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DEPARTMENT OF ECE
II B.Tech I Semester
MEFA
Unit V
 1
UNIT V
Day 45
Q1. Define Accounting?(2M,3M)
A. According to American Institute of Certified Public Accountants defines
Accounting as an art of recording, classifying and summarizing in a significant
manner, and in terms of money and events which are, in part at least, of a
financial character and interpreting the results thereof.
Q2. What are the main branches of Accounting?
A. Broadly speaking, there are three branches of accounting. They are:
Financial Accounting, Cost Accounting, Management Accounting
Q3. What is Accounting Cycle?
A. It covers all the important stages in accounting. They include the process of
preparing journal, ledger, trial balance and final accounts.
Q4. Define accounting and discuss its functions (Sep-2014)
A. Smith and Ashburne: “Accounting is a means of measuring and reporting the
results of economic activities.”
R.N. Anthony: “Accounting system is a means of collecting summarizing,
analyzing and reporting in monetary terms, the information about the business.
American Institute of Certified Public Accountants (AICPA):“The art of
recording, classifying and summarizing in a significant manner and in terms of
money transactions and events, which are in part at least, of a financial
character and interpreting the results thereof.”
Thus, accounting is an art of identifying, recording, summarizing and
interpreting business transactions of financial nature. Hence accounting is the
Language of Business.
FUNCTIONS OF AN ACCOUNTANT
The job of an accountant involves the following types of accounting works:
Designing Work: It includes the designing of the accounting system, basis for
identification and classification of financial transactions and events, forms,
methods, procedures, etc.
Recording Work: The financial transactions are identified, classified and
recorded in appropriate books of accounts according to principles. This is “Book
Keeping”. The recording of transactions tends to be mechanical and repetitive.
Summarizing Work: The recorded transactions are summarized into significant
form according to generally accepted accounting principles. The work includes

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the preparation of profit and loss account, balance sheet. This phase is called
‘preparation of final accounts’
Analysis and Interpretation Work: The financial statements are analysed by
using ratio analysis, break-even analysis, funds flow and cash flow analysis.
Reporting Work: The summarized statements along with analysis and
interpretation are communicated to the interested parties or whoever has the
right to receive them. For Ex. Share holders. In addition, the accou8nting
departments have to prepare and send regular reports so as to assist the
management in decision making. This is ‘Reporting’.
Preparation of Budget: The management must be able to reasonably estimate
the future requirements and opportunities. As an aid to this process, the
accountant has to prepare budgets, like cash budget, capital budget, purchase
budget, sales budget etc. this is ‘Budgeting’.
Taxation Work: The accountant has to prepare various statements and returns
pertaining to income-tax, sales-tax, excise or customs duties etc., and file the
returns with the authorities concerned.
Auditing: It involves a critical review and verification of the books of accounts
statements and reports with a view to verifying their accuracy. This is ‘Auditing’
ADVANTAGES FROM ACCOUNTING
The role of accounting has changed from that of a mere record keeping during
the 1st decade of 20th century of the present stage, which it is accepted as
information system and decision making activity. The following are the
advantages of accounting.
Provides for systematic records: Since all the financial transactions are
recorded in the books, one need not rely on memory. Any information required
is readily available from these records.
Facilitates the preparation of financial statements: Profit and loss accountant
and balance sheet can be easily prepared with the help of the information in the
records. This enables the trader to know the net result of business operations
(i.e. profit / loss) during the accounting period and the financial position of the
business at the end of the accounting period.
Provides control over assets: Book-keeping provides information regarding
cash in hand, cash at bank, stock of goods, accounts receivables from various
parties and the amounts invested in various other assets. As the trader knows
the values of the assets he will have control over them.

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Provides the required information: Interested parties such as owners, lenders,
creditors etc., get necessary information at frequent intervals.
Comparative study: One can compare the present performance of the
organization with that of its past. This enables the managers to draw useful
conclusion and make proper decisions.
Less Scope for fraud or theft: It is difficult to conceal fraud or theft etc.,
because of the balancing of the books of accounts periodically. As the work is
divided among many persons, there will be check and counter check.
Tax matters: Properly maintained book-keeping records will help in the
settlement of all tax matters with the tax authorities.
Ascertaining Value of Business: The accounting records will help in ascertaining
the correct value of the business. This helps in the event of sale or purchase of a
business.
Documentary evidence: Accounting records can also be used as an evidence in
the court to substantiate the claim of the business. These records are based on
documentary proof. Every entry is supported by authentic vouchers. As such,
Courts accept these records as evidence.
Helpful to management: Accounting is useful to the management in various
ways. It enables the management to assess the achievement of its performance.
The weakness of the business can be identified and corrective measures can be
applied to remove them with the helps accounting.
LIMITATIONS OF ACCOUNTING :The following are the limitations of accounting.
Does not record all events: Only the transactions of a financial character will be
recorded under book-keeping. So it does not reveal a complete picture about
the quality of human resources, location advantage, business contacts etc.
Does not reflect current values: The data available under book-keeping is
historical in nature. So they do not reflect current values. For instance, we
record the value of stock at cost price or market price, whichever is less. In case
of, building, machinery etc., we adopt historical cost as the basis. In fact, the
current values of buildings, plant and machinery may be much more than what
is recorded in the balance sheet.
Estimates based on Personal Judgment: The estimate used for determining the
values of various items may not be correct. For example, debtor are estimated in
terms of collectability, inventories are based on marketability, and fixed assets
are based on useful working life. These estimates are based on personal
judgment and hence sometimes may not be correct.

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Inadequate information on costs and Profits: Book-keeping only provides
information about the overall profitability of the business. No information is
given about the cost and profitability of different activities of products or
divisions.
Homework:
1. Define accounting and discuss its functions
Important and Previous JNTU Examination Questions:
1. Define Accounting?
2. What is Accounting Cycle?
3. Define accounting and discuss its functions (Sep-2014)(8m)
Day 46
Q4. Explain the different types of accounts?
A. There are three types of accounts. They are:
Personal Account
Real account
Nominal Account
Q5. What is an account? Explain the different types of accounts with examples
(Sep-2014)
Q)What is an account? How would you classify different accounts maintained
by a business enterprise? MAY 2017 SET 1 (8M)
1. Those relating to persons
2. Those relating to property (Assets)
3. Those relating to income & expenses
Thus, three classes of accounts are maintained for recording all business
transactions. They are:
1. Personal accounts
2. Real accounts
3. Nominal accounts
1. Personal Accounts: Accounts which are transactions with persons are called
“Personal Accounts”. A separate account is kept on the name of each person for
recording the benefits received from, or given to the person in the course of
dealings with him.
E.g.: Krishna’s A/C, Gopal’s A/C, SBI A/C, Nagarjuna Finance Ltd.A/C, ObulReddy
& Sons A/C, HMT Ltd. A/C, Capital A/C, Drawings A/C etc.
2. Real Accounts: The accounts relating to properties or assets are known as
“Real Accounts” .Every business needs assets such as machinery, furniture etc,

