MANAGEMENT ACCOUNTING
Accounting: The Language of Business Accounting - a process of identifying, recording, summarizing, and reporting economic information to decision makers in the form of financial statements Financial accounting - focuses on the specific needs of decision makers external to the organization, such as stockholders, suppliers, banks, and government agencies
The Nature of Accounting The accounting system is a series of steps performed to analyze, record, quantify, accumulate, summarize, classify, report, and interpret economic events and their effects on an organization and to prepare the financial statements.
The Nature of Accounting Accounting systems are designed to meet the needs of the decisions makers who use the financial information. Every business has some sort of accounting system. These accounting systems may be very complex or very simple, but the real value of any accounting system lies in the information that the system provides.
Accounting as an Aid to Decision Making Fundamental relationships in the decisionmaking process: Event Accountant s analysis & recording Financial Statements Users
Financial vs. Managerial Accounting Financial Accounting rules are set by users who agree among themselves on the regulations for (GAAP). This is hard data, objectively verifiable, that must meet audit criteria to be acceptable. It is therefore considered reliable. Managerial Accounting rules are set within the company to accomplish management objectives related to adding value to the company. This is data that could be soft, or estimates, that must only improve the value of decisions more than the cost of information. Managerial accounting data must only be relevant for management decisions. The major distinction between financial and management accounting is the users of the information. Financial accounting serves external users. Management accounting serves internal users, such as top executives, management, and administrators within organizations.
Users of Accounting Information Management Accounting Internal managers Day-to-day operating decisions Long-range strategic decisions Financial Accounting External Users Investors: Stockholders Creditors: Suppliers Bankers Government Authorities
The Three Management Functions Questions asked: Management functions: What do I want to do? How can I do it? Am I getting it done? How well did I do it? Planning for the future (Strategic) Planning for the future (Operational) Monitoring and controlling the present Evaluating the past
Financial and Management Accounting The primary questions about an organization s success that decision makers want to know are: What is the financial picture of the organization on a given day? How well did the organization do during a given period?
Decision Making Scorekeeping: Evaluate Organizational Performance Attention Directing: Compare Actual Results to Expected Problem Solving: Assess Possible Courses of Action
Decision Making Decision making: the purposeful choice from among a set of alternative courses of action designed to achieve some objective. Planning: Setting objectives and outlining how the objectives will be obtained. Control: Implementing plans and using feedback to evaluate the attainment of objectives.
Financial and Management Accounting Annual report - a document prepared by management and distributed to current and potential investors to inform them about the company s past performance and future prospects. The annual report is one of the most common sources of financial information used by investors and managers.
ASSUMPTIONS PRINCIPLES CONSTRAINTS 1. Economic entity 1. Historical cost 1. Cost-benefit 2. Going concern 3. Monetary unit 2. Revenue recognition 3. Matching 2. Materiality 3. Industry practice Third level 4. Periodicity 4. Full disclosure 4. Conservatism QUALITATIVE CHARACTERISTICS Relevance Reliability Comparability Consistency ELEMENTS Assets, Liabilities, and Equity Investments by owners Distribution to owners Comprehensive income Revenues and Expenses Gains and Losses Second level OBJECTIVES 1. Useful in investment and credit decisions 2. Useful in assessing future cash flows 3. About enterprise resources, claims to resources, and changes in them First level
The Accounting Equation Assets = Liabilities + Owner s Equity The resources owned by a business
The Accounting Equation Assets = Liabilities + Owner s Equity The rights of the creditors, which represent debts of the business
The Accounting Equation Assets = Liabilities + Owner s Equity The rights of the owners
The effect of Accounting Equation 1 When an asset is brought into the business (Dr), it affects the assets positively (+ or increases the number of assets) and when it is reduced or removed from the business it affects the Assets Account negatively (Cr)(-). 2 When a Liability is brought into the business (Cr), it affects the Liabilities positively (+ or increases the number of Liabilities) and when it is reduced or removed it affects the Liabilities negatively (Dr)(-). 3 Owners Equity is affected by drawings (taking cash or goods for personal use) negatively (-) because money or goods are withdrawn for personal. Incomes and expenses also affect Owners equity. Incomes and additional investment into the business increase owners equity (+) (Cr) and losses/expenses and drawings decreases owners equity (-) (Dr).
