1. Asset value $1300000, Useful life 10 years, after 10 years asset value $ 100000.

What’s
Depreciation value?

1300000-100000/10 = 120000

2. Inventory value overvalued by 10000 what are all the 3 effects?

a) Gross profit will increase by 10000
b) Net profit will increase by 10000
c) Taxable amount will increase
d) Inventory increase by 10000 in Balance sheet
e) Next year gross profit will decrease

3. Debtors 10000
Cash sales 5000
Credit sales 2500
Discount allowed 500

What is the debtors balance? ~ 12000

4. Provision for bad debts c/f 14000

Current year provision 11000
Need to create 5% on 500000 for the current year

Profit or loss account Dr 11000

To provision for bad debts 11000

5. Electricity bill assumed and recorded the amount of $ 5000 for the month of January, next
month invoice received $4800 later we paid the same; pass journal entries for the same.

Electricity bill a/c Dr 5000

Accrued expenses a/c Cr 5000

Accrued expense Dr 5000

To Electricity bill Cr 200
To O/s expense Cr 4800

O/s expense Dr 4800

To Bank Cr 4800
6. What are all the items will come in trading account in service organisation?

There is no trading account for the service organization, it has only receipts and payments,
income and expenditure accounts since it is non-profit oriented concern.
7. A machinery of 4000 was sold for 5200. Depreciation provision to date was 400; and
commission paid to selling agent was 320 and wages paid to worker for removing the
machine was 50. Pass journal entries.

Sale proceeds: 5200-320-50=4830

Cost of machinery is 4000-400=3600
Difference is profit- 1230

Depreciation a/c Dr 400

To Machinery Cr 400

Commission a/c Dr 320

Wages A/c Dr 50
To Cash Cr 370

Cash a/c Dr 4830

To machinery 3600
To P&L /gain 1230

8. Cost of yearly subscription and cost of calculator will be write off in the same year as per the
material concept as it will not affect the decision of investor whether its recorded in P&L or
Balance sheet

9. Advance received of $1200000 from the customers for services provided in the
near future.

Bank A/c Dr $1200000

To Customer Account Cr $1200000

Customer Account Dr $100000

To Income Cr $ 100000

10. Retained earnings

11. Bad debts

12. Provision for bad debts

13. Concepts of accounting

14. Errors in trail balance

15. Accrued income

16. Accrued expense

17. Differed revenue

18. Differed revenue expenditure

19. Differed expense

20. Outstanding income and expenses

21. Income received in advance

22. Trail balance significance

23. Difference between provision and reserve

24. Difference between accrued income and differed revenue

25. Revenue recognition

26. Importance of reserves and provisions

27. Contingent asset and liability

28. Where will the outstanding and accrued income expenses will appear in the balance sheet

29. Types of depreciation

30. Entries in subsidiary and holding company when payment is made by subsidiary company to
a vendor on behalf of holding company

Holding company: purchase a/c Dr (Liability)

To vendor a/c
Vendor a/c Dr
To subsidiary a/c

Subsidiary company: vendor a/c Dr

To cash a/c Cr

Holding company Dr
To Vendor a/c

31. Stock 10000

Loss on fire 5000
Premium received 3000

*Bank a/c Dr 3000

Loss on stock Dr 5000
To stock 5000

32. Asset 10000

 10% Depreciation
10 years use
3rd year sold for 3000

* Bank a/c Dr 3000

Loss on sale Dr 4000
To Asset Cr 7000

33. Asset 10000

Accumulated depreciation 5000
Sold for 8000

*Bank a/c Dr 8000

To profit Cr 3000
To Asset Cr 5000

34. GBV 150

NBV 100
SV 80

*Bank a/c Dr 80
Accumulated dep Dr 50
Loss on sale Dr 20
To Asset 150

35. Service received in Jan to Feb, no invoice; in March invoice received of 36000 for entire year:

Expenses a/c Dr 3000

To o/s expense 3000(Jan-Feb)

Expense a/c 3000

o/s expense 6000
prepaid expense Dr 27000
To Bank 36000(March)

Expense Dr 3000
To Prepaid expense 3000 (April-Dec)