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for running its activities .A separate account is maintained for each asset owned
by the business.
E.g.: cash A/C, furniture A/C, building A/C, machinery A/C etc.
3. Nominal Accounts: Accounts relating to expenses, losses, incomes and gains
are known as “Nominal Accounts”. A separate account is maintained for each
item of expenses, losses, income or gain.
E.g.: Salaries A/C, stationery A/C, wages A/C, postage A/C, commission A/C,
interest A/C, purchases A/C, rent A/C, discount A/C, commission received A/C,
interest received A/C, rent received A/C, discount received A/C.
Before recording a transaction, it is necessary to find out which of the accounts
is to be debited and which is to be credited. The following three different rules
have been laid down for the three classes of accounts….
1. Personal Accounts: The account of the person receiving benefit (receiver) is
to be debited and the account of the person giving the benefit (given) is to be
credited.
Rule: “Debit----The Receiver

Credit---The Giver”

2. Real Accounts: When an asset is coming into the business, account of that
asset is to be debited .When an asset is going out of the business; the account of
that asset is to be credited.
Rule: “Debit----What comes in

Credit---What goes out”

3. Nominal Accounts: When an expense is incurred or loss encountered, the

account representing the expense or loss is to be debited. When any income is
earned or gain made, the account representing the income of gain is to be
credited.
Rule: “Debit----All expenses and losses

Credit---All incomes and gains”

Q6. What is Double-entry book keeping?

A. The two fold effect of a transaction is recorded in the books of accounts to
show the correct and complete picture of financial statements. This method
followed in accounting is called as Double entry book-keeping.
Q7. What is a Transaction?

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A. It involves exchange of money or money’s worth between two parties.
Transaction may be of two types: cash transaction or credit transaction.
Q8. What are Assets?
A. All such items that have value are known as Assets. It refers to what a
business owns namely its plant, machinery, furniture and land and so on.
Q9. What are Liabilities?
A. What the firm has to pay legally, they are called liabilities. It refers to what
the firm owes to outsiders.
Homework:
1. What is an account? Explain the different types of accounts with
examples?
Important and Previous JNTU Examination Questions:
1. What is Double-entry book keeping?
2. What is an account? Explain the different types of accounts with examples
(Sep-2014)(8M)
Day 47
Q1. What is Journal?
Q) What do you mean by Journal? Explain. [4M] SET - 1 November - 2015
A .The moment transactions take place in business those are recorded in the
first book called journal. . JOURNAL: The first step in accounting therefore is the
record of all the transactions in the books of original entry viz., Journal and then
posting into ledgers.
The word Journal is derived from the Latin word ‘journ’ which means a day.
Therefore, journal means a ‘day Book’ in day-to-day business transactions are
recorded in chronological order.
Journal is treated as the book of original entry or first entry or prime entry. All
the business transactions are recorded in this book before they are posted in the
ledges. The journal is a complete and chronological (in order of dates) record of
business transactions. It is recorded in a systematic manner. The process of
recording a transaction in the journal is called “JOURNALISING”. The entries
made in the book are called “Journal Entries”.
The pro forma of Journal is given below.
Date Particulars L.F. Debit Credit
no RS. RS.
1998 Purchases account to cash account (being 10,000/- 10,000/-
Jan 1 goods purchased for cash)
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Q2. What is Ledger?
Q) What do you understand by Ledger? [4M] NOVEMBER-2015[16M] SET 2
All the transactions in a journal are recorded in a chronological order. After a
certain period, if we want to know whether a particular account is showing a
debit or credit balance it becomes very difficult. So, the ledger is designed to
accommodate the various accounts maintained the trader. It contains the final
or permanent record of all the transactions in duly classified form. “A ledger is a
book which contains various accounts.” The process of transferring entries from
journal to ledger is called “POSTING”.
Posting is the process of entering in the ledger the entries given in the journal.
Posting into ledger is done periodically, may be weekly or fortnightly as per the
convenience of the business. The following are the guidelines for posting
transactions in the ledger.
After the completion of Journal entries only posting is to be made in the ledger.
For each item in the Journal a separate account is to be opened. Further, for
each new item a new account is to be opened.
Depending upon the number of transactions space for each account is to be
determined in the ledger.
For each account there must be a name. This should be written in the top of the
table. At the end of the name, the word “Account” is to be added.
The debit side of the Journal entry is to be posted on the debit side of the
account, by starting with “TO”.
The credit side of the Journal entry is to be posted on the debit side of the
account, by starting with “BY”.
Pro forma for ledger: LEDGER BOOK
Particulars account
Date Particulars Lfno Amount Date Particulars Lfno amount

Sales account
Date Particulars Lfno Amount Date Particulars Lfno amount

Cash account
Date Particulars Lfno Amount Date Particulars Lfno amount

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A. from Journal, entries are posted in ledger accounts and balances like debit
and credit are totaled.
Q3. What is Trial balance?
Q) Write notes on Trial Balance. [4M] NOVEMBER 2015 SET – 3
A. On the basis shown by ledger accounts, a statement showing debit and credit
balances is prepared to ensure arithmetic accuracy of the accounts.
The first step in the preparation of final accounts is the preparation of trail
balance. In the double entry system of book keeping, there will be credit for
every debit and there will not be any debit without credit. When this principle is
followed in writing journal entries, the total amount of all debits is equal to the
total amount all credits.
A trail balance is a statement of debit and credit balances. It is prepared on a
particular date with the object of checking the accuracy of the books of
accounts. It indicates that all the transactions for a particular period have been
duly entered in the book, properly posted and balanced. The trail balance
doesn’t include stock in hand at the end of the period. All adjustments required
to be done at the end of the period including closing stock are generally given
under the trail balance.
DEFINITIONS:
SPICER AND POGLAR: A trail balance is a list of all the balances standing on the
ledger accounts and cash book of a concern at any given date.
J.R.BATLIBOI:
A trail balance is a statement of debit and credit balances extracted from the
ledger with a view to test the arithmetical accuracy of the books.
Thus a trail balance is a list of balances of the ledger accounts’ and cash book of
a business concern at any given date.
PROFORMA FOR TRAIL BALANCE:
Trail balance for MR…………………………………… as on …………
NO NAME OF DEBIT CREDIT
ACCOUNT AMOUNT(RS.) AMOUNT(RS.)
(PARTICULARS)

