Accounting for incomplete records 1 PDF

Preview

Summary

Fundamentals of accounting ...

Description

ACCOUNTANCY AND FINANCIAL MANAGEMENT – II

(AS per Revised Syllabus of Mumbai University for F.Y.B.Com., II Semester)

Rajiv Mishra M.Com., MBA, M.Phil., NET, Lecturer at N.E.S. Ratnam College of Arts, Science and Commerce for BBI & Co-ordinator for M.Com., Bhandup (W), Mumbai-400 078. Visiting Faculty at N.G. Acharya, D.K Marathe, V.K. Menon College, Pragati College, Dnyansadhana College and Vikas College for M.Com., BBI, BMS, BFM and BAF.

CMA (Dr.) Kinnari Thakkar

Asif Baig

Pratima Singh

M.Com., ACMA, CS., Ph.D., MBA (Finance), Principal, SIES College of Commerce & Economics, Sion (E), Mumbai.

M.Com., B.Ed., M.Phil., MBA, NET HOD. Accounts at Gurukul College, Ghatkopar.

M.Com., M.Phil., B.Ed., Vice Principal & HOD, Account Department, Chandrabhan Sharma College.

Dr. Vijaybharti Jain

Rajendra B. Vare

H.G. Pradhan

M.Com., (Gold Medalist), Ph.D., Assistant Professor, Gurukul College.

M.Com., M.A., MBA, M.Phil., B.Ed., I/c Principal, Shivaji Shikshan Sanstha College (Night), Mumbai.

M.Com., M.Phil., UGC NET, Assistant Professor at Western College, Sanpada and Vikas College, Vikhroli.

MUMBAI z NEW DELHI z NAGPUR z BENGALURU z HYDERABAD z CHENNAI z PUNE z LUCKNOW z AHMEDABAD z ERNAKULAM z BHUBANESWAR z INDORE z KOLKATA z GUWAHATI

©

Authors No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording and/or otherwise without the prior written permission of the publisher.

First Edition : 2016

Published by

Branch Offices

: Mrs. Meena Pandey for Himalaya Publishing House Pvt. Ltd., “Ramdoot”, Dr. Bhalerao Marg, Girgaon, Mumbai - 400 004. Phone: 022-23860170/23863863, Fax: 022-23877178 E-mail: [email protected]; Website: www.himpub.com :

New Delhi

: “Pooja Apartments”, 4-B, Murari Lal Street, Ansari Road, Darya Ganj, New Delhi - 110 002. Phone: 011-23270392, 23278631; Fax: 011-23256286

Nagpur

: Kundanlal Chandak Industrial Estate, Ghat Road, Nagpur - 440 018. Phone: 0712-2738731, 3296733; Telefax: 0712-2721216

Bengaluru

: No. 16/1 (Old 12/1), 1st Floor, Next to Hotel Highlands, Madhava Nagar, Race Course Road, Bengaluru - 560 001. Phone: 080-22286611, 22385461, 4113 8821, 22281541

Hyderabad

: No. 3-4-184, Lingampally, Besides Raghavendra Swamy Matham, Kachiguda, Hyderabad - 500 027. Phone: 040-27560041, 27550139

Chennai

: New-20, Old-59, Thirumalai Pillai Road, T. Nagar, Chennai - 600 017. Mobile: 9380460419

Pune

: First Floor, "Laksha" Apartment, No. 527, Mehunpura, Shaniwarpeth (Near Prabhat Theatre), Pune - 411 030. Phone: 020-24496323/24496333; Mobile: 09370579333

L u ckn o w

: House No 731, Shekhupura Colony, Near B.D. Convent School, Aliganj, Lucknow - 226 022. Phone: 0522-4012353; Mobile: 09307501549

Ahmedabad

: 114, “SHAIL”, 1st Floor, Opp. Madhu Sudan House, C.G. Road, Navrang Pura, Ahmedabad - 380 009. Phone: 079-26560126; Mobile: 09377088847

