Book-Keeping and
Accountancy (311)
Q.1 Explain different stages of accounting cycle. Differentiate between Accounting and Book-Keeping. (20)
What Is the Accounting Cycle?
The accounting cycle is a basic, eight-step process for completing
a company’s bookkeeping tasks. It provides a clear guide for the recording,
analysis, and final reporting of a business’s financial activities.
The accounting cycle is used comprehensively through one full
reporting period. Thus, staying organized throughout the process’s time frame
can be a key element that helps to maintain overall efficiency. Accounting
cycle periods will vary by reporting needs. Most companies seek to analyze
their performance on a monthly basis, though some may focus more heavily on
quarterly or annual results.
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Regardless, most bookkeepers will have an awareness of the
company’s financial position from day to day. Overall, determining the amount
of time for each accounting cycle is important because it sets specific dates
for opening and closing. Once an accounting cycle closes, a new cycle begins,
restarting the eight-step accounting process all over again.
Understanding the 8-Step Accounting Cycle
The eight-step accounting cycle starts with recording every company
transaction individually and ends with a comprehensive report of the company’s
activities for the designated cycle timeframe. Many companies use accounting
software to automate the accounting cycle. This allows accountants to program
cycle dates and receive automated reports.
Depending on each company’s system, more or less technical
automation may be utilized. Typically, bookkeeping will involve some technical
support, but a bookkeeper may be required to intervene in the accounting cycle
at various points.
Every individual company will usually need to modify the eight-step
accounting cycle in certain ways in order to fit with their company’s business
model and accounting procedures. Modifications for accrual accounting versus
cash accounting are usually one major concern.
Companies may also choose between single-entry accounting versus
double-entry accounting. Double-entry accounting is required for companies to
build out all three major financial statements: the income statement, balance
sheet, and cash flow statement.
The 8 Steps of the Accounting Cycle
The eight steps of the accounting cycle include the following:
Step 1: Identify Transactions
The first step in the accounting cycle is identifying transactions.
Companies will have many transactions throughout the accounting cycle. Each one
needs to be properly recorded on the company’s books.
Recordkeeping is essential for recording all types of transactions.
Many companies will use point of sale technology linked with their books to
record sales transactions. Beyond sales, there are also expenses that can come
in many varieties.
Step 2: Record Transactions in a Journal
The second step in the cycle is the creation of journal entries for
each transaction. Point of sale technology can help to combine steps one and
two, but companies must also track their expenses. The choice between accrual
and cash accounting will dictate when transactions are officially recorded.
Keep in mind that accrual accounting requires the matching of revenues with
expenses so both must be booked at the time of sale.
Cash accounting requires transactions to be recorded when cash is
either received or paid. Double-entry bookkeeping calls for recording two
entries with each transaction in order to manage a thoroughly developed balance
sheet along with an income statement and cash flow statement.
Generally accepted
accounting principles (GAAP) require public companies to utilize accrual
accounting for their financial statements, with rare exceptions.
With double-entry accounting, each transaction has a debit and a
credit equal to each other. Single-entry accounting is comparable to managing a
checkbook. It gives a report of balances but does not require multiple entries.
Step 3: Posting
Once a transaction is recorded as a journal entry, it should post
to an account in the general ledger. The general ledger provides a breakdown of
all accounting activities by account. This allows a bookkeeper to monitor
financial positions and statuses by account. One of the most commonly
referenced accounts in the general ledger is the cash account which details how
much cash is available.
The ledger used to be the gold standard for recording transactions
but now that almost all accounting is done electronically, the ledger is less
of an active concern as all transactions are automatically logged.
Step 4: Unadjusted Trial Balance
At the end of the accounting period, a trial balance is calculated
as the fourth step in the accounting cycle. A trial balance tells the company
its unadjusted balances in each account. The unadjusted trial balance is then
carried forward to the fifth step for testing and analysis.
This is the first step that takes place once the accounting period
has ended and all transactions have been identified, recorded, and posted to
the ledger (this is usually done electronically and automatically, but not
always).
The purpose of this step is to ensure that the total credit balance
and total debit balance are equal. This stage can catch a lot of mistakes if
those numbers do not match up.