Q4. Explain Journal, Ledger and Trail balance

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A. JOURNAL: The first step in accounting therefore is the record of all the
transactions in the books of original entry viz., Journal and then posting into
ledgers.
The word Journal is derived from the Latin word ‘journ’ which means a day.
Therefore, journal means a ‘day Book’ in day-to-day business transactions are
recorded in chronological order.
Journal is treated as the book of original entry or first entry or prime entry. All
the business transactions are recorded in this book before they are posted in the
ledges. The journal is a complete and chronological (in order of dates) record of
business transactions. It is recorded in a systematic manner. The process of
recording a transaction in the journal is called “JOURNALISING”. The entries
made in the book are called “Journal Entries”.
The pro forma of Journal is given below.
Date Particulars L.F. Debit Credit
no RS. RS.
1998 Jan 1 Purchases account to cash account 10,000/- 10,000/-
(being goods purchased for cash)
LEDGER
All the transactions in a journal are recorded in a chronological order. After a
certain period, if we want to know whether a particular account is showing a
debit or credit balance it becomes very difficult. So, the ledger is designed to
accommodate the various accounts maintained the trader. It contains the final
or permanent record of all the transactions in duly classified form. “A ledger is a
book which contains various accounts.” The process of transferring entries from
journal to ledger is called “POSTING”.
Posting is the process of entering in the ledger the entries given in the journal.
Posting into ledger is done periodically, may be weekly or fortnightly as per the
convenience of the business. The following are the guidelines for posting
transactions in the ledger.
After the completion of Journal entries only posting is to be made in the ledger.
For each item in the Journal a separate account is to be opened. Further, for
each new item a new account is to be opened.
Depending upon the number of transactions space for each account is to be
determined in the ledger.
For each account there must be a name. This should be written in the top of the
table. At the end of the name, the word “Account” is to be added.
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The debit side of the Journal entry is to be posted on the debit side of the
account, by starting with “TO”.
The credit side of the Journal entry is to be posted on the debit side of the
account, by starting with “BY”.
Pro forma for ledger: LEDGER BOOK
Particulars account
Date Particulars Lfno Amount Date Particulars Lfno amount

Sales account
Date Particulars Lfno Amount Date Particulars Lfno amount

Cash account
Date Particulars Lfno Amount Date Particulars Lfno amount

TRAIL BALANCE
The first step in the preparation of final accounts is the preparation of trail
balance. In the double entry system of book keeping, there will be credit for
every debit and there will not be any debit without credit. When this principle is
followed in writing journal entries, the total amount of all debits is equal to the
total amount all credits.
A trail balance is a statement of debit and credit balances. It is prepared on a
particular date with the object of checking the accuracy of the books of
accounts. It indicates that all the transactions for a particular period have been
duly entered in the book, properly posted and balanced. The trail balance
doesn’t include stock in hand at the end of the period. All adjustments required
to be done at the end of the period including closing stock are generally given
under the trail balance.
DEFINITIONS:
SPICER AND POGLAR: A trail balance is a list of all the balances standing on the
ledger accounts and cash book of a concern at any given date.
J.R.BATLIBOI:
A trail balance is a statement of debit and credit balances extracted from the
ledger with a view to test the arithmetical accuracy of the books.
Thus a trail balance is a list of balances of the ledger accounts’ and cash book of
a business concern at any given date.
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Problem and Previous JNTU Questions
1) Explain Journal, Ledger and Trail balance?
Day 48
PROFORMA FOR TRAIL BALANCE:
Trail balance for MR…………………………………… as on …………
NO NAME OF DEBIT CREDIT
ACCOUNT AMOUNT(RS.) AMOUNT(RS.)
(PARTICULARS)

Q1. What is a Ratio?

A. It refers to the numerical or quantitative relationship between two variables
which are comparable. It is an expression derived by dividing one variable by the
other. Ratios can be expressed in terms of percentages, proportions and
quotients also.
Q2. What are different types of Ratios?
A. Based on their nature, the ratios can be classified into four categories:
Liquidity ratios, Activity ratios, Capital structure ratios, Profitability ratios
Q3. What is Ratio analysis?
A. It is the process of determining and interpreting numerical relationships
based on financial statements. Ratio analysis is used to focus on financial issues
such as liquidity, profitability and solvency of a given firm.
Q4. Discuss the statement ‘Ratio analysis as a powerful tool’ (Sep-2014)
A. Ratio Analysis: Ratio is an expression of one number is relation to another. It
is one of the methods of analyzing financial statement. Ratio analysis facilities
the presentation of the information of the financial statements in simplified and
summarized from. Ratio is a measuring of two numerical positions. It expresses
the relation between two numerical figures. It can be found by dividing one
figure by another.
Uses or Advantages or Importance of Ratio Analysis
Ratio Analysis stands for the process of determining and presenting the
relationship of items and groups of items in the financial statements. It is an
important technique of financial analysis. It is a way by which financial stability
and health of a concern can be judged. The following are the main uses of Ratio
analysis:

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Useful in financial position analysis: Accounting reveals the financial position of
the concern. This helps banks, insurance companies and other financial
institution in lending and making investment decisions. Useful in simplifying
accounting figures: Accounting ratios simplify, summaries and systematic the
accounting figures in order to make them more understandable and in lucid
form.
Useful in assessing the operational efficiency: Accounting ratios helps to have an
idea of the working of a concern. The efficiency of the firm becomes evident
when analysis is based on accounting ratio. This helps the management to
assess financial requirements and the capabilities of various business units.
Useful in forecasting purposes: If accounting ratios are calculated for number of
years, then a trend is established. This trend helps in setting up future plans and
forecasting.
Useful in locating the weak spots of the business: Accounting ratios are of great
assistance in locating the weak spots in the business even through the overall
performance may be efficient.
Useful in comparison of performance: Managers are usually interested to know
which department performance is good and for that he compare one
department with the another department of the same firm. Ratios also help him
to make any change in the organisation structure.
Limitations of Ratio Analysis: These limitations should be kept in mind while
making use of ratio analyses for interpreting the financial statements. The
following are the main limitations of ratio analysis.
False results if based on incorrect accounting data: Accounting ratios can be
correct only if the data (on which they are based) is correct. Sometimes, the
information given in the financial statements is affected by window dressing, i.
e. showing position better than what actually is.
No idea of probable happenings in future: Ratios are an attempt to make an
analysis of the past financial statements; so they are historical documents. Now-
a-days keeping in view the complexities of the business, it is important to have
an idea of the probable happenings in future.
Variation in accounting methods: The two firms’ results are comparable with the
help of accounting ratios only if they follow the some accounting methods or
bases. Comparison will become difficult if the two concerns follow the different
methods of providing depreciation or valuing stock.

