Adapted By Manik Hosen

Transcription

1 Adapted By Manik Hosen

2 Question: Who are the users of Accounting Information? Ans: The information that a user of accounting information needs depends upon the kinds of decisions the user makes. There are two broad groups of users of accounting information: internal users and external users. Internal users: Internal users of accounting information are managers who plan, organize, and run the business. These include marketing managers, production supervisors, finance directors, and company officers. External users: External users are individuals and organizations outside a company who want financial information about the company. The two most common types of external users are investors and creditors. Investors (owners) use accounting information to make decisions to buy, hold, or sell ownership shares of a company. Creditors (such as suppliers and bankers) use accounting information to evaluate the risks of granting credit or lending money.

3 Question: 4(b) of 2014 Abdullah s Travel Agency Tabular Analysis of Transactions For the Month Ended January 31,2012 Assets Liabilities Owner s Equity Accounts Receivable Office Equipment Supplies Accounts Payable Abdullah s Capital 20,00,000 20,00,000-25,000-25,000-17,500 21,500 4, ,000 10,000 16,000-16,000 20,000 40,000 60,000-16,000-16,000-50,000-50,000-70,000-70,000 32,000-32,000 18,64,000 8,000 21,000 10,000 4,000 18,99,000 19,03,000 19,03,000

4 Question: 5 of 2014 Date Accounts Titles and Explanations Debit Credit May 1 May 2 May 4 May 7 May 10 May 12 May 17 May 30 Owner s Capital (Owner invested cash in business) Receptionist Salary Is not a transaction(neither Service gained nor Paid) (Hired receptionist at salary per month) Supplies Account Payable (Purchased supplies on account) Rent Expense (Paid office rent on cash) Bills Receivable Service Revenue (Completed a tax assignment and billed to customer) Unearned Revenue (Received advance on a management consulting engagement) Service Revenue (Received cash for service) Receptionist Salary (Paid receptionist salary for this month) 50,000 5,000 1,500 4,100 5,000 2,400 4,000 50,000 5,000 1,500 4,100 5,000 2,400 4,000

5 May 1 Owner s Capital 50,000 50,000 May 7 Rent Expense 1,500 48,500 May 12 Service Revenue 5,000 53,500 May 17 Service Revenue 2,400 55,900 May 30 Payable 4,000 51,900 Owner s Capital May 1 50,000 50,000 Supplies May 1 Account Payable 5,000 5,000 Account Payable May 1 Supplies 5,000 5,000 Rent Expense May 1 1,500 1,500 Bills Receivable May 1 Service Revenue 4,100 4,100

6 Service Revenue May 10 Bills Receivable 4,100 4,100 May 17 2,400 6,500 Unearned Revenue May 12 5,000 5,000 Receptionist Salary May 1 4,000 4,000

7 Question: What is trial balance? Ans: A trial balance is a list of accounts and their balances at a given time. Customarily, companies prepare a trial balance at the end of an accounting period. They list accounts in the order in which they appear in the ledger. Debit balances appear in the left column and credit balances in the right column.

8 Question: 6(b) of 2014 Khan & Co. Trial Balance December 31, 2013 Accounts Titles Debit Credit 26,125 Accounts Receivable 36,000 Notes Receivable 26,000 Allowance for doubtful Accounts 593 Inventory 62,500 Office Supplies 320 Land 79,780 Building 98,560 Accumulated depreciation Building 19,712 Office Furniture 45,540 Accumulated depreciation Furniture 11,385 Accounts Payable 35,584 Notes Payable 15,889 Purchases 88,475 Purchase return and allowance 10,577 Repair and maintenance 5,840 Mr. Khan s Capital 2,90,850 Mr. Khan s Drawing 8,780 Sales 1,45,030 Sales return and allowance 2,225 Office Salaries 22,520 Sales Salaries 20,530 Advertising expense 5,750 Travel expense 450 Prepaid Insurance 850 Interest Revenue 950 Miscellaneous expense 325 Total 5,30,570 5,30,570

9 Question: Define Accounting. Ans: Accounting consists of three basic activities it identifies, records, and communicates the economic events of an organization to interested users. As a starting point to the accounting process, a company identifies the economic events relevant to its business. Once a company identifies economic events, it records those events in order to provide a history of its financial activities. Recording consists of keeping a systematic, chronological diary of events, measured in dollars and cents. Finally, the company communicates the collected information to interested users by means of accounting reports. The most common of these reports are called financial statements.