36. The amount which will be realized at the end of useful life of asset is called scarp value.

37. The process of measuring and recording the exhaustion of natural resources due to their use
is called depletion.

38. Purchase a/c Dr

Accounts payable Cr

Accounts payable Dr
 To purchase return and allowances

39. Purchases a/c Dr

To Cash
Accounts receivable Dr
To purchase return and allowances
Cash a/c Dr
To Accounts receivable

40. Sales returns and allowances Dr

To Accounts receivables/Cash Cr

41. Funds flow statement is prepared to analyse the reasons for changes in the financial position
of a company between two balance sheets. It shows the inflow and outflow of funds i.e
sources and applications of funds for a particular period…..funds generated from operations.

42. Cashflow statement is a financial statement that shows how changes in balance sheet
accounts and income affect cash and cash equivalents, and breaks the analysis down to
operating, investing and financing activities.

43. Why does a company debit purchases instead of inventory?

Under the periodic inventory system, a company determines its inventory value based on an
estimated or actual physical count of goods multiplied by the unit costs of the items. As a
result, the costs of the goods purchased by the company will be debited to the temporary
account Purchases. Under the periodic inventory system, there will also be temporary
accounts that will be credited for Purchase Returns and Allowances and for Purchase
Discounts.

If a company wants its Inventory account to have a running dollar amount, it will use
the perpetual inventory system. Under the perpetual inventory system, the costs of the
goods purchased are debited to Inventory. The perpetual system also requires that the
Inventory account be credited for the cost of the goods sold, for purchase returns and
allowances, and for purchase discounts.

44. Debit note is issued by the purchaser at the time of returning the goods to the vendor, and
the vendor issues a credit note to inform that he has received the returned the goods.

45. Suspense account: A suspense account is an account temporarily used in general ledger to
carry doubtful amounts which can either be a payment or a receipt.

46. Operating Profit = Gross Profit – Operating Expenses

47. Cost centre: A cost centre is often a department with in a company (cost control and cost
reduction)
 48. Profit centre: A profit centre is a branch or division of a company (ascertaining the exact
profit& maximizing it)

49.

Reserves Provisions
1. Reserves are made to strengthen the 1. Provisions are made to meet specific
financial position of a business and meet liability or contingency, e.g. a provision for
unknown liabilities or losses. doubtful debts.
2. Provisions are made irrespective of
2. Reserves are only made when the
profits earned or losses incurred by
business is profitable.
a business.
3. They cannot be used to distribute
3. They can be used to distribute
dividends as they are made for specific
dividends to shareholders.
liability.
4. They are made by debiting P&L
4. They are made by debiting P&L Account.
Appropriation Account.
5. It is not mandatory to create reserves
5. Legally, it is mandatory to create
for the business, it is mainly done for
provisions.
prudence.
6. Provisions are either shown on the
6. Reserves are shown on the liability side
liability side of a balance sheet or as a
of a balance sheet.
deduction from the asset concerned.

50. Opportunity cost: the loss of potential gain from the other alternative is chosen. (Idle cash
balances represent an opportunity cost in terms of lost interest)

51. Budgeting: estimates the amount of revenues and expenses of a company may incur over a
future period.

52. Forecasting: estimates a company’s future financial outcomes by examining a historical data.

53. Revenue recognition: revenue earned payment was not received.

54. Matching principle: costs that are associated with generating revenue must be reported in
same period as the revenue exceptions: long time constructions, Cash basis, mining)

55. Impairment loss: Reduction or weekhend in the value of asset. An asset is said to be
impaired if the carrying amount of the asset is more than its recoverable amount.