Step 5: Worksheet
Analyzing a worksheet and identifying adjusting entries make up the
fifth step in the cycle. A worksheet is created and used to ensure that debits
and credits are equal. If there are discrepancies then adjustments will need to
be made.
In addition to identifying any errors, adjusting entries may be
needed for revenue and expense matching when using accrual accounting.
Step 6: Adjusting Journal Entries
In the sixth step, a bookkeeper makes adjustments. Adjustments are
recorded as journal entries where necessary.
Step 7: Financial Statements
After the company makes all adjusting entries, it then generates
its financial statements in the seventh step. For most companies, these
statements will include an income statement, balance sheet, and cash flow
statement.
Step 8: Closing the Books
Finally, a company ends the accounting cycle in the eighth step by
closing its books at the end of the day on the specified closing date. The
closing statements provide a report for analysis of performance over the
period.
After closing, the accounting cycle starts over again from the
beginning with a new reporting period. Closing is usually a good time to file
paperwork, plan for the next reporting period, and review a calendar of future
events and tasks.
Bookkeeping is a
transactional and administrative role that handles the day-to-day tasks of
recording financial transactions, including purchases, receipts, sales and
payments. Accounting is more subjective, providing business owners with
financial insights based on information gleaned from their bookkeeping data.
“Bookkeeping is designed to generate data about the activities of
an organization,” said D’Arcy Becker, chair and professor in the University of
Wisconsin Whitewater Department of Accounting. “Accounting is designed to turn
data into information.”
Key TakeawayKey takeaway: Bookkeepers handle the day-to-day tasks
of recording financial transactions, while accountants provide insight and
analysis of that data and generate accounting reports.
What does a bookkeeper do?
Bookkeeping, in the traditional sense, has been around as long as
there has been commerce – since around 2600 B.C. A bookkeeper’s job is to
maintain complete records of all money that has come into and gone out of the
business. Bookkeepers record daily transactions in a consistent, easy-to-read
way. Their records enable accountants to do their jobs.
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These are some typical bookkeeping tasks:
Recording financial transactions
Posting debits and credits
Producing invoices
Managing payroll
Maintaining and balancing ledgers, accounts, and subsidiaries
One of a bookkeeper’s primary duties is maintaining a general
ledger, which is a document that records the amounts from sales and expense
receipts. Ledgers can vary in complexity from a sheet of paper to specialized
bookkeeping software, such as QuickBooks and Xero, to track their entries,
debits and credits. [Read our review of QuickBooks and our Xero review to learn
more about these tools.]
Each sale and purchase your business conducts must be recorded in
the ledger, and some items will need documentation. You can find more
information on which transactions require supporting documents on the IRS
website.
There are no formal educational requirements to become a
bookkeeper, but they must be knowledgeable about financial topics and
accounting terms and strive for accuracy. Generally, an accountant or owner
oversees a bookkeeper’s work. A bookkeeper is not an accountant, nor should
they be considered an accountant.
Key TakeawayKey takeaway: Bookkeepers record financial
transactions, post debits and credits, create invoices, manage payroll, and
maintain and balance the books.
What credentials does a bookkeeper need?
Bookkeepers aren’t required to be certified to handle the books for
their customers or employer, but licensing is available. Both the American
Institute of Professional Bookkeepers (AIPB) and the National Association of
Certified Public Bookkeepers (NACPB) offer accreditation and licensing to
bookkeepers.
AIPB certification requires bookkeepers to have at least two years
of full-time work experience and pass a national exam. To maintain the
credential, bookkeepers are required to engage in continuing education.
The NACPB offers credentials to bookkeepers who pass tests for
small business accounting, small business financial management, bookkeeping and
payroll. It also offers a payroll certification, which requires additional
education.
To earn the certified public bookkeeper license, bookkeepers must
have 2,000 hours of work experience, pass an exam, and sign a code of conduct.
They must take 24 hours of continuing education each year to maintain their
license.
A bookkeeper with professional certification shows they are
committed to the trade, possess the skills and expertise required, and are
willing to continue learning new methods and techniques.
