1.

Prepare the journal by recording the following transactions

3-Dec Mrs. Vinita started business by transferring amount from her saving account to
the business bank account Rs500000
5-Dec She Purchased godown to stock goods worth Rs 100000
7-Dec She purchased goods for sale, costing her Rs 300000
8-Dec She sold off the entire goods at Rs 500000, credit sales
10-Dec She paid salary to employees Rs 20000 through bank account

Answer: Concept of Accounting

Accounting as a discipline was introduced to have a permanent and systematic record of
business transactions. This would help a business person to record all relevant business
transactions, to ascertain the profit earned during a particular period and finally evaluate the
financial position of his/her business. Bookkeeping, accounting and accountancy are the
terms used in the science of financial accounting. Accounting is termed as a language of
business which records all events and transactions that are of monetary value and facilitates
communication among individuals in a society. Accountancy refers to a systematic
knowledge of accounting. It explains the “why to do” and “how to do” of various aspects of
accounting. It tells us why and how to prepare the books of accounts and how to summarize
the accounting information and communicate it to the interested parties.

Journal entry
A journal entry is used to record a business transaction in the accounting records of a
business. A journal entry is usually recorded in the general ledger; alternatively, it may be
recorded in a subsidiary ledger that is then summarized and rolled forward into the general
ledger. The general ledger is then used to create financial statements for the business. The
logic behind a journal entry is to record every business transaction in at least two places
(known as double-entry accounting). For example, when you generate a sale for cash, this
increases both the revenue account and the cash account. Or, if you buy goods on account, it
increases both the accounts payable account and the inventory account.

Journal entries from the given transactions

 Date Particulars L.F Debit Credit
(Rs.) (Rs.)

3 Dec Bank a/c Dr. 500000

To capital a/c 500000

(Being capital introduced in business by Mrs.

Vinita)

5 Dec Godown a/c Dr. 100000

To Bank a/c 100000

(Being godown purchased and assumed its paid

in full)

7 Dec Purchases a/c Dr. 300000

To Bank a/c 300000

(Being goods for sale purchased)

8 Dec Accounts receivable a/c Dr. 500000

To sales a/c 500000

(Being goods sold on credit)

10 Salary a/c Dr. 20000

Dec
To bank a/c 20000

(Being Salary paid)

Journal entry is the important part of any accounting process and once the business
transactions are journalized, later you can post the same to appropriate accounts and conduct
the further recording and analysis.

2. Company Dream High Pvt. limited wants to distribute dividend to its shareholders.
There are two types of dividend, which a shareholder can receive in any accounting
year. Discuss the term dividend, its types, accounting treatment of dividend in the books
of accounts and a brief towards how cash flow on account of dividend is reflected in the
cash flow of a company.

Answer: Details given in the question

As given in the question, Dream High Pvt. Limited is willing to distribute dividend to its
shareholders. With regard to this, we need to share main details about it like meaning of
dividend, types of dividend and accounting treatment of dividend in the books. Let us start
the explanation.

Dividend
Dividend decision of the firm is crucial area of financial management. The important aspect
of dividend policy is to determine the amount of earnings to be distributed to shareholders
and the amount to be retained in the firm. Retained earnings are the most significant internal
sources of financing the growth of the firm. On the other hand, dividends may be considered
desirable from shareholders’ point of view as they tend to increase their current return.
Dividends, however, constitute the use of the firm’s funds.

A firm’s dividend policy has the effect of dividing its net earnings into two parts: retained
earnings and dividends. The retained earnings provide funds to finance the firm’s long-term
growth. It is the most significant source of financing a firm’s investments in practice.
Dividends are paid in cash. Thus, the distribution of earnings uses the available cash of the
firm. A firm which intends to pay dividends and also needs funds to finance its investment
opportunities will have to use external sources of financing, such as the issue of debt or
equity.

Types of dividends to be paid by companies

Interim dividend: Interim dividend is one that is declared and paid in the middle of an
accounting year, i.e. before the finalization of accounts for the year. When the company
suffers loss as per financial records of the immediately preceding quarter, the rate of interim
dividend should not be more than the average dividend declared by the company, in last three
years.
Special dividend: A special dividend is a non-recurring distribution of company assets,
usually in the form of cash, to shareholders. A special dividend is usually larger compared to
normal dividends paid out by the company and often tied to a specific event like an asset sale
or other windfall event.

Final dividend: Final dividend implies the dividend declared by the board of directors, at the
company's Annual General Meeting, after the close of financial year. If; in case there is no
profit or any profit in the fiscal year or any undistributed profits to declare as dividend, then
the dividend is declared out of reserves, as per the provisions made by the government, but
that should be out of free reserves only.

