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Q1.

Distinguish between Management Accounting and Financial Accounting Managerial Accounting a) Users of information Managers within the organization b) Regulation: Not required and unregulated since it is intended only for the management c) Source of data: The organizations basic accounting system plus various sources, such as rates of defective products manufactured, physical quantities of material and labor used in the production occupancy rates in hotels and hospitals and average take offs delays in air-lines d) Nature of reports and procedures: Reports often focus on the sub-units within the organization, such as departments, divisions, geographical regions, or product lines based on a combination of historical data, estimates and projections of future event. Financial Accounting Interested parties, outside the organization. Required and must conform to generally accepted accounting principles. Regulated by FASB and to a lesser degree, the SECP Almost exclusively drawn from the organizations basic accounting system which accumulates financial information Reports focus on the enterprise in its entirely based almost exclusively on historical transactions data. Q2. Enter the following transactions in the single column cash book of Gopichand. March, 2003 1st Commenced business with cash 20000 2nd Bought goods for cash 5000 3rd Sold goods for cash 4000 4thGoods purchased from Ravi Kumar 10000 10thPaid to Ravi Kumar 7000 14thCash sales 8000 18thPurchased furniture for office 4000 22nd Paid wages 500 25thPaid rent 600 30thReceived Commission 4000 30th Withdrew for personal purpose 1000 31stPaid salary 900 Hint: Goods Purchased from Ravi Kumar is a credit purchase balance c/f should be 17000 Q3. What is cash flow statement and how is the cash flow statement subdivided? Complementing the balance sheet and income statement, the cash flow statement (CFS), a mandatory part of a company's financial reports since 1987, records the amounts of cash and cash equivalents entering and leaving a company. The CFS allows investors to understand how a company's operations are running, where its money is coming from, and how it is being spent. Here you will learn how the CFS is structured and how to use it as part of your analysis of a company. The Structure of the CFS

The cash flow statement is distinct from the income statement and balance sheet because it does not include the amount of future incoming and outgoing cash that has been recorded on credit. Therefore, cash is not the same as net income, which, on the income statement and balance sheet, includes cash sales and sales made on credit. (For background reading, see Analyze Cash Flow The Easy Way.) Cash flow is determined by looking at three components by which cash enters and leaves a company: core operations, investing and financing, Operations Measuring the cash inflows and outflows caused by core business operations, the operations component of cash flow reflects how much cash is generated from a company's products or services. Generally, changes made in cash, accounts receivable, depreciation, inventory and accounts payable are reflected in cash from operations. Cash flow is calculated by making certain adjustments to net income by adding or subtracting differences in revenue, expenses and credit transactions (appearing on the balance sheet and income statement) resulting from transactions that occur from one period to the next. These adjustments are made because non-cash items are calculated into net income (income statement) and total assets and liabilities (balance sheet). So, because not all transactions involve actual cash items, many items have to be re-evaluated when calculating cash flow from operations. For example, depreciation is not really a cash expense; it is an amount that is deducted from the total value of an asset that has previously been accounted for. That is why it is added back into net sales for calculating cash flow. The only time income from an asset is accounted for in CFS calculations is when the asset is sold. Changes in accounts receivable on the balance sheet from one accounting period to the next must also be reflected in cash flow. If accounts receivable decreases, this implies that more cash has entered the company from customers paying off their credit accounts - the amount by which AR has decreased is then added to net sales. If accounts receivable increase from one accounting period to the next, the amount of the increase must be deducted from net sales because, although the amounts represented in AR are revenue, they are not cash. An increase in inventory, on the other hand, signals that a company has spent more money to purchase more raw materials. If the inventory was paid with cash, the increase in the value of inventory is deducted from net sales. A decrease in inventory would be added to net sales. If inventory was purchased on credit, an increase in accounts payable would occur on the balance sheet, and the amount of the increase from one year to the other would be added to net sales. The same logic holds true for taxes payable, salaries payable and prepaid insurance. If something has been paid off, then the difference in the value owed from one year to the next has to be subtracted from net income. If there is an amount that is still owed, then any differences will have to be added to net earnings. (For more insight, see Operating Cash Flow: Better than Net Income?) Investing Changes in equipment, assets or investments relate to cash from investing. Usually cash changes from investing are a "cash out" item,