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Price level change: Change in price levels make comparison for various years
difficult.
Only one method of analysis: Ratio analysis is only a beginning and gives just a
fraction of information needed for decision-making so, to have a comprehensive
analysis of financial statements, ratios should be used along with other methods
of analysis.
No common standards: It is very difficult to by down a common standard for
comparison because circumstances differ from concern to concern and the
nature of each industry is different.
Different meanings assigned to the some term: Different firms, in order to
calculate ratio may assign different meanings. This may affect the calculation of
ratio in different firms and such ratio when used for comparison may lead to
wrong conclusions.
Ignores qualitative factors: Accounting ratios are tools of quantitative analysis
only. But sometimes qualitative factors may surmount the quantitative aspects.
The calculations derived from the ratio analysis under such circumstances may
get distorted.
No use if ratios are worked out for insignificant and unrelated figure: Accounting
ratios should be calculated on the basis of cause and effect relationship. One
should be clear as to what cause is and what effect is before calculating a ratio
between two figures.
Homework:
1. Discuss the statement ‘Ratio analysis as a powerful tool’
Important and previous JNTU Questions
1. Discuss the statement ‘Ratio analysis as a powerful tool’ (Sep-2014)
Day 49
Q5. Explain the various classifications of ratios in detail (Aug, Sep-2014)
A. Classification of ratios: All the ratios broadly classified into four types due to
the interest of different parties for different purposes. They are:
Profitability ratios
Turn over ratios(Activity Ratios)
Financial ratios(Liquidity Ratios)
Leverage ratios(capital Structure Ratios)
Profitability ratios: These ratios are calculated to understand the profit
positions of the business. These ratios measure the profit earning capacity of an
enterprise. These ratios can be related its save or capital to a certain margin on

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sales or profitability of capital employ. These ratios are of interest to
management. Who are responsible for success and growth of enterprise?
Owners as well as financiers are interested in profitability ratios as these reflect
ability of enterprises to generate return on capital employ important
profitability ratios are: Profitability ratios in relation to sales: Profitability ratios
are almost importance of concern. These ratios are calculated to focus the end
results of the business activities which are the sole results of overall efficiency of
organisation.
1. Gross profit ratio: Gross profit ratio is the ratio between gross profit to sales
during a given period. Gross profit is the difference between the net sales and
cost of goods sold.
gross profit
Gross profit ratio = × 100
Net sales
Note: Higher the ratio the better it is
2. Net profit ratio: Ratio between net profits after taxes and net sales. It
indicates what portion of sales is left to the owners after operating expenses
Net profit after interest & 𝑇𝑎𝑥
Net profit ratio = × 100
Net sales
Note: Higher the ratio the better it is
3. Operating ratio(Operating expenses ratio): It is the ratio between cost of
goods sold plus operating expenses and the net sales.
operating expenses
× 100
Net sales
where operating expenses = (cost of goods sold+ administrative expenses+
selling and distribution expenses)
Profitability(%)=(100-operating ratio%)
Net: Lower the ratio the better it is
Operating profit
Operating profit ratio: × 100
Net sales
Note: Higher the ratio the better it is cost of goods sold= opening stock +
purchase + wages + other direct expenses- closing stock (or) sales – gross profit.
Operating expenses: = administration expenses + setting, distribution expenses
operating profit= gross profit – operating expense.
concern expenses
Expenses ratio = × 100
net sales
Note: Lower the ratio the better it is
Profitability ratios in relation to investments:
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Net profit after tax & 𝑙𝑎𝑡𝑒𝑠𝑡 𝑑𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 𝑜𝑛
Return on investments: × 100
share holders funds