What is a business transaction? A business transaction is an economic event or condition that directly changes an entity s financial condition or directly affects its results of operations.
Some Basic Terms of Accounting What is an Asset : Include everything a corporation owns or everything that is due to it. What is a liability : What your business owes creditors. What is an expense : an expense is an outflow of money to another person or group to pay for an item or service, or for a category of costs. What is an income : refers to consumption opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. What is owners equity: The amount of money the shareholders have invested in the business.
Some Basic Terms of Accounting Related Examples The following are examples of items classified as assets: Cash, Stock / Inventory, Investments, Accounts Receivable / Debtors Prepaid Expenses, Vehicles, Land, Buildings, Equipment, Furniture and Fixtures, Intangible assets are goodwill, copyrights, trademark, patents and computer programs. The following are examples of items classified as liabilities: Bank overdraft, Accounts Payable / Creditors, Accrued expenses, e.g. insurance accrued. Prepaid income, e.g. rent (received) prepaid, Bank loans, Long-term liabilities (mortgage bonds), Debentures The following are examples of items classified as expenses: Insurance paid, Rent paid, Water and lights paid, Discount allowed, Stationary paid, Petrol and oil paid, Purchases, Telephone paid, Interest paid, Income tax VAT The following are examples of items classified as incomes: Rent received, Discount received, Sales, Interest received, Retained income / Net profit
On November 1, 2005, Chris Clark begins a business that will be known as NetSolutions.
a. Chris Clark deposits $25,000 in a bank account in the name of NetSolutions. a. Assets Cash 25,000 = = Owner s Equity Chris Clark, Capital 25,000 Investment by Chris Clark
b. NetSolutions exchanged $20,000 for land. Assets = Owner s Equity Cash + Land Chris Clark, Capital Bal. 25,000 = 25,000 b. 20,000 +20,000 Bal. 5,000 20,000 25,000
c. During the month, NetSolutions purchased supplies for $1,350 and agreed to pay the supplier in the near future (on account). Assets Liabilities + Owner s Equity Accounts Chris Clark, Cash + Supplies + Land Payable Capital Bal. 5,000 20,000 = 25,000 c. + 1,350 + 1,350 Bal. 5,000 1,350 20,000 1,350 25,000 =
d. NetSolutions provided services to customers, earning fees of $7,500 and received the amount in cash. Assets Liabilities + Owner s Equity Accounts Chris Clark, Cash + Supplies + Land Payable Capital Bal. 5,000 1,350 20,000 = 1,350 25,000 d. + 7,500 + 7,500 Bal. 12,500 1,350 20,000 1,350 32,500 = Fees earned
e. NetSolutions paid the following expenses: wages, $2,125; rent, $800; utilities, $450; and miscellaneous, $275. Assets Liabilities + Owner s Equity Accounts Chris Clark, Cash + Supplies + Land Payable Capital Bal. 12,500 1,350 20,000 1,350 32,500 e. 3,650 2,125 = 800 450 275 Bal.8,850 1,350 20,000 1,350 28,850 = Wages Rent Util. Misc.