56. Periodic statement, point of statement

57. Shirt cost 600: 20% discount, original cost?

58. Negative cash reasons, treatment?

59. Conventions derived by usage and practice.

60. Concepts, principles and conventions:

a. Entity concept
b. Money measurement concept
c. Periodicity concept
d. Accrual concept
e. Matching concept
f. Going concern concept
g. Cost concept
h. Realisation concept
i. Dual aspect concept
j. Conservatism(prudence)
k. Consistency
l. Materiality

61. Fundamental accounting assumptions: going concern, consistency, accrual

62. Selection of accounting policies: based on prudence substance over form, Materiality

63. Accounting equation approach: Equity + Liabilities = Assets

64. Traditional approach:

a. Personal accounts: Natural, Artificial, Representative
b. Impersonal accounts: Real, Nominal

65. Golden rules of accounting:

a. Personal account: debit the receiver, credit the giver
b. Real account: debit what comes in credit what goes out
c. Nominal account: debit all expenses and losses, credit all incomes and gains

66. Bank reconciliation statement is a statement which reconciles the bank balance as per
cashbook with the balance as per bank passbook by showing all causes of difference
between two.
a. Timing differences
b. Differences arising due to errors in recording the entries: omission, wrong entry etc.
a) Cheque issued but not collected for payment
b) Cheques deposited into the bank but not cleared
c) Interest allowed by bank
d) Interest and expenses charged by the bank
e) Interest and dividends collected by the bank
f) Direct payments by the bank
g) Direct payment into the bank by a customer
 67. Why depreciation is not charged on land; because useful life of land can’t be found.

68. Debit and credit balances of TB:

Asset accounts Liabilities

Expense accounts Income accounts
Losses profits
Drawings Capital
Cash
Bank

69. Variance analysis: variance analysis is the quantitative investigation of the difference
between actual and planned (Example – sales $ 2000, Budget $10000, we lost ABC
customers cause of late delivery.

70. ICM tool: For the elimination of trading partner balances @ a group level, the tool is to
update the balances of one entity against two or more trading partners.

71. Closing stock account Dr

To Trading account

Alternatively closing stock can be adjusted with the purchases:

Closing stock account Dr

To purchases account

The effect of this entry is to reduce the debit in the purchases account.

72. Goodwill is the values of reputation of the firm in respect of profits expected in future over
and above the normal rate of profits.

73. Financial Accounting Short-term Liquidity

74.
Key Terms
Working Capital
Working capital is the excess of current assets over the current liabilities.
Positive working capital
When current assets are more than the current liabilities. In this case the current assets
are partly financed by the long term funds.
Negative working capital
When the current liabilities are more than the current assets. In this case part of the fixed
assets are financed by the short term funds.
Zero working capital
when the current assets are equal to the current liabilities
Funds from Financing Decisions
Funds (working capital) generated from the financing activities. For example, issue of
shares in consideration of cash or any other current assets.
Funds from Investment Decisions:
Funds (working capital) generated from the investment decisions . It shows the net effect
of the investment decisions on the working capital. For example, purchase or sale of plant
or share in consideration of cash or any other current assets.
Funds from operations
The operations of a company like the sale and purchase of the operating goods will have
some effect on the working capital. Funds from operations can be determined on the basis
profit from the income statement or from the reserves from the balance sheet.
Statement of Changes in the working capital
Statement of changes in working capital follows the conventional definition of explaining
working capital. It shows current assets, current liabilities, and the change in working
capital. This statement shows the amount of change in the working capital.
Funds flow statement
The funds flows statement explains the working capital change through the changes in
the long term sources and non-current assets. In other words, it shows the sources and
application of working capital.
Current Ratio
Current ratio shows the relationship between current assets and current liabilities It shows
the ability of a company to meet its short term obligations.
Liquid Ratio/Quick ratio
Financial Accounting Short Term Liquidity

When current ratio is calculated excluding the inventory it is called liquid ratio. So liquid
ratio relates most liquid assets to the current liabilities.
Absolute Cash Ratio
To check the ability of a company to meet the current liabilities immediately can be judge
by computing the ratio between cash and near cash items and the current liabilities.
Debtors Turnover
The ratio used to assess the quality or the liquidity of debtors is called debtors turnover.
This ratio compares sales with the debtors.
Creditor Turnover Ratio
It expresses the relationship between credit purchases and the liability to creditors. This
ratio provides an indication of the average time it takes for your business to pay its bills.
Inventory Turnover Ratio:
Inventory turnover shows the number of times average inventory is turned into sales.
Conventionally, higher the ratio better is the quality of inventory or better is the liquidity
position of the company.
Operating Cycle
Operating cycle represents the time take for converting the stock into cash. It represents
the working capital cycle. It is also defined as the average time between purchasing
inventory and received cash from its sale.
What are the Journal entries for Income tax paid?