Share holders' funds(Total investment) = equity share capital + preference share

capital + receives & surpluses +undistributed profits.
Note: Higher the ratio the better it is
Net profit after tax & interest−preference divident
2. Return on equity(ROE): × 100
equity share capital
Note: Higher the ratio the better it is
Net profit after tax−preference divident
3. Earnings per share(EPS) =
No.of equity shares
operating profit
4. Return on capital employed = × 100
capital employed
N.P.after tax and interest
5. Return on total assets =
Total Assets
Here, capital employed = equity share capital + preference share capital +
reserves & surpluses + undistributed profits + debentures+ public deposit +
securities + long term loan + other long term liability – factious
assets(preliminary expressed & profit & loss account debt balance)
Day 50
Q2. Turn over ratios or activity ratios:
Activity ratios express how active the firm is in terms of selling its stocks,
collecting its receivables and paying its creditors. These are of three types:
a. Inventory Turnover Ratio
b. Debtors Turnover Ratio
c. Creditors Turnover Ratio
Inventory Turnover Ratio : Also called stock turnover ratio. It indicates the
number of times the average stock is being sold during a given accounting
period and average amount of inventory outstanding during that period.
cost of goods sold
1. Stock turnover ratio =
average stock
Here,
Cost of goods sold = Sales - Gross Profit
opening stock + closing stock
Average stock =
2
Inventory holding Period = 365 days/Inventory Turnover Ratio
Debtor's Turnover Ratio: Debtors turnover ratio reveals the number of times
the average debtors are collected during a accounting period. In other words , it
shows how quickly the firm is in a position to collect its debts. In case if the firm
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is not in a position to collect its debts, to meet the working capital requirements,
it has to borrow paying interest.
Debtor's Turnover Ratio = Credit sales/ Average Debtors
Where credit sales refer to goods sold on credit and average debtors is the
average of opening and closing balances of debtors for the given accounting
period.
Creditors Turnover Ratio: Creditors Turnover Ratio reveals the number of times
the average creditors are paying during a accounting period. In other words , it
shows how quickly the firm is in a position to pay to its creditors.
Creditors Turnover Ratio = Credit Purchases/ Average Creditors
Note: Higher the ratio, the better it is
sales
2. Working capital turnover ratio =
working capital
Note: Higher the ratio the better it is working capital = current assets – essential
liabilities.
sales
3. Fixed assets turnover ratio =
fixed assets
Note: Higher the ratio the better it is.
sales
3 (i) Total assets turnover ratio is :
total assets
Note: Higher the ratio the better it is.
sales
4. Capital turnover ratio =
capital employed
Note: Higher the ratio the better it is
credits sales or sales
5. Debtors turnover ratio =
average debtors
365 (or)12
5 (i) = Debtors collection period =
Turnover ratio
Here,
opening debitoes + closing debtors
Average debtors =
2
Debtors = debtors + bills receivable
Note: Higher the ratio the better it is.
credit purchases or purchases
6. Creditors turnover ratio =
average credetors
365 (or)12
6 (i) creditors collection period =
creditor turnover ratio
Here,
opening + closing credetors
Average creditor =
2
Creditors = creditors + bills payable.
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Note: lower the ratio the better it is.
3. Financial ratios or liquidity ratios:
Liquidity refers to ability of organisation to meet its current obligation (short
term commitments). These ratios are used to measure the financial status of an
organisation. These ratios help to the management to make the decisions about
the maintained level of current assets & current libraries of the business. The
main purpose to calculate these ratios is to know the short terms solvency of the
concern. These ratios are useful to various parties having interest in the
enterprise over a short period – such parties include banks. Lenders, suppliers,
employees and other.
The liquidity ratios assess the capacity of the company to repay its short term
liabilities. These ratios are calculated in ratio method.
These ratios are classified into two types
(a) Current Ratio: Current Ratio is the ratio between Current assets and current
Liabilities
Current assets
Current ratio =
current liabilities
The current assets include stock in hand, , debtors, bills receivable, cash at bank,
cash in hand and so on. Also called as Working Capital Ratio.
Note: The ideal ratio is 2:1
i. e., current assets should be twice. The current liabilities.
quick assets
(b) Quick ratio or liquid ratio or acid test ratio:
current liabilities
Quick assets = cash in hand + cash at bank + short term investments + debtors +
bills receivables short term investments are also known as marketable
securities.(Quick Assets = Current Assets - (Stock + Prepaid Expenses))
Here the ideal ratio is 1:1 is, quick assets should be equal to the current
liabilities.
absolute liquid assets
Absolute liquid ratio =
current liabilities
Here,
Absolute liquid assets = cash in hand + cash at bank + short term investments +
marketable securities.
Here, the ideal ratio is 0,0:1 or 1:2 it, absolute liquid assets must be half of
current liabilities.
Leverage ratio of solvency ratios(Capital Structure Ratios): Solvency refers to the
ability of a business to honour long item obligations like interest and
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installments associated with long term debts. Solvency ratios indicate long term
stability of an enterprise. It is also defined as "Financial Ratio". These ratios are
used to understand the yield rate of the organization.
Lenders like financial institutions, debenture, holders, banks are interested in
ascertaining solvency of the enterprise. The important solvency ratios are:
Debt 𝑜𝑢𝑡𝑠𝑖𝑑𝑒𝑟𝑠 𝑓𝑢𝑛𝑑
1. Debt – equity ratio = =
Equity share holders funds
Here,
Outsiders funds = Debentures, public deposits, securities, long term bank loans +
other long term liabilities.
Share holders' funds = equity share capital + preference share capital + reserves
& surpluses + undistributed projects.
The ideal ratio is 2:1
This is used to measure the firm's obligation to creditors in relation to the
owner's funds
share holder funds
2. Preprimary ratio or equity ratio =
total assets
The ideal ratio is 1:3 or 0.33:1
(equity share capital  reserves & surplusses  undistribu ted projects)
3. Capital – gearing ratio:
(Outsiders funds  preference share capital )
Here,
higher gearing ratio is not good for a new company or the company in which
future earnings are uncertain.
outsiders funds
4. Debt to total fund ratio =
capital employed
Capital employed= outsiders funds + share holders funds = debt + equity.
The ideal ratio is 0.67 :1 or 2:3
5.Interest Coverage Ratio = (Net Profit before interest and taxes/ Fixed Interest
Charges)
Interest Coverage Ratio is calculated to judge the firm's capacity to pay interest
on debt it borrows. It is very important ratio for the financial institutions to
judge the ability of borrower to service the loan of current year's profits.
6. Ratio of Proprietors funds to total assets = (Proprietors funds/Total assets) x
100
It establishes the relation between proprietor funds and total assets. Here the
total assets include tangible fixed assets + current assets
7. Ratio of fixed Assets to Proprietors funds = (Fixed Assets/Proprietors funds) x
100
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This Ratio explains whether the fixed assets have been bought from Proprietors'
funds or not. By matching the long term investment with the long term finance,
it is possible to determine whether the borrowing has been made to finance
fixed assets.
Homework:
1. Explain the various classifications of ratios in detail
Important and JNTU PREVIOUS QUESTIONS:
1. Explain the various classifications of ratios in detail (Aug, Sep-2014)
Day 51
Q1. EXPLAIN GAAP (generally accepted accounting principles) or (BASIC
ACCOUNTING CONCEPTS)
Accounting is a system evolved to achieve a set of objectives. In order to achieve
the goals, we need a set of rules or guidelines. These guidelines are termed here
as “BASIC ACCOUNTING CONCEPTS”. The term concept means an idea or
thought. Basic accounting concepts are the fundamental ideas or basic
assumptions underlying the theory and profit of FINANCIAL ACCOUNTING. These
concepts help in bringing about uniformity in the practice of accounting. In
accountancy following concepts are quite popular.
1. BUSINESS ENTITY CONEPT: In this concept “Business is treated as separate
from the proprietor”. All the Transactions recorded in the book of Business and
not in the books of proprietor. The proprietor is also treated as a creditor for the
Business.
2. GOING CONCERN CONCEPT: This concept relates with the long life of
Business. The assumption is that business will continue to exist for unlimited
period unless it is dissolved due to some reasons or the other.
3. MONEY MEASUREMENT CONCEPT: In this concept “Only those transactions
are recorded in accounting which can be expressed in terms of money, those
transactions which cannot be expressed in terms of money are not recorded in
the books of accounting”.
4. COST CONCEPT: Accounting to this concept, can asset is recorded at its cost in
the books of account. i.e., the price, which is paid at the time of acquiring it. In
balance sheet, these assets appear not at cost price every year, but depreciation
is deducted and they appear at the amount, which is cost, less classification.
5. ACCOUNTING PERIOD CONCEPT: every Businessman wants to know the result
of his investment and efforts after a certain period. Usually one-year period is

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regarded as an ideal for this purpose. This period is called Accounting Period. It
depends on the nature of the business and object of the proprietor of business.
6. DUAL ASPECT CONCEPT: According to this concept “Every business
transactions has two aspects”, one is the receiving benefit aspect another one is
giving benefit aspect. The receiving benefit aspect is termed as “DEBIT”, where
as the giving benefit aspect is termed as “CREDIT”. Therefore, for every debit,
there will be corresponding credit.
7. MATCHING COST CONCEPT: According to this concept “The expenses incurred
during an accounting period, e.g., if revenue is recognized on all goods sold
during a period, cost of those good sole should also be charged to that period.
8. REALISATION CONCEPT: According to this concept revenue is recognized
when a sale is made. Sale is considered to be made at the point when the
property in goods posses to the buyer and he becomes legally liable to pay.
ACCOUNTING CONVENTIONS
Accounting is based on some customs or usages. Naturally accountants here to
adopt that usage or custom.
They are termed as convert conventions in accounting. The following are some
of the important accounting conventions.
1. FULL DISCLOSURE: According to this convention accounting reports should
disclose fully and fairly the information. They purport to represent. They should
be prepared honestly and sufficiently disclose information which is if material
interest to proprietors, present and potential creditors and investors. The
companies ACT, 1956 makes it compulsory to provide all the information in the
prescribed form.
2. MATERIALITY: Under this convention the trader records important factor
about the commercial activities. In the form of financial statements if any
unimportant information is to be given for the sake of clarity it will be given as
footnotes.
3. CONSISTENCY: It means that accounting method adopted should not be
changed from year to year. It means that there should be consistent in the
methods or principles followed. Or else the results of a year cannot be
conveniently compared with that of another.
4. CONSERVATISM: This convention warns the trader not to take unrealized
income in to account. That is why the practice of valuing stock at cost or market
price, whichever is lower is in vague. This is the policy of “playing safe”; it takes
in to consideration all prospective losses but leaves all prospective profits.