f. NetSolutions paid $950 to creditors during the month. Assets Liabilities + Owner s Equity Accounts Chris Clark, Cash + Supplies + Land Payable Capital Bal. 8,850 1,350 20,000 = 1,350 28,850 f. 950 950 Bal. 7,900 1,350 20,000 400 28,850 =
g. At the end of the month, the cost of supplies on hand is $550, so $800 of supplies were used. Assets Liabilities + Owner s Equity Accounts Chris Clark, Cash + Supplies + Land Payable Capital Bal. 7,900 1,350 20,000 = 400 28,850 g. 800 800 Bal. 7,900 550 20,000 400 28,050 = Supplies expense
h. At the end of the month, Chris withdrew $2,000 in cash from the business for personal use. Assets Liabilities + Owner s Equity Accounts Chris Clark, Cash + Supplies + Land Payable Capital Bal. 7,900 550 20,000 = 400 28,050 h. 2,000 2,000 Bal. 5,900 550 20,000 400 26,050 = Withdrawal
Example of the effect of Accounting Equation No. Transaction / Scenario Assets Liabilities Owners / Shareholder's Equity 1 Issue shares for cash or other assets R6 000 + R6, 000 + R6, 000 2 3 Buying assets by borrowing money (taking a loan from a bank or simply buying on credit) + R10, 000 + R10, 000 Selling assets for cash to pay off liabilities: both assets and liabilities are reduced - R900 - R900 4 Buying assets by paying cash: Shareholder's money (R600) and borrowed money (R400) + R1, 000 + R400 + R600 5 Earning revenues + R700 + R700 6 7 Paying expenses (e.g. rent or professional fees) or dividends Recording expenses, but not paying them at the moment - R200 - R200 8 Paying a debt that you owe - R500 - R500 + R100 - R100
Accounting Cycle
Journal Entries In Accounting A business entity enters into a lot of transactions daily in the course of its business e.g. Purchase of raw materials; sale of goods; payments of expenses like salaries, wages, commissions, fees, rent taxes; receipt of many non operating incomes like rent; interest on investments; royalty; apprenticeship premium; commissions etc. Each transaction influences the profits of the business.in business you have to take into account all these transactions if you want to find out the results of the business. And hence you should record all the transactions properly on regular basis.
Journal Entries In Accounting This purpose is achieved by the book called JOURNAL. The word "Journal" means "Daily". Thus as is clear from the name itself, Journal is a book in which you keep a record of all the transactions on a daily basis. All rthe transactions are entered into this book in a chronological order i.e. in the order of time. For example the transaction taking place on 2nd march is recorded before the transaction which took place on 5th march.
Journal Entries In Accounting The process of recording the transaction in the Journal or making entry in the journal is called Journalizing. Since transactions are first of all recorded in this book, Journal is also called "The Book Of Original Entry'. Entries in the Journal are recorded on the basis of source Documents like Cash Memos, Vouchers etc which serve as an evidence of a transaction. Entries in the Journal are made on the basis of ' Rules Of Journalizing'.
Journal Entries In Accounting As in accounting there are some specified formats for all types of accounting statements or accounts etc, Journal also has a format of its own which is given as under.
Journal Entries In Accounting Explanation of all the columns of Journal 1. Date --------------- Under this column we write the date on which the transaction occurred. 2. Particulars---------- Under this column some brief explanation of the accounts to be debited and credited is given. 3. L.F.------------------- L.F. means Ledger Folio. Ledger is book in which we keep an account under a separate name for all types of accounts. Folio means page number. So L.F. means the page number in Ledger on which that particular account exists. 4. Debit Amount----- In this column we record the amount against the account which has been debited. 5. Credit Amount---- In this column we record the amount against the account which has been credited.
Journal Entries In Accounting To record transactions, accounting system uses double-entry accounting. Double-entry implies that transactions are always recorded using two sides, debit and credit. Debit refers to the left-hand side and credit refers to the right-hand side of the journal entry or account. The sum of debit side amounts should equal to the sum of credit side amounts. A journal entry is called "balanced" when the sum of debit side amounts equals to the sum of credit side amounts.
