First Workshop after Four Classes

1. DEFINITIONS OF ACCOUNTING
 Accounting is the language of the business
 It is systematic process of recording, classifying and summarizing economic event in terms of money in order to facilitate
economic decision makers

Approaches of Accounting

American or Modern approach British or English or Conventional approach

Forms of Accounting
 Financial Accounting information is used for so many purposes that it often is called “General-Purpose Accounting
 End results of financial accounting are Financial Statements

Financial Statements

Income
Income Statement
Statement Statement
Statement of
of O.
O. EE Balance
Balance Sheet
Sheet Cash
Cash Flow
Flow Notes
Notes
Statement
Statement
 Management Accounting is meant specifically to assist the management in its operational and strategic planning
 It is specific purpose accounting

Users of Financial Information

Internal External
Users Users
Management Group Financing Group
Investors
Lenders
Suppliers
Board of Directors
Accounting
Partners Information
Public Group

Managers Govt. Agencies

Labor Union
Officers Employees
Customers

1. External users include all of the following except?

(a) Lenders (b) Customers (c) Officers (d) Employees

2. Which one of the following statement completely and correctly describes accounting?
(a) Accounting is the systematic process of recording social activities only
(b) Recording, classifying and summarizing all activities in useful manner
(c) Recording, classifying and summarizing economic activities in systematic way
(d) Recording, classifying and summarizing economic activities in informal manner

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3. External reporting is the result of?
(a) Social accounting (b) Management accounting
(c) Cost accounting (d) Financial accounting

Organizational Structure

4. The controller's responsibilities are primarily in nature, while the treasurer's responsibilities are primarily related to?
(a) Operational; Financial accounting (b) Accounting; Financial management
(c) Financial management; Operations (d) Financial management; Accounting

5. The outcome of financial accounting is to?

(a) Record all transactions in the books of accounts (b) Provide management with detailed analyses of costs
(c) Present the financial results to the organization by means of recognized financial statements
(d) Calculate profit

2. BUSINESS
 All Legal and Economic Activities

Classification by Operational Activities

Merchandising Manufacturing Services

Classification
Classification by
by Sector
Sector

Public Private

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 Classification
Classification by
by Legal
Legal Structure
Structure

Sole Proprietorship Partnership Corporation Hybrid

S-Type
Public

LLP
Private

PC

6. The Maximum number of banking partners in Pakistan can be fixed at the following?
(a) 10 (b) 20 (c) 50 (d) No Limit

7. The resources owed by a business are called?

(a) Owner's Equity (b) Liabilities (c) Drawings (d) Assets

8. Which of the following business has the burden of unlimited liability?

(a) Private limited company (b) Single member company
(c) Public limited company (d) Sole-proprietorship

9. Which of the following is true about a partnership?

(a) All partners have invested an equal amount of capital (b) A partnership requires at least three people
(c) Partnerships do not get favorable tax treatment compared to joint stock company (JSC)
(d) All partners are personally liable for the debts of the business

10. What is the meaning of the word ‘limited’ in the name of a limited company?
(a) The number of shareholders is limited to 50
(b) The liability of the company for its own debts is limited
(c) The liability of shareholders for the company’s debts is limited
(d) There is a limit on the amount of debts that the company can contract

11. Dealing between two persons including money or a valuable thing is called?
(a) Economic activities (b) Personal activities (c) Social activities (d) None of these

3. ACCOUNTING PILLARS
There are six Accounting Pillars:

Accounting Pillars
Dr Cr
Asset Assets
Liability Drawing
Expense Expenses Assets Liabilities
Revenue Liability
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Drawing Owner’s Equity
Owner’s Equity Owner’s Equity
Expenses Revenue
Drawings Revenue
 Accounting Pillars

Asset Drawing Expense Liability Owner Equity Revenue

Types
Types of
of Transactions
Transactions

Cash Credit

12. All economics costs that a business incur through its operation to earn revenues?
(a) Assets (b) Drawing (c) Expense (d) Revenue