10 Question: The terms debit and credit mean increase and decrease respectively. Do you agree? Explain. Ans: No, I don t agree that, The terms debit and credit mean increase and decrease respectively. The term debit indicates the left side of an account, and credit indicates the right side. They do not mean increase or decrease, as is commonly thought. We use the terms debit and credit repeatedly in the recording process to describe where entries are made in accounts. For example, the act of entering an amount on the left side of an account is called debiting the account. Making an entry on the right side is crediting the account. When comparing the totals of the two sides, an account shows a debit balance if the total of the debit amounts exceeds the credits. An account shows a credit balance if the credit amounts exceed the debits. Having increases on one side and decreases on the other reduces recording errors and helps in determining the totals of each side of the account as well as the account balance. The balance is determined by netting the two sides.

11 Question: What are the elements of financial statements? Question: Companies prepare four financial statements from the summarized accounting data: i. Income Statement: An income statement presents the revenues and expenses ii. iii. iv. and resulting net income or net loss for a specific period of time. Owner s Equity Statement: An owner s equity statement summarizes the changes in owner s equity for a specific period of time. Balance Sheet: A balance sheet reports the assets, liabilities, and owner s equity at a specific date. Statement of Flow: A statement of cash flows summarizes information about the cash inflows (receipts) and outflows (payments) for a specific period of time. These statements provide relevant financial data for internal and external users.

12 Question: What are the major components of product cost and period cost? Ans: Product Costs: i. Direct Materials ii. Direct Labor iii. Indirect materials iv. Indirect labor v. Other indirect costs Period Costs: i. Selling Expenses ii. Administrative Expenses

13 Question: Define variable cost and fixed cost. Give example of each type. Ans: Variable Costs: Variable costs are costs that vary in total directly and proportionately with changes in the activity level. Examples of variable costs include cost of goods, sales commissions and gasoline in airline and trucking companies. Fixed Cost: Fixed costs are costs that remain the same in total regardless of changes in the activity level. Examples include property taxes, insurance, rent, supervisory salaries, and depreciation on buildings and equipment.

14 Question: 5(c) of 2015 Answer: If Q=BEP(where total revenues equal total costs is called the breakeven point.) in units then, Sales=Variable Cost + Fixed Cost + Net Income 500Q=300Q+2,00,000+0 Q=1,000 units Net Income = Sales - Variable Cost - Fixed Cost Profit in June=(1,600x500)-(1,600x300)-2,00,000 Profit=1,20,000

15 Question: State the Advantages of using Journal. Ans: The journal have several advantages to the recording process: i. It discloses in one place the complete effects of a ii. iii. transaction. It provides a chronological record of transactions. It helps to prevent or locate errors because the debit and credit amounts for each entry can be easily compared.

16 Question: 6(a) of 2015 Date Accounts Titles and Explanations Debit Credit April 1 April 3 April 5 April 10 April 20 April 25 April 30 Furniture Owner s Capital (Owner invested cash in business) Rent Expense (Paid office rent on cash) Computer Equipment Account Payable (Purchased computer accessories on cash and on account) Advertising Expense (Advertised on accounts) Owner s Drawing (Owner withdrew cash for personal use) Service Revenue (Received cash for software sale) Engineer s Salary (Paid engineer s salary for the month) 3,00,000 50,000 10,000 2,50,000 5,000 20,000 2,50,000 1,00,000 3,50,000 10,000 1,00,000 1,50,000 5,000 20,000 2,50,000 1,00,000

17 April 1 Owner s Capital 3,00,000 3,00,000 April 3 Rent Expense 10,000 2,90,000 April 5 Equipment 1,00,000 1,90,000 April 10 Advertising Expense 5,000 1,85,000 April 20 Owner s Drawing 20,000 1,65,000 April 25 Service Revenue 2,50,000 4,15,000 April 30 Salary 1,00,000 3,15,000 Furniture April 1 Owner s Capital 50,000 50,000 Owner s Capital April 1 3,00,000 3,00,000 April 1 Furniture 50,000 3,50,000 Rent Expense April 3 10,000 10,000 Computer Equipment April 5 1,00,000 1,00,000 April 5 Accounts Payable 1,50,000 2,50,000

18 Accounts Payable April 5 Equipment 1,50,000 1,50,000 Advertising Expense April 10 5,000 5,000 Service Revenue April 25 2,50,000 2,50,000 Engineer s Salary April 30 1,00,000 1,00,000 Owner s Drawing April 20 20,000 20,000

19 Question: State the rules of debit and credit as applied to (i) asset accounts (ii) liability accounts (iii) revenue accounts (iv) expense accounts (v) capital account. Ans: i. Asset Accounts: When asset balance increase it is debited and when asset balance decrease it is credited. ii. Liability Accounts: When liability balance increase it is credited and when liability balance decrease it is debited. iii. Revenue Accounts: When revenue balance increase it is credited and iv. when revenue balance decrease it is debited. Expense Accounts: When expense balance increase it is debited and when expense balance decrease it is credited. v. Capital Account: When capital balance increase it is credited and when capital balance decrease it is debited.