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Homework:
1. EXPLAIN GAAP(generally accepted accounting principles) or (BASIC
ACCOUNTING CONCEPTS)
Important and JNTU previous questions:
1. EXPLAIN GAAP(generally accepted accounting principles) or (BASIC
ACCOUNTING CONCEPTS)
Day 52
Q4. Explain the importance and purpose of final account (Sep-2014)
A. In every business, the business man is interested in knowing whether the
business has resulted in profit or loss and what the financial position of the
business is at a given time. In brief, he wants to know (i)The profitability of the
business and (ii) The soundness of the business.
The trader can ascertain this by preparing the final accounts. The final accounts
are prepared from the trial balance. Hence the trial balance is said to be the link
between the ledger accounts and the final accounts. The final accounts of a firm
can be divided into two stages. The first stage is preparing the trading and profit
and loss account and the second stage is preparing the balance sheet.
TRADING ACCOUNT
The first step in the preparation of final account is the preparation of trading
account. The main purpose of preparing the trading account is to ascertain gross
profit or gross loss as a result of buying and selling the goods.
Trading account of MR……………………. for the year ended ……………………
Particulars Amount Particulars Amount

To opening stock Xxxx By sales xxxx

To purchases xxxx Less: returns xxx Xxxx
Less: returns xx Xxxx By closing stock Xxxx

To carriage inwards Xxxx

To wages Xxxx
To freight Xxxx
To customs duty, octroi Xxxx

To gas, fuel, coal, Xxxx

Water Xxxx

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To factory expenses
To other man. Expenses Xxxx
To productive expenses Xxxx
To gross profit c/d
Xxxx

Xxxx

Xxxx
Finally, a ledger may be defined as a summary statement of all the transactions
relating to a person , asset, expense or income which have taken place during a
given period of time. The up-to-date state of any account can be easily known by
referring to the ledger.
PROFIT AND LOSS ACCOUNT
The business man is always interested in knowing his net income or net
profit.Net profit represents the excess of gross profit plus the other revenue
incomes over administrative, sales, Financial and other expenses. The debit side
of profit and loss account shows the expenses and the credit side the incomes. If
the total of the credit side is more, it will be the net profit. And if the debit side
is more, it will be net loss.
PROFIT AND LOSS A/C OF MR…………………….FOR THE YEAR ENDED…………
PARTICULARS AMOUNT PARTICULARS AMOUNT
TO office salaries Xxxxxx By gross profit by Xxxxx
TO rent,rates,taxes Xxxxx Interest received Xxxxx
TO Printing and Xxxxx By Discount Xxxx
stationery received Xxxxx
TO Legal charges Xxxx by Commission
Audit fee Xxxx received
TO Insurance Xxxx by Income from Xxxx
TO General expenses Xxxxx investments Xxxx
TO Advertisements Xxxx by Dividend on
TO Bad debts Xxxx shares xxxx
TO Carriage outwards Xxxx by Miscellaneous
TO Repairs Xxxxx investments
TO Depreciation Xxxxx by Rent received
TO interest paid Xxxxx
TO Interest on capital Xxxx
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TO Interest on loans Xxxxx
TO Discount allowed Xxxxx
TO Commission Xxxxx
TO Net profit-------
(transferred to
capital a/c)

Xxxxxx Xxxxxx

BALANCE SHEET
The second point of final accounts is the preparation of balance sheet. It is
prepared often in the trading and profit, loss accounts have been compiled and
closed. A balance sheet may be considered as a statement of the financial
position of the concern at a given date.
DEFINITION:
A balance sheet is an item wise list of assets, liabilities and proprietorship of a
business at a certain state.
J.R.Batliboi: A balance sheet is a statement with a view to measure exact
financial position of a business at a particular date.
Thus, Balance sheet is defined as a statement which sets out the assets and
liabilities of a business firm and which serves to ascertain the financial position
of the same on any particular date. On the left-hand side of this statement, the
liabilities and the capital are shown. On the right-hand side all the assets are
shown. Therefore, the two sides of the balance sheet should be equal.
Otherwise, there is an error somewhere.
BALANCE SHEET OF ………………………… AS ON …………………………………….
Liabilities and capital Amount Assets Amount

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Creditors Xxxx Cash in hand Xxxx
Bills payable Xxxx Cash at bank Xxxx
Bank overdraft Xxxx Bills receivable Xxxx
Loans Xxxx Debtors Xxxx
Mortgage Xxxx Closing stock Xxxx
Reserve fund Xxxx Investments Xxxx
Capital xxxxxx Furniture and Xxxx
Add: fittings
Net Profit xxxx Plants & Xxxx
------- machinery Xxxx
xxxxxxx Land & buildings Xxxx
-------- Patents, tm
,copyrights Xxxx
Less: Goodwill Xxxx
Drawings xxxx Xxxx Prepaid expenses Xxxx
--------- XXXX Outstanding XXXX
incomes

Advantages: The following are the advantages of final balance.

