Documente Academic
Documente Profesional
Documente Cultură
M Syed Kunmir
SPBT College
BANK RECONCILIATION
The bank pass book indicates the amount paid into
the bank and the amount withdrawn there from.
The pass book balance on any given date must be
the same as the balance shown by the bank column
of the cash book on the same date. But in actual
practice the bank pass book balance seldom agrees
with the balance shown by the bank column of the
cash book. This happens when some of the
transactions appear in the cash book but not in the
pass book or in the pass book but not in the
cashbook.
Reasons For Difference
1. Cheques issued but not presented for payment.
When cheques are issued, the entry in the cash book
is made immediately. In the books of the bank, the
entry is made only when the cheque is presented for
payment..
2. Cheques paid into the bank but not yet cleared.
As soon as the cheques arc deposited into the bank,
the entry is passed on the debit side of the bank
column in the cash book. The customer's account is
credited by the bank only when the cheques are
cleared.
3. Interest allowed by the bank. Bank might have
credited the account of the customer with the
interest and may have made the entry in the pass bk.
Reasons For Difference
4. Interest and bank charges debited by bank. The
bank debits the account of the customer by way of
interest on overdraft. It also debits the account of
the customers by way of incidental charges and
collection charges.
5. Interest, dividend etc. collected by the bank.
Sometimes interest on government securities or
dividend on shares is collected by the bank and is
credited to customer's account. If the entry for these
do not appear in the cash book, the balance will
differ.
Reasons For Difference
6. Direct payment by the bank Sometimes under
standing instructions from the client, certain
payments like insurance premium, club fees etc. are
made by the bank.
7. Direct payment into the bank by a customer.
Sometimes our customers deposit money direct into
the account in the bank, the corresponding entry for
which may not appear in the cash book, due to delay
in necessary instructions by the customers.
Reasons For Difference
8. Dishonor of bill discounted with the bank.
Sometimes customers get their bills discounted with
the bank. If the bank is not able to get payment of
these bills on the due date, it will debit the
customers accounts with the amount of the bills
together with the noting charges, if any. The
customer will pass the entry in his books on receipt
of the information from the bank.
9. Any error committed by the bank Or Customer
Besides the above reasons if any error is committed
either by the bank or by the customer himself while
recording the transactions in their respective books it
will cause disagreement between the two balances.
BASICS OF ACCOUNTING
3 TYPES OF ACCOUNTS:
RULES:
-- REAL : DEBIT THE ACCOUNT WHEN WE PURCHASE
AN ASSET & CREDIT WHEN WE SELL OR
DEPRECIATE.
. PREVENTS FRAUDS
Undercasting of the credit side of Cash Book has the same effect as
overcasting of the
DEFINITION
FINAL ACCOUNTS.
TRIAL BALANCE
BASIC PRINCIPLE :
TYPES OF ERRORS:
A) CLERICAL ERRORS
-- ERRORS OF OMISSION
-- ERRORS OF COMMISSION
-- COMPENSATING ERRORS
. B) ERRORS OF PRINCIPLE
TYPICAL ERRORS:
-- CLERICAL:
Sales to Navin of Rs.1000 is debited to Ravin A/c. this will be rectified by-----
Debiting Navin a/c and Crediting Ravin A/c
Debiting both Accounts
Debiting Ravin a/c and Crediting Navin A/c
Debiting Navin A/c and crediting Sales A/C
Rectification of Errors-Examples
sale of Rs.5000 to Suresh is posted to his credit, then
rectification is
i. Credit Suresh to the extent of Rs.10,000
ii. Credit Suresh to the extent of Rs.5,000
iii. Debit Suresh to the extent of Rs.10,000
iv. Debit Suresh to the extent of Rs.5000 Credit
Trail balance Say True or false
1) Wrong balancing of an account will not affect the
trial balance
2) Trial balance does not ensure arithmetical accuracy
3) Preparations of trial balance helps in locating
accounting errors
4) Debit balance of ledger account is shown in debit
column of trial balance
5) Fixed deposits with banks shows debit balance
6) Purchases are shown in the debit side of the trial
balance
7) Banks overdraft is shown on the debit side of the
trial balance
CAPITAL AND REVENUE EXPENDITURE
BASIC PRINCIPLE:
REVENUE RECEIPTS/PAYMENTS :
CAPITAL RECEIPTS/PAYMENTS:
REVENUE NATURE:
CAPITAL REVENUE
METHODS OF VALUATION:
-- FIFO
-- LIFO
-- AVERAGE OR WEIGHTED AVERAGE COST METHOD
-- BASE STOCK METHOD
-- ADJUSTED SELLING PRICE METHOD
INVENTORY VALUATION
FIFO :
-- IN RISING MARKET FIFO RESULTS IN HIGHER
PROFITS LOCKING UP OF SCARCE W. C.