Journal Entries In Accounting All journal entries have two sides : Debit and Credit For every journal entry, the total debits must equal the total credits This ensures that the fundamental accounting equation (A = L + OE) is always in balance. The basic journal entry: Debit Account name1 $amount Credit Account name2 $amount To record
Journal Entries In Accounting The Basic Accounting Elements: Asset Expense Liability Revenue Owners Equity
Journal Entries In Accounting Balance Sheet Income Statement Balance Sheet/ Stmt of Retained Earnings Debit Asset Expense Credit Liability Revenue Owners Equity To increase an Asset or Expense: Debit To increase a Liability, Revenue, or Owners Equity: Credit To decrease an Asset or Expense: Credit To decrease a Liability, Revenue, or Owners Equity: Debit
Journal Entries In Accounting Going back to the Fundamental Accounting Equation: Assets = Liabilities + Owners Equity Debit Credit Credit
Journal Entries In Accounting Going back to the Fundamental Accounting Equation: Assets = Liabilities + Owners Equity Debit Credit Credit Assets Current assets Long-term assets Liabilities Current liabilities Long-term liabilities Direct investment Capital stock Indirect investment Dividends (debit) Retained earnings Revenue (credit) Expense (debit)
Journal Entries In Accounting Journal Entries Usually one side (the Debit or the Credit) will be obvious from the transaction (e.g. when cash is received, cash (an asset) increases. The Debit has to be to cash). It is the determination of the other side of the entry that requires thought and judgment.
Journal Entries In Accounting It is best to reason logically: 1. Which financial statement should be impacted? Balance sheet, Income statement, or Stmt of Retained Earnings? 2. Which element on that statement should be impacted? 3. Which specific account should be impacted? Assets Current assets Cash Accts receivable Long-term assets Building Land Liabilities Current liabilities Accts payable Long-term liabilities Bank loan Owners Equity Direct investment Capital stock Indirect investment Dividends (debit) Retained earnings Revenue (credit) Expense (debit) Account Element
Journal Entries In Accounting Accounts Personal Impersonal Natural Artificial Representative Real Nominal Tangible Intangible
Journal Entries In Accounting Classification of Accounts:- Personal Account:- when a transaction involved with a person known as personal account such as Mr. Roy, Bose& sons ABC Ltd. co. etc. Nominal Account:- All recurring expenses/incomes are known as Nominal Account, such as salary, Rent, Interest etc. Real Account:- Other than above two accounts all are fall under this category, such as Machinery, Furniture etc
Journal Entries In Accounting Golden Rule of Debit and Credit In case of Personal Account - Debit the receiver and Credit the giver. In case of Nominal Account- Debit all expenses and losses and Credit all Income and liabilities. In case of Real Accounts - Debit what comes in and credit what goes out
Journal Entries In Accounting Accounting Journal Entry Examples 01 * Cash payment transactions 1. Purchase of assets in cash 2. Repayment of liabilities in cash 3. Payment of expenses in cash * Cash receipt transactions 4. Sale of assets in cash 5. Borrowing money
Journal Entries In Accounting 6. Issuance of stock * Cash payment transactions 1. Purchase of assets in cash 1a. Purchased merchandise and paid $2,000 in cash 1b. Purchased an equipment and paid $15,000 in cash 2. Repayment of liabilities in cash 2a. Repaid $7,000 of bank loans 2b. Paid $3,000 accounts payable 3. Payment of expenses in cash 3a. Paid $3,500 rent expense 3b. Paid $6,000 salaries expense
Journal Entries In Accounting * Cash receipt transactions 4. Sale of assets in cash 4a. Sold merchandise and received $6,500 in cash The cost of merchandise sold was 5,100 4b. Sold an equipment and received $8,600 in cash The book value of the equipment was $8,000 5. Borrowing money 5a. Borrowed $9,000 in cash 5b. Issued a promissory note and received $11,000 in cash 6. Issuance of stock 6a. Issued 500 shares of common stock, at $50 per share 6b. Issued 200 shares of preferred stock, at $80 per share
TRIAL BALANCE DEFINITION IT IS A STATEMENT SHOWING CREDIT AND DEBIT BALANCES FROM THE LEDGER. HELPS ARITHMETICAL ACCURACY AND FACILITATES FINAL ACCOUNTS.
