account 12) Insurance Premium Account
Solution:
Assets Liability Income Expenditure
1) Prepaid salary A/c 5) Outstanding wages A/c 8) Interest on 2) Rent A/c
Investment A/c
3) Unexpired insurance A/c 6) Bad Debts A/c
9) Commission
7) Patents A/c. 4) Secured Loan A/c 11) Wages A/c
Received A/c.
10) Leasehold Premises A/c 12) Insurance
Premium A/c

(D) From the following particulars prepare a chart showing whether the following is an
Asset, Liability, Income, Expenses and Capital
1. Plant and Machinery 2. Rent Received
3. Furniture 4. Sundry Creditors
5. Bills Receivable 6. Commission allowed
7. Sundry Debtors 8. Goodwill

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 CA.CS.CMA.MBA: Naveen. Rohatgi SAMSOE: Management Accounting

9. Royalty 10. Discount received

11. Bill Payable 12. Capital
13. Int. on Drawings 14. Bank Overdraft
15. Cash in hand 16. Travelling Expenses
17. Cash at Bank 18. Dividend Received
19. Repairs 20. Carriage
21. Outstanding salary 22. Prepaid Insurance
23. Bank Loan 24. Depreciation
25. Patents
Solution:
Assets Liability Income Expenditure Capital
1) Plant and Machinery 4) Sundry Creditors 2) Rent Received 6) Commission 12) Capital
allowed
3) Furniture 11) Bills Payable 10) Discount received
9) Royalty
5) Bill Receivable 14) Bank Overdraft 13) Int. on Drawings
16) Travelling
7) Sundry Debtors 21) Outstanding Salary 18) Dividend received
Expenses
8) Goodwill 23) Bank Loan
19) Repairs
15) Cash in hand
20) Carriage
17) Cash at Bank
24) Depreciation
22) Prepaid Insurance
25) Patent

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