Name: Kinza Afzal

Student ID: 0000136021

Class: BBA

Semester: 1st Semester

Assignment: Principles of Accounting

Assignment No & Code. 1st & 8401

Submitted To: Easha Sahil

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Q. 1) (a) Discuss the main features of various financial
statements?

Answer:
The elements of financial statements are the general groupings of line items contained within
the statements. These groupings will vary, depending on the structure of the business. Thus,
the elements of the financial statements of a for-profit business vary somewhat from those
incorporated into a nonprofit business (which has no equity accounts). The main elements of
financial statements are as follows:

 Assets. These are items of economic benefit that are expected to yield benefits in future
periods. Examples are accounts receivable, inventory, and fixed assets.
 Liabilities. These are legally binding obligations payable to another entity or
individual. Examples are accounts payable, taxes payable, and wages payable.
 Equity. This is the amount invested in a business by its owners, plus any remaining
retained earnings.
 Revenue. This is an increase in assets or decrease in liabilities caused by the provision
of services or products to customers. It is a quantification of the gross activity
generated by a business. Examples are product sales and service sales.
 Expenses. This is the reduction in value of an asset as it is used to generate revenue.
Examples are interest expense, compensation expense, and utilities expense.
Of these elements, assets, liabilities, and equity are included in the balance sheet. Revenues
and expenses are included in the income statement. Changes in these elements are noted in
the statement of cash flows.

(b) What are the major fields of accounting?

There are several types of accounting that range from auditing to the preparation of tax
returns. Accountants tend to specialize in one of these fields, which leads to the different
career tracks noted below:

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  Financial accounting. This field is concerned with the aggregation of financial
information into external reports. Financial accounting requires detailed knowledge of
the accounting framework used by the reader of a company's financial statements, such
as Generally Accepted Accounting Principles (GAAP) or International Financial
Reporting Standards (IFRS). Or, if a company is publicly-held, it requires a knowledge
of the standards issued by the government entity responsible for public company
reporting in a specific country (such as the Securities and Exchange Commission in
the United States). There are several career tracks involved in financial accounting.
There is a specialty in external reporting, which usually involves a detailed knowledge
of accounting standards. There is also the controller track, which requires a combined
knowledge of financial and management accounting.
 Public accounting. This field investigates the financial statements and supporting
accounting systems of client companies, to provide assurance that the financial
statements assembled by clients fairly present their financial results and financial
position. This field requires excellent knowledge of the relevant accounting
framework, as well as an inquiring personality that can delve into client systems as
needed. The career track here is to progress through various audit staff positions to
become an audit partner.
 Government accounting. This field uses a unique accounting framework to create and
manage funds, from which cash is disbursed to pay for a number of expenditures
related to the provision of services by a government entity. Government accounting
requires such a different skill set that accountants tend to specialize within this area
for their entire careers.
 Forensic accounting. This field involves the reconstruction of financial information
when a complete set of financial records is not available. This skill set can be used to
reconstruct the records of a destroyed business, to reconstruct fraudulent records, to
convert cash-basis accounting records to the accrual basis, and so forth. This career
tends to attract auditors. It is usually a consulting position, since few businesses
require the services of a full-time forensic accountant. Those in this field are more
likely to be involved in the insurance industry, legal support, or within a specialty
practice of an audit firm.

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  Management accounting. This field is concerned with the process of accumulating
accounting information for internal operational reporting. It includes such areas as cost
accounting and target costing. A career track in this area can eventually lead to the
controller position, or can diverge into a number of specialty positions, such as cost
accountant, billing clerk, payables clerk, and payroll clerk.
 Tax accounting. This field is concerned with the proper compliance with tax
regulations, tax filings, and tax planning to reduce a company's tax burden in the
future. There are multiple tax specialties, tracking toward the tax manager position.
 Internal auditing. This field is concerned with the examination of a company's systems
and transactions to spot control weaknesses, fraud, waste, and mismanagement, and
the reporting of these findings to management. The career track progresses from
various internal auditor positions to the manager of internal audit. There are specialties
available, such as the information systems auditor and the environmental auditor.

Q. 2 (a)How the study of accounting can be helpful in our

daily life?

Answer:
Accounting is one of the most essential disciplines for daily life. Not so long ago, people used
physical checkbooks to track their spending and income. While these checkbooks have mostly
been replaced with apps and digital tracking software, balancing a checkbook utilizes several of
accounting’s core elements.
The importance of accounting in our daily life shows up everywhere, from tracking our spending
to shopping for groceries to paying bills. Chances are, you've used some basic accounting
principles already today.
As strange as that may sound, the very act of checking your credit card balance or noting a pending
charge to your debit card is a form of accounting.

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Of course, accounting isn't always this passive. Most households set a weekly or monthly budget,
track spending, make investments and put money into savings. Each of these practices is a form
of accounting too.