Ernakulam

: 39/176 (New No: 60/251) 1st Floor, Karikkamuri Road, Ernakulam, Kochi – 682011. Phone: 0484-2378012, 2378016; Mobile: 09387122121

Bhubaneswar

: 5 Station Square, Bhubaneswar - 751 001 (Odisha). Phone: 0674-2532129, Mobile: 09338746007

Indore

: Kesardeep Avenue Extension, 73, Narayan Bagh, Flat No. 302, IIIrd Floor, Near Humpty Dumpty School, Indore - 452 007 (M.P.). Mobile: 09303399304

Kolkata

: 108/4, Beliaghata Main Road, Near ID Hospital, Opp. SBI Bank, Kolkata - 700 010, Phone: 033-32449649, Mobile: 7439040301

Guwahati

: House No. 15, Behind Pragjyotish College, Near Sharma Printing Press, P.O. Bharalumukh, Guwahati - 781009, (Assam). Mobile: 09883055590, 08486355289, 7439040301

DTP by

: Sunanda

Printed at

: Rose Fine Art, Mumbai. On behalf of HPH.

Preface It is a matter of great pleasure to present this new edition of the book on Accountancy and Financial Management – II to the students and teachers of F.Y.B.Com., Semester II, University of Mumbai. This book is written on lines of syllabus instituted by the University. The book presents the subject matter in a simple and convincing language. I owe a great many thanks to a great many people who helped and supported me during the writing of this book which includes Principal, Coordinator, and Students of K.M. College, DAV, Ratnam College, K.J. Somaiya, Vivekananda Education Society, Vikas College, R.J. College of the B.Com., BBI, BMS, BAF and BFM section. My deepest thanks to Mr. Manoj Sharma of the Nitin Godiwala College who was the strength to me always. I would also thank all of them who have been a part of this book and helped me knowingly or unknowingly. I also extend my heartfelt thanks to my family S.N. Mishra (Father), Sunita S. Mishra (Mother), Sanjiv S. Mishra (Brother), Rupa R. Mishra (Wife), Yash R. Mishra (Son) and well-wishers would have been a distant reality. Special Thanks/Acknowledgements (1) (2)

Prof. Mrs. Rina Saha Prof. Manoj Sharma

Principal – N.E.S. Ratnam College Principal – Nitin Godiwala College

(3) (4) (5) (6)

Prof. Ajay Bhamre Prof. Probol Gupta Prof. R.K. Patra Prof. Vinayak Mulay

Principal – RADAV College Vice-principal – RADAV College Sr. Vice-principal – Vikas College Vice-principal – Vikas College

(7) Dr. Kinnary Thakkar (8) CA Rajiv Khurana (9) Prof. Riya Rupani (10) Prof. Sandip Gupta

Reader Commerce – Mumbai University HOD Accountancy – RADAV College BMS and BBI Coordinator – N.E.S. Ratnam College BMS Coordinator – K.J. Somaiya College

(11) (12) (13) (14)

Prof. Jyotsna Shilpi Prof. Selvi Prof. Mukesh Kanojia Prof. Bhupinder Saini

BMS Coordinator – Vikas College BMS Coordinator – R. Jhunjhunwala College BMS Coordinator – R.D. National College BMS Coordinator – RADAV College

(15) (16) (17) (18)

Prof. Bhavdas C.M. Prof. Nitin Agarwal Prof. Kursheed Shaikh Prof. Mrunmayee Thatte

Sr. Lecturer – V.E.S College Lecturer – Gurukul College Lecturer – Narayan Guru College Lecturer – Joshi Bedekar College

(19) (20)

Prof. Jia Makhija Prof. Kedar Pandey

Lecturer – N.E.S. Ratnam College Lecturer – Nitin Godiwala College

Author

Syllabus ACCOUNTANCY AND FINANCIAL MANAGEMENT - II F.Y.B.Com., Semester II Topics at Glance Sr. No.