Q.2 The following
particulars are related to the business of Shareef: (20)
April 1: Mr. Shareef
started business with a capital of Rs. 15,000.
April 2: purchased
machinery for Rs. 8,000.
April 3: purchased
goods for cash Rs. 500.
April 7: sold goods
to Ali for Rs. 100.
April 8: purchased
goods from Bari for Rs. 850.
April 10: received Rs.
100 as loan from Ahmad.
April 12: paid Rs. 50
to Zahid.
April 15: return goods
to Bari Rs. 200.
April 16: incurred
miscellaneous business expenses Rs. 50.
April 17: Ali returned
goods for Rs. 50.
April 20: purchased a
type writer for Rs. 600.
April 22: purchased
stationery and accounts books for Rs. 100.
April 25: gave Rs. 25
as charity.
April 30: paid waged
for the month of April Rs. 900.
April 30: paid rent
for the month Rs. 300.
You are required to prepare journal from the given information and
post them to the concerned ledgers.
|
Date |
Particulars |
Dr. |
Cr. |
|
April 1 |
Cash To Shareef
capital |
15000 |
15000 |
|
April 2 |
Machinery To Cash |
8000 |
8000 |
|
April 3 |
Inventory To Cash |
500 |
500 |
|
April 7 |
Ali To Sales |
100 |
100 |
|
April 8 |
Inventory To Bari |
850 |
850 |
|
April 10 |
Cash To loan from
ahmad |
100 |
100 |
|
April 12 |
Zahid To Cash |
50 |
50 |
|
April 15 |
Bari Inventory |
200 |
200 |
|
April 16 |
Miscellaneous
expense To cash |
50 |
50 |
|
April 17 |
Inventory To Ali |
50 |
50 |
|
April 20 |
Type writer To cash |
600 |
600 |
|
April 22 |
Stationery
and accounts books To Cash |
100 |
100 |
|
April 25 |
Charity To cash |
25 |
25 |
|
April 30 |
Wages To cash |
900 |
900 |
|
April 30 |
Rent expense To cash |
300 |
300 |
Q.3 Define ledger. Write
a detailed note on the necessity and importance of ledger. (20)
In accounting, a general ledger
is used to record all of a company's transactions. Within a general
ledger, transactional data is organized into assets, liabilities, revenues,
expenses, and owner's equity. After each sub-ledger has been closed out, the
accountant prepares the trial balance.
The phrase "keeping the books" infers to retaining a
general ledger, the main accounting record for your company if you use
double-entry bookkeeping. It is the fundamental tool that enables you to keep a
trace of all transactions and form them into subcategories so your accountant
can locate a summarized, comprehensive record of your company finances all in
one area.
The general ledger performs several processes in the monetary
operation of your company. Understand it as a catch-all bucket. It clenches all
the monetary information you will utilize to build the financial affidavits for
your company and it is based on a basic document, along with at least one
bulletin entry for each monetary transaction. A basic document can be like an
invoice or a cancelled check that indicates you spent the receipt.
Here are five justifications that the general ledger is so significant
for your business:
Loan application:
Lenders will consistently ask for a mixture of monetary records if
your company pertains for a loan. Your general ledger can enable you to
instantly locate and identify whatever data you need.
Balancing your books:
A general ledger allows you to complete a trial balance. This
enables you to balance the books. (Add why you need to balance books)
Ready for an Audit
If one is audited by the IRS (Internal Revenue Service), it will be
simple to formulate the audit since your monetary records are all in one spot.
Fraud detection
It enables you to more effortlessly place fraud or any other
problem with your books since it is simple to look through and comprehend.
Internal and external communication
The general ledger retains all the data essential to produce your
monetary statements for both management, or internal use and external, or
investor or consumer use.
What are the categories of General Ledger?
General ledgers are categorized according to their essence. This classification
promotes the preparation of monetary statements. The category is as follows:
A general ledger has five main components:
Assets
Assets are any reserves that are acquired by the business and
generate value. Assets can comprise inventory, cash, property, trademarks,
equipment, and patents.
Liabilities
Liabilities are recent or future monetary debts the corporation has
to pay. Current liabilities can comprise things like worker salaries and taxes,
and coming liabilities can encompass things like lines of credit or bank loans,
and leases or mortgages.