20 Question: Define direct cost and indirect cost. Ans: Direct Cost: Direct cost is a cost that can be clearly associated with specific activities or products. Indirect Cost: Indirect cost is a cost that are not directly associated with a single activity or product.

21 FIXED COST Fixed cost is which does not change with activity volumes. Example of fixed cost: Rent, Insurance, Depreciation, Salaries, Utilities etc. Generally fixed cost is invested when company starts to run. VARIABLE COST Variable cost is which change with activity volumes. Example of variable cost: Direct Materials, Sales Commissions, credit card fee etc. Variable cost is invested at the time when a company is running.

22 Question: Beximco Company has a unit selling price of TK. 400, variable costs per unit of TK. 260, and fixed costs of TK. 2,10,000. Compute the break even point in units and in taka. Compute the sales required in taka to earn net income of TK. 2,00,200 Ans: Sales = Variable Cost + Fixed Cost +Net Income If BEP is Q units then, 400Q=260Q+2,10,000+0 BEP in units Q=1,500 units BEP in TK. =1,500Q=6,00,000 TK. For net income 2,00,200 sales required, 400Q=260Q+2,10,000+2,00,200 Q=2930 units Sales=400Q=400x2930=11,72,000 TK.

23 Question: What is T account? Ans: In simplest form, an account consists of three parts: (1) a title, (2) a left or debit side, and (3) a right or credit side. Because the format of an account resembles the letter T, we refer to it as a T account. Titles of Account Left Side/Debit Right Side/Credit

24 Question: 6(a) of 2015 Parts Inventory Account Payable (Acquired repair parts inventory on account) Miscellaneous Expense (Miscellaneous expense paid on cash) Account Receivable (Collected payment of account receivable on cash) Accounts Payable (Paid accounts payable on cash) Repair Expense Accounts Payable (Repair parts used during this year) Accounts Receivable Service Revenue (Repair service performed on cash and account) Salary Expense (Salary Paid in ) Accounts Titles and Explanations Debit Credit 4,000 2,000 12,000 15,000 8,000 7,000 9,000 3,000 4,000 2,000 12,000 15,000 8,000 16,000 3,000

25 Question: 6(b) of 2015 Explanations Debit Credit Balance Fiscal Year Balance 12,000 12,000 Miscellaneous Expense 2,000 10,000 Account Receivable 12,000 22,000 Account Payable 15,000 7,000 Service Revenue 7,000 14,000 Salary Expense 3,000 11,000 Accounts Receivable Explanations Debit Credit Balance Fiscal Year Balance 13,000 13,000 12,000 1,000 Service Revenue 9,000 10,000 Parts Inventory Explanations Debit Credit Balance Fiscal Year Balance 10,000 10,000 Accounts Payable 4,000 14,000 Shop Equipment Explanations Debit Credit Balance Fiscal Year Balance 36,000 36,000 Account Payable Explanations Debit Credit Balance Fiscal Year Balance 21,000 21,000 Parts Inventory 4,000 25,000 15,000 10,000 Repair Expense 8,000 18,000

26 Capital Explanations Debit Credit Balance Fiscal Year Balance 50,000 50,000 Miscellaneous Expense Explanations Debit Credit Balance 2,000 2,000 Repair Expense Explanations Debit Credit Balance Accounts Payable 8,000 8,000 Service Revenue Explanations Debit Credit Balance 7,000 7,000 Accounts Receivable 9,000 16,000 Salary Expense Explanations Debit Credit Balance 3,000 3,000

27 Mr. Karim s Computer Repair Service Trial Balance December 31, 2015 Accounts Titles Debit Credit 11,000 Accounts Receivable 10,000 Parts Inventory 14,000 Shop Equipment 36,000 Accounts Payable 18,000 Capital 50,000 Miscellaneous Expense 2,000 Repair Expense 8,000 Service Revenue 16,000 Salary Expense 3,000 84,000 84,000

28 Question: What is the basic accounting equation? Ans: The basic accounting equation is: Assets = Liabilities + Owner s Equity Question: Define the terms assets, liabilities, and owner s equity. Ans: Assets are resources a business owns. Liabilities are claims against assets that is, existing debts and obligations. The ownership claim on total assets is owner s equity.