Topics

No. of Lectures

Module 1

Accounting from Incomplete Records

15

Module 2

Consignment Accounts

15

Module 3

Branch Accounts

15

Module 4

Accounting with the Use of Accounting Software

15

Detailed Syllabus Module

Topics

No. of Lectures

1

Accounting from Incomplete Records Introduction Problems on preparation of final accounts of Proprietary Trading Concern (conversion method)

15

2

Consignment Accounts Accounting for consignment transactions Valuation of stock Invoicing of goods at higher price (excluding overriding commission, normal/abnormal losses)

15

3

Branch Accounts Meaning/Classification of branch Accounting for Dependent Branch not maintaining full books: Debtors method Stock and debtors method

15

4

Accounting with the Use of Accounting Software Introduction Preparation of books and trial balance with the use of accounting software

15

Paper Pattern Internal Assessment 1. Question Paper Pattern for Periodical Class Test for Courses at UG Programmes Written Class Test 20 Marks Sr. No. Particulars

Marks

1

Match the Column/Fill in the Blanks/Multiple Choice Questions (½ Mark each)

05 Marks

2

Answer in One or Two Lines (Concept Based Questions) (1 Mark each)

05 Marks

3

Answer in Brief (Attempt any Two of the Three) (5 Marks each)

10 Marks

Question Paper Pattern Maximum Marks: 75 Questions to be Set: 05 All questions are compulsory carrying 15 Marks each.

Duration: 2½ Hours

Q.1 Objective Questions (A) Sub-questions to be asked 10 and to be answered any 08 (B) Sub-questions to be asked 10 and to be answered any 07 (*Multiple Choice/True or False/Match the Columns/Fill in the Blanks)

15 Marks

Q.2 Full Length Practical Question OR Q.2 Full Length Practical Question

15 Marks

Q.3 Full Length Practical Question OR Q.3 Full Length Practical Question Q.4 Full Length Practical Question OR Q.4 Full Length Practical Question Q.5 (A) Theory Questions (B) Theory Questions OR Q.5 Short Notes To be asked 05 To be answered 03

15 Marks 15 Marks 15 Marks 15 Marks 15 Marks 08 Marks 07 Marks 15 Marks

Note: Full length question of 15 Marks may be divided into two sub-questions of 08 and 07 Marks.

Contents 1.

Accounting from Incomplete Records

2.

Consignment Accounts

3.

Branch Accounts

4.

Accounting with the Use of Accounting Software

1 – 43 44 – 70 71 – 109 110 – 127

C h a p t e r

1

ACCOUNTING FROM INCOMPLETE ReCORDS

The Single Entry System is really no system at all for keeping accounts. Under this system, only such accounts are kept as seem to be absolutely necessary. Usually, the accounts that are kept are those relating to cash/credit customers and creditors. One may not find accounts relating to fixed assets, purchases, sales, expenses, incomes, etc. Thus, one may find that some transactions are not recorded at all, some transactions are recorded only in one of their aspects while, for some others, both the aspects are recorded. Goods sold on credit will be recorded only in the account of the customer concerned. Cash received from him will be recorded both in the Cash Acount and in the account of the customer. Purchase of machinery on credit will not be recorded at all till payment is made. This system of recording transactions is very defective. No trial balance can be taken out and hence accuracy of books cannot be proved. Chances of mischief of fraud remaining undetected are high. Trading and Profit and Loss Account cannot be prepared and, hence, the proprietor will have no firm idea of profit earned or loss suffered. Balance sheet, called statement of affairs here, is prepared in an unsatisfactory manner. The assets and liabilities are not proved from records but are put down by physical inspection and on estimated basis. In spite of all the defects, the system is quite popular with small firms which cannot afford to spend money on proper accounting.

Meaning Incomplete Record of Accounting means absence of double entry, i.e., both aspects of the transaction not recorded which is incomplete, unscientific and unsatisfactory system. It is a system which only records cash and personal accounts. It is always incomplete double Entry.