It helps in checking the arithmetical accuracy of books of accounts.
It helps in the preparation of financial statements.
It helps in detecting errors.
It serves as an instrument for carrying out the job of rectification of entries.
It is possible to find out the balances of various accounts at one place.
Important and previous JNTU Questions
1. Explain the importance and purpose of final account (Sep-2014)
Day 53
Q2. Explain subsidiary books?
A. In a small business concern, the numbers of transactions are limited. These
transactions are first recorded in the journal as and when they take place.
Subsequently, these transactions are posted in the appropriate accounts of the
ledger. Therefore, the journal is known as “Book Of Original Entry” or “Book of
Prime Entry” while the ledger is known as main book of accounts.
On the other hand, the transactions in big concern are numerous and
sometimes even run into thousands and lakhs. It is inconvenient and time
wasting process if all the transactions are going to be managed with a journal.
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Therefore, a convenient device is made. Smaller account books known as
subsidiary books or subsidiary journals are disturbed to various sections of the
business house. As and when transactions take place, they are recorded in these
subsidiary books simultaneously without delay. The original journal (which is
known as Journal Proper) is used only occasionally to record those transactions
which cannot be recorded in any of the subsidiary books.
TYPES OF SUBSIDIARY BOOKS: -- Subsidiary books are divided into eight types.
They are,
1. Purchases Book 2. Sales Book 3. Purchase Returns Book
4. Sales Returns Book 5. Cash Book 6. Bills Receivable Book
7. Bills Payable Book 8. Journal Proper
1. PURCHASES BOOK: - This book records all credit purchases only. Purchase of
goods for cash and purchase of assets for cash. Credit will not be recorded in
this book. Purchases book is otherwise called Purchases Day Book, Purchases
Journal or Purchases Register.
2. SALES BOOK:-This book is used to record credit sales only. Goods are sold for
cash and sale of assets for cash or credit will not be recorded in this book. This
book is otherwise called Sales Day Book, Sales Journal or Sales Register.
3. PURCHASE RETURNS BOOK: - This book is used to record the particulars of
goods returned to the supplier’s .This book is otherwise called Returns Outward
Book.
4. SALES RETURNS BOOK: - This book is used to record the particulars of goods
returned by the customers. This book is otherwise called Returns Inward Book.
5. CASH BOOK: - All cash transactions, receipts and payments are recorded in
this book. Cash includes cheques, money orders etc.
6. BILLS RECEIVABLE BOOK: - This book is used to record all the bills and
promissory notes are received from the customers.
7. BILLS PAYABLE BOOK: - This book is used to record all the bills or promissory
notes accepted to the suppliers.
8. JOURNAL PROPER: - This is used to record all the transactions that cannot be
recorded in any of the above mentioned subsidiary books.
Problems for final accounts:
1. From the following trail balance of Narayana & Co prepare trading & profit
and loss for the year ended 31.03.2011 and a balance sheet as on date.

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Debit(Rs) Credit (Rs)
Sales 1,80,000
Purchases 1,15,000
Sales returns 6,000
Purchase Returns 4000
Opening stock 13,000
Freight 1200
Salaries 18,000
Interest received 830
Wages 3250
Office expenses 2650
Discount 650 450
Rent 6,300
Drawings 2800
Bills payables 5550
Bills receivable 8560
Furniture 26,000
Machinery 76,000
General expenses 1500
Postal & Telegrams 850
Capital 1,01,500
Sundry Debtors 19,000
Cash in hand 1250
Cash at bank 3950
Sundry Creditors 13630
Total 3,05,960 3,05,960
Adjustments:
1. Closing stock Rs. 27,500/-
2. Outstanding wages Rs. 750/-
3. Prepaid rent Rs. 800/-
4. Depreciate machinery by 10% and furniture by 5%
5. Write of bad debts Rs. 1000 & provide 3% reserve for doubtful debts
6. Interest on capital at 10% annum.
Trading and profit and loss account of Narayana&Co for the year ending 31-3-11
Dr. Cr.

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Particulars Account Particulars Account

To opening stock 13,000 By sales 1,74,000
1,80,000
(-) returns
6,000
By closing stock 27,500
To purchases 1,15,000
(-) returns 4,000 1,11,000
To freight 1,120
To wages 3,250 4000
(add) outstanding wages 750
To gross profit c/d 72,300
2,01,500 2,01,500
To Salaries 18,000 By gross profit 72,300
b/d
To office expenses 2650 By interest 830
To discount 650 By discount 450
To rent 6300
Less prepaid 800 5,500
To reserve for bad Debts(19000- 540
1000=18000x3/100)
To Depreciation on furniture(26000 x 1300
5/100)
To Depreciation on machinery(76000 x 7600
10/100)
To general expenses 1500
To postage and telegram 850
To interest on capital 10,150
To Bad debts 1,000
To Net profit (Tr To capital A/c) 23,540
73,580 73,580
Balance sheet as on 31-03-2010
Liabilities Amount Assets Ammount
Capital 1,01,500 Furniture 26,000
Less:Drawing 2,800 Less: Depreciation 1,300
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24,700
Machinary 76,000
Add: interest 10,150 Less: Depreciation 7,600 68,400
Prepaid Rent 800
Add: Net profit 23,540 Bills Receivable 8,560
1,32,690
Outstanding wages 750 Closing Stock 27,500
Bills payable 5,550 Sundry debtors 19,000
Sundry creditors 13,630 Less: Bad Debts 1,000
18,000
(-) Reserve for doubtful debts 540 17,460
Cash in hand 1250
Cash at bank 3950
1,52,650 1,52,650
From the following particulars prepare the trading and profit and loss account
balance sheets as on 31-3-2010 of Mr. Rakesh
Cash in hand 5,000 Purchase returns 2,800
Capital 3,00,000 Sales returns 3,500
Rent 2,000 Sales 6,64,700
Wages 25,600 Drawing 8,700
Office expenses 15,900 Plant & machinery 2,70,000
Salaries 10,600 Stock 47,500
Octroi 5,000 Sundry Debtors 80,000
Carriage inwards 4,400 Sundry Creditors 50,000
Carriage outwards 1,400 Discount received 2,000
Purchases 3,72,000 Furniture 15,000
Additional information:
1. Closing stock Rs. 56,000
2. Depreciate plant and machinery by 10% & furniture by 5%
Trading and profit and loss account of Mr. Rajesh as on 31-3-2010
Dr. Cr.
Particulars Amount Particulars Amount
To opening stock 57,500 By sales
6,64,700
To purchases 3,72,000 (-) returns 3500 6,61,200
(-)returns 2800 3,69,200
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To wages 25,600 By closing stock 56,000
To octroi 5,000
To carriage inwards 4,400
To gross profit c/d 2,65,500
7,17,200 7,17,200
To salaries 1,12,600 By gross profit 2,65,500
b/d
To office expenses 15,900
To rent 2,000 By discount 2,000
received
To Rates & Taxes 50,900
To carriage outwards 1,400
To depreciation on plant & machinery
2,70,000x10/100
27,000
To depreciation on Furniture 15000 x
5/100
750
To net profit 56,900
(transferred to capital acount) 2,67,500 2,67,500

Balance sheet as on 31-3-2011

Liabilities Amount Assets Ammount
Capital 3,00,000 Plant & machinery 2,70,000
(+) Net profit 56,900 (-) Depreciation 27,000 2,43,000
3,56,900 Furniture 15,000
(-) Drawings 8,700 3,48,200 (-) Depreciation 750 14,250

Sundry Creditors 50,000 Closing Stock 56,000

Sundry debitors 80,000
Cash on hand 5,000
3,98,250 3,98,250
PART –A
1. What do you mean by Journal? Explain. [4M] SET - 1 November - 2015
2. Write a short note on Capital and types of capital. [4M] SET - 1 November
– 2015
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3. What do you understand by Ledger? [4M] NOVEMBER-2015[16M] SET 2
4. Write notes on Trial Balance. [4M] NOVEMBER 2015 SET - 3
PART-B
1. Prepare final accounts for Munni Lal for the year ended 31st March 2012
from the following Trial Balance. SET - 1 November – 2015 [16M]
Account Debit (Rs.) Credit(Rs)
Cash in hand 10,000
Purchases 2,00,000
Sales 3,10,000
Returns Inward 5,000
Returns outward 10,000
Wages 8,000
Power 2,000
Factory Rent 5,000
Opening Stock 10,000
Buildings 50,000
Machinery 40,000
Patents 5,000
Land 70,000
Salaries 8,000
General Expenses 2,000
Insurance 3,000
Debtors 4000
Capital 95,000
Drawings 8,000
Creditors 15,000
Total: 4,30,000 4,30,000

Adjustments:
1. Closing Stock Rs. 10,000
2. Depreciate machinery, buildings and patents at 10% p.a
3. Outstanding salaries Rs. 3,000
4. Prepaid insurance Rs. 300
5. Wages outstanding Rs. 1,000.