Accounting treatment of Dividend in the books of a company

Before dividends are paid, there is no impact on the balance sheet. Paying the dividends
reduces the amount of retained earnings stated in the balance sheet. Simply reserving cash for
a future dividend payment has no net impact on the financial statements. If a dividend is in
the form of more company stock, it may result in the shifting of funds within equity accounts
in the balance sheet, but it will not change the overall equity balance.

Interim dividend like final dividend is an appropriation of profits has to be shown on the debit
side of the Profit & Loss Appropriation Account. Like interim dividend it is shown in the
Profit & Loss Account debit side as an appropriation of profit. When a final dividend is
declared than interim dividend is not adjusted unless the resolution mentions it specifically.
Generally; it is seen that the company at first declares the dividend then records the same in
the books. And after that, pays it to the shareholders of the company. In this case, the
shareholder who is holding shares on the record date will receive the dividend, whether he is
a shareholder or not on the date of payment. However, in case of a special dividend, anyone
who is holding shares on the declaration date will receive a dividend. The rules and
guidelines are much easier as compared to the regular dividend.

Cash flow in account of dividend

A cash flow statement is a statement depicting change in cash position from one period to
another. When the concept of funds is used to mean ‘cash’ the funds flow analysis would be
called cash flow analysis. Cash flow statement considers only those transactions which result
in immediate inflow and outflow of cash. Because dividends are considered a liability, rather
than an asset, they won’t influence your business’s cash flow until the dividends are issued.

Cash flow statements allow you to review all the cash flows across your business, helping
you to understand exactly what’s going on with your finances. So, are dividends in the cash
flow statement? Yes, they are. It’s listed in the “cash flow from financing activities” section.
This part of the cash flow statement shows all your business’s financing activities, including
transactions that involve equity, debt, and dividends.

Final thoughts
On the basis of above discussion, it can be said that, dividend is an important concept for any
company as well as its shareholders. If a company is declaring dividends, it means it is
performing well, having good amount of profits and out of those profits, it is distributing
dividend to its shareholders. As mentioned and explained above, there are mainly two types
of dividends like final dividend and interim dividend. Mostly, companies issue final dividend
but if profit figures allow, few companies also provide interim dividend in middle of the year.

3. Following are the particulars available for Z and X, LLP

retained earnings 668
accounts receivable 240
supplies 500
salaries payable 167
equipment 1000
unearned revenue 475
accounts payable 200
cash 1170
prepaid insurance 100
common stock 1500
a. Calculate the amount of –

● total assets

● total liabilities excluding stockholder equity

 ● total stockholders’ equity

b. Discuss the advantages of preparing the Balance Sheet.

Answer: a) Total Assets

Accounts receivable 240
Supplies 500
Equipment 1000
Cash 1170
Prepaid insurance 100
Common stock 1500
Total Assets 4510

Total liabilities excluding stockholder equity

Salaries payable 167
Unearned revenue 475
Accounts payable 200
Total Liabilities 842

Total stockholder equity

Retained earnings 668
Stockholder equity 668

b) Balance sheet is the most important final account where we can find the crucial
information about the performance of any firm. It is the financial statement, which shows the
amount and nature of business assets, liabilities, and owner's equity as of a specific point in
time. It is also known as a Statement of Financial Position or a Statement of Financial
Condition. Corporate financial statement is financial statements / annual accounts of
corporate enterprises that are prepared in conformity with the Companies Act 2013. As per
the companies Act; every company should keep at its registered office proper books of
accounts. The financial position is indicated by its assets on a given date and its liabilities on
that date. Excess of assets over liabilities represents the capital and financial soundness of the
organization. It is also described as a statement showing the sources and application of
capital.
Advantages of preparing the balance sheet
Ascertain the true position of a firm: There are various benefits of preparing a balance
sheet for any firm and the first one is ascertaining the true financial position. There are
various stakeholders which are associated with a firm and they expect to know the financial
health of it. By studying balance sheet, we get to know the exact status of financial
performance and how safe and sound the firm is.

Helpful to calculate various ratios: We can also measure a business’ performance using
different ratios related to some financial aspects like productivity, liquidity, profitability,
solvency etc. These financial ratios can assess the sustainability of a business in the long-
term. A business’ balance sheet provides all the information required to conduct these ratios.

Helpful in securing business loans: Balance sheet is a good medium to determine the
security of the business’ financial health, business owner’s credit history and the business’
track record of repaying debts on time. Potential investors may also assess a business’
balance sheet before offering funding. They will want to know where their capital will go and
when they can expect to be repaid. Because it is continuously updated, a balance sheet can
show a company’s ability to collect payments and repay debts. It also shows business lenders
that the company is responsible when it comes to managing assets and liabilities. A balance
sheet is therefore an important part of applying for a business loan.

On the basis of above discussion, it can be said that, balance sheet of any firm is one of the
most crucial and important report using which various purposes can be solved.