Let's take a closer look at how different activities relate to accounting.

 Budgeting: Setting a budget is one of the first and most important steps that any accountant
does for a client or for themselves. To set a budget properly, you need to carefully analyze
your income, fixed expenses and existing liquid assets. Once you've done that, you can see
how those numbers line up with your financial goals. For instance, if you make $2000 a
month and want to save $500 per month, you need to have less than $1500 per month in
fixed expenses.
 Spending: Budgeting well means balancing spending with income and making sure to
leave money left over in case of an emergency or for savings should no unexpected
emergencies occur.
 Investments: The concept of appreciation is essential for investing money. Concepts like
the time value of money (TVM), and a decent grasp of accounting principles can set you
up to make wise investments for your future.
 Taxes: A common interaction that most people have with accounting is during tax season.
If you've kept up with tracking your expenses and income throughout the year, tax season
will be easier.
 Saving Money: Saving money is essential for building a budget that enables you to hit
your goals and supplement spending, saving and investing.
Understanding how to properly budget, save, invest and prepare for tax season is essential to
understanding how accounting functions within our society. Of course, managing personal
expenses is not all there is to accounting. Accountants work in several different fields and
disciplines, each containing principles and techniques, but you may even use some of them in your
day-to-day life.

Financial Accounting

Financial accounting focuses on recording the transactions that a business makes over time.
Financial accountants primarily provide analysis of transactions and help businesses to make wiser

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decisions with their money. In day to day life, you're likely to use a simplified version of this
discipline.

Managerial Accounting

Managerial accounting, or management accounting, involves preparing and presenting financial

information to decision makers at a company. Typically, a managerial accountant is provided with
a set of goals and is tasked with figuring out how those financial objectives can be reached.
Households use the basic principles found in this discipline to identify how they will meet certain
goals such as retirement, home ownership and starting a family.

Cost Accounting

A subset of managerial accounting, cost accounting is a practice used by managers to identify the
total cost of production for a company. This particular practice is slightly less applicable for
households, but it is essential for anyone who wants to run a small business.

Tax Accounting

The functions of tax accounting for private individuals and corporations differ greatly, but many
of the core principles remain the same. Some tax accountants have a CPA, which is a
license awarded by a state or territorial government indicating an individual has passed a test to
become a qualified accounting professional.

Forensic Accounting

Forensic accounting blends investigations and audits into a single practice. These professionals are
often highly experienced, with most possessing a master’s degree or an MBA in accounting. The
accountant is typically employed by governments or businesses. It's uncommon for households to
use forensic accounting.

Auditing Accounting

Auditing involves detailed tracking and analysis of an intuition's finances. An audit can be initiated
for several reasons. For instance, the IRS may audit a company or individual who appears to be
engaging in fraud. An internal audit may also be performed by a company in order to uncover
inefficiencies. While a full and detailed audit is unlikely to be done by the average person, careful

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tracking and analysis of your finances can help uncover problem areas in your household's
finances.

Public Accounting

Certified public accountants (CPA) are individuals or businesses that work for clients to do a
variety of accounting tasks. Public accounting involves everything from preparing taxes, audits,
tax advising and consultation services. Most people will likely work with someone who provides
these services during tax season.

Government Accounting

Government accounting is the form of accounting that the average person is least likely to utilize.
It involves a very particular set of practices, standards and systems that help governments meet the
needs of their citizens. Because the practice is directly related to government entities, there is a
high level of scrutiny associated with government accounting.

(b) What is the purpose of preparing income statement and balance sheet?

An income statement is a financial statement that shows you the company’s income and
expenditures. It also shows whether a company is making profit or loss for a given period. The
income statement, along with balance sheet and cash flow statement, helps you understand the
financial health of your business. The income statement is also known as a profit and loss
statement, statement of operation, statement of financial result or income, or earnings statement.
An income statement helps business owners decide whether they can generate profit by increasing
revenues, by decreasing costs, or both. It also shows the effectiveness of the strategies that the
business set at the beginning of a financial period. The business owners can refer to this document
to see if the strategies have paid off. Based on their analysis, they can come up with the best
solutions to yield more profit. Following are the few other things that an income statement informs.
1. Frequent reports: While other financial statements are published annually, the income
statement is generated either quarterly or monthly. Due to this, business owners and
investors can track the performance of the business closely and make informed decisions.
This also enables them to find and fix small business problems before they become large
and expensive.