-- GOODS ARE SOLD AT CURRENT HIGHER PRICES
WHILE COST OF GOODS REFLECTS LOWER THAN
CURRENT COSTS
-- IN FALLING MARKET FIFO RESULTS IN LOWER
PROFITS
.
INVENTORY VALUATION
-- LIFO :
Total 3,000
Beginning Inventory = 1,000 units purchased at Rs8 each (a total of 4,000 units)
FIFO Ending
Inventory Cost = 1,000 units X Rs15 each = Rs15,000 Remember that the
first units in (the oldest ones) are sold first; therefore, we leave the newest
units for ending inventory.
.
BILLS OF EXCHANGE
TYPICAL ENTRIES:
. THE ENTRIES IN THE BOOKS OF DRAWER A ARE:
DIRECT BILL TRANSACTION
BILLS RECEIVABLE a/c DR.
TO DRAWEE B
BILL ENDORSED TO C
. Cs a/c DR.
TO BILLS RECEIVABLE
( NO ENTRY WHEN BILL IS MET)
BILL SENT FOR COLLECTION
. BANK FOR BILL COLLECTION a/c DR.
TO BILLS RECEIVABLE
. CASH a/c DR.
TO BANK FOR BILL COLLECTION
( BILL SENT FOR COLLECTION IS MET)
.
.
.
BILLS OF EXCHANGE
IN CASE OF DISCOUNTING
CASH a/c DR.
DISCOUNT a/c DR.
TO BILLS RECEIVABLE
( NO ENTRY WHEN BILL IS MET)
-- Bs a/c DR.
TO BILLS RECEIVABLE
TO NOTING CHARGES
(BILL RETURNED TO A)
. Bs a/c DR.
TO BILLS RECEIVABLE
TO NOTING CHARGES
(BILL RETURNED TO B)
BILLS OF EXCHANGE
Bs a/c DR.
TO BILLS RECEIVABLE
TO NOTING CHARGES
(BILL RETURNED TO B)
CONSIGNMENT ACCOUNT
NOTES:
CLOSING STOCK IS VALUED AT COST/INVOICE PRICE +
PROPORTIONATE AMOUNT OF COST INCURRED BY
CONSIGNOR IN TRANSPORTING.
-- CO-VENTURERS ACCOUNT
Operating Lease
Service Lease
Leveraged Lease
LEASING AND HIRE PURCHASE
NOTES:
Explanation
The concept of lease equalisation account is
an equaliser between the capital recovery
inherent in lease rentals and the depreciation
chargeable as per Companies Act.
MISHAPS
OBSOLESCENCE
PASSAGE OF TIME
FALL IN VALUE
DEPRECIATION
METHODS OF DEPRECIATION :
. STRAIGHT LINE METHOD. EQUAL FRACTION OF THE
NET COST(COST OF THE ASSET LESS THE RESIDUAL
VALUE) IS CHARGED EACH YEAR.
Year Depreciation
2006 Rs 1 8,000 =(Rs110,000 - Rs20,000) x 1/5
2007 Rs 1 8,000 =(Rs110,000 - Rs20,000) x 1/5
2008 Rs 1 8,000 =(Rs110,000 - Rs20,000) x 1/5
2009 Rs 1 8,000 =(Rs110,000 - Rs20,000) x 1/5
2010 Rs 1 8,000 =(Rs110,000 - Rs20,000) x 1/5
Total Rs 9 0,000
Written Down Method
Book value at the beginning
Year of the year Dep Dep Expens ACC Dep Book Value
2006 Rs 1 10,000 40% Rs44,000 Rs44,000 Rs66,000
2007 Rs 6 6,000 40% Rs26,400 Rs70,400 Rs39,600
2008 Rs 3 9,600 40% Rs15,840 Rs86,240 Rs23,760