For Advance Tax:

Advance Tax a/c Dr (Asset)

To Bank a/c

For TDS:

TDS a/c Dr (Asset)

To Party a/c

For Tax provision:

P&l a/c Dr
To provision for tax a/c

For provision for payment of tax:

Provision for tax a/c Dr (Current Liability)

To Bank A/c

For finalisation:

Tax a/c Dr
To Advance tax a/c
To TDS a/c

Tax is to be booked as an expenditure:

P&L a/c Dr
To Tax a/c

Difference between preliminary expenses and pre-

commencement expenses & its Accounting Treatment:

Preliminary expenses:

Before incorporation and commencement of business, promoters of the company

may incur so many types of expenses like statutory fees and company logo
designing, in some cases rent for the office premises during the time of
incorporation not after incorporation etc... these are all comes under preliminary
expenses. in simple words, preliminary expenses are the expenses that spent by the
promoters before the incorporation of the company.

Accounting treatment: the benefit of the preliminary expenses is long term so it is

treated as intangible asset and shown in the balance sheet under miscellaneous
expenditure. These expenses will be written off in 5 equal year instalments in profit
and loss account. you can also transfer whole amount in single year but for income
tax purpose 1/5 th of the amount will consider.

Pre-commencement expenses:

These are the expenses that are incurred by the company after incorporation and
before commencement of the business. For example, a private company and public
limited company without share capital can commence business after getting
certificate of incorporation from ROC. but a public company having share capital is
not allowed to commencement of business. In this mean time, they can incur some
expenses like recruiting employees etc. these expenses are called as pre-
commencement expenses. The company will have written off this expenses in that
year only.

Fictitious Assets:
Fictitious assets are not assets at all however they are shown as assets in the
financial statements only for the time being.
In fact, they are expenses and losses which for some reason couldn’t be written off
during the accounting period of their incidence. Fictitious assets are written off
against the firms earnings in more than one accounting period. Basically,

they are amortized over a period of time. They are recorded as assets in financial
statements only to be written off later.

best example is preliminary expenses:

(preliminary expenses are those expenses which are incurred before the pre
incorporation of the company).

Accounting Standard-19 -LEASE

Two types of Lease

1. Operating Lease

2. Finance Lease/Capital Lease

There are two ways of accounting for leases. In an operating lease, the lessor (or
owner) transfers only the right to use the property to the lessee. At the end of the
lease period, the lessee returns the property to the lessor. Since the lessee does not
assume the risk of ownership, the lease expense is treated as an operating expense
in the income statement and the lease does not affect the balance sheet.

In a capital lease, the lessee assumes some of the risks of ownership and enjoys
some of the benefits. Consequently, the lease, when signed, is recognized both as an
asset and as a liability (for the lease payments) on the balance sheet. The firm gets to
claim depreciation each year on the asset and also deducts the interest expense
component of the lease payment each year. In general, capital leases recognize
expenses sooner than equivalent operating leases.

If the following conditions are satisfied we can call it as finance lease

(a) if the lease life exceeds 75% of the life of the asset
(b) if there is a transfer of ownership to the lessee at the end of the lease term
(c) if there is an option to purchase the asset at a "bargain price" at the end of the
lease term. (d) if the present value of the lease payments, discounted at an
appropriate discount rate, exceeds 90% of the fair market value of the asset.

Difference between Accrued expense and Outstanding

expense:
There is very thin line of difference between these two terms: 'Accrued' and
'Outstanding'. However, many a times, these two terms are used as synonyms for
each other.

The word 'accrued expense' indicates that the expense has been INCURRED BUT
NOT YET DUE for payment. While, the expense which has been INCURRED AS WELL
AS DUE for payment is termed as 'outstanding expense'.