because cash is used to buy new equipment, buildings or short-term assets such as marketable securities. However, when a company divests of an asset, the transaction is considered "cash in" for calculating cash from investing. Financing Changes in debt, loans or dividends are accounted for in cash from financing. Changes in cash from financing are "cash in" when capital is raised, and they're "cash out" when dividends are paid. Thus, if a company issues a bond to the public, the company receives cash financing; however, when interest is paid to bondholders, the company is reducing its cash. Tying the CFS with the Balance Sheet and Income Statement The cash flow statement is derived from the income statement and the balance sheet. Net earnings from the income statement are the figure from which the information on the CFS is deduced. As for the balance sheet, the net cash flow in the CFS from one year to the next should equal the increase or decrease of cash between the two consecutive balance sheets that apply to the period that the cash flow statement covers. (For example, if you are calculating a cash flow for the year 2000, the balance sheets from the years 1999 and 2000 should be used.) A company can use a cash flow statement to predict future cash flow, which helps with matters in budgeting. For investors, the cash flow reflects a company's financial health: basically, the more cash available for business operations, the better. However, this is not a hard and fast rule. Sometimes a negative cash flow results from a company's growth strategy in the form of expanding its operations. By adjusting earnings, revenues, assets and liabilities, the investor can get a very clear picture of what some people consider the most important aspect of a company: how much cash it generates and, particularly, how much of that cash stems from core operations. Q4. A large retail stores makes 25% of its sales for cash and the balance on 30 days net. Due to faulty collection practice, there have been losses from bad debts to the extent of 1 % of credit sales on average in the past. The experience of the store tells that normally 60 % of credit sales are collected in the month following the sale, 25% in the second following month and 14 % in the third following month. Sales in the preceding three months have been January 2007 Rs.80,000, February Rs.1,00,000 and March Rs.1,40,000. Sales for the next three months are estimated as April Rs.1,50,000, May Rs.1,10,000 and June Rs.1,00,000. Prepare a schedule of projected cash collection Hint : Cash Receipts: April Rs. 1,27,650, May Rs. 1,31,750, June Rs. 1,17,325 Statement of expected Cash receipt Collection form April May June 3750 2750 2500 Cash Sales 0 0 0 Collection from Debtors January 8400 -

February March April May Total

1050 0 2625 1470 0 0 6750 2812 0 5 4950 0 1276 1317 1173 50 50 25

1875 0 6300 0

Q5. What are the guidelines that deal with reserve for discount on debtors? What is a Bad debt also Mention the accounting treatment of bad debts. 1. If a reserve for discount on debtors does not exist and cash discount is allowed, then transfer the discount to P&L account. 2. Any fresh reserve for discount on debtors is to be made, debit the P&L Account with the amount of reserve 3. If provision for discount on debtors exists at the time of providing discount, then write off the discount from the provision already made for the purpose. 4. New provision should then be calculated and only as much as required to bring the existing provision to the new figure should be debited to P&L Account. 5. If the new provision required is lower than the provision already existing (old), then the difference shows profit and transfer the same to P&L Account. Accounts receivable that is unlikely to be paid and is treated as loss. A firm may use one of the two methods in writing off such losses against its sales revenue: (1) By deducting the uncollectible amounts from revenue in the accounting period they are deemed uncollectible (see direct write off method), or (2) By deducting an estimated amount from revenue in each accounting period and adjusting any excess or shortfall in the following accounting period (see allowance method). The ratio of bad debt losses and the open account (credit) sales is an indicator of the quality of a firm's collectibles, and the efficiency of its credit monitoring efforts. Also called uncollectible account. The accounting treatments of provision for doubtful debts are. First of pass the journal entry of actual bad debts. Entry for recording actual bad debt which did not record in books of business 1. Bad debts account Dr. xxxxx To Sundry Debtors Account xxxxxx Entry for transferring bad debts to provision for bad debts Account 2. Provision for bad debts account Dr. xxxxxx To Bad Debts account xxxxx Transfer of provision for bad debts account to profit and loss account 3. Profit and loss account Dr. xxxxxx

To Provision for bad debts account xxxxx Q6. Prepare a statement of changes in working capital from the following information. Particulars April 1 March 31 Share Capital Retained earnings Fixed Assets at cost Provision for Depreciation on Fixed Assets Investments in shares of subsidiaries Government securities 8% Debentures (redeemable in 5 equal annual installment of Rs.20,000 each, from the current year Prepaid expense Outstanding expenses Creditors and Bills Payables Debtors and Bills Receivables Cash and Bank balances Provision for Doubtful Debts 50,000 14,000 80,000 22,000 15,000 6,0000 20,000 50,000 48,000 90,000 27,000 15,000 12,000 -

21,000 5,000 30,000 18,000 5,000 4,000

4,000 12,000 25,000 20,000 13,000 2,000

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