Equity
Equity is the discrepancy between the significance of the assets
and the liabilities of the company. If the industry has more liabilities than
assets, it has negative equity. Equity can encompass things like stock options,
common stock, or stocks, relying on if the company is publicly or privately
owned by owners and shareholders.
Revenue
Revenue is the company's income that originated from the sales of
its commodities or services. Revenue can comprise interest, sales, royalties,
or any other fees the company collects from other individuals.
Expenses
Expenses consist of cash reimbursed by the company in exchange for
a commodity or service. Expenses can comprise utility, rent, travel, and meals.
Q.4 Explain the
importance of final accounts. Enlist the accounts prepared in final accounts. (20)
Final Accounts is the ultimate stage of the accounting process
where the different ledgers maintained in the Trial Balance (Books of Accounts)
of the business organization are presented in the specified way to provide the
profitability and financial position of the entity for a specified period to
the stakeholders and other interested parties, i.e., Trading Account, Statement
of Profit & Loss, Balance Sheet.
Initially, the transactions are recorded in the Journal of the
company, which is then reflected in the individual ledgers maintained for the
relative transaction type & party. The closing balance of this ledger is
maintained in the Trial Balance, which shows equal debit and credit side for
the period. Then for providing the status & performance of the business
organization for the specified period (i.e., a year, half-year, quarter, etc.),
Final accounts are prepared which included Trading Account for calculation of
Gross profit (now generally inclusive with the statement of profit & loss),
Statement of Profit & Loss for net profit earned during the period and
Balance Sheet which provide the Assets & Liabilities of the entity at the
period end.
Final-Account
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Features
The final account is legally required for the entities. The
financial accounting
and preparation of Financial
statements are obligatory for the entities and getting those accounts audited.
These accounts are prepared to present and provide the entity’s
financial performance and status to the stakeholders, users, investors,
promoters, etc.
The presentation of comparable figures for the current period from
the previous period increases the utility of the statements of accounts.
It presents an accurate & fair view of the organization’s
financial performance by providing accurate & full information regarding
the business with proper notes and disclosures of the real facts.
Objectives of Final Accounts
They are prepared to calculate Gross profit & net profit earned
by the organization for the relevant period by presenting the Statement of
Profit & Loss.
The Balance sheet is prepared to provide the company’s correct
financial position as of the date.
These accounts use the bifurcation of direct expenses
to obtain the gross profit
& loss and bifurcation in indirect expenses
to ascertain the
organization’s net profit & loss.
Through the Balance sheet, these accounts bifurcate the assets
& liabilities as per the holding & usage periods of the same.
Example of Final Accounts
ABC Inc. shows the following balances in its ledger:
Particulars Amount
Opening Stock of Inventory $5,000
Closing Stock of Inventory $2,000
Purchases $4,000
Sales $10,000
Direct Expenses $1,000
Indirect Expenses $3,500
Other Income $4,000
Assets:
Fixed Assets $17,500
Other Assets $5,000
Liabilities:
Loan $3,500
Other Liabilities $2,500
Capital $10,000
Reserve $4,000
Prepare the final accounts based on the given data.
Solution:
Final Accounts Example 1-1
Final Accounts Example 1-2
Example 1-3 (Balance Sheet)
Importance
As the size and the business of the organization grows, it becomes
necessary for the organization’s management to take proper steps to maintain
the growth of the organization and create the appropriate internal control in
the organization for the prevention of fraud & errors. It helps the
management find the possible weak areas of the entity and identify the major
areas that need special attention.
Final Accounts is the source for the external components like
shareholders and investors to study the status of the entity and the entity’s
business. Based on the entity, the investors decide whether to invest their
funds in the same business industry or not.
It provides authenticated information to the public, which is the
company’s judgment based on who its future lies. Ultimately the company aims to
satisfy its consumers. Final Accounts provide just enough data and information
to the users to assess the entity’s worth.
Advantages
The preparation of Final Accounts increases the accuracy and
effectiveness of the accounts.
During the preparation, any innocent mistakes or fraud can be
discovered and could be rectified quickly.