Simply an accrued expense is the recognition of an expense incurred which has not
yet recognised as an accounts payable item. Where as an 'Outstanding expense' is
an unpaid 'accrued expense'

Money measurement concept:

We will record the transactions and events which can be measured in terms of
money. Transactions or events which cannot be expressed in money do not find
place in the books of accounts though they may be very useful for the business.
Example: If a business has got a team of dedicated and trusted employees, it is
definitely an asset to the business, but since their monetary measurement is not
possible, they are not shown in the books of business

Going Concern principle:

Going concern as a principle of accounting means the business will continue to

operate in the foreseeable future. In other words, the business will not be wrapped
up for some years to come.

In the absence of this principle every item in the financial statement would be short
term or liquid and there would be no concept of capital.

In simple sense, the company neither has the intention nor the need to close down
its operations in the foreseeable future.

If we violate the Going concern principle there is no difference between capital

expenditure and revenue expenditure.

Difference between Accrued expense and Deferred

expense:
Accrued expense: An accrued expense is a Liability that represents
an expense that has been recognised but not yet paid.

Eg: outstanding rent, outstanding salaries.

Deferred expense: A deferred expense is an Asset that represents a

prepayment of future expenses that have not yet been incurred.

Eg: Prepaid insurance, prepaid rent

Difference between Reserve capital and capital reserve:

Reserve capital is the capital reserved by the company. In other

words, not issued to public,

this can be called up in the event of winding up.

Capital reserves are part of 'Reserves and Surplus' and refer to those
reserves which are not available for declaration of dividend,

these reserves may be used to write-off capital losses such as

discount on issue of shares. These can also be used to issue bonus
shares.

Types of Errors :
Basically, errors are of two types:

1.Errors of Principle: Treating a revenue expense as capital

expenditure or vice versa (Trail Balance Will Agree)

Eg: The sale of a fixed asset is treated as ordinary sale.

2. Clerical Errors: The errors committed because of mistake

committed in the ordinary course of the accounting work. These are
of 3 types:

a) Errors of Omission: If a transaction is completely or partially

omitted from the books of account, it will be a case of omission.
(Trail Balance Will Agree)

Eg: Not recording a credit purchase of furniture or not posting an

entry into the ledger.

b) Errors of Commission: If an amount is posted in the wrong

account or it is written on the wrong side or the totals are wrong it
will be a case of errors of commission. (Trail Balance will not Agree)

c)Compensating Errors: One error will be compensated with another

error called as compensating errors. (Trail Balance Will Agree)
Eg: When purchase entry of $1000 is recorded on credit side and
sales entry of $ 1000 is recorded on debit side.

Consignment:
Consignment means where one person sends goods to another
person on the basis that the goods will be sold on behalf of and at
the risk of the former.
The party which sends the goods (consignor) is called principal.
The party to whom goods are sent (consignee) is called agent.
The ownership of the goods ie., the property in the goods remains
with the consignor or the principal.
The principal does not send an invoice to the agent. He sends only a
proforma invoice, a statement that looks like an invoice but is really
not one. It contains the particulars of the goods sent.
For his work agent receives a commission calculated on the basis of
gross sale. For ordinary commission, the agent is not responsible for
any bad debts, he is to be paid a commission called del-credere
commission for bearing any extra risk.
Periodically the agent sends to the principal a statement called account
sales. It sets out sales made by the agent, the expenses incurred on
behalf of the principal, the commission earned by the agent and
balance due to the principal.

It is a nominal account the profit or loss arise from the consignment

account will shown on the profit and loss account.

Difference between revenues and earnings:

Revenues is the gross amount earned from selling goods or

providing services during the period shown in the heading of the
income statement.

In other words, revenue is the amount earned before deducting the

cost of goods sold, expenses, and losses.

Earnings is the net amount earned after deducting the cost of

goods sold, expenses and losses. It is often presented as net earnings
or net income.
What is materiality?
In accounting, the concept of materiality allows you to violate
another accounting principle (Matching principle)if the amount is
so small that the reader of the financial statements will not be
misled. Explanation:
Can we record the calculator is an asset? If we speak strictly The
answer is yes because the benefit comes from the calculator is over
more than one year, and the
calculator is very strong its value is 1000/- and it can be
depreciable even though we will record it is an expense
in the financial statements.