13. Due from customer is?

(a) Liability (b) Assets (c) Revenue (d) None of these

14. Economic resources of business that expected to be of benefit in future time referred as?
(a) Owner Equity (b) Liabilities (c) Withdrawals (d) Assets

15. All of following are Assets except?

(a) Prepaid Rent (b) Goods (c) Unearned Income (d) b and c

16. Which of the following is not an asset?

(a) Debtors (b) Buildings (c) Cash balance (d) Bank overdraft

17. All of following are Expenses except?

(a) Wages (b) Rent Payable (c) Salaries (d) Carriage

18. Which of the following item of revenue nature?

(a) Dividends payable (b) Rent incur (c) Fee earned (d) Payment for building improvement

For each of the following, write Accounting Pillars and Normal Balance?

S.no Items Accounting Pillars Normal Balance

1 Inventory Assets Dr
2 Bill Payable Liability Cr
3 Salaries and Wages Expense Dr
4 Discount Received Revenue Cr
5 Rent Expense Dr
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 6 Prepaid Insurance Assets Dr
7 Sales Revenue Cr
8 Mortgage Loan Liability Cr
9 Bill Receivables Assets Dr
10 Withdrawal by Owner Drawing Dr

4. FUNDAMENTAL EQUATION

Liabilities Owner Equity

Assets

Owner Equity
(Drawings)
Revenue
Assets Liabilities (Expenses)
(Loss)
Profit

Assets Equities

(1) Increase (1) Increase

(2) Decrease (2) Decrease

(3) Conversion in Assets (4) Conversion in Equities

On November 1, 2016, Iqra Shaukat Merchandising Company started the business by depositing Rs. 80,000 in a bank
Nov.8 Purchased a building for Rs. 36,000, paying Rs. 6,000 by bank and issuing a note payable for balance
Nov.12 Purchased Inventory on account of Rs. 13,800
Nov. 16 Cash withdrawal of Rs. 10,000 for business purpose and retained as cash account
Nov.19 Purchased Tools by bank Rs.3,000
Nov.20 Sold some inventory on account of Rs. 7,500 which cost was Rs. 2,800 collectible within 45 days
Nov.21 Paid cash Rs. 2,000 in partial payment of an account payable
Nov.23 Sold some of the tools at a price equal to their cost, 1,500 and received amount through bank
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Nov 25 Defective inventory returned to vendor of Rs. 1,000
Nov.29 Received cash Rs. 3,500 in partial collection of the account receivable from the sale of inventory Nov. 20
Nov. 30 Inventory had lost by fire of worth Rs. 500

Iqra Shaukat Merchandising Company

Accounting Equation
Assets Equities
S. No
Bank Building Inventory Cash Tools A/R N/P A/P O.E
Nov 1 80,000 80,000
Bal 80,000 80,000
8 (6,000) 36,000 30,000
Bal 74,000 36,000 30,000 80,000
12 13,800 13,800
Bal 74,000 36,000 13,800 30,000 13,800 80,000
16 (10,000) 10,000
Bal 64,000 36,000 13,800 10,000 30,000 13,800 80,000
19 (3,000) 3,000
Bal 61,000 36,000 13,800 10,000 3,000 30,000 13,800 80,000
20 (2,800) 7,500 4,700
Bal 61,000 36,000 11,000 10,000 3,000 7,500 30,000 13,800 84,700
21 (2,000) (2,000)
Bal 61,000 36,000 11,000 8,000 3,000 7,500 30,000 11,800 84,700
23 1,500 (1,500)
Bal 62,500 36,000 11,000 8,000 1,500 7,500 30,000 11,800 84,700
25 (1,000) (1,000)
Bal 62,500 36,000 10,000 8,000 1,500 7,500 30,000 10,800 84,700
29 3,500 (3,500)
Bal 62,500 36,000 10,000 11,500 1,500 4,000 30,000 10,800 84,700
30 (500) (500)
Bal 62,500 36,000 9,500 11,500 1,500 4,000 30,000 10,800 84,200
Total Rs. 125,000 Rs. 125,000

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