This account shows the status of the entity and business for the
period, and the audit of the same creates a check on the entity and its
processes, which reduces the risk of fraud and misstatement.
Provide the information for the valuation of the business and
evaluation of the real worth of the business.
Disadvantages
Final accounts are mainly prepared based on historical &
monetary transactions. This only provides the presentation and status of the
money transaction to the users and public but does not provide the information
relating to the work environment of the entity, customer satisfaction for the
services & goods supplied by the company.
It cannot be assured that the Financials are entirely free from any
misstatements as there are inherent limitations in the audit of the financials,
which cannot ensure the 100% guarantee that the financials are free to form any
inaccuracies.
There are substantial chances that the financials are influenced
due to the personal judgment of the accountant or the judgment of the
management personnel.
Conclusion
The final accounting is the final step of the accounting process
. Final accounting includes the Statement of Profit & Loss and
Balance Sheet
, which provide the presentation of the financial status and
position of the entity. They are prepared for the specified period and are
legally obligated. The financial statement
is the basis for the
shareholders and investors to decide on the investment of their funds in the
entity’s securities.
Q.5 Explain necessity and
the importance of daily journals (sub-division of journals). Describe various
kinds of daily journals. (20)
The journal is a memorandum or first record in the process of
recording business transactions that occurred before posting to the ledger.
The journal records all business transactions according to the date
of the Journal showing the chronological records of all business transactions.
The journal can reduce the error and omission of transaction
records or incomplete transaction records. The journal functions as a control
system.
How To Record Into Special Journal Purchase Journal
Purchase journals record purchases of merchandise on credit based
on the original invoice.
Sales Journal
Sales Journal records the sales of merchandise on credit based on
invoice copy.
Purchase Return Journal/Outward
The Purchase Return Journal records:
the return of trade goods to creditors.
allowances received from creditors/suppliers for the return of
empty containers.
The notes in this journal are based on the original credit note
received from creditors.
If there is a discount at the time of purchase of goods, the same
discount rate should be deducted from the list price when the item is returned
to the creditor.
No description is required for the Purchase Return Journal.
Sales Return Journal/Inward
Sales Return Journal records:
the return of merchandise from debtors.
The allowance is given to the debtor for the return of empty
containers.
The notes in this journal are based on a copy of a credit note sent
to the debtor.
If there is a discount on the sale of goods to the debtor, the same
discount rate should be deducted from the list price when the debtor returns
the goods to the business.
No description is required for the Sales Return Journal.
The word ‘Journal‘ is derived from the French word ‘Jour‘ which
means ‘day‘. As accounting journal records all the transactional data on a
daily basis, it has been named so. If you want to follow the double entry
system for the accounting process of your business then the journal will be the
foundation regardless of the size of your business enterprise.
However, recording the transactions in accounting journal book for
a nonaccountant can be an overwhelming task but with an automated accounting
tool, you can get it done with almost no efforts. In this article, we will take
a look at how accounting journal is important for your company and how to use
it in WordPress to lessen your hassle and save your time and money.
How is accounting journal important for your business?
Since a transaction is recorded as soon as it occurs, chances are
very low that you will exclude a transaction that matters to your small
business.
Accounting journal maintains the chronological approach of
recording all the transactions. Therefore, it becomes easier for you to
retrieve data regarding a particular transaction on a specified date.
Not just the transactions are recorded but also they are written in
the precise explanation which tells the whole story of a financial event.
All the transactions are broken down according to their debit and
credit nature and then for every debit entry, we assign an equal amount of
monetary value to their corresponding credit entry. This ensures mathematical
accuracy in your accounting process.
As journal entries include all the details, it is not important to
add those details in ledger again. This is really helpful to keep your ledger
concise and tidy.
If you find any inconsistencies or mistakes in the ledger or trial
balance then you can go back to the journal again to correct the mistakes. This
means the accounting journal also acts as a reference to your financial
statements.
Dear
Student,
Ye sample
assignment h. Ye bilkul copy paste h jo dusre student k pass b available h. Agr
ap ne university assignment send krni h to UNIQUE assignment
hasil krne k lye ham c contact kren:
0313-6483019
0334-6483019
0343-6244948
University
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