TRIAL BALANCE BASIC PRINCIPLE : SINCE IT IS DOUBLE ENTRY BOOK-KEEPING, HENCE, ASSETS AND EXPENSES ARE DEBIT BALANCES LIABILITIES AND INCOMES ARE CREDIT BALANCES. IN CASE OF ARITHMETICAL INACCURACY IDENTIFY CLERICAL/PRINCIPLE ERRORS AND RECTIFY
TRIAL BALANCE TYPES OF ERRORS: A) CLERICAL ERRORS -- ERRORS OF OMISSION --- OMISSION OF TRANSACTION FROM BOOKS --- COMPLETE OMISSION NOT AFFECTING TRIAL BALANCE --- PARTIAL OMISSION AFFECTING TRIAL BALANCE
TRIAL BALANCE -- ERRORS OF COMMISSION --- FIGURE POSTED ON THE WRONG SIDE OR WITH WRONG AMOUNT -- COMPENSATING ERRORS --- ONE ERROR BALANCES ANOTHER ERROR. B) ERRORS OF PRINCIPLE -- ERRORS IN CONTRAVENTION OF ACCOUNTING PRINCIPLES
TRIAL BALANCE RECTIFICATION OF ERRORS IS A SERIES OF STEPS: PASS THE CORRECT ENTRY COMPARE THE WRONG ENTRY WITH THE CORRECT ONE PASS THE RECTIFICATION ENTRY IF TRIAL BALANCE DOES NOT TALLY THEN DIFFERENCE IS TRANSFERRED TO SUSPENCE ACCOUNT
TRIAL BALANCE TYPICAL TRIAL BALANCE N A M E DEBIT CREDIT CAPITAL X DRAWINGS X PURCHASES X SALES X EXPENSES X DEBTORS(CUSTOMRES) X CREDITORS(SUPPLIERS) X CASH X SALES RETURN X
TRIAL BALANCE TYPICAL ERRORS: -- CLERICAL: A) SALARY PAID 1000/- BUT POSTED AS 10, 000/-. RECTIFICATION: CREDIT SALARY WITH 9000/-. B) SALARY PAID 1000/- BUT POSTED IN RENT A/C. RECTIFICATION: DEBIT SALARY AND CREDIT RENT WITH 1000/-. C) GOODS WORTH 100/- SOLD TO VIJAY WRONGLY RECORDED IN PURCHASE REGISTER. RECTIFICATION: CREDIT SALES AND PURCHASE A/Cs WITH 100/- EACH AND DEBIT VIJAY WITH 200/-.
TRIAL BALANCE AFTER TRIAL BALANCE IS PREPARED ONE FINDS. D) SALES OF 500/- POSTED AS 5000/- WHILE RENT PAID 500/- POSTED AS 5000/-.. RECTIFICATION: DEBIT SALES WITH 4500/-, CREDIT SUSPENCE WITH 4500/-, CREDIT RENT WITH 4500/-, DEBIT SUSPENCE WITH 4500/-. E) SALARY PAID AS 1000/- BUT POSTED AS 10,000/- IN RENT A/C. RECTIFICATION: DEBIT SALARY WITH 1000/- SUSPENCE WITH 9000/-; CREDIT RENT WITH 10000/- F) A PURCHASER S DEBIT BALANCE OF 9000/- HAS NOT BEEN TAKEN. RECTIFICATION: DEBIT DEBTORS, CREDIT SUSPENCE TO THE EXTENT OF 9000/-.