Features 1. Prepared by sole trading concern and partnership firm: This system was prepared by only sole trading and partnership firm since there are no legal requirement of bookkeeping under double entry system, i.e., registration not required compulsorily for sole trading concern and partnership firm. 2. Not uniform: The uniformity concept is missing under this system as the system differs or varies from one business organisation to another business organisation for maintaining their books of accounts.

2

Accountancy and Financial Management – II

3. No rule: No fixed rules are followed under this system as no hard and fast rules are issued by any authorised accounting regulatory bodies. 4. Record of one aspect: This system ignores both aspects of the transaction, i.e., double entry is not passed. So, only one aspect of the transaction is recorded. 5. Personal as well as business aspect: This system always take care of proprietor’s personal as well as business transaction, i.e., Cash Book under this system also takes care of personal receipts and payments of proprietor apart from keeping recorded of business receipts and payments. COMPUTATION OF PROFIT OR LOSS

There are two methods of incomplete record system for accounting: A. Statement of Affairs Method (Networth Method) B. Conversion Method CONVERSION METHOD

Under this method, the organisation prepares Final Accounts which requires the following way: Trading and Profit & Loss A/c Particulars To Opening Stock To Purchase: Cash Credit Less: Drawing To Direct Expenses To Gross Profit

``) Amt (` xx x x (x)

To Gross Loss To Revenue Expenses Office Expenses x Selling Expenses x Financial Expenses xx To Net Profit

xx xx x xxx x

xx xx

xxx

Particulars By Sales Cash Credit Less: Return By Closing Stock By Gross Loss By Gross Profit By Other Income

By Net Loss

Amt (` ``) x x (x)

xx xx x xxx x xx

x

xxx

Accounting from Incomplete Records

3

Balance Sheet `

Liabilities Capital Add: Net profit

xx x

Less: Net loss Less: Drawings

(x) (x)

Loan Current Liabilities

Assets Fixed Assets: Cost

xxx xxx

Less: Depreciation Investment

x x xxx

Current Assets & Advances Miscellaneous Expenses

`` xx x x

xx xx x xxx

Working Notes: Dr. Particulars To Balance b/d To Bill Receivable (Dishonoured) To Bank A/c (Cheque Dishonoured) To Credit Sales

1. Debtors Accounts `) Amt (` x x x x

Particulars By Cash Bank By Bills Receivable A/c By Discount Ac By Bad Debt A/c By Sales Return A/c By Balance c/d

xx

Dr. Particulars To Cash/Bank To Bills Payable(Dishonoured) To Bills Receivable (Endorsed) To Discount To Purchase Return To Balance c/d

Dr. Particulars To Balance b/d To Debtors A/c

2. Creditors Account Amt (` `) Particulars xx By Balance b/d xx By Bills Payable (Dishonoured) x By Debtors (Endorsed bill dishonoured) x By Cash Bank (Cheques x Dishonoured) x By Credit Purchase xx 3. Bills Receivable A/c `) Amt (` xx xx

xx

Particulars By Cash Bank By Discount By Debtors (Bill dishonoured) By Creditors (Bills Receivable endorsed) By Balance c/d

Cr. Amt (` `) x x x x x x xx

Cr. Amt (` `) xx xx x

x x xx

Cr. Amt (` `) xx xx xx xx xx xx

4

Accountancy and Financial Management – II

Dr. Particulars To Cash Bank To Creditors (Bill Payable Dishonoured) To Balance c/d

Dr. Particulars To Balance b/d To Cash Bank (Expenses Paid) To Balance c/d (o/s at end)

Dr. Particulars To Balance b/d To P & L A/c To Balance c/d Dr. Particulars To Balance b/d To Bank (Purchase) To Profit on Sale

4. Bills Payable A/c `) Amt (` xx xx

Particulars By Balance b/d By Creditors

xx xxx

xxx

5. Revenue Expense A/c Amt (` `) xx x x xx

Particulars By Balance b/d (o/s in beginning) By Profit & Loss A/c By Balance c/d