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Q) The following Trial balance was extracted from the books of M/S M.S. Bros.
on March 31, 2003. You are required to prepare a Trading account and Profit
and Loss account for the year ended March 31,2003 and a Balance sheet as on
that date.
The closing stock amounted to Rs. 14,220.
NOVEMBER-2015[16M]
Particulars Debit(Rs) Credit(Rs.)
Debtors 12,000
Creditors 7,900
Capital 30,000
Drawings 2900
Rent & Rates 250
Purchases 8640
Sales 14,290
Returns Outwards 280
Returns Inwards 190
Carriage Inwards 250
Wages 2920
Salaries 1200
Stock (April 1st 2002) 3100
Discount Received 240
Discount Allowed 180
Bad Debts 200
Plants & Machinery 2510
Cash in Hand 500
Cash at Bank 15400
Furniture & Fittings 1800
Total 52,710 52,710
1. From the following Trial balance of Giri Traders, prepare final accounts for
the year ended 31-12-2013. [16M] NOVEMBER 2015 SET – 3

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Particulars Debit(Rs) Credit(Rs)
5,000
Capital 3,00,00

Cash 5000
Purchases 19,000
Purchase Returns 500
Sales 20000
Wages 1000
Salaries 800
Factory Insurance 200
Rent 650
Carriage 150
Office Expenses 200
Carriage Outwards 200
Machinery 8000
Furniture 6000
Discount Allowed 250
Discount Received 1500
Good Will 3550
Opening stock 1500
Creditors 3000
Debtors 8500
Total 55,000 55,000

2. From the following balances, prepare Trading and Profit and Loss Account
and Balance Sheet: [16M] N0vember 2015
Particulars Debit(Rs) Credit(Rs)
Machinery 3500
Debtors 2700
Drawings 900
Purchases 9500

Wages 5000
Bank 1500
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Opening Stock 2000

Rent 450
Sundry 200

Carriage 150
Capital 10000

Sales 14500
Creditors 1400
Closing Stock was Rs. 300.
1. Journalize the following transactions. [16M] October/November – 2016
SET-1
January 1. Commenced business with a capital of Rs. 1,00,000
,, 2. Cash deposited into bank Rs. 900
,, 3. Bought Furniture for cash Rs. 3,000
,, 4. Bought goods for cash from ‘B’ Rs. 5000
,, 5. Sold goods for cash to ‘A’ Rs. 2,000
,, 6. Purchased goods from ‘C’ on credit Rs.2000
,, 7. Goods sold to ‘D’ on credit Rs. 1500
,, 20. Received interest Rs. 500
,, 31. Paid rent Rs. 4000
,, 31. Paid salary to ‘P’ Rs.10,000
Q. Prepare Trading and Profit & Loss Account and Balance sheet for the year
ended 31st March 2014 from the following Trial Balance of XYZ Co. Ltd.
October/November – 2016 SET-2[16M]

Dr(Rs) Cr(Rs)
Furniture 65000
Plant and 60000
machinery

Buildings 75000

Capital 125000
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Bad Debs 1750
Reserve for Bad 3000
Debts
Sundry debtors 40000
Sundry creditors 24000
Stock(1.1.2001) 34600
Purchases 54750
Sales 154500
Bank overdraft 28500
Sales returns 2000
Purchase returns 120
Advertising 4500
Interest 1180
Commission 3750
received
Cash in hand 6500
Salaries 33000
General expenses 7820
Car expenses 9000
Taxes and 3500
insurance
340000 340000
Closing stock valued at Rs. 50,000
Q)The following is the Trial Balance of ABC Co. Ltd., was prepared on 31 st March
2014. Prepare Trading and Profit & Loss Account and Balance Sheet.
October/November – 2016 SET-3 16M

Debit(Rs) Credit(Rs)
Capital 22000
Opening stock 10000
Debtors and Creditors 8000 12000
Machinery 20000
Cash at Bank 2000
Bank overdraft 14000
Sales returns and 4000 8000
Purchases returns
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Trade expenses 12000
Purchases and Sales 26000 44000
Wages 10000
Salaries 12000
Bills payable 10600
Bank deposits 6600
Total 110600 110600
Closing Stock was valued at Rs.60, 000

Q) From the following information, prepare trading, profit and loss account and
balance sheet. October/November – 2016 SET-4 16M
Particulars Debit(Rs) Credit(Rs)
Purchases 30000
Sales 70000
Returns 1400 1600
Opening Stock 20000
Wages 1000
Salaries 1400
Depreciation 2000
Rent Received 10000
Buildings 30000
Capital 60000
Debtors 21800
Creditors 14000
Bank Overdraft 10000
Cash 58000
Total 1,65,600 1,65,600
Adjustments:
Closing Stock was valued at Rs.30,000
Outstanding Wages Rs.1,000
Appreciation on Buildings @ 10%.
1. What is an account? How would you classify different accounts maintained
by a business enterprise? [8M] May-2017 SET-1
2. Journalise the following transactions in the books of Khanu and Co. [8M]
May-2017 SET-1

Raghu Engineering College Dept. of ECE MEFA Unit-5

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2008 Rs
Jan 2 Started the business with 800000
Jan 3 Bought furniture for 120000
Jan 3 Bought stationery for 5000
Jan 3 Purchased goods for cash at 200000
Jan 3 Sold goods for cash worth 50000
Jan 3 Sold to R.Desai goods worth 100000
Jan 3 Bought goods from Mundra Bros at 80000
Jan 3 Paid office cleaning charges 1500
Jan 3 Bought goods from Hari worth 100000
Jan 3 Sold to Sharma and Co; good worth 60000
Jan 3 Received from R.Desai 50000
Jan 3 Paid to Hari 90000
Jan 3 Bought typewriter for 80000
Jan 3 Paid house rent of 7500
Jan 3 Paid light charges of 5000
Jan 3 Paid salary accounting to 50000
Jan 3 Received commission to 15000

Raghu Engineering College Dept. of ECE MEFA Unit-5