FINAL ACCOUNT WITH ADJUSTMENT
CAPITAL AND REVENUE EXPENDITURE BASIC PRINCIPLE:. ALL EXPENSES AND RECEIPTS OF REVENUE NATURE ARE TAKEN TO TRADING AND PROFIT & LOSS ACCOUNT. ALL EXPENDITURES AND RECEIPTS OF CAPITAL NATURE ARE TAKEN TO BALANCE SHEET
CAPITAL AND REVENUE EXPENDITURE REVENUE RECEIPTS/PAYMENTS :. ARE SMALLER IN SIZE(RELATIVELY). ARE RECURRING IN NATURE. THE BENEFITS ARE OVER A SHORTER PERIOD (1 YEAR). THE PURPOSE IS TO RUN THE BUSINESS ON A DAY TO DAY BASIS. MAINTAIN ASSETS IN WORKING CONDITION
CAPITAL & REVENUE EXPENDITURE CAPITAL RECEIPTS/PAYMENTS: ARE USUALLY LARGE(RELATIVELY) ARE NON-RECURRING IN NATURE THE BENEFITS ARE OVER LONGER DURATION THE PURPOSE IS TO ENHANCE PRODUCTIVITY OF THE ASSETS
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Treatment of Adjustments in Final Accounts
Some Important and Common Adjustments are listed below: Closing Stock:- Adjustment Entry: Closing Stock A/c--------Dr To Trading A/c The Closing Stock is treated in the Final Accounts as follows:- On the Credit Side of Trading A/c, shown as separate item. On the Assets Side of the Balance Sheet, shown as a separate item under Current Assets. Dr. Cr. Liabilities Amount in Rs. Assets Amount in Rs. Particulars Amount in Rs. Particulars By Closing Stock Amount in Rs. xxxxxxxxxx Current Assets: Closing Stock xxxxxxxxxx
Adjusted Purchases and Closing Stock Sometimes the Closing Stock may be given in the Trial Balance itself. This would mean that both the Opening and the Closing Stocks have been adjusted in the Purchases. In such a situation, the Opening Stock will not appear in Trial Balance. The Trial Balance will show only the figures of Adjusted Purchases and Closing Stock. The Adjusted Purchases are in fact the Cost of Goods Sold. They have been worked out by adding the Opening Stock + Net Purchases + Direct Expenses Closing Stock. The Adjusted Purchases are shown on the debit side of Trading Account. In such a situation there is no need to show Closing Stock in the Trading Account as it already stands adjusted in Purchases. It will be shown only on the Assets side of Balance Sheet.
Outstanding Salaries:- Adjustment Entry: Concerned Expense A/c--------Dr To Outstanding Expenses A/c The Outstanding Expenses is treated in Final Accounts as follows:- Added to the concerned expenses in the Trading and Profit and Loss A/c. Shown on the Liabilities side of the Balance Sheet as a separate item under Current Liabilities. Dr. Particulars To Expenses Add: Outstanding Expenses Amount in Rs. Xxxxxx Xxxxxx Particulars Amount in Rs. Cr. Liabilities Current Liabilities: Outstanding Exp. Amount in Rs. Xxxxxx Assets Amount in Rs.
Outstanding Expenses:- Outstanding Expenses are those expenses which have been incurred during Current accounting year but have not been paid till the end of the year. They are also called Accrued Expenses. The Common examples of such expenses are the Salaries, Wages and Rent for the last month of the Accounting year paid in the first month of the Next year. Since they remained unpaid as at the end of Accounting year, no entry might have been passed in the books of account. So, they must be taken into account while preparing the Trading and Profit and Loss A/c, otherwise it will not reveal the correct amount of Profit or Loss.
Prepaid Expenses:- Adjustment Entry: Prepaid Expenses A/c--------Dr To Concerned Expense A/c The Prepaid Expenses will be treated in Final Accounts as follows:- Subtracted from the Concerned Expense in the Trading and Profit and Loss A/c. Shown on the Assets side of the Balance Sheet as a separate item under Current Assets. Dr. Cr. Liabilities Amount in Rs. Assets Amount in Rs. Particulars To Expense A/c Less: Prepaid Exp. Amount in Rs. Xxxxxx Xxxxxx Particulars Amount in Rs. Current Assets: Prepaid Expenses Xxxxxx
Prepaid Expenses:- Sometimes, the benefit of some Expenses will be available not only in the Current Accounting year but also in the Next year. That Portion of expense the benefit of which yet to be received is called Prepaid Expense (or) Unexpired Expense. Examples of such expenses are Unexpired Insurance, Interest paid in Advance, etc. In such situations it is necessary to find out the Unexpired Portion and adjust it in the concerned expense.