6. Revenue Income A/c Amt (` `) Particulars xx By Balance b/d xx By Cash Bank (received) x By Balance c/d xxx 7. Fixed Assets A/c Amt (` `) xx x x

Particulars By Cash Bank (Sale) By Loss on Sale By Depreciation By Balance c/d

xx

Dr. Particulars To Balance b/d To Cash Sales To Collection from Debtors To Bills Receivable To Capital Introduced To Sale of Fixed Asset To Miscellaneous Income To Balance c/d

Cr. Amt (` `) xx xx

8. Cash/Bank A/c

Cr. Amt (` `) xx xx x xx

Cr. Amt (` `) xx xx xx xxx

Cr. Amt (` `) x x x xx xx

Cr.

Amt (` `) xx x x

Particulars By Balance b/d (Overdraft) By Cash Purchase By Creditors

Amt (` `) x x x

x x x x

By Bills Paid By Drawing By Fixed Assets Purchase By Balance c/d

x x x xx

xxx

xxx

Accounting from Incomplete Records

5

9. Stock/Goods A/c `) Amt (` x x xx

Particulars To Opening Stock To Purchase

Amt (` `) x x xx

Particulars By Cost of Goods Sold By Closing Stock

STEPS FOR SOLVING PROBLEM

Step 1: Prepare Trading A/c z For cash sales and purchase, prepare Cash/Bank A/c. z For credit sales and purchase, prepare Debtors A/c and Creditors A/c. z For opening and closing stock, prepare Stock A/c.

Step 2: Prepare P & L A/c z For expenses, prepare Revenue Expense A/c. z For other income, prepare Revenue Income A/c.

Step 3: For beginning capital, prepare opening Balance Sheet Step 4: Prepare Balance Sheet at the end of the year z Prepare Bills Receivable A/c and Payable A/c. z Prepare Fixed Asset A/c.

Illustration 1: Chandra commenced business on 1st January, 1997 with a capital of ` 15,000. On 1st July, 1997, he introduced a further capital of ` 8,000. During the year, he withdrew ` 500 p.m. for domestic use. On 31st December, 1997, his assets and liabilities were: Stock Debtors Furniture Cash at bank Expenses unpaid Sundry creditors

` 21,000 10,000 3,500 2,100 700 8,300

6

Accountancy and Financial Management – II

Solution: Liabilities Expenses unpaid Sundry creditors Capital (balancing figure)

` 700 8,300 27,600

Assets Stock Sundry debtors

`` 21,000 10,000

Furniture Cash at bank

3,500 2,100 36,600

36,600

Statement of Profit/Loss Particulars Capital as on 31st December, 1997 Add: Drawings

`` 27,600 6,000

Less: Fresh capital introduced

33,600 8,000 25,600 15,000 10,600

Less: Capital on 1st Jan., 1997 Net Profit

Illustration 2: Mr. Ram keeps his books in single entry. He gives you the following information from which he requires you to ascertain his profit or loss during the year ended 1998: Particulars

1st Jan. 1998

31st Dec. 1998

` 740 (Cr.) —

` 400 (Dr.) 10

Sundry debtors Sundry creditors

5,100 1,300

8,800 1,950

Stock Plant

1,700 2,000

1,900 2,000

140

140

Bank Balance Cash in hand

Furniture

Ram had withdrawn ` 250 p.m. furing the year but had introduced fresh capital of ` 600 on 1st July, 1998. A provision of 5% on sundry debtors is necessary. Write off depreciation on plant at the rate of 5%. Interest on capital is to be allowed @ 5% p.a.

Accounting from Incomplete Records

7

Solution: Mr. Ram Statement of Affairs Particulars

1.1.1998

Plant Less: Depreciation @ 5%

2,000 Nil

31.12.1998 2,000

Furniture Stock Sundry debtors

140

140 1,900 8,800

Nil

5,100

440

8,940 Less: Sundry creditors Bank overdraft

1,900

1,700 5,100

Less: Pr...