The reason is simple, the size of the balance sheet is 25000/-

crores of rupees, whether the calculator shown as an
asset/expense does not make any difference in the decisions
of an auditor and will not affect the decisions of shareholders
who invests the money in the company.
So calculator is shown as an expense in the financial statement is the
best practice.

Conservatism Principle:
All expected losses and liabilities should be record in the books of accounts.

All expected incomes and gains should not be recorded in the books of accounts.

Examples:

Provision for Bad and Doubtful debts

Providing for Depreciation

Stock valued at Cost price or Net realizable value whichever is lower as per AS2

Difference between prepaid expenses and

deferred revenue expenditure
Prepaid expense: Prepaid expenses is money you've paid in advance before the
utilization of service or product.

Account type: Personal Account

Nature/Head Current Asset

Deferred revenue expenditure: Deferred expenditure refers to expenses

incurred which do not apply to the current accounting period. Instead, they are
debited to a 'Deferred expenditure' account in the non-current assets area of your
chart of accounts. When they become current, then they can be transferred to the
profit and loss account as normal

Account type: Real account

Nature/Head: Miscellaneous expenditure

Difference: A thin line of difference exists between deferred revenue expenses and
prepaid expenses. The benefits available from prepaid expenses can be precisely
estimated but that is not so in case of deferred revenue expenses. For example,
heavy advertising to launch a new product is a deferred expenditure since the
benefit from it will be available over the next three to five years but one cannot say
precisely how long the benefit would be available and the exact amount of benefit.

Accrual Concept:
We have to recognize revenues when they are earned we should not
wait for realisation of cash

We have to recognize expenses when they are incurred we should not wait for
payment of cash

Examples:
 An airline sells its tickets days or even weeks before the
flight is made, but it does not record the payments as revenue
because the flight, the event on which the revenue is based has not
occurred yet.

An accounting firm obtained its office on rent and paid

$120,000 on January 1. It does not record the payment as an
expense because the building is not yet used.
While preparing its quarterly report on March 31, the
firm expensed out three months' rent i.e. 30,00 [$120,000/12*3]
because 3 months equivalent of time has expired.

Difference between Provision, Reserve and contingent

liability
A Provision is the amount of an expense or reduction in the value of an
asset that an entity elects to recognize now in its accounting system,
before it has precise information about the exact amount of the
expense or asset reduction. For example, an entity routinely records
provisions for bad debts, sales allowances, and inventory obsolescence.
Less common provisions are for severance payments, asset
impairments, and reorganization costs.
A Reserve is an appropriation of profits for a specific purpose. The
most common reserve is a capital reserve, where funds are set aside to
purchase fixed assets. By setting aside a reserve, the board of directors
is segregating funds from the general operating usage of a company.

In short, a reserve is an appropriation of profit for a specific purpose,

while a provision is a charge for an estimated expense.

Contingent liability is a possible obligation that may or may not

crystallize depending on the occurrence or non-occurrence of one or
more uncertain future events.

Example:

The central excise officer imposes a penalty on Alpha Ltd. for violation
of a provision in the Central Excise Act. The company goes on an
appeal. if the management of the company estimates that it is
probable that the company will have to pay the penalty, it recognizes a
provision for the liability. On the other hand, if the management
anticipates that the judgment of the appellate authority will be in its
favour and it is less likely that the company will have to pay the
penalty, it will disclose the obligation as a contingent liability instead of
recognizing a provision for the same.

1. Deferred income (also known as deferred revenue, un earned revenue or un

earned income) is, money received for goods or services which have not yet
been delivered. According to the revenue recognition principle, it is recorded as
a liability until delivery is made, at which time is converted into revenue.

2. An example of the accrual of revenues is the interest earned in December on an

investment in a government bond, but the interest will not be received until
January. A deferral of an expense refers to a payment that was made in one
period, but will be reported as an expense in a later period.

3. An accrual occurs before payment or receipt. A deferral occurs after a payment

or receipt.

4. Accrued income and accrued receivables: it is important to note the difference

between accrued income and accrued receivables. Accrued income has not been
billed. It is receivable by definition, so it is listed as a receivable on the balance
sheet, but the customer has not received the invoice. Once cash is received, the
entry is reversed with a credit and cash is debited for the amount of incoming
cash.

