| | 1(a) Describe “The Financial Accounting Process” in detail. |
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| Financial Accounting Process | The “Financial Accounting Process” refers to the role of accounting which links decision makers with economic activities and with the results of their decision. The accounting measure and describe the results of economic activities of business and that results facilitate businessmen in making economic decision such as measuring result and evaluating performance of the business. |
| | 1(b) Accounting has often been called the language of business. In what respects would you agree with the statement? How might it be argued that it is deficient? |
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| The language of business | Accounting is often called as the “language of business” because affairs of a business organization are made understood to others as well as to those who manage it through accounting information which has to be suitably recorded, classified, summarized and presented. In order to make this language to convey the same meaning to all people, it is necessary that it should be based on certain uniform scientifically laid down standards. These standards are termed as accounting principles. Accounting principles may be defined as those rules of action which are adopted by the accountants universally while recording accounting transactions and measuring business performance. |
| Accounting is deficient | In my view there is no way to stress that “Accounting” itself is deficient because it starts with correctly recording in books of accounting and ends with showing true picture of performance of the business in the form of financial statements such as Profit & Loss Accounts and Balance Sheet. In other way we can say that if accounting is adopted on the basis of certain uniform scientifically laid down standards, it will be proved efficient and if it is adopted in a manner that is not based on prescribed standards, then it will be found deficient. |
| | 1(c) Give at least 5 examples of transaction that would have the following effects on the elements in a firm’s accounting system:- |
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| (i) Increase cash; decrease some other assets. | EXAMPLES OF TRANSACTION 1. On July 2, collected cash of Rs. 15,000/- from accounts receivable. 2. On July 3, sold machinery on cash of Rs. 100,000 to ABC Company. 3. On July 4, sold land of industrial park on cash at a price of Rs. 150,000. 4. On July 5, sold Suzuki Car on cash at a price of Rs. 125,000 to Mr. Rashid. 5. On July 6, office equipment sold on cash at a price of Rs. 10,000/- |
| (ii) Decrease cash; increase some other assets. | 1. On July 7, purchased building for office of Rs. 1,500,000 . 2. On July 8, purchased machinery on cash of Rs. 100,000 from ABC Company. 3. On July 9, purchased land for industrial park on cash at a price of Rs. 1,050,000. 4. On July 10, purchased Suzuki Pick up on cash at a price of Rs. 125,000. 5. On July 11, purchased office equipment on cash at a price of Rs. 15,000/- |
| (iii) Increase in assets; increase a liability. | 1. On July 12, purchased building for office of Rs. 1,500,000 from ABC company on account. 2. On July 13, purchased machinery of Rs. 100,000 from ABC Company on account. 3. On July 14, purchased on account land for industrial park at a price of Rs. 1,050,000 from Mr. Khalid. 4. On July 15, purchased Suzuki Pick up on account at a price of Rs. 125,000 from XYZ Car Dealer. 5. On July 16, purchased office equipment on account at a price of Rs. 15,000/- from IBM Computers |
| (iv) Increase an expense; decrease an asset. | 1. On July 1, paid Rs. 1,500,000. to employees as salaries. 2. On July 3, paid office rent of Rs. 100,000 to ABC Company. 3. On July 4, paid Electricity Bill of Rs. 10,000. 4. On July 5, Advertising expenses of Rs. 125,000 to ABC Advertisers. 5. On July 31, paid Water Bill of Rs. 200/-. |
| (v) Increase an asset other than cash. | 1. On July 2, purchased building for office of Rs. 100,000 from ABC company. 2. On July 3, purchased machinery of Rs. 10,000 from ‘C’ Company . 3. On July 4, purchased land at a price of Rs. 150,000 from Mr. Khalid. 4. On July 5, purchased Toyota Pick up at a price of Rs. 125,000 from XYZ Car Dealer. 5. On July 6, purchased office equipment at a price of Rs. 150,000/- from IBM Computers |
| (vi) Decrease an asset; decrease a liability | 1. On August 2, paid remaining liability of Rs. 3,000/- on account of purchase of building from ABC company. 2. On August 3, paid remaining liability of Rs. 1,000 on account of purchase of machinery from ‘C’ Company . 3. On August 4, paid remaining liability of Rs. 2,000 on account of purchase of land from Mr. Tariq. 4. On August 5, paid remaining liability of Rs. 23,000 on account of purchase of Toyota Pick up from XYZ Car Dealer. 5. On August 6, paid remaining liability of Rs. 21,000 on account of purchase of office equipment from IBM Computers |
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