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 2. Pinpointing expenses: This statement highlights the future expenses or any unexpected
expenditures which are incurred by the company, and any areas which are over or under
budget. Expenses include building rent, salaries and other overhead costs. As a small
business begins to grow, it may find its expenses soaring. These expenditures may involve
hiring workers, buying supplies and promoting the business.
3. Overall analysis of the company: This statement gives investors an overview of
the business in which they are planning to invest. Banks and other financial institutions can
also analyze this document to decide whether the business is loan-worthy.
There are two main groups of people who use this financial statement: internal and external users.
Internal users include company management and the board of directors, who use this information
to analyze the business’s standing and make decisions in order to turn a profit. They can also act
on any concerns regarding cash flow. External users comprise investors, creditors,
and competitors. Investors check whether the company is positioned to grow and be profitable in
the future, so they can decide whether to invest in the business. Creditors use the income statement
to check whether the company has enough cash flow to pay off its loans or take out a new loan.
Competitors use them to get details about the success parameters of a business and get to know
about areas where the business is spending an extra bit, for example, R&D spends.
The following information is covered in an income statement. The format for this document may
vary depending on the regulatory requirements, the diverse business needs and the associated
operating activities.

Revenue or sales: This is the first section on the income statement, and it gives you a summary
of gross sales made by the company. Revenue can be classified into two types: operating and non-
operating. Operating revenue refers to the revenue gained by a company by performing primary
activities like manufacturing a product or providing a service. Non-operating revenue is gained by
performing non-core business activities such as installation, operation, or maintenance of a system.

Cost of goods sold (COGS): This is the total cost of sales or services, also referred to as the cost
incurred to manufacture goods or services. Keep in mind that it only includes the cost of products
which you sell. COGS does not usually include indirect costs, like overhead.

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Gross profit: Gross profit is defined as net sales minus the total cost of goods sold in your
business. Net sales is the amount of money you brought in for the goods sold, while COGS is the
money you spent to produce those goods.

Gains: Gain is a result of a positive event that causes an organization’s income to increase. Gains
indicate the amount of money realized by the company from various business activities like the
sale of an operating segment. Likewise, the profits from one-time non-business activities are also
included as gains for the business. For example, company selling off old vehicles or unused lands
etc. Although gain is considered secondary type of revenue, the two terms are different. Revenue
is the money received by a company regularly while gain can be accounted for the sale of fixed
assets, which is counted as a rare activity for a company.

Expenses: Expenses are the costs that the company has to pay in order to generate revenue. Some
examples of common expenses are equipment depreciation, employee wages, and supplier
payments. There are two main categories for business expenses: operating and non-
operating expenses. Expenses generated by company’s core business activities are operating
expenses, while the ones which are not generated by core business activities are known as non-
operating expenses. Sales commission, pension contributions, payroll account for operating
expenses while examples of non-operating expenses include obsolete inventory charges or
settlement of lawsuit.

Advertising expenses: These expenses are simply the marketing costs required to expand the
client base. They include advertisements in print and online media as well as radio and video ads.
Advertising costs are generally considered part of Sales, General & Administrative (SG&A)
expenses.

Administrative expenses: It can be defined as the expenditure incurred by a business or company

as a whole rather than being the ones associated with specific departments of the same company.
Some of the examples of administrative expenses are salaries, rent, office supplies, and travel
expenses. Administrative expenses are fixed in nature and tend to exist irrespective of the level of
sales.

Depreciation: Depreciation refers to the practice of distributing the cost of a long-term asset
over its life span. It is a management accord to write off a company’s asset value but it is

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considered a non-cash transaction. Depreciation mainly shows the asset value used up by the
business over a period of time.

Earnings before tax (EBT): This is a measure of a company’s financial performance. EBT is
calculated by subtracting expenses from income, before taxes. It is one of the line items on a multi-
step income statement.

Net income: Net profit can be defined as the amount of money you earn after deducting allowable
business expenses. It is calculated by subtracting total expenses from total revenue. While net
income is a company’s earnings, gross profit can be defined as the money earned by a company
after deducting the cost of goods sold.

Q. 3) Shown below is the information needed to prepare a bank

reconciliation for Data Flow Inc. at Dec 31.
i. At Dec 31, cash per the bank statement was Rs. 15,981; cash per the company’s
records was Rs.17,445.

ii. Two debt memoranda accompanied the bank statement: service charges for
December of Rs.24, and a Rs. 600 check drawn by Jane Hones marked “NSF”.

iii. Cash receipts of Rs.4353 on December 31 were not deposited until January 4.

The following checks had been issued in December but were not included among
the paid checks returned by the bank: No.620 for Rs.978, No.630 for Rs.2052 and
No. 641 for Rs.483.

Required:

1. Prepare bank reconciliation at December 31.

Data Flow Inc.