5. Prepaid income: prepaid income is revenue received in advance but which is not
yet earned.

6. Capital markets are markets for buying and selling equity and debt instruments.
Capital markets channel savings and investment between suppliers
of capital such as retail investors and institutional investors, and users of capital
like businesses, government and individuals. Capital markets are vital to the
functioning of an economy, since capital is a critical component for generating
economic output. Capital markets include primary markets, where new stock
and bond issues are sold to investors, and secondary markets, which trade
existing securities.

What is a 'Retail Investor'

A retail investor is an individual investors who buy and sell securities for their personal account, and
not for another company or organization.

Also known as an "individual investor" or "small investor".

What is an 'Institutional Investor'
An institutional investor is a nonbank person or organization that trades securities in large enough
share quantities or dollar amounts that it qualifies for preferential treatment and
lower commissions. Institutional investors face fewer protective regulations because it is assumed
they are more knowledgeable and better able to protect themselves. Examples of institutional
investors include pension funds and life insurance companies.

underwriting: Person or firm that buys a new issue of bonds or an initial public offering (usually as
a syndicate with other underwriters) for reselling it to the public at a profit.

What is an 'Investment Bank - IB'

An investment bank (IB) is a financial intermediary that performs a variety of services. Investment
banks specialize in large and complex financial transactions such as underwriting, acting as an
intermediary between a securities issuer and the investing public, facilitating mergers and other
corporate reorganizations, and acting as a broker and/or financial adviser for institutional clients.
Major investment banks include Barclays, BofA Merrill Lynch, Warburgs, Goldman Sachs, Deutsche
Bank, JP Morgan, Morgan Stanley, Salomon Brothers, UBS, Credit Suisse, Citibank and Lazard. Some
investment banks specialize in particular industry sectors. Many investment banks also have retail
operations that serve small, individual customers.

The derivative itself is a contract between two or more parties based upon the asset or assets. Its
value is determined by fluctuations in the underlying asset.

A mutual fund is an investment vehicle made up of a pool of funds collected from many investors for
the purpose of investing in securities such as stocks, bonds, money market instruments and similar
assets. Mutual funds are operated by money managers, who invest the fund's capital and attempt to
produce capital gains and income for the fund's investors. A mutual fund's portfolio is structured and
maintained to match the investment objectives stated in its prospectus.

When does a negative cash balance appear on the balance

sheet?
A negative cash balance appears on the balance sheet when the cash account in the general
ledger has a credit balance. The credit or negative balance in the general ledger cash account is
usually caused by a company or organization writing checks for more than the amount in the general
ledger cash account.
 1. Accrued income is reported as a current asset such as accrued receivables, accrued
revenues or part of accounts receivable. The amount of accrued income will also
increase the corporation’s retained earnings.
2. Capgemini Hyderabad provide training to the Capgemini Bengaluru what is the entry for
cross charges:
Accounts receivables(customer) Dr
To Income/Revenue (service revenue)
Expense a/c Dr
To Payables (vendor)

Treatment of closing stock in Trial Balance.

1) All those accounts which appear in Ledger are taken in the Trial Balance. So if closing stock
account is to be shown in trial balance, we must have closing stock account in ledger. Closing
stock account will come in ledger only if we pass the following journal entry for recording
closing stock.

a. Closing stock, A/c Dr.

To Purchase A/c

b. If Closing stock account appears on the debit side of Trial Balance, (it can never
appear on credit side, stock being a debit balance), then you must remember while
preparing Trading A/c and Balance Sheet that It will be shown only in the Balance
sheet. It will neither be shown on the credit side of Trading A/c nor it will be shown
as a deduction from Purchase A/c in Trading A/c because it will amount to double
recording of closing stock.

1 billion = 1000 million 1 billion = 100 crores 1 billion = 10000 lakhs 1 billion = 1000000
thousands 1 billion = 10000000 hundreds.

Contra entry: Debit and credit aspects of a single transaction are entered in the same
account, but in different columns.

A contra entry is also used in the Intercompany netting to offset receivable and payable
between 2 different entities/subsidiaries of a company so that one final amount remains
between them.