Accrued Income:- Adjustment Entry: Accrued Income A/c---------Dr To Concerned Income A/c The Accrued Income is treated in final accounts as follows:- Added to the concerned income in the Profit and Loss Account and Shown on the Asset Side of the Balance Sheet as a separate item under Current Assets. Dr. Cr. Liabilities Amount in Rs. Assets Amount in Rs. Particulars Amount in Rs. Particulars By Income Add: Accrued Income Amount in Rs. Xxxxxx Xxxxxx Current Assets: Accrued Income Xxxxxx
Accrued Income:- Accrued Incomes are those incomes which have been earned during the Current Accounting year but have not been received till the end of the year. Accrued Income is also called as Outstanding Incomes (or) Incomes earned but not yet received. Examples of such incomes are Commission Receivable, Income on Investments due but not yet received, etc.
Income Received in Advance:- Adjustment Entry: Concerned Income A/c---------Dr To Income received in advance A/c The Unearned Income is treated in the Final Accounts as follows:- Deducted from the Concerned Income in the Profit and Loss Account, and Shown on the Liabilities side of the Balance Sheet as a separate item under Current Liabilities. Dr. Cr. Liabilities Amount in Rs. Assets Amount in Rs. Particulars Amount in Rs. Particulars By Income A/c Less: Income received in Advance Amount in Rs. Xxxxxx Xxxxxx Current Liabilities: Income received in advance Xxxxxx
Income Received in Advance:- Any Income which belongs to the next accounting year but has been received during the current accounting year is called Income Received in Advance (or) Unearned Income. It is the income in respect of which the service is yet to be provided. Examples of such incomes are Rent received in advance, Interest received in advance, etc. In such a situation, the unearned portion of the income will have to be adjusted while preparing the Final Accounts.
Illustration 1:- Show how you will record the following items in the Profit and Loss Account and the Balance Sheet. The Trial Balance showed the following balances as on December 31, 1987: Particulars Salaries Wages Rent Received Commission Received Interest on Investments Amount in Rs. 10000=00 20000=00 6600=00 2000=00 6000=00 Additional Information: 1. Salaries amounting to Rs.2,000 are Outstanding. 2. Wages include Rs.1,500 paid in Advance. 3. Interest on Investment include Rs.1,200 for the months of January, February and March, 1988 4. Rent for the month of December amounting to Rs.600 is not yet received. Gross Profit for the year is Rs.40,000 and other expenses amounted to Rs.10,000.
Profit and Loss Account for the year ended December 31, 1987 Dr. Cr. Particulars Amount in Rs. Amount in Rs. Particulars Amount in Rs. Amount in Rs. To Salaries Add: Outstanding To Wages Less: Prepaid To Other Expenses To Net Profit (Transferred to Capital A/c) 10,000 2,000 ------------- 20,000 1,500 ------------- 12,000 18,500 10,000 13,500 By Gross Profit b/d By Rent Received Add: Outstanding By Commission Received By Interest on Investments Less: Received in Advance 6,600 600 ------------ 6,000 1,200 ------------ 40,000 7,200 2,000 4,800 54,000 54,000 8/31/2012 87
Balance Sheet as on December 31, 1987 Liabilities Amount in Rs. Assets Amount in Rs. Current Liabilities: Current Assets: Salaries Outstanding 2,000 Wages Prepaid 1,500 Interest Received in Advance 1,200 Rent Outstanding 600
Presented by: BHAVYA TANEJA Corporate Professional, Freelancer Business Educationist, Trainer & Consultant