29 Question: Identify and describe the steps in the accounting cycle. Ans: There are nine steps in accounting cycle. They are: 1. Analyze business transactions 2. Journalize the transactions 3. Post to ledger accounts 4. Prepare a trial balance 5. Journalize and post adjusting entries: Deferrals/Accruals 6. Prepare an adjusted trial balance 7. Prepare financial statements: Income statement, Owner s equity statement, Balance sheet 8. Journalize and post closing entries 9. Prepare a post-closing trial balance The cycle begins with the analysis of business transactions and ends with the preparation of a post-closing trial balance.

30 Question: Define direct materials and indirect materials. Ans: Direct Materials: Direct materials are those materials and supplies that are consumed during the manufacture of product, and which are directly identified with that product. Example: Bricks, Tin, Tiles etc. Indirect Materials: Indirect materials are materials are materials those are used in manufacturing process, but they are not directly traceable to a cost object. Example: Cleaning supplies, Disposable safety equipment, Glue, Oil, Tape etc.

31 Question: Define variable cost and fixed cost Ans: Variable Cost: Fixed cost is which change with activity volumes. Fixed Cost: Fixed cost is which does not change with activity volumes.

32 Question: Square Company has a unit selling price of TK. 20, variable costs per unit of TK. 12, and fixed costs of TK. 80,000. Compute the break even point in units and in taka. Compute the sales required in taka to earn net income of TK. 1,20,000 Ans: Sales = Variable Cost + Fixed Cost +Net Income If BEP is Q units then, 20Q=12Q+80,000+0 BEP in units Q=10,000 units BEP in TK. =10,000Q=2,00,000 TK. For net income 1,20,000 sales required, 20Q=12Q+80,000+1,20,000 Q=25,000 Sales=20Q=20x25,000=5,00,000 TK.

33 Question: 6(a) of 2017 Date Accounts Titles and Explanations Debit Credit January 1 January 3 January 6 January 10 January 15 January 20 January 25 January 30 January 31 Rent Expense Owner s Capital (Owner invested cash in business) (Paid office rent in cash) Office Equipment Account Payable (Purchased equipment on cash and account) Advertising Expense Account Payable (Paid advertising cost on account) Supplies (Paid cash for office supplies) Account Receivable Service Revenue (Service Performed for cash and account receivable) Account Payable Salary (Paid Account Payable due in January 10) (Paid salary) Accounts Receivable (Received cash from accounts receivable on service) 75,000 5,000 26,000 4,000 3,000 22,000 3,000 4,000 8,000 2,000 75,000 5,000 20,000 6,000 4,000 3,000 25,000 4,000 8,000 2,000

34 Question: 6(b) of 2017 January 1 Owner s Capital 75,000 75,000 January 3 Rent Expense 5,000 70,000 January 6 Office Equipment 20,000 50,000 January 15 Supplies 3,000 47,000 January 20 Service Revenue 22,000 69,000 January 25 Account Payable 4,000 65,000 January 30 Salary 8,000 57,000 January 31 Account Receivable 2,000 59,000 Owner s Capital January 1 75,000 75,000 Rent Expense January 3 5,000 5,000 Office Equipment January 6 20,000 20,000 January 6 Account Payable 6,000 26,000 Account Payable January 6 Office Equipment 6,000 6,000 January 10 Advertising Expense 4,000 10,000 January 25 4,000 6,000

35 Advertising Expense January 10 Account Payable 4,000 4,000 Supplies January 15 3,000 3,000 Account Receivable January 20 Service Revenue 3,000 3,000 January 31 2,000 1,000 Service Revenue January 20 22,000 22,000 January 31 Accounts Receivable 3,000 25,000 Salary January 15 8,000 8,000

36 Mr. Karim s Travel Agency Trial Balance January 31, 2016 Accounts Titles Debit Credit 59,000 Owner s Capital 75,000 Rent Expense 5,000 Office Equipment 26,000 Accounts Payable 6,000 Advertising Expense 4,000 Supplies 3,000 Accounts Receivable 1,000 Service Revenue 25,000 Salary 8,000 Total 1,06,000 1,06,000