Provision for Doubtful Debts

Doubtful debts, as the name suggests, are those receivables which might become bad debts at some
point in future. In other words, they are doubtful in recovery. By analysing the past trend, a business
can ascertain the approximate percentage that becomes bad every year out of the total credit
allowed to buyers. This amount, thus estimated, is kept aside from the profits. This provision, made
out of profits, is called Provision for Doubtful Debts.
Journal Entry to Create Provision for Doubtful Debts

Profit & Loss A/C Debit

To Provision for Doubtful Debts Credit

It is charged against current year’s profits.

Provision for doubtful debts is a liability for a business and is shown on the liability side of a
balance sheet. Every year the amount gets changed due to provision made in the current
year. Bad debts for the current year are to be set off and additional amount of provision is
to be added.

Recognition Entry

The first step in the allowance method is to pass an adjusting entry at the end of an accounting period to recognize
estimated bad debts expense. Unlike direct write-off method, we do not credit accounts receivable at this stage because it
is actually a control account of many individual debtor accounts and we do not yet not know which particular debtor will
make a default. We only know the estimated amount of receivables which are likely to end up uncollected. Therefore a
provision account called allowance for doubtful accounts is credited in the adjusting entry. Thus:
Bad Debts Expense 600

Allowance for Doubtful Accounts 600

The bad debts expense account, just like any other expense account, is closed to income summary account of the period.
The allowance for doubtful debts is contra-asset account. It is presented on balance sheet by subtracting it from accounts
receivable as shown below:
Accounts Receivable $15,000

Less: Allowance for Doubtful Accounts − 600

Accounts Receivable, net $14,400

Write-off Entry

In the next period, when a debt is actually determined as uncollectible, the following journal entry is passed to write it off.

Allowance for Doubtful Debts 70

Accounts Receivable 70

As more and more debts are written off, the balance in the allowance account decreases.
Recovered Bad Debts

When any bad debt is recovered, two journal entries are passed. The first one reverses the write-off entry and the second
one is a routine journal entry to record collection. Thus:
Accounts Receivable 70

Allowance for Doubtful Debts 70

Cash 70

Accounts Receivable 70

Entry for recording actual bad debt which did not record in books of business

1. Bad debts account Dr. xxxxx

To Sundry Debtors Account xxxxxx

Entry for transferring bad debts to provision for bad debts Account

2. Provision for bad debts account Dr. xxxxxx

To Bad Debts account xxxxx

Transfer of provision for bad debts account to profit and loss account

3. Profit and loss account Dr. xxxxxx

To Provision for bad debts account xxxxx

An expense is reported on the income statement. An expense is a cost that has expired

An expenditure is a payment or disbursement. The expenditure may be for the purchase of an asset,

How can a company have a profit but not have cash?

A company can have a profit but not have cash because profit is computed
using revenues and expenses, which are different from the company's cash receipts and
cash disbursements. In other words, there is a difference between revenues and receipts.
There is also a difference between expenses and expenditures.

To illustrate, let's assume that a new company uses the accrual method of accounting. It
provides $10,000 of services to its clients in its first month and the clients are allowed to pay
in 30 days. The company will have $10,000 of revenues in its first month, but the cash will
not be received until the second month. If the company's expenses are $7,000 in the first
month, the company will report a profit of $3,000 but will not have received any cash from
its clients.

Another company might have a profit of $60,000 in its first year, but during its first year it
uses $65,000 of cash to acquire equipment that will be put into service at the beginning of
the second year. This company will have a profit, but will not have the cash.

Other examples where cash is paid out, but the profits are not reduced at the time of the
payment, include prepayments of insurance, payments to increase the inventory of
merchandise on hand, and payments to reduce liabilities.

Revenue Expenditure
During normal course of business any expenditure incurred benefit of which is received
during the same accounting period is called revenue expenditure. These expenses help a
business sustain its operations and may not result in an increase of revenue.

Examples of such expenses are wages, rent, power, bad debts, depreciation, telephone,
printing, cost of goods (to be sold), freight, maintenance of fixed assets, etc.

Conventions of accounting:

a. Conservatism
b. Full disclosure
c. Consistency
d. Materiality