Cash Balance according to

statement 15,981 Cash Balance according to books 17,445

Add: Add:

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 Deposit in transit 4,353 Proceeds of note collected by bank 6402

20,334

Less:- Outstanding
Checks Less:- 23,847

Ch. No. 620 978 NSF check 600

Ch. No. 630 2052 Bank Service charges 24

Ch. No. 641 483

3,513 624

Adjusted Balance 23,847 Adjusted Balance 23,847

2. Write short note on Imp rest Petty Cash system.

An imp rest system of petty cash means that the general ledger account Petty Cash will remain
dormant at a constant amount. If the amount of petty cash is $100, then the Petty Cash account
will always report a debit balance of $100. This $100 is the imp rest balance. As long as $100 is
adequate for the organization's small disbursements, then the general ledger account Petty Cash
will never be debited or credited again. When the currency and coins on hand gets low, the petty
cash custodian will request a check to replenish the coins and currency that were disbursed. Since
the requested check is drawn on the organization's checking account, the Cash account (not the
Petty Cash account) will be credited. The debits will go to the expense accounts indicated by the
petty cash receipts, such as postage expense, supplies expense. In other words, the general ledger
account Petty Cash is not involved in the replenishment. (Replenishment means getting the total
of the currency and coins back to the imp rest amount.) The petty cash custodian will cash the
check and add the amount to the other cash. Under the imp rest system, the petty cash custodian
should at all times have a combination of currency, coins, and petty cash receipts that equals $100
(the imp rest petty cash balance). Control over the petty cash occurs during the replenishment
process. The person approving the check for the petty cash custodian to cash should review the
petty cash receipts and attach them to the check request. Control can also occur when an

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independent person confirms that the petty cash custodian's cash and receipts adds up to the imp
rest amount.

Q. 4) Zafar keeps his books by single entry. His financial position

on 1st January, and 31st December 1989 is as under:
1st January, 1989 31st December, 1989

Cash in hand – 1160

Bank balance 3600 (Cr.) 14,400

Stock 19,200 20,400

Accounts Receivable 30,000 37,800

Accounts Payable 28,000 24,000

Bills Payable 1000 1400

Plant & Machinery 30,000 —

Furniture & Fixture 9,200 —

During the year Zafar had withdrawn Rs. 12,500 of this sum Rs.9500 had been spent
by him for purchasing a delivery van for the business.

Depreciate plant and machinery by 12%, furniture and fixture by 10% delivery van by
8%, and making a reserve of 3% for bad and doubtful debts. Allow interest on capital
at 5%.

Required: Ascertain the profit & loss of Zafar for the year, 1989.

Capital at End 99160

Add: Drawing for Periods 12500

111660

Less: Capital at Start (30000)

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 Less: Additional Investment (9500)

Unadjusted Profit/Loss 72160

Less: Operating Expenses

Plant & Machinery 30000

Furniture & Fixture 9200

Bills Payable 1000

Total Operating Expenses (40200)

31960

Add: Other Income 24000

Adjusted net Profit 55960

Q. 5) Calculate the value of closing stock under LIFO, FIFO and

weighted average method?

Purchases Issues

Jan 5 100 pieces @ Rs.2.20 each Jan 2 150 pieces

Jan 10 150 pieces @ Rs.2.40 each Jan 7 100 pieces

Jan 20 180 pieces @ Rs.2.50 each Jan 12 100 pieces

Jan 28 200 pieces

FIFO Method

Date Purchases Issues Balance

Qty. Rate Value Qty. Rate Value Qty. Rate Value

(Rs.) (Rs.) (Rs.)

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 2 Jan 150 2.0 300 150 2.0 300

5 Jan 100 2.20 220 100 2.20 220

7 Jan 50 2.0 100 50 2.0 100

50 2.20 110 50 2.20 110

10 Jan 150 2.40 360 150 2.40 360

12 Jan 50 2.20 110 50 2.20 110

50 2.40 120 50 2.40 120

20 Jan 180 2.50 450 180 2.50 450

28 Jan 100 2.40 240 100 2.40 240

100 2.50 250 100 2.50 250

LIFO Method

Date Purchases Issues Balance

Qty. Rate Value Qty. Rate Value Qty. Rate Value

(Rs.) (Rs.) (Rs.)

2 Jan 150 2.0 300 150 2.0 300

5 Jan 100 2.20 220 100 2.20 220

7 Jan 100 2.20 220 50 2.0 100

50 2.20 110

10 Jan 150 2.40 360 150 2.40 360

12 Jan 100 2.40 240 50 2.20 110

50 2.40 120

20 Jan 180 2.50 450 180 2.50 450

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 28 Jan 200 2.50 500 100 2.40 240

100 2.50 250

Weighted Average Method

Date Purchases Issues Balance

Qty. Rate Value Qty. Rate Value Qty. Rate Value

(Rs.) (Rs.) (Rs.)

2 Jan 150 2.0 300 150 2.0 300

5 Jan 100 2.20 220 100 2.20 220

7 Jan 100 2.20 220 100 2.20 220

10 Jan 150 2.40 360 150 2.40 360

12 Jan 100 2.40 240 100 2.40 240

20 Jan 180 2.50 450 180 2.50 450

28 Jan 200 2.50 500 200 2.50 450

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